1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
MEDEX, INC.
(Name of Subject Company)
MEDEX, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
584105100
(CUSIP Number of Class of Securities)
ROBERT E. BOYD, JR., ESQ.
SECRETARY AND GENERAL COUNSEL
MEDEX, INC.
3637 LACON ROAD
HILLIARD, OHIO 43026
(614) 529-3899
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
WITH A COPY TO:
JAMES L. SMITH, III, ESQ.
TROUTMAN SANDERS LLP
600 PEACHTREE STREET, N.E.
SUITE 5200, NATIONSBANK BUILDING
ATLANTA, GEORGIA 30308-2216
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
November 15, 1996
To Our Shareholders:
I am pleased to inform you that on November 12, 1996, Medex, Inc. (the
"Company") entered into an Agreement and Plan of Merger (the "Merger Agreement")
providing for the acquisition of the Company by Furon Company ("Furon").
Pursuant to the Merger Agreement, FCY, Inc., a subsidiary of Furon (the
"Purchaser"), has today commenced a tender offer (the "Offer") to purchase all
of the outstanding shares of the Company's Common Stock at a cash price of
$23.50 per share. Following consummation of the Offer, the Company and the
Purchaser will merge (the "Merger"), and the Company will continue as the
surviving corporation and a wholly-owned subsidiary of Furon. The Merger
Agreement provides that each share of the Company's Common Stock not acquired in
the Offer will be converted into the right to receive $23.50 in cash in the
Merger.
Your Board of Directors has approved the Offer and the Merger, has
determined that the Offer and the Merger, taken together, are fair to the
shareholders of the Company, and unanimously recommends that all shareholders
accept the Offer and tender their shares pursuant to the Offer.
Enclosed is a copy of the Company's Solicitation/Recommendation Statement
on Schedule 14D-9 filed with the Securities and Exchange Commission, which
includes detailed information regarding the factors considered by your Board in
its deliberations, and certain other information regarding the Offer and the
Merger. Included as Annex I to the Schedule 14D-9 is a copy of the written
opinion dated November 12, 1996 of Smith Barney Inc., the Company's financial
advisor, to the effect that, as of such date and based upon and subject to
certain matters stated therein, the cash consideration to be received by holders
of the Company's Common Stock (other than Furon and its affiliates) in the Offer
and the Merger was fair to such holders from a financial point of view. The
Purchaser's Offer to Purchase and related materials, including a Letter of
Transmittal to be used for tendering shares, are also enclosed with this letter.
These documents set forth in detail the terms and conditions of the Offer and
the Merger and provide instructions on how to tender shares. I urge you to read
the enclosed materials carefully.
You will separately receive from the Company a Proxy Statement for a
Special Meeting of Shareholders to be held on December 13, 1996. The sole
purpose of the Special Meeting is for the shareholders to consider and vote upon
a proposal to authorize the acquisition by the Purchaser of a majority or more
of the Company's outstanding shares of Common Stock, in accordance with Section
1701.831 of the Ohio Revised Code.
I, along with each member of the Board of Directors, sincerely thank all
our shareholders for your support.
On behalf of the Board of Directors,
C. Craig Waldbillig
Chairman of the Board
3
ITEM 1. SECURITY AND SUBJECT COMPANY.
The subject company is Medex, Inc., an Ohio corporation (the "Company"),
and the address of the principal executive offices of the Company is 3637 Lacon
Road, Hilliard, Ohio 43026. The title of the class of equity securities to which
this Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9" or the "Statement") relates is the Common Stock, $.01 par value, together
with any stock purchase rights related thereto (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by FCY, Inc., an Ohio
corporation (the "Purchaser") and a wholly-owned subsidiary of Furon Company, a
California corporation ("Furon"), disclosed in a Tender Offer Statement on
Schedule 14D-1, dated November 15, 1996 (the "Schedule 14D-1"), to purchase all
outstanding Shares at $23.50 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Purchaser's Offer to
Purchase dated November 15, 1996 (the "Offer to Purchase") and in the related
Letter of Transmittal (which, together with any amendments or supplements hereto
or thereto, collectively, constitute the "Offer"). The Offer is being made by
the Purchaser pursuant to an Agreement and Plan of Merger, dated as of November
12, 1996 (the "Merger Agreement"), among the Company, Furon and the Purchaser
pursuant to which, as soon as practicable after completion of the Offer and
satisfaction or waiver, if permissible, of all conditions to the Merger (as
defined below) but no earlier than January 2, 1997, the Purchaser will be merged
with and into the Company (the "Merger"), and the Company will become a
wholly-owned subsidiary of Furon (the "Surviving Corporation"). At the effective
time of the Merger (the "Effective Time"), each Share then outstanding (other
than Shares held by Furon, the Purchaser or any other wholly-owned subsidiary of
Furon and Shares held by shareholders who perfect their dissenters' rights under
Ohio law) will be converted into the right to receive $23.50 in cash or any
higher price per Share paid in the Offer. A copy of the Merger Agreement has
been filed with the Securities and Exchange Commission (the "Commission") as
Exhibit 1 to this Schedule 14D-9 and is incorporated herein by reference.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
The Schedule 14D-1 states that the principal executive offices of Furon and
the Purchaser are located at 29982 Ivy Glenn Drive, Laguna Niguel, California
92677.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning the Purchaser, Furon or
their affiliates, or actions or events with respect to any of them, was provided
by the Purchaser or Furon, respectively, and the Company takes no responsibility
for such information.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and (i) its executive officers, directors or affiliates and (ii) Furon, its
executive officers, directors or affiliates, is described in the attached Annex
II or set forth below.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase,
which has been filed with the Commission as an Exhibit to the Schedule 14D-1, is
incorporated herein by reference. Such summary should be read in its entirety
for a more complete description of the terms and provisions of the Merger
Agreement. The following summarizes certain portions of the Merger Agreement,
which relate to arrangements among the Company, Furon and the Company's
executive officers and directors. The summary of the Merger Agreement contained
in the Offer to Purchase and the following summary are qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Exhibit 1 and is incorporated herein by reference.
Board Representation. In the Merger Agreement, the Company agreed that,
subject to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14f-1 promulgated
4
thereunder, upon the acceptance for payment of, and payment for, any shares by
the Purchaser pursuant to the Offer which, when taken together with the shares
which the purchaser beneficially owns (as such term is defined under the
Exchange Act) represent at least sixty percent of the then outstanding shares,
the Purchaser shall be entitled to require and receive resignations of up to but
not exceeding five directors on the Board of Directors of the Company and to
designate new directors to fill the resulting vacancies. Any number of directors
requested to resign by the Purchaser shall resign in reverse order of seniority
on the Board of Directors.
Stock Options. As soon as practicable, the Company and Furon will take
such actions as are required to provide that at the earlier of the purchase of
Shares pursuant to the Offer and the Effective Time, each holder of a then
outstanding Stock Option whether or not exercisable or subject to Shareholder
approval will receive, upon surrender of such stock option to the Company, from
the Company the difference between the Offer Price and the exercise price of
such Stock Option, net of any applicable tax withholding.
Officers' and Directors' Insurance; Indemnification. Furon will cause the
Surviving Corporation to (i) purchase and maintain a directors' and officers'
insurance and indemnification policy substantially equivalent to the Company's
current policy for all of the Company's current officers and directors for six
years after the Effective Time or for such lesser period as can be purchased for
a premium not exceeding 200% of the last annual premium paid by the Company for
such insurance, (ii) assume the indemnification agreements currently in effect
between the Company and each of its directors and certain executive officers;
and (iii) maintain in effect the current provisions of the Articles relating to
the rights to indemnification for acts and omissions occurring prior to the
Effective Time. Furon will indemnify each officer and director of the Company
who surrenders Stock Options for cancellation pursuant to the Merger Agreement
against any cost of defense arising from claims made against such officer or
director under Section 16(b) of the Exchange Act alleging liability to the
Company thereunder as a result of the transactions contemplated by the Merger
Agreement. Furon will not, and will cause the Surviving Corporation not to,
bring any action alleging liability to the Company under Section 16(b) of the
Exchange Act as a result of the transactions contemplated by the Merger
Agreement against any of the Company's officers and directors who surrender
Stock Options for cancellation pursuant to the Merger Agreement.
Directors' Pensions. Upon Furon's acceptance for payment of Shares
pursuant to the Offer, the Company will pay to each of its non-employee
directors, in full satisfaction of such director's rights under the Company's
Non-Employee Directors Retirement Plan, an amount equal to the retirement
benefit earned by such director under such Plan. The non-employee directors as a
group (six persons) would receive approximately $126,500 under such plan.
Employment Agreements. Furon shall cause the Surviving Corporation to
assume and continue to be bound by (a) the employment agreements, as amended,
between the Company and each of Bradley P. Gould, President and Chief Executive
Officer, and Michael J. Barilla, Senior Vice President and Chief Financial
Officer, and (b) the executive employment agreements approved by the Board of
Directors of the Company on November 12, 1996, and to be effective upon purchase
of Shares by Purchaser pursuant to the Offer, between the Company and each of
Georg W. Landsberg, Terry L. Sanborn, Kevin L. Barnett, Alan M. Fermier, Clint
R. Lawson, David G. Musgrove, Nigel S. Perry, Alan Upton and Julie A. Reichert.
Employee Benefits. Furon and the Company agree that (i) the Company's
employees immediately prior to the Effective Time will be employed by the
Surviving Corporation after the Effective Time, except that with respect to
employees with employment agreements, Furon will not be obligated to continue
employing such employees for any length of time; (ii) the Company's employees
will be entitled to the same benefits currently provided to them under the
Company's existing benefit plans including its existing severance practices for
a period of six months from the date of any purchase pursuant to the Offer; and
(iii) thereafter, the Company's employees will be eligible to participate in
Furon's retirement plans on terms similar to the benefits provided to Furon's
similarly situated employees, with credit granted for purposes of eligibility
and vesting for prior service with the Company.
2
5
COMPANY OPTION AGREEMENT
The Company Option Agreement, a summary of which is included in the
Schedule 14D-1 and is incorporated herein by reference, is filed hereto as
Exhibit 2.
DIRECTOR AND OFFICER AGREEMENTS
Purchaser and Furon have entered into agreements (the "Director and Officer
Agreements") with each of the directors and officers of the Company with respect
to an aggregate of 526,104 Shares owned by them, together with Stock Options to
purchase an aggregate of 971,501 shares of the Company's Common Stock. The
following is a summary of the material terms contained in each of the Director
and Officer Agreements, a form of which is filed as Exhibit 3 to this Schedule
14D-9. This summary is qualified in its entirety by reference to such form of
the Director and Officer Agreement.
