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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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STEEL OF WEST VIRGINIA, INC.
(NAME OF SUBJECT COMPANY)
STEEL OF WEST VIRGINIA, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMPANY COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
858154107
(CUSIP NUMBER OF CLASS OF SECURITIES)
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TIMOTHY R. DUKE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
17TH STREET AND 2ND AVENUE
HUNTINGTON, WEST VIRGINIA 25703
(304) 696-8200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S)
FILING STATEMENT)
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WITH A COPY TO:
JAMES D. EPSTEIN, ESQ.
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
PHILADELPHIA, PA 19103
(215) 981-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Steel of West Virginia, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 17th Street and 2nd Avenue, Huntington, West
Virginia 25703. The title of the class of equity securities to which this
statement relates is the Company Common Stock, par value $.01 per share (the
"Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF PURCHASER.
This statement relates to the tender offer by SWVA Acquisition, Inc., a
Virginia corporation (the "Purchaser") and a wholly-owned subsidiary of
Roanoke Electric Steel Corporation, a Virginia corporation (the "Parent"),
disclosed in a Tender Offer Statement on Schedule 14D-1, dated November 17,
1998 (the "Schedule 14D-l"), to purchase all of the issued and outstanding
Shares, and the associated rights to purchase Common Stock (the "Rights")
issued pursuant to the Rights Agreement, dated as of March 19, 1997, between
the Company and Continental Stock Transfer and Trust Company, as Rights Agent,
as amended on November 10, 1998 (the "Rights Agreement"), at a price of $10.75
per Share, net to the seller in cash (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated November
17, 1998, as may hereafter be amended or supplemented (the "Offer to
Purchase"), and the related Letter of Transmittal, as may hereafter be amended
or supplemented (which, together with the Offer to Purchase, constitute the
"Offer"). Unless the context otherwise requires, all references herein to
Shares shall be deemed to include the associated Rights. Capitalized terms
used herein without definition have the same meanings specified in the Offer
to Purchase.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 10, 1998 (the "Merger Agreement"), by and among the Parent, the
Purchaser and the Company. The Merger Agreement provides, among other things,
that as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), with the Company surviving as a wholly-owned
subsidiary of the Parent (the "Surviving Corporation"). A copy of the Merger
Agreement is filed herewith as Exhibit 1 to this Schedule 14D-9 and is
incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Parent and the Purchaser are c/o Roanoke Electric Steel Corporation, 102
Westside Boulevard, N.W., P.O. Box 13948, Roanoke, VA 24038.
ITEM 3. IDENTITY AND BACKGROUND.
(a) NAME AND ADDRESS OF THE COMPANY. The name and address of the Company,
which is the person filing this Statement, are set forth in Item 1 above.
(b) MATERIAL CONTRACTS, ETC.
The following is a summary of the Merger Agreement, the Stock Option
Agreement, the Stock Tender and Voting Agreements, and the Rights Amendment,
each of which is qualified in its entirety by reference to such agreement as
filed as exhibits to this Schedule 14D-9.
The Merger Agreement.
THE OFFER. The Merger Agreement provides, among other things, for the
commencement of the Offer as soon as reasonably practicable and, in any event,
within five business days from the date of public announcement of the
execution thereof. The obligation of the Purchaser to accept for payment
Shares tendered pursuant to the Offer is subject to (i) at the expiration of
the Offer, a number of Shares that constitutes more than 50% of the voting
power (determined on a fully-diluted basis) entitled to vote generally in the
election of directors or in a merger has been validly tendered in the Offer
and not properly withdrawn prior to the expiration of the Offer (the "Minimum
Condition"), and (ii) the satisfaction or waiver of the other Offer Conditions
(as
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described below). Under the Merger Agreement, the Purchaser expressly reserves
the right, in its sole discretion, to waive any of the Offer Conditions (other
than the Minimum Condition) and make any other changes in the terms or
conditions of the Offer. Notwithstanding the foregoing, under the terms of the
Merger Agreement, without the written consent of the Company, the Purchaser
cannot (a) decrease the price per Share to be paid in the Offer, change the
form of consideration payable in the Offer (other than by adding
consideration) or decrease the number of Shares sought in the Offer, (b)
change or amend the Offer Conditions (other than to waive any Offer Condition,
except that the Minimum Condition may not be waived without the consent of the
Company), (c) impose additional conditions to the Offer or (d) amend any other
term of the Offer in any manner adverse to the holders of Shares (other than
insignificant changes or amendments). The Purchaser has no obligation to pay
interest on the purchase price of tendered Shares, including in the event the
Purchaser exercises its right to extend the period of time during which the
Offer is open. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the Offer described under "--
Termination Events."
