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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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NEW IMAGE INDUSTRIES, INC.
(NAME OF SUBJECT COMPANY)
NEW IMAGE INDUSTRIES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
645639 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DEWEY F. EDMUNDS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEW IMAGE INDUSTRIES, INC.
2283 COSMOS COURT
CARLSBAD, CALIFORNIA 92002
(619) 930-9900
(NAME AND ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
EDMUND M. KAUFMAN, ESQ.
IRELL & MANELLA LLP
333 SOUTH HOPE STREET, SUITE 3300
LOS ANGELES, CALIFORNIA 90071
(213) 620-1555
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is New Image Industries, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 2283 Cosmos Court, Carlsbad, California 92009. The title of
the class of equity securities to which this statement relates is the common
stock, par value $.001 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by DENTSPLY International Inc., a
Delaware corporation ("Parent"), and Image Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent (the "Purchaser"), disclosed
in a Tender Offer Statement on Schedule 14D-1, dated January 31, 1997 (the
"Schedule 14D-1"), to purchase all outstanding Shares at $2.00 per Share, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated January 31, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of January 27, 1997 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and satisfaction or waiver of
certain conditions, the Purchaser will be merged with and into the Company (the
"Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"). A copy of the Merger Agreement is attached hereto as Exhibit 1
and incorporated herein by reference.
Based on the information in the Schedule 14D-1, the principal executive
offices of each of Parent and the Purchaser are located at 570 West College
Avenue, York, Pennsylvania 17405-0872.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding
between the Company or its affiliates and its executive officers, directors or
affiliates is described in the attached Schedule I or set forth below.
TREATMENT OF STOCK OPTIONS AND WARRANTS IN THE OFFER
Pursuant to the terms of the employment agreements between the Company and
Dewey F. Edmunds, the President and Chief Executive Officer of the Company, Paul
Devereaux, the Vice President, Marketing of the Company, Mike Lytle, the Vice
President, Sales of the Company, and Harold R. Orr, the Chief Financial Officer
of the Company, all options to purchase Shares ("Stock Options") granted to such
officers will become immediately exercisable upon the closing of a sale of all
or substantially all of the assets of the Company, or the acquisition of the
Company by another entity by means of a consolidation or merger (other than a
consolidation or merger in which the holders of voting securities of the Company
immediately before the consolidation or merger own immediately after the
consolidation or merger voting securities of the surviving or acquiring
corporation, or of a parent entity of such surviving or acquiring corporation,
possessing more than 50% of the voting power of the surviving or acquiring
corporation or parent entity). In addition, by resolution adopted on December
20, 1996, the Board of Directors of the Company (the "Board") determined that
all outstanding Stock Options and warrants to purchase Shares ("Warrants") will
become immediately exercisable upon (a) the acquisition by any person, entity or
"group" (as such term is defined under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of (i) registered or beneficial ownership of more
than a majority of the outstanding voting securities of the Company or (ii) all
or substantially all of the assets of the Company, or (b) the election or
appointment to the Board of individuals who constitute a majority of the members
of the Board and whose nomination, election or appointment to such positions was
not approved by the current members of the Board (a "Change in Control"). A
Change in
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Control will occur upon the successful completion of the Offer, and, as a
result, all Stock Options and Warrants will become immediately exercisable at
such time. The treatment of outstanding Stock Options and Warrants in the Offer
is discussed below under the heading "Agreements with Parent and the
Purchaser -- The Merger Agreement -- Conversion of Shares; Stock Options and
Warrants."
CANCELLATION AND REISSUANCE OF STOCK OPTIONS
On November 6, 1996, the Board approved the following cancellations of
Stock Options and reissuances of Stock Options or Warrants. Each reissued Stock
Option and Warrant has an exercise price of $1.5625, the closing price of the
Shares on November 6, 1996, which, in each case, is less than the exercise price
of the corresponding cancelled Stock Option, and certain reissued Stock Options
have shorter vesting schedules than the corresponding cancelled Stock Options.
Stock Options to purchase 45,000 Shares and 35,000 Shares granted to Robert
S. Colman, the Chairman of the Board, and Harold J. Meyers, a director of the
Company, respectively, were cancelled and Warrants to purchase an equal number
of Shares for which the cancelled Stock Options could have been exercised were
issued. Such Warrants will become exercisable 181 days after the date of
issuance, and will become immediately exercisable upon the successful completion
of the Offer, and expire ten years from the issuance date.
Stock Options to purchase 2,500 Shares granted to Robert S. Colman, Stock
Options to purchase 12,500 Shares granted to Harold J. Meyers and Stock Options
to purchase 19,500 Shares granted to each of Kenneth B. Sawyer, Richard P.
Greenthal and Ralph M. Richart, M.D., each of whom is a director of the Company,
were cancelled and Stock Options to purchase an equal number of Shares for which
the cancelled Stock Options could have been exercised were issued. Such reissued
Stock Options vested one-third on the issuance date and will vest one-third on
each of the second and third anniversaries of such date, and will become
immediately exercisable upon the successful completion of the Offer, and expire
ten years from the issuance date.
Stock Options to purchase an aggregate of 573,083 Shares granted to current
officers and employees of the Company (including Stock Options granted to
executive officers of the Company as follows: Dewey F. Edmunds, 200,000; Mark W.
Stevens, 57,186; David H. Cooper, 20,000; Paul Devereaux, 28,909; Mike Lytle,
38,344; and Harold R. Orr, 30,000) were cancelled and Stock Options to purchase
an equal number of Shares for which the cancelled Stock Options could have been
exercised were issued. The vesting schedule for such reissued Stock Options is
the scheduled vesting date for their corresponding cancelled Stock Options, and
such reissued Stock Options will become immediately exercisable upon the
successful completion of the Offer and will expire on the scheduled expiration
date for their corresponding cancelled Stock Options.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law (the "DGCL") allows a
Delaware corporation to indemnify its current and former directors, officers,
employees or agents under certain circumstances against certain liabilities and
expenses incurred by them by reason of their serving in such capacities if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to criminal
actions and proceedings, had no reasonable cause to believe their conduct was
unlawful.
The Company's Certificate of Incorporation and Bylaws provide, among other
things, that the Company will indemnify each of its officers and directors
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
an action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
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In addition, the Merger Agreement contains provisions relating to
indemnification of officers and directors of the Company and the provision of
directors' and officers' liability insurance. See "Agreements with Parent and
the Purchaser -- The Merger Agreement -- Directors' and Officers' Insurance
Coverage."
AGREEMENTS WITH PARENT AND THE PURCHASER
The Merger Agreement
The following summary of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the Merger
Agreement, a copy of which is filed as Exhibit 1 hereto and incorporated herein
by reference.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer for any and all Shares at a price of $2.00 per Share (the "Offer
Price") net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions of the Offer. The Merger Agreement also provides that
Parent and the Purchaser may not, without the written consent of the Company,
decrease the price per Share, or change the form of consideration payable, in
the Offer, decrease the number of Shares sought in the Offer, change the
conditions to the Offer, impose additional conditions to the Offer or amend any
material term of the Offer in a manner adverse to the holders of the Shares.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the effective
time of the Merger (the "Effective Time"), the Purchaser will be merged with and
into the Company, the separate corporate existence of the Purchaser (except as
may be continued by operation of law) will cease and the Company will continue
as the Surviving Corporation following the Merger. Parent may elect at any time
prior to the Merger to merge the Company with and into the Purchaser, in which
event the parties have agreed to execute an appropriate amendment to the Merger
Agreement to reflect the foregoing. Pursuant to the Merger Agreement, the
Certificate of Incorporation and Bylaws of the Purchaser at the Effective Time
will be the Certificate of Incorporation and Bylaws of the Surviving Corporation
until amended as provided therein and under the DGCL. Also pursuant to the
Merger Agreement, the directors and officers of the Purchaser at the Effective
Time will, from and after the Effective Time, be the directors and officers of
the Surviving Corporation until their successors will have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
Conversion of Shares; Stock Options and Warrants. At the Effective Time,
each then outstanding Share (other than Shares held in the treasury of the
Company or owned by Parent or any direct or indirect subsidiary of Parent
(including the Purchaser) or by stockholders who are entitled to and who
properly exercise appraisal rights under the DGCL) will be converted into the
right to receive $2.00 in cash, without interest thereon, upon the terms and
subject to the conditions of the Offer. At the Effective Time, each Stock Option
and each Warrant, whether or not then exercisable in accordance with its terms,
will be converted into the right to receive, upon the surrender of the agreement
evidencing such Stock Option or Warrant and the delivery of an acknowledgment in
accordance with the terms of the Merger Agreement, an amount in cash (net of
applicable withholding) equal to the excess, if any, of the Offer Price over the
exercise price per Share subject to such Stock Option or Warrant, as the case
may be, multiplied by the number of Shares previously subject to such Stock
Option (assuming full vesting of all Stock Options) or Warrant.
Board Representation. The Merger Agreement provides that, upon the
acceptance for payment of, and payment for, any Shares by the Purchaser pursuant
to the Offer which, when taken together with any Shares which Parent
beneficially owns (as such term is defined under the Exchange Act), represent at
least a majority of the then outstanding Shares, the Purchaser will be entitled
at such time to designate the directors on the Board, and the Company will, at
such time, obtain resignations of all then-serving directors and, prior to such
resignations, cause the Purchaser's designees to be elected to, and to
constitute all of, the Board. Pursuant to the Merger Agreement, the Company
agreed to cooperate in permitting the exercise by the Purchaser of its rights
set forth in this paragraph, including, without limitation, (x) cooperating in
satisfying the requirements of Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and (y) amending, prior to the expiration date of the
Offer, any provisions of the Bylaws or any agreement by
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which the Company is bound that could delay or hinder the ability of the
Purchaser or Parent to elect its designees to a majority of the directorships
constituting the Board. The Merger Agreement provides that the Company will not
take any action to delay or hinder such election.
Directors' and Officers' Insurance Coverage. The Merger Agreement provides
that, for six years after the earlier of (i) the date on which the designees of
the Purchaser have been elected to the Board pursuant to the provisions set
forth in the preceding paragraph and constitute all of the members thereof and
(ii) the Effective Time, Parent and the Surviving Corporation will indemnify,
defend and hold harmless the present officers, directors, employees and agents
of the Company and its subsidiaries (each, an "Indemnified Party") against all
losses, claims, damages, liabilities, fees and expenses (including reasonable
fees and disbursements of counsel) and judgments, fines, losses, claims,
liabilities and amounts paid in settlement (provided that any such settlement is
effected with the prior written consent of Parent or the Surviving Corporation
(which consent will not be unreasonably withheld)) arising out of actions or
omissions occurring at or prior to the Effective Time (including without
limitation matters arising out of or pertaining to the transactions contemplated
by the Merger Agreement) to the full extent permitted by the DGCL or the
Company's Certificate of Incorporation or Bylaws as in effect on January 27,
1997, including provisions therein relating to the advancement of expenses
incurred in the defense of any action or suit; provided, however, that in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims will continue
until disposition of the claim to which such rights are applicable.
The Merger Agreement also provides that, for two years after the Effective
Time, Parent and the Surviving Corporation will (i) maintain the current
policies of officers' and directors' liability insurance in respect of acts or
omissions (including without limitation matters arising out of or pertaining to
the transactions contemplated by the Merger Agreement) occurring at or prior to
the Effective Time covering each person who was an officer or director of the
Company on January 27, 1997 and who was then covered by the Company's officers'
and directors' liability insurance policy or (ii) substitute policies providing
substantially similar coverage containing terms and conditions that, taken
together, are not materially less advantageous, and provided that such
substitution does not result in gaps or lapses in coverage.
The Merger Agreement further provides that Parent and the Surviving
Corporation will pay all expenses (including attorneys' fees) that may be
incurred by any Indemnified Party or person having rights to coverage pursuant
to the provisions set forth under this caption (collectively, "Covered Persons")
in enforcing the obligations of Parent and the Surviving Corporation provided
for therein, provided that no such expenses will be payable if such Indemnified
Party or person is found, in or as a result of such enforcement action, not to
have the rights to coverage claimed by such Indemnified Party or person. The
parties to the Merger Agreement acknowledged and agreed therein that the remedy
at law for any breach of the obligations under the provisions set forth under
this caption is and will be insufficient and inadequate and that the Covered
Persons, in addition to any remedies at law, will be entitled to equitable
relief. Pursuant to the Merger Agreement, without limiting any remedies Covered
Persons may otherwise have thereunder or under applicable law, in the event of
nonperformance of any obligation under this caption, the Covered Persons will
have, in addition to any other rights at law or equity, the right to specific
performance.