Tender of Shares. Pursuant to the Director and Officer Agreements, each
director and officer is required to tender and not withdraw all Shares owned by
him or her or to cause such Shares to be sold to the Company promptly after the
consummation of the Offer (but not before January 2, 1997). The Company has been
advised and expect that the directors and officers will sell their Shares to the
Company after the consummation of the Offer and therefore will not tender their
Shares in the Offer. Each director and officer also has agreed to tender all of
his or her Stock Options to the Purchaser or the Company as provided in the
Merger Agreement. The Director and Officer Agreement with Mr. C. Craig
Waldbillig, the Chairman of the Board of the Company, provides that any Option
Shares acquired by Mr. Waldbillig within two years prior to November 12, 1996
will be tendered by him to the Purchaser (or the Company if such tender would
not otherwise violate the Articles) at the Effective Time.
Because officers and directors are permitted to sell their shares (and
surrender their stock options) to the Company, rather than selling to the
Purchaser in the Offer, (i) the sale of shares and surrender of options to the
Company are believed to be exempt from the short-swing profit recovery
provisions of Section 16(b) of the Exchange Act, and (ii) officers and directors
will be able to defer their sales until 1997, if they elect to do so (for tax or
other reasons), without having to hold their shares until such time (if ever)
that the Merger is consummated. If the directors and officers sell all their
shares and surrender all their options to the Company (except for options to
purchase 15,000 shares granted to Craig Wallbillig which cannot be tendered back
to the Company), the Company would pay to the officers and directors $12,363,444
for 526,104 shares of Common Stock and $13,027,600 for options to purchase
956,501 shares of Common Stock.
Restrictions on Transfer; No Solicitation. The Director and Officer
Agreements also prohibit, among other things, and subject to certain exceptions,
certain transfers of the Shares and Stocks Options owned by the director or
officer and the solicitation of an acquisition proposal from a third party.
Option. Each director or officer has granted to Purchaser an exclusive and
irrevocable option to purchase all, but not less than all, of such director's or
officer's Shares at an exercise price equal to the Offer Price. The Option may
be exercised from and after the occurrence of a Purchase Event.
Additional Payment Under Certain Circumstances. If the Purchaser disposes
of any of the Shares acquired upon exercise of the Option (other than in the
Merger or the Offer), then the Purchaser must pay to the director or officer the
amount, if any, by which the aggregate net proceeds received by the Purchaser
exceeds the aggregate price paid by the Purchaser to the director or officer. If
the Purchaser has not sold or disposed of all such Shares by November 11, 1997,
then the fair market value of the remaining shares will be determined and the
Purchaser will pay the amount, if any, by which such fair value exceeds
Purchaser's purchase price.
Termination. The Director and Officer Agreements will terminate upon the
earliest to occur of (i) the purchase by the Purchaser or the Company of the
owned shares and the option shares pursuant to the Directors and Officers
Agreement and the Merger Agreement, (ii) 12 months after the first occurrence of
a Purchase Event and (iii) termination of the Merger Agreement under certain
cercumstances).
3
6
AMENDMENT TO THE RIGHTS AGREEMENT
In connection with and prior to the Company's entering into the Merger
Agreement, on November 12, 1996, the Company amended its Rights Agreement to
ensure that neither Furon nor any of its Affiliates or Associates, as defined
under Rule 12b-2 of the Exchange Act, shall be deemed to be the "Beneficial
Owner" of, or to "beneficially own," any securities which such person may,
directly or indirectly, acquire or have the right to vote or dispose of, or may
be deemed to have the right to acquire, to vote or dispose of, as a result of
any of the transactions contemplated by the Merger Agreement, including without
limitation securities acquired from officers and directors of the Corporation as
contemplated by the Merger Agreement and securities acquired pursuant to the
Company Option Agreement. If the Rights Agreement had not been so amended and if
the Offer, the Merger Agreement or any of the respective transactions
contemplated thereby had resulted in Furon being deemed the Beneficial Owner of
15% or more of the shares of Common Stock outstanding, Furon would have been
deemed an Acquiring Person (as defined in the Rights Agreement) which may have
resulted in a distribution to the Company's Shareholders (other than Furon) of
rights certificates separate from the Common Stock.
The foregoing summary is qualified in its entirety by reference to the
Rights Agreement and the amendment to the Rights Agreement, copies of which are
respectively filed as Exhibits 4 and 5 and are incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
On September 17, 1996, Furon and the Company entered into a letter
agreement, as amended (the "Confidentiality Agreement"), pursuant to which Furon
agreed, among other things, to (a) keep confidential certain information
concerning the Company to be provided to Furon in connection with its evaluation
of a possible transaction involving the Company and (b) customary "standstill"
provisions limiting Furon's freedom of action with respect to proposals to
acquire shares of Common Stock of the Company and certain other actions that
would affect control of the Company. The foregoing summary is qualified in its
entirety by reference to the Confidentiality Agreement and the Amendment to the
Confidentiality Agreement, copies of which are respectively filed as Exhibits 6
and 7 hereto and are incorporated herein by reference.
POTENTIAL OR ACTUAL CONFLICTS OF INTEREST
Stock Option Plans. The Merger Agreement provides that, immediately after
the purchase of shares pursuant to the Offer, but not required sooner than
January 2, 1997, each holder of Company Options whether or not then exercisable
or subject to shareholder approval shall, upon surrender thereof to the Company,
receive from the Company the difference between the Merger Consideration and the
exercise price for each share of Company Common Stock covered by each Company
Option. The holders of the Company Options shall be entitled to enforce such
agreements against the Surviving Corporation and Furon. As of November 12, 1996,
employees (or former employees) and non-employee directors of the Company held
Company Options to purchase an aggregate of 1,157,091 shares of Company Common
Stock at a weighted average exercise price of $12.45 per share (based on
exercise prices ranging from $5.63 to $33.00 per share). During August and
September 1996, the Board of Directors granted additional options to purchase a
total of 145,520 shares under the Employee Plans as defined below. In August
1996, the Board of Directors of the Company adopted the Medex, Inc. Non-Employee
Director Plan IV (the "Director Plan"), pursuant to which options to purchase
120,000 shares of Common Stock of the Company were granted to eight non-employee
directors. The Board of Directors also adopted amendments to the Medex, Inc. Key
Employee Nonstatutory Stock Option Plan, the Medex, Inc. 1994 Executive Stock
Option Plan, and the Medex, Inc. Employees Stock Purchase Plan (collectively,
the "Employee Plans"). The Director Plan and two of the Employee Plans provide
that all options will become fully exercisable upon a change of control, which
occurred when the Company entered into the Merger Agreement. The Board of
Directors directed that approval of the Director Plan and the Employee Plans be
submitted to the shareholders at the 1996 Annual Meeting of Shareholders (the
"Shareholders Meeting") to be held November 13, 1996 for their approval. On
November 13, 1996, after the announcement of the Merger Agreement, the
Shareholders Meeting was adjourned and no action was taken
4
7
on the Director Plan or the Employee Plans. The options granted in August under
the Director Plan and the Employee Plans remain outstanding.
The foregoing summary is qualified in its entirety by the Company's stock
option plans, copies of which are filed as Exhibits 8 though 15 hereto and are
incorporated herein by reference.
Employment Agreements. The Company has entered into employment agreements
(the "Employment Agreements") with, among others, its executive officers
(including the executive officers named in the summary compensation table which
appears in Annex II hereto). Each Employment Agreement becomes operative only
upon a Change in Control, as defined in each agreement, that occurs when the
officer is in the employ of the Company. If a Change in Control occurs and the
employee's employment with the Company is involuntarily terminated within one
year thereafter, the employee becomes entitled to the severance benefits
described below. Likewise, the employee shall be entitled to the severance
benefits if he/she in good faith believes that his/her status or
responsibilities with the Company have been diminished subsequent to a Change in
Control and for that reason shall resign within one year after such Change in
Control. Upon such termination the employee shall be entitled to receive (i)
cash equal to two times his/her annual salary paid in equal installments over a
24 month period, (ii) cash in the amount equal to two times his/her previous
year's incentive compensation benefit, (iii) 24 months of continued coverage
under the Company's hospital, medical, accident, disability and life insurance
plans, or the cash equivalent thereof, and (iv) a paid-up annuity equal to what
the officer would have received under the Company's defined contribution profit
sharing plan. The employee is not required to mitigate the amount of any
payments by seeking other employment. The Company must pay all legal fees, up to
$500,000, incurred by the employee as a result of such employee's seeking to
enforce the agreement. The Employment Agreement also obligates the Company upon
a Change in Control to purchase a $500,000 letter of credit to secure its
obligations. For each officer other than Messrs. Gould and Barilla the
Employment Agreements define "Change in Control" to exclude any transaction
approved by the vote of two-thirds of the directors of the Company. In
connection with the Merger Agreement, the Employment Agreements for Messrs.
Gould and Barilla were amended to delete the letter of credit requirement.
The Company has entered into an additional employment agreement with Mr.
Gould which provides for severance payments, upon involuntary termination other
than for cause, equivalent to one year of salary and bonus.
A Change of Control of the Company as defined in these agreements would not
occur upon completion of the offering except in the case of Messrs. Gould and
Barilla. In the event that the agreements with Messrs. Gould and Barilla are
triggered, Messrs. Gould and Barilla would receive approximately $1,250,000.
The foregoing summary is qualified in its entirety by the Employment
Agreements, copies of which are filed as Exhibits 16 through 18 hereto and are
incorporated herein by reference.
New Employment Agreements.
On November 12, 1996, the Board of Directors of the Company authorized and
approved new executive employment agreements ("New Agreements") with eight
executive officers which provide that in the event the executive is
involuntarily terminated other than for cause as described in the agreement by
the Company within one year from the date of the New Agreement, other than after
a Change in Control as defined in the Employment Agreements (described above),
the executive shall be entitled to the greater of (i) one year of salary and
bonus; or (ii) the amount which they would be entitled to under the Company's
current severance practices. The Board of Directors also authorized the New
Agreement with Georg W. Landsberg which is similar, except that Mr. Landsberg
would be entitled to two years of salary and bonus. The foregoing summary is
qualified in its entirety by the New Agreements, copies of which are filed as
Exhibits 19 and 20 hereto and are incorporated herein by reference.
Limited Director Liability and Indemnification of Officers and
Directors. The Company's Articles of Incorporation (the "Articles") provide
that the Company will, to the fullest extent and under the circumstances
permitted by Ohio law, as amended from time to time, indemnify any person
serving or who has served as a director, trustee or officer of the Company or at
the Company's request as a director, trustee or officer of
5
8
another corporation, partnership, joint venture, trust or other enterprise, and
his heirs, executors and administrators shall be and employees or agents may be
indemnified by the Company against liabilities. The right of indemnification
provided in the Articles is not exclusive of, nor does it affect, any other
rights to which any such person may be entitled. Nothing contained in the
applicable provision of the Articles affects any other rights to indemnification
to which any such person may be entitled by contract or otherwise under law.