The Merger Agreement provides that, subject to its terms and conditions,
including but not limited to the Offer Conditions, the Parent will accept for
payment and pay for Shares as soon as it is permitted to do so under
applicable law. If, on the initial Expiration Date, the Offer Conditions have
not been satisfied or waived, the Purchaser will have the right, in its sole
discretion, to extend the Offer for one or more periods not to exceed an
aggregate of 30 business days and, if all of the Offer Conditions have been
satisfied or waived and less than 90% of the outstanding Shares have been
tendered in the Offer and not withdrawn, then the Purchaser will have the
additional right, in its sole discretion, so long as the Purchaser and the
Parent each waive in writing the satisfaction of each of the Offer Conditions,
to extend the Offer for one or more periods not to exceed an aggregate of 20
business days. Notwithstanding the foregoing, however, the Purchaser may not
extend the Expiration Date beyond the Outside Date, without the consent of the
Company.
Notwithstanding any other provision of the Offer, the Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, may postpone the acceptance for payment or
payment for any Shares tendered pursuant to the Offer, and may terminate the
Offer (whether or not the Purchaser has purchased or paid for any Shares) to
the extent permitted by the Merger Agreement unless the following conditions
(the "Offer Conditions") have been satisfied:
(a) the Minimum Condition;
(b) all of the representations and warranties of the Company set
forth in the Merger Agreement that are qualified by reference to a
Material Adverse Effect (as defined in the Merger Agreement) are true
and correct, and any such representations and warranties that are not
so qualified are true and correct in all respects except in any
respect that is not likely to have a Material Adverse Effect, in each
case as if such representations and warranties were made at the time
of such determination; or
(c) at any time on or after the date of the Merger Agreement, none
of the following events has occurred:
(1) the entry or issuance of any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding
before any court or governmental, administrative or regulatory
authority or agency, or any statute, rule or regulation enacted,
entered, enforced, promulgated, amended or issued that is
applicable to the Parent, the Purchaser, the Company, or any
subsidiary or affiliate of the Purchaser or the Company, or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that
is likely to have the effect of: (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the
Offer in accordance with the terms of the Merger Agreement, the
acceptance for payment of, or payment for, some of or all the
Shares by the Purchaser or any of its affiliates or the
consummation of the Merger; (ii) prohibiting the ownership or
operation of the Company and its subsidiaries by the Parent or any
of the Parent's subsidiaries; (iii) imposing material limitations
on the ability of the Parent, the Purchaser
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or any of the Parent's affiliates effectively to acquire or hold or
to exercise in all material respects full rights of ownership of
the Shares, including without limitation the right to vote any
Shares acquired or owned by the Parent or the Purchaser or any of
its affiliates on all matters properly presented to the
stockholders of the Company, including, without limitation, the
adoption of the Merger Agreement or the right to vote any shares of
capital stock of any subsidiary directly or indirectly owned by the
Company; or (iv) requiring divestiture by the Parent or the
Purchaser or any of their affiliates of any Shares;
(2) (i) any general suspension of trading in, or limitation on
prices (other than suspensions or limitations triggered on the
Nasdaq National Market by price fluctuations on a trading day) for,
securities on any national securities exchange, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) a commencement of a war or
material armed hostilities or other material national calamity
directly involving the entire United States or materially adversely
affecting the consummation of the Offer or (v) in the case of any
of the foregoing existing at the time of commencement of the Offer,
a material acceleration or worsening thereof;
(3) (i) the Board of Directors of the Company (the "Board") or
any committee thereof has withdrawn or modified in a manner adverse
to the Parent or the Purchaser the approval or recommendation of
the Offer, the Merger or the Merger Agreement, or approved or
recommended any takeover proposal or any other acquisition of
Shares other than the Offer, (ii) any such person or group has
entered into a definitive agreement or an agreement in principle
with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business
combination with or involving the Company or any of its
subsidiaries, or (iii) the Board or any committee thereof has
resolved to do any of the foregoing;
(4) the Company fails to perform in any material respect any
material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be
performed or complied with by it under the Merger Agreement;
(5) the Merger Agreement has been terminated in accordance with
its terms or the Offer has been terminated with the consent of the
Company; or
(6) any waiting periods under the HSR Act applicable to the
purchase of Shares pursuant to the Offer or the Merger have not
expired or been terminated;
and, upon the failure of any of the conditions set forth in paragraphs (b) or
(c) above, the Purchaser determines, in its reasonable judgment, that it is
inadvisable for the Purchaser to proceed with the Offer or with the acceptance
for payment of or payment for Shares. The Offer Conditions (other than the
Minimum Condition) are for the sole benefit of the Purchaser and may be waived
by the Purchaser in whole or in part at any time and from time to time in its
sole discretion.