The Merger Agreement additionally provides that the rights set forth under
this caption are contingent upon, and will survive, the consummation of the
Offer, are intended to benefit the Company, the Surviving Corporation and each
Covered Person, will be binding on all successors and assigns of Parent and the
Surviving Corporation and will be enforceable by each Covered Person, each of
whom is a third party beneficiary of these provisions.
Benefit Plans and Certain Contracts. Pursuant to the Merger Agreement,
Parent agreed to cause the Surviving Corporation to pay all amounts due and
payable under the terms of all written employment contracts, agreements, plans,
policies and written commitments of the Company and its subsidiaries with or
with respect to its current employees, officers and directors as such contracts,
agreements, plans, policies and written commitments are described in the
disclosure schedule to the Merger Agreement as in effect on January 27, 1997.
Also pursuant to the Merger Agreement, for at least two years following the
Effective Time, each employee of the Company and its subsidiaries (while such
person remains an employee of the Company
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and its subsidiaries) will be entitled to participate in all benefit plans
maintained or sponsored by the Company or in benefit plans providing
substantially similar benefits. The Merger Agreement also provides that, upon or
prior to the consummation of the Offer, Parent and the Company will enter into
an employment agreement with Dewey F. Edmunds (the "Employment Agreement"). See
"Employment Agreement."
Stockholder Meeting. The Merger Agreement provides that if the approval of
the Merger by the Company's stockholders (the "Company Stockholder Approval") is
required by law, the Company will, at Parent's request, as soon as practicable
in accordance with applicable law following acceptance for payment of and
payment for Shares, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders' Meeting") for the purpose of obtaining such
Company Stockholder Approval. The Merger Agreement also provides that the
Company will, through the Board, subject to the provisions described below in
the second paragraph under "Exclusive Dealing," recommend to its stockholders
that such Company Stockholder Approval be given. The Merger Agreement further
provides that, notwithstanding the foregoing, if Parent, the Purchaser or any
other subsidiary of Parent acquires at least 90% of the outstanding Shares, the
parties will, at the request of Parent, take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after the
expiration of the Offer without a Stockholders' Meeting in accordance with
Section 253 of the DGCL. Pursuant to the Merger Agreement, without limiting the
generality of the foregoing, the Company agreed that its obligations pursuant to
the first sentence of this paragraph will not be affected by (i) the
commencement, public proposal, public disclosure or communication to the Company
of any Acquisition Proposal (as defined below) that is not a Superior
Acquisition Proposal (as defined below) or (ii) the withdrawal or modification
by the Board of its approval or recommendation of the Offer, the Merger
Agreement or the Merger. Also pursuant to the Merger Agreement, Parent agreed to
cause all Shares purchased pursuant to the Offer and all other Shares owned by
the Purchaser or any other subsidiary of Parent to be voted in favor of the
Company Stockholder Approval.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of each party to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following conditions: (a) if
required by the DGCL, the Company Stockholder Approval will have been obtained
by the requisite vote of the stockholders of the Company; (b) no statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary
injunction or other order or legal restraint or prohibition preventing the
consummation of the Merger will have been issued by any federal, state or local
government or any court, administrative or regulatory agency, domestic or
foreign (a "Governmental Entity"); and (c) all authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the Merger and the transactions contemplated by the Merger Agreement will have
been filed, occurred or been obtained and will be in effect at the Effective
Time. The obligation of the Company to effect the Merger is also subject to the
condition that each of Parent and the Purchaser will have made and consummated
the Offer, each in accordance with its terms.
Representations and Warranties. In the Merger Agreement, the Company made
customary representations and warranties to Parent and the Purchaser with
respect to, among other things, its organization and qualification, its
capitalization, its authority relative to the Merger Agreement, filings made by
the Company with the Securities and Exchange Commission (the "Commission"), the
absence of undisclosed liabilities, the absence of certain changes or events,
litigation, the absence of changes in benefit plans, compliance with the
Employee Retirement Income Security Act of 1974, as amended, payment of taxes,
the absence of "excess parachute payments" within the meaning of Section
280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
information supplied to Parent and the Purchaser, compliance with applicable
laws, the applicability of state takeover statutes, brokers, contracts, title to
properties, labor matters, insurance, intellectual property matters, the absence
of certain payments, certain suppliers and customers and certain regulatory
matters.
Also in the Merger Agreement, Parent made representations and warranties to
the Company with respect to, among other things, its organization and
qualification, its authority relative to the Merger Agreement, the availability
of funds to consummate the Offer and the Merger, ownership of Company
securities, information supplied, capitalization of the Purchaser and Parent's
prior engagement of Cleary Gull Reiland & McDevitt Inc. ("Cleary Gull").
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Conduct of Business by the Company Pending the Merger. The Merger Agreement
provides that, prior to the Effective Time, unless expressly contemplated by the
Merger Agreement or as may be agreed to in writing by Parent: (a) the business
of the Company and its subsidiaries will be conducted only in the ordinary
course and consistent with past practice; (b) the Company will not, and will not
permit any of its subsidiaries to: (i) sell or pledge or agree to sell or pledge
any stock owned by it in any of its subsidiaries; (ii) amend its Certificate of
Incorporation or Bylaws; or (iii) split, combine or reclassify any shares of its
outstanding capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property or redeem or otherwise acquire
any shares of its capital stock; (c) the Company will not, and will cause each
of its subsidiaries not to: (1) authorize for issuance, issue or sell any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class (whether through the issuance or granting of stock
options, warrants, convertible securities, commitments, subscriptions, rights to
purchase or otherwise), except for unissued Shares reserved for issuance upon
the exercise of Stock Options or Warrants outstanding on the date of the Merger
Agreement in accordance with their then existing terms; (2) acquire, dispose of,
transfer, lease, license, mortgage, pledge or encumber any material assets; (3)
incur, assume or prepay any indebtedness for borrowed money or any other
material liabilities, except accounts payable incurred in the ordinary course of
business consistent with past practice, or issue or sell any debt securities or
warrants or rights to acquire debt securities of the Company or any of its
subsidiaries; (4) assume, endorse (other than in the ordinary course of business
consistent with past practices), guarantee or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the material
obligations of any other person; (5) make any loans, advances or capital
contributions to, or investments in, any other person or otherwise enter into
any material contract other than in the ordinary course of business and
consistent with past practices; (6) make any loans to employees, other than
travel advances in the ordinary course of business; (7) fail to maintain
adequate insurance consistent with past practices for its business and
properties; (8) undertake, make or commit to undertake or make any capital
expenditures in an amount greater than $10,000 per individual capital
expenditure and no more than $25,000 per month in the aggregate (on a combined
basis for the Company and its subsidiaries); or (9) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing; (d)
the Company will use its reasonable best efforts consistent with past practice
to preserve intact the business organization of the Company and its
subsidiaries, keep available the services of its and their present officers and
employees, and preserve its existing relationships with customers, suppliers and
others with which it and its respective subsidiaries have business dealings; (e)
the Company will not, and will cause its subsidiaries not to: (I) enter into any
new agreements or amend or modify any existing agreements with any of its
respective officers, directors or employees or with any "disqualified
individuals" (as defined in Section 280G(c) of the Code), (II) grant any
increases in the compensation of its respective directors, officers and
employees or any "disqualified individuals" (as defined in Section 280G(c) of
the Code) other than (A) pursuant to written agreements in effect at the date of
the Merger Agreement, or (B) increases in the ordinary course of business and
consistent with past practice to persons who are not directors or corporate
officers of or "disqualified individuals" with respect to the Company or any of
its subsidiaries, (III) enter into, adopt, amend or terminate, or grant any new
benefit not presently provided for under, any employee benefit plan or
arrangement, except as required by law or to maintain the tax qualified status
of the plan; provided, however, that the Company or its subsidiaries may
terminate, to the extent permitted by applicable law, any benefit or any
employee benefit plan or arrangement, or (IV) take any action with respect to
the grant of any severance or termination pay other than in the ordinary course
of business and consistent with past practice and pursuant to policies in effect
on the date of the Merger Agreement; (f) the Company will not, and will not
permit any of its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or agree
to acquire any assets (other than equipment, inventory and supplies in the
ordinary course of business); (g) the Company will not, and will not permit any
of its subsidiaries to, sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of, any of its
material assets; (h) the Company will take all actions reasonably necessary so
that the conditions to the Offer that require actions to be performed by the
Company are satisfied on a timely basis, except as contemplated by the Merger
Agreement; (i) unless the Company receives a Superior Acquisition Proposal, the
Company will not call any meeting of its stockholders to be held prior to March
25, 1997 other than as required by the Merger Agreement; (j) the Company will
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not, and will not permit any of its subsidiaries to, make any tax election or
settle (except to settle reserved amounts for less than the amount so reserved)
or compromise any income tax liability; (k) the Company and each of its
subsidiaries will make timely payments, in accordance with the terms applicable
thereto, of all currently due liabilities for borrowed money; (l) the Company
will not, and will not permit any of its subsidiaries to, pay, discharge, settle
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities reflected or
reserved against in the most recent consolidated financial statements (or the
notes thereto) of the Company included in its filings with the Commission; (m)
the Company will not, and will not permit any of its subsidiaries to, modify,
amend or terminate any material contract, lease of real property or of a
material amount of assets, or agreement relating to indebtedness or the
extension of credit, or waive, release or assign any rights or claims
thereunder; and (n) the Company will maintain in full force and effect its
current policies of directors' and officers' liability insurance covering all
persons who are presently covered by such policies.
Actions by Parent and the Purchaser Pending the Merger. The Merger
Agreement provides that none of the provisions contained in the preceding
paragraph will prohibit Parent or the Purchaser (or any of their respective
subsidiaries), during the period between the payment for Shares pursuant to the
Offer and the Effective Time, from taking or causing to be taken any action with
respect to the business of the Company and its subsidiaries that Parent or the
Purchaser (or any of their respective subsidiaries) would legally be permitted
to take or cause to be taken with respect to a majority owned subsidiary of
Parent or the Purchaser (or any of their respective subsidiaries), provided that
Parent will not take any action in violation of the terms of the Merger
Agreement that would cause Parent's obligations to effect the Merger under the
Merger Agreement to not be satisfied and provided further that any such action
taken by or at the direction of Parent or the Purchaser (or any of their
respective subsidiaries) will not cause a breach by the Company of any of the
provisions of the preceding paragraph.
Exclusive Dealing. The Merger Agreement provides that neither the Company
nor any of its subsidiaries, officers, directors, or the directors and officers
of its subsidiaries, nor any of its other affiliates (each, an "Affiliate")
will, and the Company will cause its and its respective Affiliates' employees,
agents and representatives (including, without limitation, any investment
banking, legal or accounting firm retained by the Company or any of its
Affiliates and any individual member or employee of the foregoing) (each, an
"Agent") not to: (i) initiate, solicit or seek, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders or any of them)
with respect to a merger, acquisition, consolidation, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase of
all or a substantial portion of the assets or any equity securities of, the
Company or any of its subsidiaries, except for the transactions contemplated by
the Merger Agreement (any such proposal or offer being hereinafter referred to
as an "Acquisition Proposal"); or (ii) engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person relating to an Acquisition Proposal; or (iii) otherwise cooperate in
any effort or attempt to make, implement or accept an Acquisition Proposal;
provided, however, that the Company may, if it receives an Acquisition Proposal
which was not directly or indirectly initiated, solicited or otherwise sought by
the Company or by any of its Affiliates or its or their respective Agents, and
which is a Superior Acquisition Proposal, respond to such Superior Acquisition
Proposal by engaging in negotiations with respect thereto and providing
nonpublic information concerning the Company to the person making such Superior
Acquisition Proposal, provided that such person has entered into a written
confidentiality agreement on terms no more favorable to such person than the
Mutual Confidential Non-Disclosure Agreement, dated October 8, 1996, between the
Company and Parent (the "Confidentiality Agreement") and provided further that
the Company has received a written opinion of its outside counsel that such
response is required in order to satisfy the fiduciary duties imposed under
applicable law on the Board. The Company agreed in the Merger Agreement to take
the necessary steps to inform the individuals and entities referred to in the
first sentence this paragraph of the obligations undertaken in this paragraph.