The foregoing description is qualified in its entirety by reference to the
Company's Articles, a copy of which is filed as Exhibit 26 hereto and is
incorporated herein by reference.
In addition, pursuant to Ohio law, a director shall be liable in damages
for any action he takes or fails to take as a director only if it is proved by
clear and convincing evidence in a court of competent jurisdiction that his
action or failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the Company or undertaken with reckless disregard for
the best interests of the Company.
Indemnification Agreements. The Company is party to an indemnity agreement
(the "Indemnity Agreement") with each of the Directors and with Bradley P.
Gould, as Chief Executive Officer, which provides that the indemnitee will be
entitled to receive indemnification, including advancement of expenses, to the
full extent permitted by law for all expenses, judgments, fines, penalties and
settlement payments incurred by the indemnitee in actions brought against the
indemnitee in connection with any act taken in the indemnitee's capacity as a
director or executive officer of the Company. In the event of a change of
control, the Indemnity Agreement provides for the appointment of independent
legal counsel to determine whether a director or executive officer is entitled
to indemnity. It also requires the Company to maintain its current level of
directors' and officers' liability insurance for so long as the indemnitee may
be subject to any possible, threatened or pending action, unless the cost of
such insurance is more than 150% of the annualized rate of premiums paid by the
Company in fiscal 1996. Additionally, pursuant to the Indemnity Agreement, the
Company retains subrogation rights to recover any payments paid by a third party
to the indemnitee. The Indemnity Agreement is binding on the Company and any
successors thereto and the Merger Agreement requires that it be continued in
effect after the Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. The Board of Directors of the Company at a special
meeting held on November 12, 1996, by unanimous vote of the directors present,
approved the Merger Agreement, the Offer and the Merger, determining that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
Company's shareholders, and recommended acceptance of the Offer and approval and
adoption of the control share acquisition by the Purchaser and also the Merger
Agreement by the Company's shareholders (if such approval is required by
applicable law).
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
A form of letter to shareholders communicating the Board's recommendation
is filed as Exhibit 24 hereto and is incorporated herein by reference.
(b) Background. During the fiscal year ended June 30, 1995, the Company
experienced decreases in sales and net income, relating primarily to its
domestic operations, and a decrease in the trading price of its Common Stock. At
the same time, there has been a trend toward consolidation in the healthcare
industry in general and in the medical device manufacturing business in
particular. During August and September 1995, the Company was contacted by
several healthcare companies which had expressed an interest in acquiring the
Company. The Board of Directors formed a committee (the "Committee") to screen
and make recommendations to the Board concerning these inquiries and concerning
the selection of an investment banker to act as financial advisor to the
Company. The Board of Directors also began to consider the adoption of a
shareholder rights plan in response to these inquiries. In early October 1995,
the Board of Directors selected Bradley Gould, who had been in charge of the
Company's European operations, to become Chief Executive Officer of the Company
and Michael Barrilla to act as Chief Financial Officer of the Company. Also in
October 1995,
6
9
the Company engaged Smith Barney Inc. ("Smith Barney") to act as its financial
advisor and adopted the Rights Agreement described herein.
New management of the Company immediately began to design and implement a
turnaround program and hired a national consulting firm to advise it in that
regard. In February 1996, after receiving a report from the consulting firm and
management concerning the strategic plan of the Company, the Board of Directors
requested that Smith Barney assist the Board in its evaluation of certain
acquisition proposals which had been received by the Company. On April 16, 1996,
Mr. J. Michael Hagan, Chairman of the Board of Furon, and Mr. C. Craig
Waldbillig, the Company's Chairman of the Board, discussed by telephone the
possibility of combining Furon and the Company. On May 9, 1996, Mr. Hagan and
Mr. Dominick Arena, Furon's healthcare consultant, met with Mr. Waldbillig and
Mr. Bradley P. Gould, the President and Chief Executive Officer of the Company,
at the Company's headquarters to discuss a possible business combination. In May
1996, the Board reviewed with Smith Barney the status of the healthcare industry
and the Company's position in the industry and also met with a national
consulting firm to discuss the status of the turnaround being implemented by
management. At a subsequent meeting in May of 1996, after full discussion and
consideration of the information provided to the directors, the Board decided to
pursue the Company's strategic plan and the turnaround program recommended by
management and the national consulting firm. The Board instructed management to
inform persons wishing to discuss a potential acquisition of the Company that
such discussions would be deferred for a six-month period to allow the Company
to pursue its turnaround program.
In August 1996, the Company was contacted by several companies expressing
renewed interest in exploring a possible acquisition of the Company. One of
these companies (the "First Company") had indicated verbally that it would
consider making an offer of at least $20 per share for the Company's Common
Stock. The Board of Directors reiterated its belief that pursuing the Company's
strategic plan was in the best interest of the Company, but also decided to
refer the First Company's inquiry to Smith Barney for review and advice in light
of the First Company's apparent interest at the $20 level. The Board also
re-activated the Committee, consisting of Dr. Helmrath, Chairman, and Messrs.
Waldbillig, Holscher, Gould and Boyd, to deal with such inquiries and report to
the full Board. On September 11, 1996, the Company entered into a
Confidentiality Agreement with the First Company and began to provide certain
information to representatives of the First Company for their evaluation. At the
same time the Committee authorized Smith Barney to contact a number of other
companies which had previously expressed an interest in the Company or otherwise
were thought to have an interest to determine whether they might consider making
an offer to acquire the Company in excess of $20 per share. The Board and the
Committee emphasized that these inquiries were solely to determine the level of
interest in the Company at that time, and did not reflect a decision by the
Board or the Committee that a sale of the Company for that amount would be in
the best interest of the Company and its shareholders.
The First Company then commenced an initial phase of due diligence, while
at the same time eight other companies were contacted to determine their level
of interest. On September 20, 1996, after it had completed the initial phase of
due diligence, the First Company orally confirmed its interest in pursuing an
acquisition of the Company involving at least $20 per share, and the Board of
Directors approved allowing two weeks of more in-depth due diligence, provided
the First Company confirmed its interest in writing. At that meeting, Smith
Barney informed the Board of Directors that a number of other companies had
indicated an interest in pursuing an acquisition of the Company at that price
level.
On September 24, 1996, the First Company notified the Company that it was
withdrawing from consideration of the Company since it had concluded it would
not be willing to pay $20 per share for the Company's Common Stock, the minimum
price which the Board had determined it would consider acquisition proposals.
Smith Barney informed the Committee that three other companies, including Furon,
each of which had entered into a confidentiality agreement with the Company and
held due diligence meetings with management of the Company, had indicated an
interest in a possible acquisition of the Company at a minimum price of $20.00
per share. On October 14, 1996, the Committee met to consider how to proceed.
After once more acknowledging the Board of Directors' position that the Company
was not for sale, the Committee instructed the Company's advisors to prepare a
letter to the three interested parties requesting written confirmation of their
interest and certain related matters, including the proposed terms and timing of
7
10
the acquisition and their ability to finance a transaction. The letter also
requested comments from the three interested parties on a draft acquisition
agreement to be prepared by legal counsel for the Company and reviewed in
advance by the full Board of Directors. On October 20, 1996, the Board of
Directors met to review the proposed acquisition agreement and to discuss the
proposed letter to potential acquiring companies. The letter and proposed
agreement were then sent to each of the three interested parties, and on October
25, 1996 each of the three responded in writing outlining the proposed terms of
their acquisition and the status of their financing arrangements.
The Board of Directors then met with the Company's financial and legal
advisors on October 26, 1996 to review the three acquisition proposals and
approved entering into an agreement with Furon to allow Furon to continue its
due diligence on an exclusive basis ending November 14, 1996. During that
period, Furon completed its due diligence and negotiated with the Company the
final terms of the acquisition agreement. On November 11, 1996, Furon's Board of
Directors voted to approve the definitive Merger Agreement and on November 12,
1996 the Company's Board of Directors voted to approve the definitive Merger
Agreement, and the Merger Agreement was executed by the parties.
Prior to approving the Merger Agreement and the transactions contemplated
thereby, the Board of Directors of the Company received presentations and
reviewed the terms and conditions of the Offer and the Merger with the Company's
management, legal counsel and financial advisors. In reaching its conclusions
described in paragraph (a) above, the Board considered many factors, including,
but not limited to, the following:
(i) the terms and conditions of the Offer, the Merger Agreement and
related agreements;
(ii) the fact that the Offer and the Merger are not conditioned on
Furon's obtaining financing to consummate the Offer and the Merger;
(iii) the relationship between the price to be paid pursuant to the
Offer and the Merger and the current and recent historical market prices
for the Shares (including the fact that the consideration to be received by
shareholders pursuant to the Offer and the Merger represents a substantial
premium over the average of the prices at which trades in the Shares have
been reported over the preceding 30 days ending on November 13, 1996);
(iv) information with respect to the financial condition, results of
operations and business of the Company, on both an historical and a
prospective basis, current industry, economic and market conditions and
trends (including increased competition and recently announced
consolidations by the Company's major competitors), historical market
prices, price to earnings multiples and recent trading patterns of the
Shares, market prices and financial data relating to other companies
engaged in the same or similar businesses as the Company and the prices and
premiums paid and other terms in recent acquisition transactions in the
industry, and the Board's belief, on the basis of such information, that
the price to be paid in the Offer and the Merger fairly reflects the
Company's prospects and the risks and uncertainties as well as the
opportunities involved in the Company's current business environment;
(v) the fact that a number of potential bidders had been contacted
concerning their possible interest in the Company and that the price
offered by Furon was significantly in excess of the level of interest
indicated by any other company. The Board noted that, while the Merger
Agreement prohibits the Company from soliciting other takeover proposals,
the Company may, under certain circumstances, furnish information
concerning the Company to a third party and may engage in discussions or
negotiations with a third party regarding certain takeover proposals. The
Board also noted that the Company may terminate the Merger Agreement
following receipt of a superior takeover proposal (as defined in the Merger
Agreement). The Board also considered (i) the termination fee that would be
payable to Furon and (ii) the options for shares of the Company that would
be granted to Furon by the Company and its directors and officers, each in
the event of any such termination, and concluded that the fee and the
options were necessary to induce Furon to enter into the Merger Agreement
and were reasonable in light of the benefits of the Offer and the Merger
and the extent to which other likely potential bidders had been previously
contacted; and
8
11
(vi) the written opinion of Smith Barney, dated November 12, 1996, to
the effect that, as of such date and based upon and subject to certain
matters stated in such opinion, the cash consideration to be received by
holders of Shares (other than Furon and its affiliates) in the Offer and
the Merger was fair, from a financial point of view, to such holders. The
full text of Smith Barney's written opinion, which sets forth the
assumptions made, matters considered and limitations on the review
undertaken by Smith Barney, is attached hereto as Annex I and is
incorporated herein by reference. Smith Barney's opinion is directed only
to the fairness, from a financial point of view, of the cash consideration
to be received in the Offer and the Merger by holders of Shares (other than
Furon and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any shareholder should tender
Shares pursuant to the Offer. SHAREHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY IN ITS ENTIRETY.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determinations. In addition, individual members of
the Board may have given different weights to different factors.