THE MERGER. The Merger Agreement provides, that upon the terms and
subject to the conditions thereof and in accordance with the DGCL and the
Virginia Stock Corporation Act, at the Effective Time of the Merger, the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease, and the Company
will continue as the Surviving Corporation. At the Parent's election, any
direct or indirect subsidiary of the Parent other than the Purchaser may be
merged with and into the Company instead of the Purchaser.
Pursuant to the Merger Agreement, each Share issued and outstanding
immediately prior to the Effective Time (unless otherwise provided for) will
be canceled, extinguished and converted into the right to receive the Merger
Consideration, which equals $10.75 in cash, or any higher price that may be
paid pursuant to the Offer, payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share in the
manner described in the Merger Agreement, less any required withholding taxes.
4
The Merger Agreement provides that, immediately prior to the Effective Time,
each outstanding Employee Option, whether or not then exercisable, will be
canceled by the Company, and the holder thereof will be entitled to receive at
the Effective Time or as soon as practicable thereafter from the Company in
consideration for such cancellation an amount in cash equal to the product of
(a) the number of Shares previously subject to such Employee Option and (b)
the excess, if any, of the Merger Consideration over the exercise price per
Share of the Employee Option, less any withholding taxes.
The Merger Agreement provides that, unless otherwise stipulated, Shares that
are issued and outstanding immediately prior to the Effective Time and that
are held by stockholders who have not voted in favor of or consented to the
Merger and have delivered a written demand for appraisal of such Shares in the
time and manner provided in Section 262 of the DGCL and have not failed to
perfect or have not effectively withdrawn or lost their rights to appraisal
and payment under the DGCL will not be converted into the right to receive the
Merger Consideration, but instead will be entitled to receive the
consideration determined pursuant to Section 262 of the DGCL; provided,
however, that, if such holder fails to perfect or has effectively withdrawn or
lost the holder's right to appraisal and payment under the DGCL, such holder's
Shares will thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration as described above without
any interest thereon.
The Merger Agreement also provides that, at the Effective Time and without
any further action on the part of the Company and Purchaser, the Company's
Certificate of Incorporation, as amended and in effect immediately prior to
the Effective Time, will be the certificate of incorporation of the Surviving
Corporation. At the Effective Time and without any further action on the part
of the Company and the Purchaser, the Bylaws of the Company will become the
Bylaws of the Surviving Corporation. The Merger Agreement provides that the
directors of the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, and the officers of the Surviving Corporation will be: Donald G.
Smith, Chairman of the Board; Timothy R. Duke, President; Mark G. Meikle, Vice
President and Treasurer; and W. Bruce Groff, Jr., Vice President of Human
Resources and Secretary; in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
STOCKHOLDERS' MEETING. The Merger Agreement provides that, if required,
the Company, acting through its Board, must, in accordance with and subject to
applicable law and its Certificate of Incorporation, as amended, and its
Bylaws, (i) duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable following consummation of the Offer for
the purpose of adopting the Merger Agreement and the transactions contemplated
thereby (the "Stockholders' Meeting") and (ii) except if the Board by majority
vote determines in good faith, based upon the advice of outside counsel to the
Company that to do so would reasonably likely constitute a breach of fiduciary
duty under applicable law, (A) include in the proxy statement relating to the
Stockholders' Meeting (the "Proxy Statement"), the unanimous recommendation of
the Board that the stockholders of the Company vote in favor of the adoption
of the Merger Agreement and the transactions contemplated thereby and the
written opinion of Janney Montgomery Scott Inc. ("Janney"), the Company's
financial advisor, that the consideration to be received by the stockholders
of the Company pursuant to the Offer and the Merger is fair to the
stockholders of the Company from a financial point of view and (B) use its
reasonable best efforts to obtain the necessary adoption of the Merger
Agreement. At the Stockholders' Meeting, the Parent and the Purchaser will
cause all Shares then owned by them and their subsidiaries to be voted in
favor of adoption of the Merger Agreement and the transactions contemplated
thereby. The Merger Agreement provides that, if required by applicable law, as
soon as practicable following the Parent's request, the Company will prepare
and file a preliminary Proxy Statement with respect to the Stockholders'
Meeting with the Commission under the Exchange Act and the rules and
regulations promulgated thereunder, and will use its reasonable best efforts
to have such Proxy Statement approved by the Commission. The parties will
cooperate with one another in this endeavor. The Merger Agreement provides
that, notwithstanding the foregoing, in the event that the Purchaser acquires
at least 90% of the outstanding Shares, the Company agrees, at the request of
the Purchaser, subject to the respective provisions of the Merger Agreement,
to take all necessary and appropriate
5
action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.