The Merger Agreement provides that, unless it has theretofore been
terminated pursuant to the provisions described below in clause (f) under
"Termination," neither the Board nor any committee thereof
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will (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or the Purchaser, the approval or recommendation by the Board
or any such committee of the Offer, the Merger Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or (iii) enter into any agreement with respect to any Acquisition
Proposal. The Merger Agreement provides that, notwithstanding the foregoing, in
the event the Board receives an Acquisition Proposal that constitutes a Superior
Acquisition Proposal, the Board may (subject to the limitations contained under
this caption) withdraw or modify its approval or recommendation of the Offer,
the Merger Agreement or the Merger, approve or recommend any such Superior
Acquisition Proposal, enter into an agreement with respect to any such Superior
Acquisition Proposal or terminate the Merger Agreement, in each case at any time
after 48 hours following Parent's receipt of written notice advising Parent that
the Board has received a Superior Acquisition Proposal, specifying the material
terms and conditions of such Superior Acquisition Proposal and identifying the
person making such Superior Acquisition Proposal. For purposes of the Merger
Agreement, a "Superior Acquisition Proposal" means an Acquisition Proposal
received by the Company without violation of the provisions contained in the
preceding paragraph, having terms which the Board determines, in the exercise of
its fiduciary duties, after consultation with outside counsel, and upon the
written opinion of its outside financial advisor, to be more favorable to the
Company's stockholders from a financial point of view than the Offer and the
Merger.
The Merger Agreement further provides that, in addition to the obligations
of the Company set forth in the preceding paragraph, the Company will promptly
advise Parent orally and in writing of any request for nonpublic information
relating to the Company or by any person that, to the Company's knowledge, may
be considering making, or has made, an Acquisition Proposal or the receipt of
any Acquisition Proposal, or any inquiry with respect to any Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person making any such request,
Acquisition Proposal or inquiry. The Company agreed in the Merger Agreement to
keep Parent fully informed of the status and details of any such request,
Acquisition Proposal or inquiry.
Fees and Expenses. Except as provided below, the Merger Agreement provides
that, whether or not the Offer and/or the Merger are consummated, each of the
Company and Parent will separately bear its own expenses, including the fees and
disbursements of counsel, investment bankers and accountants, incurred in
connection with the Offer, the Merger, the Merger Agreement and the transactions
contemplated thereby.
The Merger Agreement also provides that if the Company or any Affiliate or
Agent of the Company fails to fulfill its obligations described above under
"Exclusive Dealing," or enters into an agreement which contemplates the sale of
all or any material portion of the assets of, or any equity interest in, the
Company to a third party, or the parties to the Stockholder Agreements (as
defined below) or any of them enters into an agreement which contemplates such a
transaction, then, in any such case, the Company will promptly reimburse Parent
for all of its out-of-pocket expenses incurred in connection with the Offer, the
Merger, the Merger Agreement, the Stockholder Agreements or any transactions
contemplated by the Merger Agreement or the Stockholder Agreements.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether prior to or after any approval by the stockholders
of the Company:
(a) by mutual written consent of the Boards of Directors of Parent and
the Company;
(b) by Parent, if (i) neither Parent nor any subsidiary of Parent has
accepted for payment any Shares pursuant to the Offer by the sixtieth day
following commencement of the Offer and such failure is not in breach of
the Offer or the Merger Agreement, or (ii) Parent has properly terminated
the Offer in accordance with its terms; provided that Parent may not
terminate the Merger Agreement pursuant to this provision if (A) the
failure of Parent or the Purchaser to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the circumstances
described in clause (i), or (B) in the case of clause (ii), Parent or the
Purchaser has not exercised such right by the close of business on or
before the fifth business day following the termination of the Offer in
accordance with its terms;
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(c) by Parent and the Purchaser prior to the purchase of Shares
pursuant to the Offer, if there has been any material breach of a material
obligation of the Company under the Merger Agreement and such breach has
not been remedied within five days after receipt by the Company of notice
in writing from Parent or the Purchaser specifying such breach and
requesting that it be remedied;
(d) by the Company prior to the purchase of Shares pursuant to the
Offer, if there has been any material breach of a material obligation of
Parent or the Purchaser under the Merger Agreement and such breach has not
been remedied within five days after receipt by Parent or the Purchaser, as
the case may be, of notice in writing from the Company specifying such
breach and requesting that it be remedied;
(e) by the Company, if (i) the Offer has not been commenced on or
before the fifth business day after the announcement to the public of the
execution of the Merger Agreement, (ii) the Offer is terminated without the
purchase of any Shares and such termination is in breach of the Offer or
the Merger Agreement, or (iii) Parent or the Purchaser has failed to pay or
to cause another entity to pay for Shares duly and properly tendered in the
Offer within 10 business days following expiration of the Offer, provided
that the Company may not terminate the Merger Agreement pursuant to this
provision if the failure of the Company to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the circumstances
described in clauses (i), (ii) or (iii) above;
(f) by the Company or by Parent and the Purchaser prior to the
purchase of Shares pursuant to the Offer, if a Superior Acquisition
Proposal is received and the Board, pursuant to the provisions described
above in the second paragraph under "Exclusive Dealing," withdraws or
modifies its recommendation of the Offer or recommends to the stockholders
of the Company that such stockholders tender their Shares into, or vote in
favor of, such Superior Acquisition Proposal, provided that such
termination will not affect the Company's obligations described above in
the second paragraph under the caption "Fees and Expenses"; or
(g) by the Company or by Parent and the Purchaser if there is any law
or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
Parent, the Purchaser or the Company from consummating the Merger is
entered and such judgment, injunction, order or decree becomes final and
nonappealable.
The Merger Agreement provides that in the event of termination thereof
prior to the purchase of Shares pursuant to the Offer as provided above, the
Merger Agreement will forthwith become void and of no effect, and there will be
no liability on the part of Parent, the Purchaser or the Company, except that
the provisions described above under "Fees and Expenses" and certain other
provisions of the Merger Agreement will survive any such termination, and (b)
nothing in the Merger Agreement will relieve any party from liability for any
willful or grossly negligent breach of any representation or warranty or any
breach prior to such termination of any covenant or agreement contained therein.
Entire Agreement. The Merger Agreement provides that the Merger Agreement
(including the Appendix thereto and the documents and instruments referred to
therein) constitutes the entire agreement and supersedes all other prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter thereof, provided, however, that (i)
the "standstill" provisions of the Letter of Intent (as defined and described
below), (ii) the Credit Agreement (as defined and described below), (iii) the
Subordination Agreement (as defined and described below) and (iv) the
Confidentiality Agreement will remain in effect in accordance with their terms.
Amendment. The Merger Agreement provides that it may not be amended except
by an instrument in writing signed on behalf of each of the parties, and
provided that any amendment effected after obtaining the Company Stockholder
Approval may be subject to further approval of the Company's stockholders if
required by the DGCL.
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Stockholder Agreements
The following summary of the Stockholder Agreements does not purport to be
complete and is qualified in its entirety by reference to the Stockholder
Agreements, copies of which are filed as Exhibits 2 through 14 and incorporated
herein by reference.
Tender of Shares. In connection with the execution of the Merger Agreement,
Parent and the Purchaser entered into a separate agreement (the "Stockholder
Agreements") with each of Dewey F. Edmunds, Robert S. Colman, Kenneth B. Sawyer,
Richard P. Greenthal, Harold J. Meyers, Ralph M. Richart, M.D., Mark W. Stevens,
David H. Cooper, Paul Devereaux, Debra L. Jackson, Mike Lytle and Harold R. Orr,
each of whom is a director and/or executive officer of the Company and an owner
of Shares, Stock Options and/or Warrants, and The William W. Stevens and Virda
J. Stevens Trust, an owner of Shares and Warrants (collectively, the
"Stockholder Parties"). The Stockholder Parties currently own a total of 537,795
Shares, representing approximately 9.8% of the outstanding Shares as of January
27, 1997. Pursuant to the respective Stockholder Agreements, each Stockholder
Party agreed to validly tender (or cause the record owner of such Shares to
validly tender), and not to withdraw, pursuant to and in accordance with the
terms of the Offer, the number of Shares owned beneficially by such Stockholder
Party and any Shares acquired by such Stockholder Party in any capacity after
the date of the respective Stockholder Agreement. Each Stockholder Party also
agreed in the respective Stockholder Agreement that if such party holds Stock
Options and/or Warrants, such party will, if requested by the Company, consent
to the cancellation and conversion of such party's Stock Options and/or Warrants
in accordance with the terms of the Merger Agreement and will execute all
appropriate documentation in connection with such cancellation and conversion.
Provisions Concerning Shares. Pursuant to the respective Stockholder
Agreements, each Stockholder Party agreed that at any meeting of the Company's
stockholders or in connection with any written consent of the Company's
stockholders, such Stockholder Party will vote (or cause to be voted) the Shares
(if any) then held of record or beneficially owned by such party (i) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the approval of the terms thereof and each of the other actions contemplated
by the Merger Agreement and such Stockholder Agreement and any actions required
in furtherance thereof and (ii) against any Acquisition Proposal and against any
action or agreement that would impede, frustrate, prevent or nullify such
Stockholder Agreement or result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or that would result in any of the conditions to the
Offer or to the Merger not being fulfilled. The Stockholder Agreements also
provide that, notwithstanding anything therein to the contrary, each Stockholder
Party, in his or her capacity as a director or officer of the Company, as the
case may be, and in accordance with the Merger Agreement, may exercise his or
her fiduciary duties with respect to the Company. In the respective Stockholder
Agreements, each Stockholder Party also agreed, among other things, not to
transfer such party's Shares and not to, in such party's capacity as a
stockholder of the Company, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent or any of its affiliates or representatives) concerning any
Acquisition Proposal.
Employment Agreement
The following summary of the Employment Agreement does not purport to be
complete and is qualified in its entirety by reference to the Employment
Agreement, the form of which is filed as Exhibit 15 and incorporated herein by
reference.
Pursuant to the Merger Agreement, upon or prior to the consummation of the
Offer, Parent and the Company will enter into the Employment Agreement with Mr.
Edmunds. The Employment Agreement provides that Mr. Edmunds will serve as Vice
President and General Manager of the Company or any entity (including a division
of Parent) that succeeds to all or any substantial part of the business and
operations of the Company for a term commencing on the date upon which the
Purchaser purchases Shares pursuant to the Offer and ending on February 28,
1999, unless sooner terminated as described below.
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Pursuant to the Employment Agreement, Mr. Edmunds will (i) receive an
annual base salary of not less than $180,000, or such larger amount as may from
time to time be fixed by Parent, (ii) be entitled to bonus compensation that is
comparable (in the manner in which it is determined and with respect to the time
of payment) to that of Parent's domestic executive employees who perform duties
and have responsibilities comparable to those of Mr. Edmunds, (iii) be entitled
to participate in all plans and other benefits made available by Parent
generally to its domestic executive employees who perform duties and have
responsibilities comparable to those of Mr. Edmunds and (iv) be eligible to
participate in Parent's 1993 Stock Option Plan. Parent's management will
recommend to the Compensation Committee of Parent's Board of Directors that Mr.
Edmunds be granted options under such plan in an amount that is determined in a
manner comparable to the manner in which option grants are determined for
Parent's domestic executive employees who perform duties and have
responsibilities comparable to those of Mr. Edmunds.
Mr. Edmunds may terminate the Employment Agreement after the occurrence of
certain events specified therein (any such event, "Good Reason"). In addition,
the Company may terminate the Employment Agreement if Mr. Edmunds suffers a
"Disability" or for "Cause" (as each such term is defined in the Employment
Agreement). If the Employment Agreement is terminated by Mr. Edmunds for Good
Reason or by the Company for certain reasons specified in the Employment
Agreement, the Company will continue to pay compensation and provide benefits to
Mr. Edmunds for a period beginning on the date of the termination notice and
ending on the later of the second anniversary of such date or February 28, 1999.