It is expected that, if the Shares were not to be purchased by the
Purchaser in accordance with the terms of the Offer, the Company's current
management, under the general direction of the Board, will continue to manage
the Company as an ongoing business in accordance with the Company's current
long-term strategic plan.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Smith Barney as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of Smith
Barney's engagement, the Company has agreed to pay Smith Barney for its services
an aggregate financial advisory fee based on the total consideration (including
liabilities assumed) payable in connection with the Offer and the Merger. The
fee payable to Smith Barney is currently estimated to be approximately $2.3
million. The Company also has agreed to reimburse Smith Barney for reasonable
travel and other out-of-pocket expenses, including legal fees and expenses, and
to indemnify Smith Barney and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement. In the ordinary course of business, Smith
Barney and its affiliates may actively trade or hold the securities of the
Company and Furon for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in Shares have
been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, each of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares pursuant to the Offer except for those Shares, if any, which, if
tendered, could cause them to incur liability under the provisions of Section
16(b) of the Exchange Act and except for shares purchasable upon exercise of
employee stock options to the extent such employee stock options will be
cancelled in lieu of cash payments pursuant to the Merger Agreement as
referenced in Item 3(b) hereof.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as indicated above in Items 3 and 4 with respect to the Offer
and the Merger, no discussions or negotiations are being undertaken or are
underway by the Company in response to the Offer which relate to, or would
result in, (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company
9
12
or any subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by, or of, the Company, or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as indicated above in Items 3 and 4 and in Annex II hereto in
connection with the Offer and the Merger, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which would relate to or would result in one or more of the matters
referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Board Representation. The Information Statement attached as Annex II
hereto is being furnished in connection with the possible designation by the
Purchaser, pursuant to the Merger Agreement, of certain persons to be appointed
to the Board of Directors of the Company other than at a meeting of the
Company's shareholders.
Ohio Control Share Acquisition Law. The Ohio Control Share Acquisition Law
provides that unless the articles of incorporation or the regulations of an
issuing public corporation provide otherwise, any control share acquisition of
such corporation shall be made only with the prior authorization of the
shareholders. An "issuing public corporation" is a corporation organized for
profit under the laws of Ohio, with 50 or more shareholders, that has its
principal place of business, principal executive offices or substantial assets
in Ohio, and as to which there is no close corporation agreement in existence.
The Company is an issuing public corporation, as so defined.
A "control share acquisition" means the acquisition, directly or
indirectly, by any person of shares of an issuing public corporation that, when
added to all other shares of the issuing public corporation in respect of which
such person may exercise or direct the exercise of voting power, would entitle
such person, immediately after such acquisition, directly or indirectly, alone
or with others, to exercise or direct the exercise of the voting power of such
issuing public corporation in the election of directors within any of the
following ranges: (a) one-fifth or more but less than one-third of such voting
power; (b) one-third or more but less than a majority of such voting power; or
(c) a majority or more of such voting power. An acquisition of shares of an
issuing public corporation, however, does not constitute a control share
acquisition if, among other things, the acquisition is consummated pursuant to a
merger or consolidation adopted, or a combination or majority share acquisition
authorized, by shareholder vote in compliance with Sections 1701.78 or 1701.83
of the ORC if the issuing public corporation is the surviving or new corporation
in the merger or consolidation or is the acquiring corporation in the
combination or majority share acquisition.
Any person who proposes to make a control share acquisition must deliver an
"acquiring person statement" to the issuing public corporation, which statement
shall include: (a) the identity of the acquiring person, (b) a statement that
the acquiring person statement is being delivered pursuant to the Ohio Control
Share Acquisition Law, (c) the number of shares of the issuing public
corporation owned, directly or indirectly, by such acquiring person, (d) the
range of voting power in the election of directors under which the proposed
acquisition would, if consummated, fall (i.e., in excess of 20%, 33 1/3% or
50%), (e) a description of the terms of the proposed acquisition and (f)
representations of the acquiring person that the acquisition will not be
contrary to the law and that such acquiring person has the financial capacity to
make the proposed acquisition (including the facts upon which such
representations are based).
Within ten days of receipt of a qualifying acquiring person statement, the
directors of the issuing public corporation must call a special shareholders
meeting to vote on the proposed acquisition. Unless the acquiring person
otherwise agrees, the meeting must be held within 50 days of receipt of such
statement. The special meeting cannot be held later than certain other special
meetings of shareholders called by the corporation in compliance with the ORC
after receipt of a qualifying acquiring person statement.
The issuing public corporation is required to send a notice of the special
meeting as promptly as reasonably practicable to all shareholders of record as
of the record date set for such meeting, together with a copy of the acquiring
person statement and a statement of the issuing public corporation, authorized
by its
10
13
directors, of its position or recommendation, or that it is taking no position,
with respect to the proposed control share acquisition.
The acquiring person may make the proposed control share acquisition only
if (a) at a meeting at which a quorum is present, a majority of the voting power
entitled to vote in the election of directors represented (in person or by
proxy) at such meeting and a majority of such voting power excluding "Interested
Shares," authorize the control share acquisition and (b) such acquisition is
consummated, in accordance with the terms so authorized, within 360 days
following such authorization. For a quorum to be present, both a majority of the
voting power in the election of directors and a majority of the portion of such
voting power excluding the voting power excluding "Interested Shares" must be
represented at the meeting in person or by proxy. "Interested Shares" means
shares as to which any of the following may exercise or direct the exercise of
voting power in the election of directors: (i) an acquiring person, (ii) an
officer elected or appointed by the directors of the issuing public corporation
or (iii) any employee of the issuing public corporation who is also a director
of such corporation. "Interested Shares" also means shares of the issuing public
corporation acquired, directly or indirectly, by any person or group for
valuable consideration during the period beginning with the date of the first
public disclosure of a proposed control share acquisition of the issuing public
corporation and ending on the date of any special meeting of the corporation's
shareholders held thereafter pursuant to the Ohio Control Share Acquisition Law
for the purpose of voting on a control share acquisition proposed by an
acquiring person, if either of the following apply: (i) the aggregate
consideration paid or otherwise given by the person who acquired the shares, and
any other persons acting in concert with it, for all shares exceeds $250,000, or
(ii) the number of shares acquired by the person who acquired the shares, and
any other persons acting in concert with it, exceeds 1/2 of 1% of the
outstanding shares of the corporation entitled to vote in the election of
directors.
Dissenters' rights are not available to shareholders of an issuing public
corporation in connection with the authorization of a control share acquisition.
Without waiving their right to challenge the validity of all or any part of
the Ohio Control Share Acquisition Law or to seek an amendment to the Company's
Articles or Regulations opting out of the Ohio Control Share Acquisition Law,
and reserving their right to take actions inconsistent with the applicability of
the Ohio Control Share Acquisition Law, Furon and the Purchaser delivered to the
Company on November 12, 1996 an acquiring person statement relating to the
Offer. Pursuant to the Ohio Control Share Acquisition Law, the Company's Board
of Directors has, with the concurrence of Furon and the Purchaser, set Friday,
December 13, 1996, as the date of the 831 Meeting.
Shareholder Approval. Pursuant to the terms of the Company's Articles, the
Merger Agreement must be adopted by the affirmative vote of the holders of a
majority of the outstanding Shares. The Board of Directors has approved and
adopted the Merger Agreement and the transactions contemplated thereby, and,
unless the Merger is consummated pursuant to the short form merger provisions
under the Ohio Revised Code (the "ORC") as described below, the only remaining
required corporate action of the Company is the adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the issued and
outstanding Shares. Accordingly, if the Minimum Condition is satisfied, the
Purchaser will have sufficient voting power to cause the adoption of the Merger
Agreement without the affirmative vote of any other Shareholder.
In the Merger Agreement, the Company has agreed to take all action
necessary to convene a meeting of the Shareholders as soon as practicable after
the consummation of the Offer for the purpose of considering and taking action
on the Merger Agreement, if such action is required by the ORC.
Short Form Merger. Under the ORC, if the Purchaser acquires, pursuant to
the Offer or otherwise, at least 90% of the outstanding Shares, the Purchaser
will be able to effect the Merger without a vote of the shareholders. If,
however, the Purchaser does not acquire at least 90% of the Shares pursuant to
the Offer or otherwise and a vote of the shareholders is required under the ORC,
a significantly longer period of time would be required to effect the Merger.
11
14
Ohio Business Combination Law. Chapter 1704 of the ORC (the "Ohio Business
Combination Law") provides that an issuing public corporation shall not engage
in certain business combinations (including mergers) and other transactions
(each, a "Chapter 1704 Transaction") with an "Interested Shareholder"
(generally, a person entitled to exercise or direct the exercise of 10% or more
of the outstanding voting power of the issuing public corporation in the
election of directors) for a period of three years following the date such
person became an Interested Shareholder. After such three year period, a Chapter
1704 Transaction between an issuing public corporation and such Interested
Shareholder is prohibited unless either certain "fair price" provisions are
complied with or the Chapter 1704 Transaction is approved by certain
supermajority shareholder votes. The Ohio Business Combination Law does not
apply if prior to the date such person became an Interested Shareholder, the
board of directors of the issuing public corporation approved either the Chapter
1704 Transaction or the purchase of shares which resulted in the Interested
Shareholder becoming an Interested Shareholder. The Company's Board of Directors
has taken appropriate action so that the Ohio Business Combination Law is not
applicable to the acquisition of Shares pursuant to the Offer or the Merger.
Ohio Take-Over Act. Sections 1707.041, 1707.042, 1707.23 and 1707.26 of
the ORC (collectively, the "Ohio Take-Over Act") regulate tender offers. The
Ohio Take-Over Act applies to the purchase of or offer to purchase any equity
security of a subject company from a resident of Ohio if, after the purchase,
the offeror would directly or indirectly be the beneficial owner of more than
10% of any class of issued and outstanding equity securities of the Company (a
"control bid"). A subject company includes an issuer, such as the Company, that
either has its principal place of business or principal executive offices
located in Ohio or owns or controls assets located in Ohio that have a fair
market value of at least one million dollars, and that has more than one
thousand beneficial or record equity security holders who reside in Ohio. A
subject company, however, need not be incorporated in Ohio. Notwithstanding the
definition of subject company contained in the Ohio Take-Over Act, the Ohio
Division of Securities (the "Ohio Division"), by rule or an adjudicatory
proceeding, may make a determination that an issuer does not constitute a
subject company if appropriate review of control bids involving the issuer is to
be made by any regulatory authority of another jurisdiction. The Ohio Division
has not adopted any rules under this provision.