DESIGNATION OF DIRECTORS. Promptly upon the purchase by the Purchaser of
Shares pursuant to the Offer, and from time to time thereafter, the Purchaser
may designate up to such number of directors, rounded up to the next whole
number, to the Board as will give the Purchaser representation on the Board
equal to the product of the total number of directors on such Board (giving
effect to the directors elected pursuant to this sentence and including any
vacancies or unfilled newly-created directorships) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser or any affiliate of the Purchaser bears to the total number of
Shares then outstanding, and the Company will amend its Bylaws to provide for
each of the matters set forth in the Merger Agreement with respect to the
designation of directors and will, at such time, promptly take all action
necessary to cause the Purchaser's designees to be so elected, including
either increasing the size of the Board or securing the resignations of
incumbent directors or both. At such times, the Company will use its
reasonable best efforts to cause persons designated by the Purchaser to
constitute the same percentage as is on the Board of (i) each committee of the
Board, (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board of directors, in each case only to the
extent permitted by law. Until the Purchaser acquires a majority of the
outstanding Shares on a fully-diluted basis, the Company will use its
reasonable best efforts to ensure that all the members of the Board and such
other boards and committees as of the date of the Merger Agreement who are not
employees of the Company will remain members of the Board and such other
boards and committees.
The Company will promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder in order to fulfill its
obligations with respect to the designation of directors and will include in
the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to
stockholders such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill its
obligations with respect to the designation of directors. The Parent or the
Purchaser will supply to the Company and be solely responsible for the
accuracy and completeness of any information with respect to either of them
and their nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
In addition to any vote of the Board required by law, the Certificate of
Incorporation, as amended, the Bylaws of the Company or by the Merger
Agreement, following the election or appointment of the Purchaser's designees
pursuant to the terms of the Merger Agreement and prior to the Effective Time,
the concurrence of a majority of the directors of the Company then in office
who are neither designated by the Purchaser nor are employees of the Company
(the "Disinterested Directors") will be required to authorize any amendment,
or waiver of any term or condition, of the Merger Agreement or the Certificate
of Incorporation, as amended, or Bylaws of the Company, any termination of the
Merger Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of the Purchaser or
waiver or assertion of any of the Company's rights hereunder. The number of
Disinterested Directors will not be less than two; provided, however, that if
the number of Disinterested Directors is reduced below two for any reason, the
remaining Disinterested Director will be entitled to designate persons to fill
such vacancies who will be deemed to be Disinterested Directors for purposes
of the Merger Agreement, or if no Disinterested Directors then remain, the
other directors who were directors prior to the date hereof will designate two
persons who cannot be officers, stockholders or affiliates of the Company, the
Parent or the Purchaser, to fill such vacancies and such persons will be
deemed to be Disinterested Directors for purposes of the Merger Agreement.
ACCESS TO INFORMATION; CONFIDENTIALITY. Pursuant to the Merger Agreement,
from the date thereof to the Effective Time, upon reasonable prior notice, the
Company will, and will cause its subsidiaries, officers, directors, employees,
auditors and other agents to, afford the officers and employees and will use
its reasonable best efforts to cause its auditors and other agents of the
Parent, and financing sources who will agree to be bound by such provisions of
the Merger Agreement as though a party thereto, complete access, consistent
with applicable law, at all reasonable times to its officers, employees,
agents, properties, offices, plants and other
6
facilities and to all books and records, and will furnish Parent and such
financing sources with all financial, operating and other data and information
as Parent, through its officers, employees or agents, or such financing
sources may from time to time reasonably request. The Merger Agreement further
provides that all information obtained by the Parent and the Purchaser
pursuant to the above paragraph will be kept confidential in accordance with
that certain letter agreement Confidentiality Agreement, dated July 20, 1998
(the "Parent Confidentiality Agreement"), between the Parent and Janney, as
agent for the Company, a copy of which is filed as Exhibit 9 to this Schedule
14D-9.