In addition, if at any time after a "Change in Control" (as defined in the
Employment Agreement), Mr. Edmunds terminates his employment for Good Reason, or
Parent or the Company terminates Mr. Edmunds, then in lieu of the periodic
payments specified in the preceding sentence, Mr. Edmunds will receive, at his
election, within five business days of such termination, the present value of
such periodic payments.
The Confidentiality Agreement
On October 8, 1996, the Company and Parent entered into the Confidentiality
Agreement pursuant to which the Company and Parent agreed to exchange certain
information, to treat such information as confidential and to use such
information solely in connection with the evaluation of a possible business
relationship between them. The foregoing summary of the Confidentiality
Agreement does not purport to be complete and is qualified in its entirety by
reference to the text of the Confidentiality Agreement, a copy of which is filed
as Exhibit 16 hereto and incorporated herein by reference.
The Letter of Intent
On December 24, 1996, the Company and Parent entered into a letter
agreement (the "Letter of Intent"), which contained, among other things, a
non-binding agreement of Parent to acquire the Company by means of either (i) a
tender offer to be made by a wholly owned subsidiary of Parent for all of the
issued and outstanding Shares, subject to certain conditions, for a price of
$2.00 per Share in cash, and, following the completion thereof, the merger of
such subsidiary with and into the Company pursuant to which each outstanding
Share then owned by such subsidiary will be exchanged for $2.00 per share in
cash, and each Stock Option, Warrant and other right to acquire a Share will be
exchanged for $2.00 less the exercise price of such Stock Option, Warrant or
right; or (ii) an all-cash merger of such subsidiary with and into the Company
for the price set forth in clause (i). Consummation of such transaction was
subject to various conditions, including Parent's satisfactory completion of a
due diligence review of the Company.
The Letter of Intent also contained a "standstill" provision, which,
subject to certain provisos, precludes Parent from, among other things,
acquiring Shares without the Company's consent until December 24, 1997. In
addition, the Letter of Intent contained an exclusive dealing provision, which
precludes the Company from initiating, soliciting, seeking or negotiating
certain acquisition proposals with, or providing confidential information to,
third parties.
The foregoing summary of the Letter of Intent does not purport to be
complete and is qualified in its entirety by reference to the text of the Letter
of Intent, a copy of which is filed as Exhibit 17 hereto and incorporated herein
by reference.
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The Credit Agreement
The Company, Insight Imaging Systems, Inc., a California corporation and
wholly owned subsidiary of the Company ("Insight" and, together with the
Company, "Borrower"), and Parent entered into a credit agreement, dated as of
December 24, 1996 (the "Credit Agreement"), pursuant to which, among other
things, Parent agreed to make available to Borrower a line of credit (the
"Line") of up to an aggregate principal amount of $3 million outstanding at any
time (the "Maximum Available Credit") to pay necessary and reasonable operating
expenses or, in Parent's sole and absolute discretion, for any other purpose
related to the operations of Borrower.
Upon execution and delivery of the Credit Agreement, Parent made an advance
to Borrower under the Line (an "Advance") of $2.5 million. As of the date of
this Schedule 14D-9, $500,000 of additional borrowing capacity is available to
Borrower under the Credit Agreement.
Also pursuant to the Credit Agreement, Borrower granted to Parent a
security interest in and lien on the Collateral (as defined in the Credit
Agreement), which includes, without limitation, all of Borrower's rights, title
and interest in and to all of its personal property, rights, interests and
privileges. In connection therewith, Borrower and Parent entered into certain
security agreements. All of Borrower's indebtedness under the Credit Agreement
is subordinated to Borrower's indebtedness owed to its bank lender to the extent
provided in the Subordination Agreement (as defined and described below).
Pursuant to the Credit Agreement, at any time and from time to time during
the term of the Credit Agreement and until the Termination Date (as defined
below), Borrower may request an Advance, and Parent will make such Advance upon
the terms and subject to the conditions of the Credit Agreement. Each
outstanding Advance is, and each future Advance will be, evidenced by a note
(the "Note"). Advances bear interest on the unpaid principal balance outstanding
at any time at the floating interest rate of 4% per annum in excess of the prime
rate of interest set forth in Money Rates Section of The Wall Street Journal
rounded up to the nearest one-eighth (the "Line Interest Rate") or such lesser
rate permitted by applicable law if the Line Interest Rate would violate
applicable law. Except as otherwise provided in the Credit Agreement, Borrower
is obligated to pay in full all unpaid principal on the Line and all interest
accrued but unpaid thereon on March 25, 1997.
The Credit Agreement will terminate pursuant to its terms on the date (the
"Termination Date") on which (a) there is an Event of Default (as defined below)
upon which Parent forthwith declares all principal and interest on the Note to
be immediately due and payable or on which all principal and interest is
immediately due and payable without any declaration by Parent or (b) the date of
the earliest to occur of (i) the termination of the Letter of Intent other than
by means of the execution and delivery of a definitive merger agreement as
contemplated therein, (ii) the termination of such definitive merger agreement
other than by means of the consummation of the transactions contemplated therein
or (iii) March 25, 1997.
The Credit Agreement provides that the occurrence of any one or more of the
following events will constitute an "Event of Default" under the Credit
Agreement and the Note: (a) Borrower fails to pay as and when due any principal
or interest under the Credit Agreement or under the Note, or uses the proceeds
of Advances in violation of the terms thereof; (b) Borrower fails to observe or
perform any obligation or any covenant to be observed or performed by it under
the Credit Agreement or under the Note or in any other agreement between Parent
and Borrower; (c) Borrower defaults after December 24, 1996 in the payment or
performance of any material obligation or material indebtedness to another
person whether then existing or thereafter incurred, including, without
limitation, any event of default as defined in the Coast Agreement (as defined
below) that is not then subject to Coast's (as defined below) forbearance under
the terms of the Forbearance Letter (as defined below); (d) any material
statement, certificate, report, representation or warranty made or furnished by
Borrower in the Credit Agreement or in compliance with the provisions thereof
prove to have been false or misleading in any material respect at the time when
made, deemed made or furnished; (e)(i) any money judgment, writ or warrant of
attachment or similar process involving an amount in excess of $50,000 is
entered or filed against Borrower or any of its assets or properties and remains
undischarged for a period of 30 days, or (ii) any judgment or order of any court
or administrative agency awarding damages under the federal securities laws or
in any action seeking reimbursement, indemnification
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or contributions with respect to payment of any such claim; (f) Borrower (A)
applies for or consents to the appointment of a receiver, trustee or liquidator
of itself or of its property, (B) is unable, or admits in writing inability, to
pay its debts as they mature, (C) makes a general assignment for the benefit of
creditors, (D) is adjudicated bankrupt or insolvent, (E) files a voluntary
petition in bankruptcy, or a petition or answer seeking reorganization or an
arrangement with creditors to take advantage of any insolvency law, or an answer
admitting the material allegations of a bankruptcy, reorganization or insolvency
petition filed against it, (F) takes corporate action for the purpose of
effecting any of the foregoing or (G) has an order for relief entered against it
in any proceeding under the United States Bankruptcy Code; (g) an order,
judgment or decree is entered, with the application, approval or consent of
Borrower, by any court of competent jurisdiction, approving a petition seeking
reorganization of Borrower or appointing a receiver, trustee or liquidator of
Borrower or of all or a substantial part of its assets, and such order, judgment
or decrees continues unstayed and in effect for any period of 30 consecutive
days, (h) if (1) subject to a proviso, any person or group within the meaning of
Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated
thereunder other than Parent acquires beneficial ownership (within the meaning
of Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company (or other securities convertible into such securities) representing 20%
of the combined voting power of all securities of the Company entitled to vote
in the election of director, or (2) a majority of the Board ceases for any
reason to consist of (x) individuals who on December 10, 1996 were serving as
directors of the Company and (y) individuals who subsequently become members of
the Board if such individuals' nomination for election or election to the Board
is recommended or approved by a majority of the Board; (i) the Credit Agreement
ceases for any reason to be in full force and effect or is declared to be null
and void or unenforceable in whole or in part; (j) there occurs any material
adverse change in the business, properties, operations or condition (financial
or otherwise) of Borrower; (k) other than Permitted Liens or Liens (as both such
terms defined in the Credit Agreement) in favor of Parent or Liens otherwise
consented to in writing by Parent, any Lien or series of Liens is imposed
against Borrower or any of the Collateral whether by operation of law or by
consent, except where the result of such Lien does not have a material adverse
effect on the properties, operations, profits or condition (financial or
otherwise) of Borrower; or (l) Borrower ceases to conduct its business
substantially as it was conducted as of December 24, 1996, or changes the nature
of its business.
The foregoing summary of the Credit Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the Credit
Agreement, a copy of which is filed as Exhibit 18 hereto and incorporated herein
by reference.
The Subordination Agreement
Concurrently with the execution of the Credit Agreement, Parent, Borrower
and Coast Business Credit, a division of Southern Pacific Thrift & Loan
Association ("Coast"), entered into a Subordination and Intercreditor Agreement,
dated as of December 24, 1996 (the "Subordination Agreement"), pursuant to which
Parent and Borrower agreed, among other things, that the indebtedness of
Borrower to Parent under the Credit Agreement and the Note is subordinated, and
the payment thereof deferred if and when required pursuant to the terms thereof,
to any and all rights, claims, demands, indebtedness, action or causes of action
of any nature whatsoever that Coast might have against Borrower with respect to
Borrower's indebtedness to Coast pursuant to (a) the Amended and Restated Loan
Agreement, dated May 22, 1996, between Coast and Borrower (the "Coast
Agreement") and (b) the loan documents assigned to Coast by Mercury Partners LLC
on December 24, 1996 (the "Mercury Agreement").
The foregoing summary of the Subordination Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Subordination Agreement, a copy of which is filed as Exhibit 19 hereto and
incorporated herein by reference.
The Forbearance Letter
Coast executed and delivered to Parent and Borrower a letter, dated as of
December 24, 1996 (the "Forbearance Letter"), in which Coast agreed to forbear
from exercising any of its default rights and remedies in connection with the
violation of any and all covenants of which Borrower may have been in breach as
of the
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date of the Forbearance Letter under the Coast Agreement and the Mercury
Agreement, and any and all covenants under the Coast Agreement and the Mercury
Agreement that might occur subsequent to the date of the Forbearance Letter
through the earlier of March 25, 1997 or the date on which the Letter of Intent
terminates other than by execution of a definitive merger agreement as
contemplated therein.
The foregoing summary of the Forbearance Letter does not purport to be
complete and is qualified in its entirety by reference to the text of the
Forbearance Letter, a copy of which is filed as Exhibit 20 hereto and
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board has determined that the Offer and the Merger are fair to and in
the best interests of the Company and its stockholders, has unanimously approved
the Merger Agreement and the transactions contemplated thereby and unanimously
recommends that all holders of Shares tender their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION.
The Company has experienced severe financial difficulties that raised
substantial doubts about its ability to continue as a going concern. The Company
sustained net losses of $11,171,000, $11,850,000 and $2,215,000 in fiscal 1996,
1995 and 1994, respectively. For the fiscal quarter ended September 30, 1996,
the Company sustained a net loss of $1,327,000.
In addition, the Company has experienced severe constraints on its
liquidity. At September 30, 1996, the Company had minimal cash reserves, a
consolidated net working capital deficiency of $3,392,000 and a deficit in
stockholders' equity of $2,061,000. The Company had also borrowed substantially
all of the amount available under its existing line of credit pursuant to the
Coast Agreement.
Management has explored several alternatives that it believed would return
the Company to profitability. In fiscal 1995, the Company undertook a plan of
restructuring (the "Restructuring"), which included management personnel
changes, product consolidation and the relocation and consolidation of the
Company's operations from facilities in Canoga Park, California and San Juan
Capistrano, California to one facility in Carlsbad, California. In May 1996, the
Company acquired Insight, a private company located in San Carlos, California,
in a stock-for-stock merger (the "Insight Acquisition"). Insight was engaged in
the business of designing, manufacturing and marketing a family of intraoral
video cameras for the dental industry. Management believed that the Insight
Acquisition would enable the Company to enhance its market position with respect
to intraoral cameras for dental operatory use and would decrease the Company and
Insight's total costs by consolidating their operating facilities and selling,
general and administrative expenses.