The Ohio Take-Over Act prohibits an offeror from making a control bid for
securities of a subject company pursuant to a tender offer until the offeror has
filed specified information with the Ohio Division. In addition, the offeror is
required to deliver a copy of such information to the subject company not later
than the offeror's filing with the Ohio Division and to send or deliver such
information and the material terms of the proposed offer to all offerees in Ohio
as soon as practicable after the offeror's filing with the Ohio Division.
Within three calendar days of such filing, the Ohio Division may by order
summarily suspend the continuation of the control bid if it determines that the
offeror has not provided all of the specified information or that the control
bid materials provided to offerees do not provide full disclosure of all
material information concerning the control bid. If the Ohio Division summarily
suspends a control bid, it must schedule and hold a hearing within ten calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than sixteen calendar days after the date on which the suspension
is imposed. The Ohio Division may maintain its suspension of the continuation of
the control bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio Take-Over Act has not been
provided by the offeror, that the control bid materials provided to offerees do
not provide full disclosure of all material information concerning the control
bid, or that the control bid is in material violation of any provision of the
Ohio securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror has the right to correct the disclosure and other
deficiencies identified by the Ohio Division and to reinstitute the control bid
by filing new or amended information pursuant to the Ohio Take-Over Act.
Without prejudice to their position that the Ohio Take-Over Act is
unconstitutional or conceding its applicability to the Offer, Furon and the
Purchaser are filing with the Ohio Division the information specified by the
Ohio Take-Over Act, together with a copy of the Schedule 14D-1 relating to the
Offer.
Conditions to the Merger. Unless the Purchaser owns 90% or more of the
Shares, Furon and the Purchaser will not be obligated to effect the Merger if,
among other reasons, there is any change (or any
12
15
development involving a prospective change) in the business, financial condition
or results of operations of the Company or any of its subsidiaries that has had
or is reasonably expected to have a material adverse effect upon the Company and
its subsidiaries taken as a whole. There can be no assurance that the Merger
will ever be effected.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
1 -- Agreement and Plan of Merger dated as of November 12, 1996 among Furon, the
Purchaser and the Company (filed as Exhibit 99.10 to Schedule 14D-1 of Furon and
the Purchaser filed with the Securities and Exchange Commission on November 15,
1996("Schedule 14D-1"), and incorporated herein by reference)
2 -- Company Option Agreement dated November 12, 1996 between Medex, Inc. and Furon
Company (filed as Exhibit 99.12 to Schedule 14D-1, and incorporated herein by
reference).
3 -- Form of Director and Officer Agreement dated November 12, 1996 among the Company,
Furon and FCY, Inc. (filed as Exhibit 99.11 to Schedule 14D-1, and incorporated
herein by reference).
4 -- Rights Agreement, dated as of October 12, 1995, between Medex, Inc. and Huntington
National Bank, as rights agent (the "Rights Agreement") (filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A filed October 23, 1995 and
incorporated herein by reference).
5 -- Amendment to Rights Agreement (filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated
herein by reference).
6 -- Confidentiality Agreement dated September 16, 1996 between the Company and Furon
(the "Confidentiality Agreement").
7 -- Amendment to the Confidentiality Agreement dated October 30, 1996.
8 -- Medex, Inc. Administrative Incentive Stock Option Plan II, as amended (filed as
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (the "1996 Form 10-K"), and incorporated herein by reference).
9 -- Medex, Inc. Non-Employee Director Restricted Stock Option Plan (filed as Exhibit
10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference).
10 -- Medex, Inc. Non-Employee Director Restricted Stock Option Plan II (filed as Exhibit
10.3 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, and incorporated herein by reference).
11 -- Medex, Inc. Non-Employee Director Restricted Stock Option Plan III (filed as
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993, and incorporated herein by reference).
12 -- Medex, Inc. Non-Employee Director Restricted Stock Option Plan IV (filed as Exhibit
10.5 to the 1996 Form 10-K, and incorporated herein by reference).
13 -- Medex, Inc. Key Employee Nonstatutory Stock Option Plan, as amended (filed as
Exhibit 10.7 to the 1996 Form 10-K, and incorporated herein by reference).
14 -- Medex, Inc. 1994 Executive Stock Option Plan, as amended (filed as Exhibit 10.6 to
the 1996 Form 10-K, and incorporated herein by reference).
15 -- Medex, Inc. Employees Stock Purchase Plan, as amended (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994,
and incorporated herein by reference).
16 -- Form of Employment Agreement as executed by all executive officers of the Company
except C. Craig Waldbillig, Robert E. Boyd, Jr. (filed as Exhibit 10.10 to the 1996
Form 10-K, and incorporated herein by reference).
13
16
EXHIBIT
NO. DESCRIPTION
-----------------------------------------------------------------------------------
17 -- Amendment to the Employment Agreement between the Company and Bradley P. Gould,
dated November 1, 1995 (filed as Exhibit 10.11 to the Company's Quarterly Report 5
on Form 10-Q for the quarter ended December 31, 1995, and incorporated herein by
reference).
18 -- Executive Employment Agreement between the Company and Bradley P. Gould, dated
February 14, 1996 (filed as Exhibit 10.12 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, and incorporated herein by reference).
19 -- Form of proposed Executive Employee Agreement between the Company and all executive
officers of the Company except Bradley P. Gould, Michael J. Barilla and Georg W.
Landsberg.
20 -- Form of proposed Executive Employment Agreement between the Company and Georg W.
Landsberg dated as of November 12, 1996.
21 -- Amendment to Executive Employee Agreement between the Company and Michael J.
Barilla (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, and incorporated herein by reference).
22 -- Forms of Director and Executive Officer Indemnification Agreements as executed by
all directors and Bradley P. Gould (filed as Exhibit 10.8 to the 1996 10-K, and
incorporated herein by reference).
23 -- Joint Press Release issued by Furon and the Company on November 13, 1996 (filed as
Exhibit 99.7 to the Schedule 14D-1, and incorporated herein by reference).
24 -- Letter dated November 15, 1996 to Shareholders from Chairman of the Board of the
Company*.
25 -- Opinion dated November 12, 1996 of Smith Barney Inc. (included as Annex I hereto)*.
26 -- Medex, Inc.'s Articles of Incorporation (filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1991 and
incorporated herein by reference).
- ---------------
* Included in copies mailed to shareholders.
14
17
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
November 15, 1996
--------------------------------------
(Date)
/s/ Bradley P. Gould
--------------------------------------
Signature
Bradley P. Gould
President and Chief Executive Officer
--------------------------------------
Name and Title
15
18
[LETTERHEAD]
November 12, 1996
The Board of Directors
Medex, Inc.
3637 Lacon Road
Hilliard, Ohio 43026
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock of Medex, Inc. ("Medex") pursuant to
the terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of November 12, 1996 (the "Merger Agreement"), by and among
Medex, Furon Company ("Furon") and FCY Inc., a wholly owned subsidiary of Furon
("Merger Sub"). As more fully described in the Merger Agreement, (i) Furon and
Merger Sub will make a tender offer to purchase all outstanding shares of the
common stock, par value $0.01 per share, of Medex (the "Medex Common Stock") at
a purchase price of $23.50 per share, net to the seller in cash (the "Tender
Offer") and (ii) subsequent to the Tender Offer, Merger Sub will be merged with
and into Medex (the "Merger" and, together with the Tender Offer, the
"Transaction") and each outstanding share of Medex Common Stock not previously
tendered will be converted into the right to receive $23.50 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Medex and certain senior officers and other representatives of
Furon concerning the business, operations and prospects of Medex. We examined
certain publicly available business and financial information relating to Medex
as well as certain financial forecasts and other information and data for Medex
which were provided to or otherwise discussed with us by the management of
Medex. We reviewed the financial terms of the Transactions as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of Medex Common Stock; the historical and
projected earnings and other operating data of Medex; and the capitalization and
financial condition of Medex. We considered, to the extent publicly available,
the financial terms of similar transactions recently effected which we
considered relevant in evaluating the Transaction and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of Medex. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Medex that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Medex as to the future financial
performance of Medex. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Medex nor have we made any physical inspection of the properties or assets or
Medex.
In connection with our engagement, we were requested to approach, and held
discussions with, certain third parties to solicit indications of interest in a
possible acquisition of Medex. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to
Medex in connection with the proposed Transaction and will receive a fee for
such services, a significant portion of which is contingent upon the
consummation of the Transaction. We also will receive a fee upon the delivery of
this opinion. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Medex and Furon for our own account or
for the account of our customers and, accordingly, may at any time hold a long
19
or short position in such securities. We have in the past provided investment
banking services to Medex unrelated to the proposed Transaction, for which
services we have received compensation. In addition, we and our affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with Medex and Furon.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Medex in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of Medex Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney be
made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the cash consideration to be
received by he holders of Medex Common Stock (other than Furon and its
affiliates) in the Transaction is fair, from a financial point of view, to such
holders.
Very truly yours,
SMITH BARNEY INC.
20
ANNEX II
MEDEX, INC.
3637 LACON ROAD
HILLIARD, OHIO 43026
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 14, 1996,
as part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares at the close of
business on November 12, 1996. You are receiving this Information Statement in
connection with the possible election of persons designated by Furon to a
majority of the seats on the Board of Directors of the Company (the "Board").
The Merger Agreement requires the Company, at the request of the Purchaser, to
take all action necessary to cause the Purchaser's designees (the "the Purchaser
Designees") to be elected to the Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder. See "Board of Directors -- Right to Designate
Directors; the Purchaser Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Furon commenced the Offer on November 13,
1996. The Offer is scheduled to expire at 12:00 midnight on December 13, 1996,
at which time, upon the expiration of the Offer, if all conditions of the Offer
have been satisfied or waived, the Purchaser has informed the Company that it
intends to purchase all Shares validly tendered pursuant to the Offer and not
withdrawn.
The information contained in this Information Statement concerning Furon
and the Purchaser has been furnished to the Company by Furon and the Company
assumes no responsibility for the accuracy or completeness of such information.