NO SOLICITATION OF TRANSACTIONS. The Company, its affiliates and their
respective officers, directors, employees, representatives and agents were
obligated to immediately cease any existing discussions or negotiations, if
any, with any parties conducted prior to the date of the Merger Agreement with
respect to any acquisition or exchange of all or any material portion of the
assets of, or any equity interest in, the Company or any of its subsidiaries
or any business combination with or involving the Company or any of its
subsidiaries. At any time prior to consummation of the Offer, the Company may,
directly or indirectly, furnish information and access, in each case only in
response to a request for such information or access to any person made after
the date hereof that was not solicited, initiated or knowingly encouraged by
the Company or any of its affiliates or any of its or their respective
officers, directors, employees, representatives or agents after the date
hereof, pursuant to appropriate confidentiality agreements containing terms
and conditions (including standstill provisions) that are no less favorable
than the terms and conditions contained in the Parent Confidentiality
Agreement. Additionally, the Company, its affiliates, officers, directors
employees or representatives, may participate in discussions and negotiate
with such person concerning any merger, sale of assets, sale of shares of
capital stock or similar transaction (including an exchange of stock or
assets) involving the Company or any subsidiary or division of the Company,
only if such person has submitted a proposal to the Board relating to any such
transaction and the Board by a majority vote determines in good faith, based
upon the advice of outside counsel to the Company, that failing to take such
action is reasonably likely to constitute a breach of the Board's fiduciary
duties under applicable law. The Board must provide a copy of any such written
proposal to the Parent immediately after receipt thereof (except such written
proposal must be provided to the Parent by 10:30 a.m. on the next business day
in cases where such written proposal is not received during normal business
hours) and must notify the Parent immediately if any proposal (oral or
written) is made (except the Parent must be notified by 10:30 a.m. on the next
business day in cases where such proposal is not received during normal
business hours) and will in such notice, indicate in reasonable detail the
identity of the offeror and the terms and conditions of any proposal and will
keep the Parent promptly advised of all developments which could reasonably be
expected to culminate in the Board withdrawing, modifying or amending its
recommendation of the Offer, the Merger and the other transactions
contemplated by the Merger Agreement.
Except as set forth herein, neither the Company or any of its affiliates,
nor any of its or their respective officers, directors, employees,
representatives or agents, may, directly or indirectly, solicit, initiate or
knowingly encourage discussions or negotiations with, any corporation,
partnership, person or other entity or group (other than the Parent and the
Purchaser, any affiliate or associate of the Parent and the Purchaser or any
designees of the Parent or the Purchaser) concerning any merger, sale of any
material portion or assets, sale of any shares of capital stock or similar
transactions (including an exchange of stock or assets) involving the Company
or any subsidiary or division of the Company. None of the foregoing, however,
will prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to any tender offer. Furthermore, the Board
may not recommend that the stockholders of the Company tender their Shares in
connection with any such tender offer unless the Board by majority vote
determines in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action is reasonably likely to constitute a
breach of the Board's fiduciary duties under applicable law. The Company
agreed not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party,
unless the Board determines, based upon the advice of outside counsel, that
the failure to make such release or waiver is reasonably likely to constitute
a breach of the Board's fiduciary duties under applicable law.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger
Agreement provides that the Certificate of Incorporation and Bylaws of the
Surviving Corporation must contain provisions
7
no less favorable with respect to indemnification than are set forth in the
Certificate of Incorporation and Bylaws of the Company and these provisions
may not to be materially amended, repealed or otherwise modified for a period
of six years from the Effective Time in any manner that would adversely affect
the rights thereunder of individuals who, at or prior to the Effective Time,
were directors, officers or employees of the Company.
The Merger Agreement also provides that for six years after the Effective
Time, the Surviving Corporation will indemnify and hold harmless each present
and former director and officer of the Company (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, the
"Costs") (but only to the extent such Costs are not otherwise covered by
insurance and paid) incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative (a "Claim" or, collectively, "Claims") arising out of or
pertaining to matters existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under applicable law (and the Surviving Corporation
will also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification). Any of such Indemnified Parties
must promptly notify the Parent of any Claim.