In connection with the Insight Acquisition, the Company assumed all of
Insight's liabilities. In entering into the Insight Acquisition, Management
recognized that the Company would require significant financing to discharge
such liabilities as well as to complete the integration of Insight and the
Company's other restructuring plans. At the time of the Insight Acquisition,
Insight was severely undercapitalized and was itself in need of working capital.
The cost of restructuring and integrating Insight's operations with the
Company's, which was expected to result in substantial future savings, was
estimated at $962,000. These costs included charges related to personnel
termination and costs associated with discontinuing Insight's facilities and
operations, and inventory write-down for product integration. At the time of the
Insight Acquisition, Management believed that the financing required to cover
its restructuring costs and current liabilities and obligations would be
available to the Company. This proved not to be the case on any economically
feasible basis.
During the period immediately preceding the Insight Acquisition and
continuing thereafter, Management actively sought sources of equity financing
and was successful in negotiating with Coast to increase its available credit
limit from $2.5 million to $4 million. Management also endeavored to obtain
extensions on
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invoice payment terms from certain vendors and to obtain agreements from vendors
that they would continue to ship needed product components to the Company
without interruption.
However, the Company was unable to obtain sufficient infusions of equity or
debt capital either in a timely manner or on acceptable terms. Further, despite
the negotiated increase in the Company's credit limit, its borrowings were
limited by the amount of its inventory, accounts receivable and other assets.
The Company is delinquent on certain payments to its vendors under the terms of
applicable vendor invoices and has suffered delays or interruptions in the
receipt of needed components. While demand for the Company's products is
typically strongest in the fiscal quarter ending December 31 of each year, the
Company's liquidity constraints and consequent delays in receipt of components
have prevented it from capitalizing on such demand in the quarter just ended,
despite reasonably strong customer orders. In addition, the Company lacked
sufficient funds to complete its product development and marketing initiatives,
fully achieve the efficiencies and reduced cost structure envisioned in the
Restructuring or integrate the management, manufacturing and marketing
activities of Insight and the Company in order to realize anticipated synergies
and efficiencies. Because of its financial difficulties, The Nasdaq Stock Market
informed the Company in September 1996 that the Company no longer met certain
continuing listing criteria of The Nasdaq Stock Market; and, on December 5,
1996, The Nasdaq Stock Market ceased listing the Shares. The Shares are
currently traded on the Over-the-Counter Bulletin Board.
Throughout 1996, Management reviewed the strategic options available to the
Company to ameliorate its financial difficulties in order to maintain or
increase stockholder value. Management conducted an extensive review of the
Company's financial condition (including its cash position) and prospects, the
status of the Company's product development, marketing initiatives and the
integration of Insight and the potential for realizations of values therefrom
and the changing dental marketplace and health care environment. In addition,
Management reviewed the impact on the Company and the possible value of the
Shares attributable to different strategic alternatives, including the
implementation of a new restructuring plan to further reduce the Company's
costs, certain bankruptcy and other restructuring options, certain alliances and
business combinations with other companies and finally the possible sale of the
Company.
In September 1996, Management determined to approach a number of entities
that might be interested in engaging in a strategic alliance, business
combination or acquisition transaction with the Company. At the same time, the
Company continued to develop a plan with respect to actions that it could
undertake in the event that a satisfactory result from such efforts was not
achieved.
Parent was one of the parties approached by executives of the Company
regarding a possible acquisition of the Company. The Company and Parent had
previously considered an acquisition by Parent of the Company in July 1994, at
which time discussions had led to the execution of a letter of intent. Under
that letter of intent, subject to certain conditions, including Parent's
completion of a satisfactory due diligence investigation of the Company and the
negotiation and execution of definitive agreements, Parent agreed to acquire the
Company for a price of $16 3/8 per share in a cash transaction (the "Previous
Proposal"). No definitive agreements were executed in connection with the
Previous Proposal. In September 1994, Parent terminated the letter of intent
relating to the Previous Proposal because issues identified in its due diligence
investigation of the Company could not be resolved to Parent's satisfaction.
Although the Company and Parent discussed the possibility of negotiating a
transaction at a significantly lower price, the parties could not reach
agreement, and all discussions with respect to the Previous Proposal terminated
in September 1994.
On September 30, 1996, executives of the Company and Parent met to discuss
the Company's financial condition and business, and to explore whether Parent
was willing to consider an acquisition of the Company. On October 6, 1996, the
parties met again and entered into the Confidentiality Agreement prior to
Parent's review of certain confidential information concerning the Company.
In November 1996, executives of the Company and Parent met again and
discussed the deteriorating financial condition of the Company. Among other
matters, the parties discussed the fact that the Company was in default under
certain covenants of the Coast Agreement and the subordinated credit agreement
between the Company and Mercury, and that the Company did not have sufficient
cash to meet its current obligations. At that time, Parent informed the Company
that it was not interested in effecting the proposed
16
17
transaction for stock in Parent and that Parent would be prepared to consider
acquiring the Company, subject to certain conditions, at a purchase price of
$2.00 per share in cash. On November 29, 1996, the Shares closed at a price of
$1.25 per Share. Parent also indicated that it would be prepared, subject to
reaching agreement with Coast and Mercury, to make funds available to the
Company, prior to the consummation of the transaction, for working capital
purposes.
At a special meeting held on December 10, 1996, the Board reviewed and
discussed the proposed acquisition of the Company by Parent and various drafts
of legal documents relating to such transaction (including the Credit Agreement
and the agreements contemplated thereby). The Board also reviewed and discussed
another acquisition proposal received by the Company and the Company's
restructuring alternatives. The Board, after reviewing such matters with its
legal advisor, unanimously determined to authorize the continuation of
negotiations with Parent and the execution of a letter of intent and credit
agreement with Parent pursuant to certain guidelines discussed at the meeting.
On December 20, 1996, the Board held a special meeting to consider the
status of the proposed acquisition of the Company by Parent. After a discussion
among Board members and their legal advisor, the Board by unanimous vote of all
directors present approved the Credit Agreement and the Subordination Agreement
and the transactions contemplated thereby.
During the next several days, discussions were held among the Company,
Parent and their respective advisors and representatives on a range of issues
and the terms and conditions of a letter of intent in connection with the
proposed acquisition of the Company by Parent and the credit arrangements
relating thereto.
On December 24, 1996, the Company and Parent entered into the Letter of
Intent. Also on December 24, 1996, the Company, Insight and Parent entered into
the Credit Agreement and the Company, Insight, Parent and Coast entered into the
Subordination Agreement. Upon the execution and delivery of the Credit
Agreement, Parent made an Advance to the Company and Insight under the Line of
$2.5 million; no further Advances have been made since such date. Also on the
same date, Coast purchased from Mercury the indebtedness owed to Mercury by the
Company, and Coast delivered the Forbearance Letter to the Company and Parent.
See "Agreements with Parent and the Purchaser -- The Credit Agreement," "-- The
Subordination Agreement" and "-- The Forbearance Letter."
Throughout the remainder of December 1996 and in early January 1997, Parent
and its advisors and representatives reviewed financial and other information
provided by the Company subject to the terms of the Confidentiality Agreement.
In addition, the Company and its advisors and representatives proceeded with
negotiating definitive agreements based on the Letter of Intent. On January 20,
1997, Cleary Gull was engaged to render a fairness opinion to the Company.
On January 20, 1997, the Board held a special meeting to discuss the
proposed transaction. At that meeting, representatives of Cleary Gull gave a
presentation analyzing the proposed transaction and delivered its oral opinion
(which it subsequently confirmed in writing) that as of the date thereof the
$2.00 per Share consideration to be received by the holders of Shares is fair to
such holders from a financial point of view. The Company's legal counsel
summarized for the Board the legal aspects of the proposed transaction. On
January 27, 1997, the Board, by action by unanimous written consent, determined
that the Offer and the Merger are fair to and in the best interests of the
Company and its stockholders, approved the Merger Agreement and the transactions
contemplated thereby, recommended that all holders of Shares tender such Shares
pursuant to the Offer and determined to recommend that stockholders of the
Company vote in favor of approval and adoption of the Merger Agreement if such
approval is required by the DGCL upon completion of the Offer.
The Merger Agreement and the Stockholder Agreements were executed and
delivered by each party thereto on January 27, 1997 and the Company and Parent
publicly announced the transaction on January 28, 1997.
On January 31, 1997, Parent commenced the Offer.
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18
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender such Shares pursuant to the
Offer, the Board considered a number of factors, including:
(a) presentations by Management regarding the financial condition,
results of operations, business and prospects of the Company, including the
status of the Company's product development and marketing initiatives and
integration of Insight and the impact of the constraints on the Company's
liquidity;
(b) that the Company is severely undercapitalized and has attempted to
raise adequate debt and/or equity capital, but has been unable to do so in
a timely manner and on terms that would not adversely affect stockholder
value;
(c) that The Nasdaq Stock Market ceased listing the Shares, which
adversely affected the ability of investors to dispose, and obtain accurate
quotations as to the market value, of their Shares and the ability or
willingness of broker-dealers to make a market in the Shares;
(d) that, since September 1994, the Share price was on a downward
spiral from a high of about $15.25 per Share to a low of about $0.55 per
Share in December 1996;
(e) the opinion of Cleary Gull to the effect that as of the date of
such opinion the $2.00 per Share consideration to be received by holders of
the Shares in the Offer and the Merger is fair to such holders from a
financial point of view. A copy of the opinion of Cleary Gull is attached
hereto and filed as Exhibit 23, and is incorporated herein by reference.
STOCKHOLDERS ARE URGED TO READ THE OPINION OF CLEARY GULL IN ITS ENTIRETY;
(f) that the Merger Agreement contains no material restraints that
would prevent any third party from making an acquisition proposal and is
structured to permit the Company, in the exercise of its fiduciary duties,
to engage in negotiations concerning, provide information to or have
discussions with any third party satisfying the conditions described above
in Item 3 under "Agreements with Parent and the Purchaser -- The Merger
Agreement -- Exclusive Dealing"; and
(g) the ability of Parent to consummate the Offer and the Merger
without conditioning the Offer on obtaining any specific financing.
The Board did not assign relative weights to the factors set forth above or
determine that any factor was of particular importance. Rather, the Board viewed
its position and recommendations as based on the totality of the information
presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company entered into a letter agreement with Cleary Gull, dated January
20, 1997 (the "Cleary Gull Agreement"), pursuant to which Cleary Gull agreed to
render a written fairness opinion to the Company in connection with a potential
transaction with Parent. Pursuant to the Cleary Gull Agreement, the Company
agreed to pay Cleary Gull a fee of $50,000, $25,000 of which was payable on the
delivery of the written fairness opinion and $25,000 of which is payable on
February 28, 1997. The Company also agreed to reimburse Cleary Gull for its
reasonable out-of-pocket expenses up to a limit of $15,000 and to indemnify
Cleary Gull against certain liabilities whether or not the transaction is
completed.
From time to time, Cleary Gull has provided certain financial and/or
investment banking services to Parent unrelated to the Previous Proposal, and
has received fees for the rendering of such services. In addition, Cleary Gull
provided financial advisory services to Parent in connection with the Previous
Proposal. Based on representations made by Parent in the Merger Agreement, since
January 1, 1995, Cleary Gull has not been engaged by, has not provided any
investment banking or other financial advisory services to and has not been paid
for the provision of any such services by Parent, the Purchaser or any of their
subsidiaries or affiliates. However, Cleary Gull may have, since January 1,
1995, made a market in and traded, and may in the future make a market in and
trade, securities of the Company and Parent in the ordinary course of its
business for its
18
19
own account and the account of customers and, accordingly, may at any time hold
a long or short position in such securities.
Except as disclosed herein, 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 holders of Shares on the Company's
behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transaction in the Shares has been effected during the past 60 days
by the Company, or to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer,
director and affiliate of the Company currently intends to tender all Shares
over which he or she has dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3(b) or 4(b) above, the Company is not
engaged in any negotiation in response to the Offer that relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company 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 set forth in Items 3(b) or 4(b) above, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Schedule I 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 other than at
a meeting of the Company's stockholders.
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20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. Agreement and Plan of Merger, dated as of January 27, 1997, by and among
DENTSPLY International Inc., Image Acquisition Corp. and New Image Industries,
Inc.