BOARD OF DIRECTORS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of November 12, 1996, the Company had
6,216,601 Shares outstanding and 150,590 Shares were held in the treasury of the
Company or its subsidiaries. The Board currently consists of nine members with
no vacancies. Each director holds office until such director's successor is
elected and qualified or until such director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement, upon the acceptance for payment of, and
payment for, any Shares by the Purchaser pursuant to the Offer which, when taken
together with the Shares which Furon beneficially owns represent at least sixty
percent (60%) of the then outstanding Shares, the Purchaser will be entitled to
request and receive resignations of up to but not exceeding five (5) directors
on the Board and to designate certain the Purchaser Designees to fill the
resulting vacancies. Any number of directors requested to resign shall resign in
reverse order of seniority on the Board.
A-1
21
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors, and executive officers listed in Schedule I to the
Offer to Purchase, a copy of which is being mailed to shareholders together with
this Schedule 14D-9. The information on such Schedule I is incorporated herein
by reference. No determination has yet been made as to which of the current
directors of the Company who are not officers of the Company will continue as
directors following the purchase of Shares pursuant to the Offer.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of such minimum percentage of Shares
pursuant to the Offer, which purchase cannot be earlier than December 16, 1996,
and that, upon assuming office, the Purchaser Designees will thereafter
constitute at least a majority of the Board. This step will be accomplished at a
meeting or by written consent of the Board providing that the sufficient numbers
of current directors will resign to enable the Purchaser Designees to be elected
to the Board.
DIRECTORS AND OFFICERS OF THE COMPANY
The names of the current directors and executive officers, their ages as of
November 1, 1996 and certain other information about them are set forth below.
As indicated above, some of the current directors may resign effective
immediately following the purchase of the Shares by the Purchaser pursuant to
the Offer.
EXPIRATION
OF DIRECTOR OF
NAME AGE MEDEX, INC. AND OTHER DIRECTORSHIPS PRESENT TERM MEDEX SINCE:
- ------------------------- --- -------------------------------------- ------------ ------------
Robert E. Boyd, Jr....... 70 Attorney at Law, Boyd & Boyd Co., 1998 1964
L.P.A.; Secretary and General Counsel
for the Company
James L. Ginter.......... 51 Professor, Marketing Department, Max 1998 1986
M. Fisher College of Business, The
Ohio State University
John N. Holscher......... 71 Business Consultant; Adjunct Lecturer, 1998 1989
Max M. Fisher College of Business, The
Ohio State University
Bradley P. Gould......... 43 President and Chief Executive Officer 1997 1996
of the Company; prior to October 1996,
Senior Vice President, European
Operations; first elected Vice
President, 1992; from 1991 until May
1992, Director of Sales/Marketing,
European Operations
J. David Martino, M.D.... 52 Physician; Chairman, Department of 1997 1988
Anesthesiology, Children's Hospital,
Columbus, Ohio
C. Craig Waldbillig(2)... 70 Chairman of the Board of Directors; 1997 1959
prior to March 1993, Chief Executive
Officer of the Company
Thomas A. Helmrath, 59 Physician; President and Chief 1996 1985
M.D.................... Executive Officer, Physicians of The
Ohio State University, Inc.; from May
1993 to April 1994, Healthcare Systems
management Consultant; from February
1991 until May 1993, Senior Vice
President, Medical Affairs,
MetroHealth System, Cleveland, Ohio
and Associate Dean, School of
Medicine, Case Western Reserve
University
A-2
22
EXPIRATION
OF DIRECTOR OF
NAME AGE MEDEX, INC. AND OTHER DIRECTORSHIPS PRESENT TERM MEDEX SINCE:
- ------------------------- --- -------------------------------------- ------------ ------------
Thomas M. Jordan, Jr..... 60 Certified Public Accountant; 1996 1990
President, Thomas M. Jordan, Jr.,
C.P.A., Inc.
John B. Joyce, Jr.(1).... 70 First Vice President, Robert W. Baird 1996 1987
& Co., Incorporated, Columbus, Ohio,
Members of New York Stock Exchange
- ---------------
(1) In accordance with the Company's By-Laws, the Board of Directors has by
resolution waived the age restriction contained in said By-Laws as to Mr.
Joyce's nomination and election as a director. Mr. Joyce has agreed, in
writing, to resign at anytime upon the Board's identifying a suitable
replacement, and being so requested in writing by a majority of the members
currently constituting the Board of Directors.
(2) Mr. Waldbillig is a director of Danninger Medical Technology, Inc.
The Code of Regulations of the Company provides that the Board of Directors
shall be comprised of nine directors. The directors are divided into three
classes serving staggered three-year terms, in accordance with the Company's
Code of Regulations. Each director holds office until the next annual meeting of
shareholders and until a successor has been elected and qualified. The executive
officers of the Company are elected annually and serve at the discretion of the
Board of Directors.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning officers of
the Company:
NAME POSITION WITH THE COMPANY AGE
- ----------------------- --------------------------------------------------- ---
C. Craig Waldbillig.... Chairman of the Board and Director 70
Bradley P. Gould....... President, Chief Executive Officer and Director 43
Terry L. Sanborn....... Senior Vice President, Manufacturing and Chief 53
Operating Officer
Michael J. Barilla..... Senior Vice President and Chief Financial Officer 45
Georg W. Landsberg..... Senior Vice President, European Operations 42
Robert E. Boyd, Jr..... Secretary, General Counsel and Director 70
Kevin L. Barnett....... Vice President, Treasurer and Corporate Controller 34
Alan M. Fermier........ Vice President, Human Resources & Organizational 43
Development
Clint R. Lawson........ Vice President, Corporate Quality Assurance & 47
Regulatory Affairs
David G. Musgrove...... Vice President, International & O.E.M. Development 52
Nigel S. Perry......... Vice President of Operations, Europe 45
Julie A. Reichert...... Vice President, New Product Development 33
Alan Upton............. Vice President, Finance & Administration, Europe 49
C. Craig Waldbillig, a co-founder of the Company in 1959, was elected
Chairman of the Board in 1982. Mr. Waldbillig retired as Chief Executive Officer
of the Company in 1993. Mr. Waldbillig is also a director and Chairman of Medex
Medical, Inc. and a director of Medex Exports, Inc. Mr. Waldbillig serves as a
director of Danninger Medical Technology, Inc.
Bradley P. Gould was elected Chief Executive Officer as of October 1995 and
appointed Director and elected President in May 1996. In 1993, he was elected
Senior Vice President, European Operations. Mr. Gould was first elected Vice
President in 1992. From 1991 until May of 1992, Mr. Gould was Director of
Sales/Marketing European Operations. Mr. Gould is also a Director of Medex
Medical, Inc. and Ashfield Medical Systems Limited; a Managing Director of Medex
Medical GmbH and Medex Medical France SARL; and a Director and President of
Medex Exports, Inc.
A-3
23
Terry L. Sanborn was elected Chief Operating Officer in May of 1993. Mr.
Sanborn has served as Senior Vice President of Manufacturing since May 1995. Mr.
Sanborn also served as Executive Vice President from May 1993 to 1995; Senior
Vice President, Corporate Operations from 1991 to 1993; and as a Vice President
since 1979. Mr. Sanborn is also a Vice President of Medex Medical, Inc.
Michael J. Barilla was elected Senior Vice President and Chief Financial
Officer in August 1996. In October 1995 he was elected acting Chief Financial
Officer. Mr. Barilla was elected Vice President, Internal Auditing in fiscal
1995. From 1993 to 1995 he served as Senior Vice President, Corporate Operations
and Administration. He was first elected as Vice President in 1990 and
previously served as Corporate Controller. Mr. Barilla is also Chief Financial
Officer, Medex Exports, Inc. and Assistant Treasurer, Medex Medical, Inc.
Georg W. Landsberg was elected Senior Vice President, European Operations
in August 1996. Dr. Landsberg was first elected Vice President in 1994. From May
1992 to November 1994, he was Director, Sales & Marketing, European Operations.
Prior to May 1992 he served as Sales & Marketing Manager, Cardionova GmbH. Dr.
Landsberg is also a Director and President, Medex Medical, Inc.; a Director of
Ashfield Medical Systems Limited; and a Managing Director, Medex Medical GmbH
and Medex Medical France SARL.
Robert E. Boyd, Jr., was elected Secretary and General Counsel in 1960 and
has been a director since 1964. Mr. Boyd has been a practicing attorney for more
than 44 years. Mr. Boyd is also a Director and Secretary of Medex Medical, Inc.
and Medex Exports, Inc.
Kevin L. Barnett was elected Treasurer in November 1995 and had previously
become Vice President and Corporate Controller in 1994. From April of 1992 until
May of 1994 he was Assistant Treasurer of the Company. Prior to April of 1992,
Mr. Barnett was employed by Deloitte & Touche as Manager, Auditing Services. Mr.
Barnett is also Assistant Treasurer, Medex Medical, Inc. and Treasurer, Medex
Exports, Inc.
Alan M. Fermier was elected Vice President, Human Resources &
Organizational Development in December 1995. Prior to joining the Company, Mr.
Fermier was Vice President, Human Resources and Administration for Cardiac
Alliance, Inc. from 1993 to 1995 and from 1987 to 1993 he was Regional Director,
Human Resources for Tokos Medical Corporation.
Clint R. Lawson was elected Vice President in 1990 and is responsible for
quality assurance and regulatory affairs. Prior to 1990, he was Director of
Corporate Quality Control and Regulatory Affairs for the Company.
David G. Musgrove was elected Vice President in 1982 and is currently
responsible for international, O.E.M., and bulk sales development. Mr. Musgrove
is a Vice President of Medex Exports, Inc.
Nigel S. Perry was elected Vice President of Operations, Europe in May
1996. From 1991 until 1996 he was Director of Operations, Medex Medical, Inc.
Mr. Perry is also a Director, Ashfield Medical Systems Limited and a Director
and Vice President, Medex Medical, Inc.
Julie A. Reichert was elected Vice President, New Product Development in
September 1996. Ms. Reichert was the Research & Development Manager, Hospital
Infusion Systems from May 1995 until her election. Prior to joining the Company,
she was employed by Ohmeda Monitoring Systems as Project Manager and Engineer.
Alan Upton was elected Vice President, Finance & Administration, Europe in
May 1996. From 1992 until 1996, he was Director of Finance, Medex Medical, Inc.
and had previously been employed as an accountant at Medex Medical, Inc. from
1985 until 1992. Mr. Upton is also a Director and Treasurer, Medex Medical,
Inc.; a Director of Ashfield Medical Systems Limited; and a Managing Director of
Medex Medical GmbH and Medex Medical France SARL.
Officers are elected by the Board of Directors following the annual meeting
and serve until the next annual meeting or until their successors are named.
There are no family relationships between any director or executive officer
and any other director or executive officer of the Company.
A-4
24
There are no arrangements or understandings between any of the executive
officers of the Company and other persons relating to their selection as
officers.