Exhibit 2. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Robert S. Colman
Exhibit 3. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and David H. Cooper
Exhibit 4. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Paul Devereaux
Exhibit 5. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Dewey F. Edmunds
Exhibit 6. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Richard P. Greenthal
Exhibit 7. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Debra L. Jackson
Exhibit 8. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Mike Lytle
Exhibit 9. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Harold J. Meyers
Exhibit 10. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Harold R. Orr
Exhibit 11. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Ralph M. Richart, M.D.
Exhibit 12. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Kenneth P. Sawyer
Exhibit 13. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and Mark W. Stevens
Exhibit 14. Stockholder Agreement, dated as of January 27, 1997, by and among DENTSPLY
International Inc., Image Acquisition Corp. and The William W. Stevens and Virda
J. Stevens Trust
Exhibit 15. Form of Employment Agreement among New Image Industries, Inc., DENTSPLY
International Inc. and Dewey F. Edmunds.
Exhibit 16. Mutual Confidential Non-Disclosure Agreement, dated October 8, 1996, between New
Image Industries, Inc. and DENTSPLY International Inc.
Exhibit 17. Letter Agreement, dated December 24, 1996, between DENTSPLY International Inc.
and New Image Industries, Inc.
Exhibit 18. Credit Agreement, dated as of December 24, 1996, among New Image Industries,
Inc., Insight Imaging Systems, Inc. and DENTSPLY International Inc.
Exhibit 19. Subordination and Intercreditor Agreement, dated as of December 24, 1996, among
New Image Industries, Inc., Insight Imaging Systems, Inc. and Coast Business
Credit
Exhibit 20. Letter Agreement dated as of December 24, 1996, among Coast Business Credit,
DENTSPLY International Inc., New Image Industries, Inc. and Insight Imaging
Systems, Inc.
Exhibit 21. Press Release issued jointly by New Image Industries, Inc. and DENTSPLY
International Inc., dated January 28, 1997
Exhibit 22. Letter to Stockholders of New Image Industries, Inc., dated January 31, 1997*
Exhibit 23. Opinion of Cleary Gull Reiland & McDevitt Inc., dated January 20, 1997*
- ---------------
* Included in copies mailed to stockholders.
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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.
Dated: January 31, 1997 NEW IMAGE INDUSTRIES, INC.
By: /s/ HAROLD R. ORR
------------------------------------
Harold R. Orr
Chief Financial Officer
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SCHEDULE I
NEW IMAGE INDUSTRIES, INC.
2283 COSMOS COURT
CARLSBAD, CALIFORNIA 92009
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 January 31, 1997 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of New Image Industries, Inc., a Delaware corporation (the
"Company"), to the holders of shares of common stock, par value $.001 per share,
of the Company (the "Shares"). You are receiving this Information Statement in
connection with the possible election of the Purchaser Designees (as defined
below) to all of the seats on the Board of Directors of the Company (the
"Board").
The Company, DENTSPLY International Inc., a Delaware corporation
("Parent"), and Image Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent (the "Purchaser"), entered into an Agreement and Plan of
Merger, dated as of January 27, 1997 (the "Merger Agreement"), pursuant to which
(i) Parent will cause the Purchaser to commence a tender offer (the "Offer") for
all outstanding Shares at the price of $2.00 per Share, net to the seller in
cash, without interest, and (ii) the Purchaser will be merged with and into the
Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to take such action to cause the
Purchaser Designees to be elected to the Board under the circumstances described
therein. See "Right to Designate Directors; Purchaser Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on January
31, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on Monday, March 3, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning Parent,
the Purchaser and the Purchaser Designees has been furnished to the Company by
Parent, and the Company assumes no responsibility for the accuracy or
completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
Upon the successful completion of the Offer, the Purchaser will own at
least a majority of the then-outstanding Shares. Pursuant to the Merger
Agreement, such ownership will entitle the Purchaser at such time to designate
all of the directors on the Board (the "Purchaser Designees"). The Company
agreed in the Merger Agreement that at such time it will obtain resignations of
all then-serving directors of the Company and, prior to such resignations, cause
the Purchaser Designees to be elected to, and to constitute all of, the Board.
Each Purchaser Designee will serve as a director until such director's successor
is elected and qualified or until such director's earlier resignation or
removal.
I-1
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The Purchaser has determined that John C. Miles II, J. Patrick Clark,
Thomas L. Whiting and Edward D. Yates will be the Purchaser Designees. Set forth
below are the ages as of January 27, 1997 and certain other information
regarding each Purchaser Designee. The principal business address of each
Purchaser Designee is c/o DENTSPLY International Inc., 570 West College Avenue,
York, Pennsylvania 17405-0872. Each Purchaser Designee is a citizen of the
United States and no Purchaser Designee owns any Shares.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE-YEAR EMPLOYMENT HISTORY
- ----------------------------------- --------------------------------------------------------
John C. Miles II................... Mr. Miles, 54, has served as Chief Executive Officer of
Parent since January 1, 1996, Vice Chairman of the Board
of Directors of Parent since December 11, 1996 and a
director of Parent since the merger (the "Dentsply
Merger") of Dentsply International Inc. ("Old Dentsply")
and GENDEX Corporation, which occurred on June 11, 1993.
Mr. Miles is also the President and a director of the
Purchaser. From the Dentsply Merger until December 31,
1995, Mr. Miles served as President and Chief Operating
Officer of Parent. From January 1990 until the Dentsply
Merger, Mr. Miles served as President and Chief
Operating Officer and a director of Old Dentsply.
J. Patrick Clark................... Mr. Clark, 55, has been Vice President, Secretary and
General Counsel of Parent since the Dentsply Merger. Mr.
Clark is also a Vice President and Secretary of the
Purchaser. From 1986 until the Dentsply Merger, Mr.
Clark served as General Counsel and Secretary of Old
Dentsply.
Thomas L. Whiting.................. Mr. Whiting, 54, has served as Senior Vice President,
Pacific Rim, Latin America, Gendex and Tulsa Dental, of
Parent since 1995. Mr. Whiting is also a director of the
Purchaser. From the Dentsply Merger until such time, Mr.
Whiting was Vice President and General Manager of
Parent's L.D. Caulk Division, and prior thereto served
in the same capacity with Old Dentsply since joining Old
Dentsply in 1987.
Edward D. Yates.................... Mr. Yates, 54, has been Senior Vice President and Chief
Financial Officer of Parent since the Dentsply Merger
and prior thereto served in a similar capacity with Old
Dentsply commencing in March 1991. Mr. Yates is a
Certified Public Accountant. He is also Senior Vice
President, Chief Financial Officer and a director of the
Purchaser.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share is entitled to one vote per Share on each matter
properly brought before an annual or special meeting of stockholders of the
Company. As of January 27, 1997, there were 5,479,911 Shares outstanding.
DIRECTORS OF THE COMPANY
The Board currently consists of Robert S. Colman, Dewey F. Edmunds, Richard
P. Greenthal, Harold J. Meyers, Ralph M. Richart, M.D., Kenneth B. Sawyer and
Mark W. Stevens and there are currently no vacancies on the Board. There are no
family relationships among any of the directors or executive officers of the
Company. As indicated above, all of the current directors will resign effective
immediately following the purchase of at least a majority of the
then-outstanding Shares by the Purchaser pursuant to the Offer and will be
replaced by the Purchaser Designees.
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24
EXECUTIVE OFFICERS OF THE COMPANY
The names of the current executive officers of the Company, their ages as
of January 27, 1997 and certain other information about them are set forth
below. The Bylaws of the Company provide that officers of the Company will be
chosen annually by the Board and serve at the pleasure of the Board.
NAME AGE POSITION(S) HELD
- ----------------------- --- -------------------------------------
Dewey F. Edmunds 54 President and Chief Executive Officer
Mark W. Stevens 41 Senior Vice President, Business
Development and International Sales
David H. Cooper 62 Vice President and Chief Technical
Officer
Paul Devereaux 34 Vice President, Marketing
Debra L. Jackson 40 Vice President, Operations and
Technical Services
Mike Lytle 34 Vice President, Sales
Harold R. Orr 48 Chief Financial Officer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
GENERAL
Decisions regarding the Company executive compensation are made by the
Compensation Committee of the Board, which, throughout fiscal 1996, consisted of
Mr. Greenthal and Dr. Richart, each of whom is a "non-employee director" of the
Company as such term is defined in Rule 16b-3 adopted under the Exchange Act.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
In March 1995, the Company retained Colman Furlong & Co., a firm that
provides investment banking and financial advisory services ("Colman Furlong"),
in connection with the Restructuring, which engagement expired on June 30, 1996.
Robert S. Colman, the Chairman of the Board, is a partner of Colman Furlong, and
Kenneth B. Sawyer, a director of the Company, is a former principal of Colman
Furlong. In consideration of the services rendered by Colman Furlong, the
Company issued Warrants to purchase 350,000 Shares to Colman Furlong with an
exercise price equal to the fair market value of the Shares on the date of
issuance, 137,500 and 112,500 of which were subsequently allocated to Messrs.
Colman and Sawyer, respectively. The Company also paid Colman Furlong $184,000
and $156,000 in fiscal 1996 and 1995, respectively, for financial consulting
services rendered. In addition, the Company paid Colman Furlong $150,000 in
fiscal 1996 for financial services provided by Colman Furlong in connection with
the Insight Acquisition.
The disclosure set forth under Item 3(b) of the Schedule 14D-9 is
incorporated by reference herein.
COMMITTEES OF THE BOARD; ATTENDANCE AT BOARD MEETINGS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee is responsible for recommending to the Board of
Directors the engagement of the Company's independent auditors, reviewing and
approving the services performed by such independent auditors and reviewing and
evaluating the Company's accounting policies and internal accounting controls.
The current members of the Audit Committee are Messrs. Meyers and Greenthal. The
Audit Committee met six times during fiscal 1996.
The Compensation Committee reviews and approves the compensation of
officers and key employees, including the granting of Stock Options under the
Company's various stock incentive plans. The current members of the Compensation
Committee are Mr. Greenthal and Dr. Richart. The Compensation Committee met once
during fiscal 1996.
I-3
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The Board held a total of ten meetings during the Company's 1996 fiscal
year. Each director attended at least 75% of such meetings of the Board and the
total number of meetings held by all committees of the Board on which he served.
Parent has informed the Company that the Purchaser Designees have not yet
determined whether, or if, any committees of the Board will continue after the
present Board members are replaced. Board meetings will be held consistent with
the past practice of Parent with respect to its subsidiaries.
COMPENSATION OF DIRECTORS
Directors do not receive cash compensation for their services. The
Company's 1993 Director Incentive Plan provides that each director who is not
engaged by the Company as either an employee or a consultant will receive Stock
Options to purchase 7,000 Shares when he or she initially joins the Board and
Stock Options to purchase 12,500 Shares on the date of each subsequent Annual
Meeting of Stockholders during his or her term as director. All such Stock
Options will become immediately exercisable upon the successful completion of
the Offer.
Parent has informed the Company that no compensation will be paid to the
Purchaser Designees to act as directors of the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables and descriptive materials set forth separately, for
the fiscal years indicated, each component of compensation paid or awarded to,
or earned by, the Chief Executive Officer of the Company and each of the three
other most highly compensated officers who served as executive officers during
fiscal 1996 and whose annual salary and bonus for fiscal 1996 exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by the Named
Executive Officers during fiscal 1994, 1995 and 1996.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
POSITION YEAR $ $ $ # $
- ------------------------ ---- -------- ------- ------------ ------------ ------------
Dewey F. Edmunds(1) 1996 $180,000 -- $ 66,262(2) -- --
Chief Executive 1995 16,500 -- -- -- --
Officer & President
Mark W. Stevens(3) 1996 127,500 $14,357 -- 40,000 --
Senior Vice President, 1995 114,000 14,000 -- -- --
Business Development 1994 81,850 8,512 -- -- --
and International
Sales
Doug Golay (4) 1996 109,917 -- 53,424(2) 15,000 13,243(5)
Former Vice President, 1995 193,172(6) -- 8,750(7) 50,000 --
Software Development 1994 156,000 -- -- -- --
David H. Cooper(8) 1996 135,000 -- 98,565(2) -- --
Vice President and 1995 15,057 -- -- 20,000 --
Chief Technical
Officer
I-4
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- ---------------
(1) Mr. Edmunds joined the Company during its 1995 fiscal year.