There have been no events under any bankruptcy act, no original
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
BOARD MEETINGS AND COMMITTEES
During fiscal 1996, the Board of Directors had an Audit Committee,
Executive Compensation Committee, Finance Committee, Pension Plan Administrative
Committee, Stock Option Committee, Nominating Committee, Executive Committee and
an Employee Benefits Committee. The Board of Directors approved amendments to
the Company's By-Laws which, during fiscal 1996, combined the Stock Option,
Pension Plan Administrative and Executive Compensation Committees and their
functions into a single Employee Benefits Committee. The members of the Employee
Benefits Committee are Mr. Joyce, Mr. Boyd, Dr. Helmrath, Mr. Holscher and Dr.
Martino. A total of fourteen meetings of the Board of Directors of the Company
were held during the fiscal year ended June 30, 1996. During fiscal 1996, all of
the directors attended 75% or more of the total meetings of the Board and of
Committees of the Board on which they served.
The Audit Committee recommends to the Board of Directors the selection of
the independent accountants to be employed by the Company and reviews generally
the scope of the audit and the results thereof. The Audit Committee reviews
generally the Company's internal accounting controls with the auditors and
reviews compliance with the Company's policy on non-audit services provided by
the independent auditors. The members of the Audit Committee are Dr. Helmrath,
Mr. Holscher and Mr. Jordan. The Committee met six times during the year ended
June 30, 1996.
The Executive Compensation Committee reviewed and recommended to the Board
of Directors the compensation of directors and executive officers of the Company
and reviewed and recommended to the Board of Directors the adoption of any
compensation plans in which directors and officers were eligible to participate.
The members were Mr. Joyce, Dr. Helmrath and Mr. Holscher. The Committee met six
times during the year ended June 30, 1996.
The Finance Committee is responsible for formulating and presenting
recommendations to the Board of Directors on investment policy, financial
matters, capital structure and allocation, dividends, financing arrangements,
financial planning, budgeting and undertaking such other duties and
responsibilities relating to corporate finance as the Board of Directors may
delegate to the Committee. The members of the Committee are Mr. Jordan, Mr.
Waldbillig and Mr. Holscher. The Committee met four times during the year ended
June 30, 1996.
The Stock Option Committee administered and interpreted the Company's stock
option plans except the Non-Employee Director Plans and, subject to the
provisions of the plans, selected the employees who were to participate in such
plans and determined the terms of their participation. The members were Mr.
Boyd, Mr. Joyce, and Dr. Martino. The Committee met once during the year ended
June 30, 1996.
The Pension Plan Administrative Committee administered and interpreted the
Company's Employees' Profit Sharing Plan and Trust Agreement, and acted as the
"Administrative Committee" under that Plan, and reported its operations and
recommendations to the Board of Directors. The members were Mr. Ginter, Dr.
Martino and Mr. Jordan. The Committee met once during the year ended June 30,
1996.
The Nominating Committee is responsible for searching out and recommending
to the Board of Directors, for nomination, new candidates for election to the
Board. The Committee will consider nominees recommended by shareholders. Such
recommendations should be made in writing, addressed to the Company's Secretary.
The members are Mr. Joyce, Mr. Gould and Mr. Holscher. The Committee did not
meet during the year ended June 30, 1996.
The Executive Committee is authorized, when it is impractical or not in the
best interest of the Company to wait until a Board of Director's meeting for
approval, to approve contracts, obligations and transactions of
A-5
25
the Company up to $350,000. In addition, the Executive Committee is responsible
for choosing recipients for the Company's annual contributions to charities. The
members are Mr. Ginter, Mr. Waldbillig, Mr. Gould and Mr. Boyd. The Committee
met five times during the year ended June 30, 1996.
The Employee Benefits Committee is responsible for the following: reviewing
and recommending to the Board of Directors the compensation of directors and
executive officers of the Company and the approval of compensation plans in
which directors and executive officers are eligible to participate; the
administration and interpretation of the Company's stock option plans; and the
administration and interpretation of the Company's Employees' Profit Sharing
Plan and Trust Agreement. The Committee met five times during the year ended
June 30, 1996.
SECTION 16 REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers, directors and persons who are beneficial owners of more
than ten percent of the Corporation's Common Stock ("reporting persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting persons are required by Securities and Exchange Commission
regulations to furnish the Corporation with copies of all Section 16(a) forms
filed by them.
Based on its review of the copies of Section 16(a) forms received by it,
the Company believes that, during fiscal 1996, all reporting persons fully
complied with the filing requirements applicable to such persons.
BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
The following tables, together with the accompanying footnotes, describe
the beneficial ownership of the Company's Common Stock, $.01 par value per
share, as of November 1, 1996, of each person who at such date was known to be
the beneficial owner of more than five percent of the total shares of Common
Stock then issued and outstanding, each Director and nominee for Director
individually, each of the Executive Officers named in the Summary Compensation
Table who were employed by the Company, as of the above date, and all Officers
and Directors of the Company as a group. The share figures shown below are based
principally upon information supplied by the named individuals and group members
described in the tables.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
PERCENT
OF
BENEFICIALLY NAME AND ADDRESS OWNED CLASS
- -------------------------------------------------------------------------- ------- -------
Kennedy Capital Management, Inc........................................... 521,340(1) 8.40%
10829 Olive Boulevard
St. Louis, Missouri 63141
SAFECO Corporation........................................................ 464,600(2) 7.48%
SAFECO Plaza
Seattle, Washington 96185
C. Craig Waldbillig....................................................... 427,348(3) 6.87%
1650 Dolphin Court
Naples, Florida 33962
Dimensional Fund Advisors, Inc............................................ 312,623(4) 5.03%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
A-6
26
SECURITY OWNERSHIP OF MANAGEMENT
PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED CLASS
- -------------------------------------------------------------------- ------------ -------
Michael J. Barilla.................................................. 79,150(5) 1.26%
Robert E. Boyd, Jr.................................................. 84,870(6)(7) 1.36%
James L. Ginter..................................................... 38,383(6) *
Bradley P. Gould.................................................... 196,700(8) 3.07%
Thomas A. Helmrath, M.D............................................. 26,857(6) *
John N. Holscher.................................................... 33,000(6) *
Thomas M. Jordan, Jr................................................ 29,000(6) *
John B. Joyce, Jr................................................... 37,321(6) *
Georg W. Landsberg.................................................. 26,350(9) *
Clint R. Lawson..................................................... 21,718(10) *
J. David Martino, M.D............................................... 34,514(6)(11) *
Terry L. Sanborn.................................................... 65,427(12) 1.05%
C. Craig Waldbillig................................................. 427,348(3) 6.87%
All Directors and Officers
as a group (19 persons)........................................... 1,172,855(13) 17.11%
- ---------------
* less than 1%
(1) All information related to this shareholder is based upon a report on Form
13F filed with the SEC as of July 10, 1996. This figure includes 124,750
shares over which the holder has no voting power.
(2) All information related to this shareholder is based upon a report on Form
13F filed with the SEC as of September 10, 1996. This figure includes
464,600 shares over which the holder has shared investment power.
(3) Includes 15,000 shares which Mr. Waldbillig has the right to acquire within
sixty (60) days following September 23, 1996, upon the exercise of stock
options. Includes 8,476 shares which Mr. Waldbillig has sole voting and
investment power; 9,116 shares which Mr. Waldbillig shares such power with
his wife; 344,439 shares held by the Charles Craig Waldbillig Trust; and
50,317 shares held by Mr. Waldbillig's wife's trust.
(4) All information related to this shareholder is based upon a report on Form
13F-E dated July 25, 1996. This figure includes 89,400 shares over which
the holder has no voting power.
(5) Includes 460 shares of which Mr. Barilla is custodian for his minor
children; also includes 74,875 shares which Mr. Barilla has the right to
acquire within sixty (60) days following September 23, 1996, upon the
exercise of stock options.
(6) Includes shares in the following amounts which the following Non-Employee
Directors have a right to acquire within sixty (60) days following
September 23, 1996 pursuant to the Non-Employee Director Restricted Stock
Option Plans: Mr. Boyd 41,088; Mr. Ginter 30,000; Dr. Helmrath 21,000; Mr.
Holscher 33,000; Mr. Jordan 29,000; Mr. Joyce 35,775; and Dr. Martino
34,400.
(7) Includes 8,258 shares owned by Mr. Boyd's wife.
(8) Includes 193,200 shares which Mr. Gould has the right to acquire within
sixty (60) days following September 23, 1996, upon the exercise of stock
options.
(9) Includes 26,350 shares which Dr. Landsberg has the right to acquire within
sixty (60) days following September 23, 1996, upon the exercise of stock
options.
(10) Includes 17,000 shares which Mr. Lawson has the right to acquire within
sixty (60) days following September 23, 1996, upon the exercise of stock
options.
(11) Includes 114 shares of which Dr. Martino is custodian for his minor
children.
(12) Includes 32,850 shares which Mr. Sanborn has the right to acquire within
sixty (60) days following September 23, 1996, upon the exercise of stock
options; also includes 3,231 shares in which Mr. Sanborn shares voting and
investment power with his wife.
(13) Includes 646,751 shares which the directors and officers have the right to
acquire within sixty (60) days following September 23, 1996, upon the
exercise of stock options.
Unless otherwise indicated each person named above has sole voting and
investment power over the listed shares.
A-7
27
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for fiscal years ended June 30,
1996, 1995 and 1994 as to compensation paid by the Company and its subsidiaries
to the Company's Chief Executive Officer, its four other most highly compensated
Executive Officers as of June 30, 1996, and one additional former Executive
Officer of the Company (the "Named Executive Officers").
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------------
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR ($) ($)(3) COMPENSATION(4) OPTIONS/SARS(#) COMPENSATION(5)
- ----------------------- ---- -------- ------- --------------- --------------------- ---------------
Bradley P. Gould 1996 $303,229 $89,600 $81,606 214,300 $ 3,131
President and Chief 1995 242,004 67,000 -- 9,900 120
Executive Officer(1) 1994 195,137 30,874 -- 9,000 55
Phillip D. Messinger 1996 111,219 -0- -- -0- 794,994
Former President and 1995 204,000 -0- -- 17,300 20,572
Chief Executive 1994 198,421 52,323 -- 20,000 15,592
Officer(1)
Georg W. Landsberg 1996 165,169 40,000 -- 19,800 140
Senior Vice President 1995 141,302 56,464 -- 3,300 117
European 1994 -- -- -- -- --
Operations(2)
Terry L. Sanborn 1996 141,500 25,470 -- 22,700 1,651
Senior Vice 1995 178,167 2,123 -- 9,900 4,912
President, 1994 160,750 42,389 -- 10,000 4,518
Manufacturing and
Chief Operating
Officer
Michael J. Barilla 1996 129,300 27,000 -- 22,825 827
Senior Vice President 1995 110,000 8,250 -- 3,300 3,322
and Chief Financial 1994 110,000 29,007 -- 9,000 2,764
Officer
Clint R. Lawson 1996 114,400 28,600 -- 15,200 1,386
Vice President, 1995 110,000 6,188 -- 6,500 3,942
Corporate Quality 1994 110,000 29,007 -- 2,500 3,275
Assurance &
Regulatory Affairs
- ---------------
(1) Mr. Gould was elected Chief Executive Officer in October 1995 and elected
President in May 1996.
(2) Information is only provided for fiscal years 1996 and 1995. Dr. Landsberg
became an Executive Officer of the Company in fiscal 1995.
(3) Amounts shown include cash compensation earned by the Named Executive
Officer during the year covered.
(4) The aggregate amount of such compensation to be reported herein is less than
either $50,000 or 10% of the total of annual salary and bonuses reported
for the Named Executive Officer, except for Mr. Gould. The amount shown for
Mr. Gould includes: $76,169 for payments and reimbursements associated with
moving and relocation expenses, including gross-up payments to offset the
effect of income taxes; and $5,437 for personal use of a Company
automobile.
(5) The following items were included under the heading "All Other
Compensation":
(a) During fiscal year 1996, the following matching contributions were made
to the Company's deferred 401(k) savings plan accounts of: Mr. Gould
$1,333; Mr. Sanborn $1,303; Mr. Barilla $665; and Mr. Lawson $1,206.
A-8
28
(b) The following Split Dollar Life Insurance benefits, representing the
P.S.58 portion of the insurance premiums, were paid on behalf of the
following persons: Mr. Gould $148; Mr. Mesinger $603; Dr. Landsberg
$140; Mr. Sanborn $348; Mr. Barilla $162; and Mr. Lawson $180.
(c) Directors fees of $1,650 were received by Mr. Gould and $13,150 by Mr.
Messinger during fiscal 1996.
(d) The Company and Mr. Messinger entered into a Severance Agreement and
Release pursuant to which Mr. Messinger resigned as a director and
received payments in the amount of $670,613 and the Company transferred
its entire interest in a certain split dollar life insurance policy to
Mr. Messinger which had a cash value of $110,628.
Each of the currently employed Named Executive Officers have entered into
an employment agreement with the Company. Each agreement becomes operative only
upon a change of control, as defined in the agreement, that occurs when the
officer is in the employ of the Company. If a change in control occurs and the
officer's employment with the Company is involuntarily terminated within one
year thereafter, the officer becomes entitled to the severance benefits
described below. Likewise, the officer shall be entitled to the severance
benefits if he/she in good faith determines that his/her status or
responsibilities with the Company have been diminished subsequent to a change in
control and shall for that reason resign within one year after such change in
control. Upon such termination the officer shall be entitled to receive (i) cash
equal to two times his/her annual salary paid in equal installments over a 24
month period, (ii) cash in the amount equal to two times his/her previous year's
incentive compensation benefit, (iii) 24 months of continued coverage under the
Company's hospital, medical, accident, disability and life insurance plans, or
the cash equivalent thereof, and (iv) a paid-up annuity equal to what the
officer would have received under the Company's defined contribution profit
sharing plan. The officer is not required to mitigate the amount of any payments
by seeking other employment. The Company must pay all legal fees, up to
$500,000, incurred by the officer as a result of such officer's seeking to
enforce the agreement. There have been no payments pursuant to said agreements.
The Company has entered into an additional employment agreement with Mr.
Gould which provides for reimbursement of moving and relocation expenses
associated with Mr. Gould's move to Ohio and also provides for severance
payments in the event of his termination for other than a change in control
equivalent to one year of salary and bonus. The employment agreement also
provides for the following: (i) a base salary of $320,000 per annum; (ii) 90
days prior written notice of termination of Mr. Gould's employment to be given
by either the Company or Mr. Gould to the other party; (iii) tax preparation and
consultation services; and (iv) Mr. Gould's eligibility for and participation in
the Company's benefit plans.
A-9
29
STOCK OPTIONS GRANTED AND EXERCISED
The following tables reflect: (i) the number and value of options granted
in fiscal 1996 to the Named Executive Officers; (ii) the aggregate exercises and
number and value of exercisable and unexercisable options at June 30, 1996.
OPTIONS GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OF BASE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#) YEAR ($/SH) DATE 5% 10%
- ------------------------------- -------- ---------- -------- ---------- ---------- ----------
Bradley P. Gould............... 14,300(1) 3.21% $10.75 08/23/00 $ 42,471 $ 93,851
*200,000(2) 44.89 10.50 11/15/05 1,320,679 3,346,859
Phillip D. Messinger........... -0- -- -- -- -- --
Georg W. Landsberg............. 4,800(1) 1.08 10.75 08/23/00 14,256 31,502
15,000(2) 3.37 10.50 11/15/05 99,051 251,014
Terry L. Sanborn............... 200(1) 0.04 10.50 11/15/00 580 1,282
22,500(2) 5.05 10.50 11/15/05 148,576 376,522
Michael J. Barilla............. 325(1) 0.07 10.50 11/15/00 943 2,083
22,500(2) 5.05 10.50 11/15/05 148,576 376,522
Clint R. Lawson................ 200(1) 0.04 10.50 11/15/00 580 1,282
15,000(2) 3.37 10.50 11/15/05 99,051 251,014
- ---------------
(1) Granted under the 1994 Executive Stock Option Plan, in which the
participants, the timing of grants, and the amount of options granted were
at the discretion of the Stock Option Committee which subsequently became
the Employee Benefits Committee subject to terms and conditions of the
Plan. Under the Plan, options are granted at prices equal to the fair
market value at the date of grant and are exercisable six months after date
of grant. Options expire five years from date of grant.
(2) Granted under the Key Employee Nonstatutory Stock Option Plan. Under the
Plan, options were granted by the Executive Compensation Committee which
subsequently became the Employee Benefits Committee at prices equal to the
fair market value at the date of grant. Subject to shareholder approval of
the proposed amendments to the Plan, these options become exercisable
one-half on July 1, 1996 and one-half on July 1, 1997 (*Mr. Gould's are
exercisable one-half on date of grant, one-fourth on November 15, 1996 and
one-fourth on November 15, 1997). Options expire ten years from date of
grant.
(3) The amounts represent certain assumed rates of appreciation only, and assume
the options are held until their expiration date. Actual gains, if any, on
stock option exercises will be dependent upon overall market conditions and
on the future performance of the Company and its Common Stock. There can be
no assurance that the Potential Realizable Values reflected in this table
will be achieved.
A-10
30
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED IN-THE-MONEY
NAME EXERCISE(#) REALIZED($) OPTIONS AT OPTIONS AT
- ------------------------ ----------- ----------- FY-END(#) FY-END($)
---------------------------- -------------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
Bradley P. Gould........ 0 0 143,200/100,000 $280,263/$237,500
Phillip D. Messinger.... 0 0 27,300/10,000 0/0
Georg W. Landsberg...... 0 0 18,850/15,000 15,700/35,625
Terry L. Sanborn........ 0 0 22,600/22,500 14,225/53,438
Michael J. Barilla...... 0 0 13,625/22,500 13,147/53,438
Clint R. Lawson......... 0 0 9,500/15,000 8,725/35,625
- ---------------
(1) Based on the 1996 fiscal year-end closing price of $12.875 per share and
rounded to the nearest whole dollar.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Each Director of the Company receives $5,000 annually, plus $1,000 for each
regular or special meeting of the Board they attend, plus $400 for each
committee meeting attended by committee members and $500 for each committee
meeting attended by the Committee Chairman.
The Company's By-Laws provide for a non-employee directors' non-qualified
defined benefit retirement plan. Retirement benefits are based on the current
annual director's fee and years of service as a director with a maximum annual
benefit of 50% of the current annual fee. The annual benefit is payable until
death, expiration of a period equal to one-half of the director's years of
service, or a maximum of 10 years, whichever occurs first.
The Company currently has four Non-Employee Director Restricted Stock
Option Plans. Plans I, II and III were approved by the shareholders in November
1987, November 1989, and November 1993, respectively. Plan IV has not yet been
approved by shareholders. Plan I provides for the one time grants of options to
non-employee directors and directors emeritus. Plans II, III and IV provide for
the one time grant to non-employee directors of options to purchase shares of
the common stock of the Company. The Company has reserved 504,315 shares of its
common stock for issuance under the Plans. Options are granted at prices equal
to the fair market value at the date of grant and expire ten years from the date
of grant. The options are exercisable at the date of grant subject to certain
passage of time vesting restrictions contained in the Plans. The Plans are to
remain in effect for ten years from the date of their approval by the Board of
Directors. During fiscal 1996, no options were granted to non-employee
directors. During fiscal 1997, 120,000 options have been granted to non-employee
directors.
During fiscal 1993, the Company entered into a Non-Competition and
Consulting Contract with Mr. Waldbillig, a Director, Chairman of the Board and
former Chief Executive Officer of the Company. Under the terms of the Contract,
Mr. Waldbillig agreed not to engage in any activity or business that is in
competition with the Company for a three year period that began on July 1, 1993
and to provide consulting services to the Company. In exchange for Mr.
Waldbillig's agreement not to compete and to provide consulting services, the
Company paid Mr. Waldbillig the sum of $220,000 per year over the three year
period. In addition, the Contract provided that the Company, during the term of
the agreement, would keep in force and continue to pay the premiums on all split
dollar life insurance policies owned by the parties on the life of Mr.
Waldbillig. During fiscal 1996, the Company paid Mr. Waldbillig $220,000
pursuant to the terms of the Contract and paid $10,508 representing the P.S.58
yearly renewable term portion of the split dollar life insurance premiums.
A-11
31
INDEMNIFICATION AGREEMENTS
The Company is party to an indemnity agreement (the "Indemnity Agreement")
with each of the Directors and Bradley P. Gould, CEO which provides that the
indemnitee will be entitled to receive indemnification, including advancement of
expenses, to the full extent permitted by law for all expenses, judgments,
fines, penalties and settlement payments incurred by the indemnitee in actions
brought against the indemnitee in connection with any act taken in the
indemnitee's capacity as a director or executive officer of the Company. In the
event of a change of control, the Indemnity Agreement provides for the
appointment of independent legal counsel to determine whether a director or
executive officer is entitled to indemnity. It also requires the Company to
maintain its current level of directors' and officers' liability insurance for
so long as the indemnitee may be subject to any possible, threatened or pending
action, unless the cost of such insurance is more than 150% of the annualized
rate of premiums paid by the Company in fiscal 1996. Additionally, pursuant to
the Indemnity Agreement, the Company retains subrogation rights to recover any
payments paid by a third party to the indemnitee. The Indemnity Agreement is
binding on the Company and any successors thereto.
A-12