(2) Consists of relocation reimbursement.
(3) Mr. Stevens joined the Company during its 1996 fiscal year upon consummation
of the Insight Acquisition. Amounts include compensation paid or awarded to,
or earned by, Mr. Stevens as an executive officer of Insight.
(4) Mr. Golay's employment with the Company terminated on February 1, 1996.
(5) Consists of amounts paid with respect to a consulting arrangement subsequent
to the termination of Mr. Golay's employment with the Company.
(6) Includes $18,172 annual salary paid in lieu of vacation.
(7) Consists of automobile allowance.
(8) Mr. Cooper joined the Company during its 1995 fiscal year.
Upon the successful completion of the Offer, the Purchaser Designees will
constitute all of the Board. Parent has informed the Company that, thereafter,
subject to the provisions of applicable employment agreements, the compensation
of executive officers of the Company will be determined in the sole discretion
of Parent.
STOCK OPTION GRANTS IN FISCAL 1996
The following table summarizes grants of Stock Options to the Named
Executive Officers for the fiscal year ended June 30, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS/SARS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM
OPTIONS/SARS FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) YEAR(2) ($/SHARE) DATE 5% ($) 10% ($)
- --------------------- ------------ ------------ ----------- ---------- ------- --------
Mark W. Stevens...... 40,000(4) 8.4% 3.625 5/16/01 n/a(3) n/a(3)
Doug Golay........... 15,000(5) 3.1% 2.25 4/30/96 -- --
- ---------------
(1) No Stock Options were granted to either Mr. Edmunds or Mr. Cooper in fiscal
1996.
(2) Stock Options covering an aggregate of 476,256 Shares were granted to
eligible optionees during the fiscal year ended June 30, 1996. This includes
Stock Options to purchase 102,756 Shares that were issued to former
employees of Insight upon conversion of existing options to purchase shares
of Insight common stock.
(3) The Company believes that such calculations would not be meaningful since,
if the Offer is successfully completed, such Stock Options will be cancelled
and converted as provided in the Merger Agreement.
(4) These Stock Options vest as follows: 10,000 on May 31, 1997; 13,000 on May
31, 1998; and 17,000 on May 31, 1999. Does not include fully vested Stock
Options to purchase 17,187 Shares at $3.61 per Share that were issued upon
conversion of existing options to purchase shares of Insight Common Stock.
On November 6, 1996, all such Stock Options were cancelled and Stock Options
to purchase an equal number of shares for which such cancelled Stock Options
could have been exercised were issued with an exercise price of $1.5625 per
Share. All Stock Options will become immediately exercisable upon the
successful completion of the Offer.
(5) These Stock Options expired unexercised 90 days after Mr. Golay's
termination as an employee of the Company.
I-5
27
STOCK OPTION EXERCISES
The following table summarizes the number and value of Stock Options
exercised during fiscal 1996, as well as the number and value of unexercised
Stock Options as of June 30, 1996 held by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE(#)(1)
- ------------------------------------- ----------- ----------- -------------------- -------------------
Dewey F. Edmunds..................... -- -- 60,000/140,000 0/0
Mark W. Stevens...................... -- -- 17,186/40,000 0/0
Doug Golay........................... 20,000 $90,000 30,000/0 0/0
David H. Cooper...................... -- -- 20,000/0 0/0
- ---------------
(1) Based on the difference between the last reported sale price of the Shares
on the NASDAQ Stock Market on June 30, 1996 of $3.00 and the exercise price.
Based upon the Offer Price of $2.00 per Share and the exercise price of
reissued Stock Options of $1.5625, the total value of the unexercised
in-the-money Stock Options, all of which will become immediately exercisable
upon the successful completion of the Offer, is $87,500, $25,019 and $8,750
for Messrs. Edmunds, Stevens and Cooper, respectively. Mr. Golay's Stock
Options expired unexercised 90 days after his termination as an employee of
the Company.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
Employment Arrangements with Mr. Edmunds. Mr. Edmunds has entered into an
employment agreement with the Company, dated May 30, 1995, providing for at will
employment with the Company, which may be terminated by Mr. Edmunds or the
Company at any time and for any reason, with or without cause and with or
without notice. Pursuant to such agreement, Mr. Edmunds receives an annual
salary $180,000 and was granted Stock Options to purchase 200,000 Shares at the
closing price of the Shares on the date of grant, 30,000 of which vested
immediately and 30,000, 60,000 and 80,000 of which vested or were to vest on the
first, second and third anniversaries of the commencement of Mr. Edmunds
employment with the Company, respectively, and all of which will vest
immediately upon the occurrence of certain change in control transactions. All
such Stock Options will become immediately exercisable upon the successful
completion of the Offer.
Pursuant to the Merger Agreement, upon or prior to the consummation of the
Offer, Parent, the Purchaser and Mr. Edmunds will enter into the Employment
Agreement. See "Agreements with Parent and the Purchaser -- Employment
Agreement" in Item 3 of the Schedule 14D-9.
Employment Arrangements with Mr. Stevens. In connection with the Image
Acquisition, Mr. Stevens entered into an employment agreement with the Company,
dated as of May 17, 1996, the term of which will end on June 30, 1997. Pursuant
to such agreement, Mr. Stevens receives an annual salary of $130,000 and an
aggregate bonus of $45,167, $10,000 of which was or is payable on each of June
15, 1996, September 15, 1996, December 15, 1996 and March 15, 1997 and $5,167 of
which is payable on June 15, 1997. Also pursuant to such agreement, Mr. Stevens
was granted Stock Options to purchase 40,000 Shares at the closing price of the
Shares on the day prior to the date of closing of the Insight Acquisition;
10,000, 13,000 and 17,000 of such Stock Options were to vest on May 31, 1997,
1998 and 1999, respectively. All such Stock Options will become immediately
exercisable upon the successful completion of the Offer. If such agreement is
terminated by the Company prior to completion of the term thereof for any other
reason other than for "cause" (as defined in such agreement), Mr. Stevens will
be entitled to all compensation due him for the remainder of the term of such
agreement in accordance with the time of payment set forth therein.
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28
Employment Arrangements with Mr. Cooper. Mr. Cooper has entered into an
employment agreement with the Company, dated as of May 30, 1995, the term of
which commenced on May 23, 1995 and ended on May 23, 1996. Upon the termination
of such agreement, Mr. Cooper's employment by the Company is at will, and may be
terminated by Mr. Cooper or the Company at any time and for any reason, with or
without cause and with or without notice. Pursuant to such agreement, Mr. Cooper
receives an annual salary of $135,000 and was granted Stock Options to purchase
20,000 Shares at an exercise price equal to the closing market price of the
Shares on the date of grant, all of which vested on May 30, 1996.
The Company and Mr. Cooper have also entered into a Patent and Technical
Information License Agreement, dated January 24, 1997, pursuant to which Mr.
Cooper granted to the Company an exclusive license to use certain patents (the
"Patents") and technical information relating to an intra-oral video camera (the
"Licensed Product") to make, have made, use, sell, offer for sale and market the
Licensed Product in the dental field. In connection therewith, the Company
agreed to pay to Mr. Cooper a royalty of $70 for each camera system that
includes the Licensed Product (and for each Licensed Product sold separately and
not part of a camera system), when sold by the Company or any sublicensee. The
term of such agreement will end at the earlier of 25 years or upon the
expiration of the last expiring Patent.
Consulting Agreement with Mr. Golay. Mr. Golay has entered into a
consulting agreement with the Company, which was effective from February 1, 1996
until June 28, 1996. Pursuant to such agreement, Mr. Golay agreed to provide
certain services to the Company relating to software development, and the
Company agreed to pay Mr. Golay an aggregate of $27,656.72.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION FOR FISCAL YEAR 1996
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors of
New Image Industries, Inc. (the "Company") is responsible for establishing and
administering the Company's policies that govern executive compensation and
benefit practices. The Committee evaluates the performance of the Company's
executive officers, including the Named Executive Officers listed above in the
summary compensation table, and determines their cash compensation levels,
equity incentives and related benefits, all subject to Board approval. The
Committee is also responsible for the administration of the Company's stock
option and other stock-based and equity-based plans. The Committee met once
during the fiscal year ended June 30, 1996.
COMPENSATION PHILOSOPHY
The Company's executive compensation programs are designed to attract and
retain the talented executives believed to be necessary to maximize stockholder
value. In so doing, the Committee attempts to provide levels of compensation
that integrate cash compensation and incentive plans with the Company's
strategic goals. The Committee believes this effectively serves to align the
interests of executive management with the long-term interests of the
stockholders, thereby motivating Company executives to achieve the strategic
business goals of the Company.
With regard to the Company's performance, the measures used for determining
appropriate levels of compensation for executive officers include the Company's
overall performance, ability to meet strategic goals within the current economic
climate and industry environment, expansion by acquisition or otherwise, profit
retention and profitability, all of which the Committee believes combine to
enhance stockholder value.
The Committee believes that the components of executive compensation should
include base salary, stock option grants and other benefits, and should be
linked to individual and Company performance.
BASE SALARY
Total executive compensation from salary and incentives is currently within
a range believed to be competitive for similarly situated executives within
other middle-market companies of similar size and stage
I-7
29
of development. While the Committee considers cash bonuses to be an effective
tool for compensating management, the Company's performance during fiscal 1996
did not, in the Committee's view, merit any cash bonuses.
The Committee considers Company management proposals concerning salary
adjustments for executive officers and then makes recommendations to the entire
Board of Directors for its approval. The annual base salary of $180,000 for Mr.
Edmunds, the Company's Chief Executive Officer, was established under the terms
of an employment agreement entered into in May 1995 with the approval of the
Board of Directors.
In determining base salaries for executives for fiscal 1996, the Committee
considered the Company's earnings, growth in revenues, individual performance
and achievement, areas of responsibilities, position, tenure and internal
comparability.
STOCK OPTION GRANTS
The Committee believes that stock options are an important element in
executive compensation. The Committee believes that the total number of options
outstanding does not result in undue dilution of stockholders' equity, as the
level of equity incentives provided has enabled the Company to attract and
retain executives who could earn comparably greater salaries at similarly
situated companies.
Although no options were canceled or reissued during fiscal 1996, certain
options were cancelled and options and warrants were issued with lower exercise
prices in each of fiscal 1995 and 1997. Options have in the past been a
significant factor in inducing individuals to enter into and remain in the
service of the Company. The grant of options helps ensure that management's
interests remain closely aligned with those of the Company's stockholders.
Although lowering the exercise prices of the outstanding options may have a
potential dilutive effect, the Committee believes that the prior, higher
exercise prices of options may act as a disincentive to the officers of the
Company. The Committee believes that the cancellation and reissuance of options
will encourage holders of options to exercise their options and acquire shares
of the Company's common stock, since the exercise prices for the reissued
options will equal the market price of the Company's common stock on the date of
reissuance. In this way, the Committee hopes to foster increased ownership of
the Company's common stock by the Company's officers, and help continue to align
the interests of management with those of the stockholders.
Richard P. Greenthal
Ralph M. Richard, M.D.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities ("10% Stockholders") to file reports of
ownership and changes in ownership with the Commission. Executive officers,
directors and 10% Stockholders are required to furnish the Company with copies
of all Section 16(a) forms they file. As a result of a reporting compliance
program, based solely upon its review of the copies of forms received by the
Company and written representations from executive officers and directors, the
Company believes that, during
I-8
30
fiscal 1996, all Section 16(a) filing requirements applicable to the Company's
officers, directors and 10% Stockholders were complied with, except for the
following filings, which were not made on a timely basis:
NUMBER OF
NUMBER OF TRANSACTIONS NOT
EXECUTIVE OFFICER OR DIRECTOR LATE REPORTS REPORTED TIMELY
---------------------------------------------- ------------ ----------------
Robert S. Colman.............................. 3 3
David H. Cooper............................... 1 1
Paul Devereaux................................ 1 1
Richard P. Greenthal.......................... 2 2
Debra L. Jackson.............................. 1 1
Mike Lytle.................................... 1 1
Harold J. Meyer............................... 2 2
Harold R. Orr................................. 1 1
Ralph M. Richart, M.D......................... 2 2
Kenneth B. Sawyer............................. 3 3
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the stockholders of the Shares with the cumulative
return of the NASDAQ Stock Market Index (U.S. Companies) and the Index for
NASDAQ Surgical, Medical and Dental Instruments and Supplies for the period
commencing June 28, 1991 and ending June 28, 1996.
CSRP Total Returns Index for: 06/28/91 06/30/92 06/30/93 06/30/94 06/30/95 06/28/96
- ----------------------------- -------- -------- -------- -------- -------- --------
New Image Industries, Inc. 100.0 289.5 842.1 421.1 163.2 126.3
Nasdaq Stock Market (US Companies) 100.0 120.1 151.1 152.5 203.6 261.4
NASDAQ Stocks (SIC 3840-3849 US Companies) 100.0 105.6 100.0 88.5 128.3 158.4
I-9
31
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth those persons or groups who are known to the
Company to be beneficial owners of more than 5% of the outstanding Shares as of
January 27, 1997. The following information is based on reports on Schedules 13D
or 13G filed with the Commission or other reliable information.
AMOUNT AND
NATURE OF
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------------------------------------------- -------------------- ----------
The William W. Stevens and Virda J. Stevens Trust 453,623(2) 8.2
3055 Triad Drive
Livermore, California 94550-9559
Weghsteen & Co. 383,950 7.0
Oyde Burg, 6
800 Brugge
Belgium
Kennedy Capital Management, Inc. 324,400 5.9
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141-6821
- ---------------
(1) The nature of beneficial ownership for shares shown in this column is sole
voting and investment power unless otherwise indicated herein, subject to
community property laws where applicable.
(2) Includes 41,524 Shares with respect to which The William W. Stevens and
Virda J. Stevens Trust (the "Stevens Trust") has the right to acquire
beneficial ownership by virtue of currently exercisable Warrants or Warrants
exercisable within 60 days of January 27, 1997. Mark W. Stevens, a director
and executive officer of the Company, is the son of Mr. and Mrs. Stevens.
Does not reflect the effects, if any, on beneficial ownership as a result of
the obligations of the Stevens Trust pursuant to its Stockholder Agreement
to tender and vote its Shares in connection with the Offer and the Merger.
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32
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below are the number of Shares beneficially owned by each current
director of the Company, each Named Executive Officer and by all directors and
executive officers as a group as of January 27, 1997, and the percentage that
such Shares bear to the total number of Shares outstanding as of such date. This
information does not reflect the effects, if any, on beneficial ownership as a
result of the obligations of the Stockholder Parties pursuant to their
respective Stockholder Agreements to tender and vote their Shares in connection
with the Offer and the Merger. See "Agreements with Parent and the
Purchaser -- Stockholder Agreements" in Item 3 of the Schedule 14D-9.
AMOUNTS OF
SHARES
BENEFICIALLY PERCENTAGE
NAME AND INDIVIDUAL OR GROUP OWNED(1) OF CLASS
-------------------------------------------------- ---------------- ----------
Dewey F. Edmunds.................................. 67,500(2) 1.2
Mark W. Stevens................................... 24,386(3) *
David H. Cooper................................... 22,000(4) *
Robert S. Colman.................................. 247,333(5) 4.4
Richard P. Greenthal.............................. 6,499(6) *
Harold J. Meyers.................................. 4,166(7) *
Ralph M. Richart, M.D............................. 6,499(8) *
Kenneth B. Sawyer................................. 123,199(9) 2.2
Doug Golay(10).................................... -- --
All executive officers and directors as a group
(12 persons).................................... 524,835(11) 8.9
- ---------------
* Less than 1%.
(1) The information contained in this table is based upon information furnished
to the Company by the persons named above or obtained from records of the
Company. The nature of beneficial ownership for Shares shown in this column
is sole voting and investment power unless otherwise indicated herein,
subject to community property laws where applicable.
(2) Includes 60,000 Shares with respect to which Mr. Edmunds has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of January 27, 1997.
Upon the successful completion of the Offer, Stock Options to purchase
200,000 Shares will become immediately exercisable.
(3) Includes 17,186 Shares with respect to which Mr. Stevens has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of January 27, 1997.
Upon the successful completion of the Offer, Stock Options to purchase
46,000 Shares will become immediately exercisable. Also includes 7,200
Shares owned by Mr. Stevens' wife, as to which Shares Mr. Stevens disclaims
beneficial ownership.
(4) Includes 20,000 Shares with respect to which Mr. Cooper has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of January 27, 1997.
Upon the successful completion of the Offer, Stock Options to purchase
21,500 Shares will become immediately exercisable.
(5) Includes 833 Shares and 137,500 Shares with respect to which Mr. Colman has
the right to acquire beneficial ownership by virtue of currently
exercisable Stock Options or Warrants, respectively, or Stock Options or
Warrants, as the case may be, exercisable within 60 days of January 27,
1997. Upon the successful completion of the Offer, Stock Options and
Warrant to purchase 1,667 Shares and 45,000 Shares, respectively, will
become immediately exercisable. Also includes 4,000 Shares held by a trust,
as to which Shares Mr. Colman disclaims beneficial ownership.
(6) Includes 6,499 Shares with respect to which Mr. Greenthal has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of
I-11
33
January 27, 1997. Upon the successful completion of the Offer, Stock
Options to purchase 13,001 Shares will become immediately exercisable.
(7) Includes 4,166 Shares with respect to which Mr. Meyers has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of January 27, 1997.
Upon the successful completion of the Offer, Stock Options and Warrants to
purchase 8,334 Shares and 35,000 Shares, respectively, will become
immediately exercisable.
(8) Includes 6,499 Shares with respect to which Dr. Richart has the right to
acquire beneficial ownership by virtue of currently exercisable Stock
Options or Stock Options exercisable within 60 days of January 27, 1997.
Upon the successful completion of the Offer, Stock Options to purchase
13,001 Shares will become immediately exercisable.
(9) Includes 6,499 Shares and 112,500 Shares with respect to which Mr. Sawyer
has the right to acquire beneficial ownership by virtue of currently
exercisable Stock Options or Warrants, respectively, or Stock Options or
Warrants, as the case may be, exercisable within 60 days of January 27,
1997. Upon the successful completion of the Offer, Stock Options to
purchase 13,001 Shares will become immediately exercisable.
(10) Although Mr. Golay was a Named Executive Officer in fiscal 1996, he is not
currently an executive officer or director of the Company.
(11) Includes 141,935 Shares and 250,000 Shares with respect to which all
executive officers and directors as a group have the right to acquire
beneficial ownership by virtue of currently exercisable Stock Options or
Warrants, respectively, or Stock Options or Warrants, as the case may be,
exercisable within 60 days of January 27, 1997. Upon the successful
completion of the Offer, Stock Options and Warrants to purchase 442,504
Shares and 80,000 Shares, respectively, will become immediately
exercisable.
I-12
34
SCHEDULE II
CLEARY GULL REILAND & McDEVITT INC.
100 East Wisconsin Avenue
Milwaukee, WI 53202
414-291-4500
January 20, 1997
Board of Directors
New Image Industries, Inc.
2283 Cosmos Court
Carlsbad, CA 92009
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Stockholders") of shares of common stock, par value
$0.001 per share ("New Image Common Stock"), of New Image Industries, Inc.
("New Image") of the consideration to be received by the Stockholders pursuant
to the terms of the draft Agreement and Plan of Merger dated as of January 14,
1997 (the "Merger Agreement") by and among DENTSPLY International Inc.
("DENTSPLY"), Image Acquisition, Inc., a wholly owned, direct subsidiary of
DENTSPLY ("Subsidiary") and New Image. Pursuant to the Merger Agreement,
Subsidiary will offer to purchase all of the outstanding New Image Common Stock
in a tender offer (the "Tender Offer") and, following completion of the Tender
Offer, the Subsidiary will be merged (the "Merger") with and into New Image and
New Image will become a wholly owned subsidiary of DENTSPLY. The Tender Offer
and the Merger are collectively referred to herein as the "Acquisition".
Under the Merger Agreement, Subsidiary will offer to purchase all of the issued
and outstanding shares of New Image Common Stock in the Tender Offer for $2.00
per share in cash (the "Offer Consideration"). Upon consummation of the
Merger, any shares of New Image Common Stock not acquired in the Tender Offer
will be converted into the right to receive the Offer Consideration in the
Merger.
In arriving at our opinion, we have reviewed, among other things, the Merger
Agreement and certain business and financial information relating to New Image,
including certain financial projections, estimates and analyses provided to us
by New Image and certain business and financial information relating to
DENTSPLY. We have also reviewed and discussed the businesses and prospects of
New Image and its subsidiaries with representatives of New Image's management.
In arriving at our opinion, we have considered (a) certain financial and stock
market data relating to New Image and in certain cases have compared that
information to similar data for other publicly held companies in businesses
considered to be generally comparable to New Image, (b) certain publicly
available information concerning the nature and terms of certain transactions
35
New Image Industries, Inc.
January 20, 1997
Page 2
that Cleary Gull believed to be relevant on a comparative basis including the
acquisition of Insight Imaging Systems, Inc. by New Image effective May 17,
1996, (c) an unleveraged after-tax discounted cash flow analysis of New Image,
(d) the financial impact of the Acquisition on DENTSPLY's future earnings per
share, (e) a comparison of the purchase price premium to be paid for the New
Image Common Stock based on the Offer Consideration to certain other
similar-sized acquisitions, (f) a historical review of New Image's stock market
price, (g) the trading history of New Image, (h) a liquidation analysis of New
Image, (i) the financial and other conditions of New Image at the time of the
acceptance by New Image of DENTSPLY's offer, (j) the results of New Image's
efforts during FY96 and FY97 to arrange equity financing, (k) the results of
New Image's efforts to find a buyer and (l) such other information, financial
studies and analyses and financial, economic and market criteria as we deemed
relevant and appropriate.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. We have not made an independent evaluation or appraisal of
any assets or liabilities (contingent or otherwise) of New Image or any of
their respective subsidiaries, nor have we been furnished with any such
evaluation or appraisal that has not been publicly disclosed. With respect to
the financial plans, estimates and analyses provided to us by New Image, we
have assumed, with your permission, that all such information was reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management of New Image as to future financial performance and was
based upon the historical performance of New Image and certain estimates and
assumptions which were reasonable at the time made. Our opinion is based on
economic, monetary and market conditions existing on the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Offer Consideration to be received by the Stockholders in the
Tender Offer and the subsequent Merger pursuant to the Merger Agreement is
fair, from a financial point of view, to the Stockholders.
We are acting as financial advisor to the Board of Directors of New Image in
this transaction and will receive a fee for our services, payable at the
mailing of the Offer to Purchase, the related Letter of Transmittal and other
materials. Our fee is not contingent upon the approval and consummation of the
Acquisition. In addition, New Image has agreed to indemnify us for certain
liabilities that may arise out of the rendering of this opinion. New Image has
also agreed to reimburse Cleary Gull for its reasonable and properly documented
expenses up to $15,000. Cleary Gull has not been engaged previously by New
Image to render financial advisory or investment banking services. However,
Cleary Gull has in the past provided and may in the future provide financial
36
New Image Industries, Inc.
January 20, 1997
Page 3
advisory and/or investment banking services to DENTSPLY and related entities.
The Board of Directors of New Image recognizes that in June 1994 Cleary Gull
was retained by DENTSPLY to explore a possible business combination with New
Image. Cleary Gull's engagement by DENTSPLY ended in September 1994 when
DENTSPLY and New Image were unable to agree on the terms of a business
combination. Since September 1994 and except for certain trading activities
relating to DENTSPLY common stock and options, Cleary Gull has not rendered any
financial advisory or investment banking services to DENTSPLY. Cleary Gull
provides research coverage on DENTSPLY and currently rates DENTSPLY a #1-Buy,
Cleary Gull's highest rating. In addition, in the ordinary course of business,
we may trade securities of New Image and DENTSPLY for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of New Image
and is rendered to the Board of Directors of New Image in connection with its
consideration of the Acquisition. We are not making any recommendation
regarding whether or not it is advisable for Stockholders to tender their
shares of New Image Common Stock in the Tender Offer. We have not been
requested to opine as to, and our opinion does not in any manner address, New
Image's underlying business decision to proceed with or effect the Acquisition.
Very truly yours,
/s/ Cleary Gull Reiland & McDevitt Inc.
CLEARY GULL REILAND & McDEVITT INC.