For at least six years after the Effective Time, the Parent will or will
cause the Surviving Corporation to maintain the Company's existing directors'
and officers' liability insurance ("D & O Insurance") so long as the annual
premium for such insurance is not in excess of twice the premium on the date
of the Merger Agreement (the "Maximum Premium"); provided, however, that if
the existing D & O Insurance expires, or is terminated or canceled by the
insurance carrier during such period, the Surviving Corporation will use its
reasonable best efforts to obtain as much D & O Insurance and, to the extent
possible, covering substantially the same matters that were covered under the
D & O Insurance as in effect in the date thereof, as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis)
of the Maximum Premium. The Merger Agreement requires that any successor
corporation or assignee of the Surviving Corporation or the Parent assume
these insurance and indemnification obligations.
FURTHER ACTION; REASONABLE BEST EFFORTS. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, each of the
parties thereto will use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement as soon as practicable, including but not limited to (i) cooperation
in the preparation and filing of the Offer Documents (as defined therein), the
Schedule 14D-9, the Proxy Statement, any required filings under the HSR Act
and any amendments to any thereof, (ii) cooperation with respect to
consummating the financing of the Offer and the Merger and (iii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests
for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries as
are necessary for the consummation of the transactions contemplated by the
Merger Agreement and to fulfill the Offer Conditions.
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement,
the Company has agreed (and has agreed to cause its subsidiaries) to operate
their respective businesses in the ordinary course and in a manner consistent
with past practice. The Company and its subsidiaries will also use reasonable
best efforts to seek to preserve intact their current business organizations,
keep available the service of its current officers, employees and consultants,
and preserve its relationships with customers, suppliers and other persons
with which the Company has significant business relations. Pending
consummation of the Merger, the Company and its subsidiaries have also agreed
not to take any of the following actions without the Parent's consent:
(i) change the Company's governing documents; (ii) issue, deliver, sell,
pledge, dispose of or encumber, or authorize or commit to the issuance, sale,
pledge, disposition or encumbrance of any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of
8
capital stock or any other ownership interest of the Company or any of its
subsidiaries or any material assets of the Company or any of its subsidiaries,
except for sales of inventory in the ordinary course of business and in a
manner consistent with past practice; (iii) declare or pay a dividend or other
distribution, either in cash, stock property or otherwise; (iv) reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly
or indirectly, any of the Company's capital stock; (v)(A) acquire another
entity, (B) incur additional debt or assume, guarantee or endorse the
obligations of another person, (C) enter into any agreement other than in the
ordinary course of business consistent with past practice, or (D) authorize
capital expenditures that are not in the Company's budget on the date of the
Merger Agreement if the amount thereof would exceed specified dollar
thresholds; (vi) increase the compensation of, or grant any severance to,
directors, officers and employees (except to the extent required under
existing plans); (vii) change accounting practices; (viii) make any material
tax election or settle or compromise any material U.S. federal, state, local
or foreign tax liability; (ix) adopt a plan of complete or partial
dissolution; (x) pay or discharge any claims, liabilities or obligations; or
(xi) settle any pending litigation.
EMPLOYEE BENEFITS MATTERS. The Merger Agreement provides that, on and
after the Effective Time, the Parent will cause the Surviving Corporation and
its subsidiaries to promptly pay or provide when due all compensation and
benefits earned through or prior to the Effective Time as provided pursuant to
the terms of any compensation arrangements, employment agreements and employee
or director benefit plans, programs and policies in existence as of the date
thereof for all employees (and former employees) and directors (and former
directors) of the Company and its subsidiaries (including all compensation and
benefits earned through the Effective Time pursuant to the Company Plans
disclosed to the Parent). The Parent and the Company have agreed that the
Surviving Corporation and its subsidiaries will pay promptly or provide when
due all compensation and benefits required to be paid pursuant to the terms of
any individual agreement with any employee, former employee, director or
former director in effect as of the date thereof and disclosed to the Parent.
The Merger Agreement further provides that if employees of the Surviving
Corporation and its subsidiaries become eligible to participate in a medical,
dental or health plan of the Parent or its subsidiaries, the Parent shall
cause such plan to (i) waive any preexisting condition limitations for
conditions covered under the applicable medical, health or dental plans of the
Company and its subsidiaries and (ii) honor any deductible and out of pocket
expenses incurred by the employees and their beneficiaries under such plans
during the portion of the calendar year prior to such participation.
The Merger Agreement further provides that the Surviving Corporation will
perform all of the Company's obligations under and pursuant to the Company's
collective bargaining agreement with union employees. The Surviving
Corporation will also pay management bonuses of up to an aggregate of $600,000
for the fiscal year 1998, in accordance with past practices to the extent that
such bonuses have been accrued in the Company's unaudited interim financial
statements for the nine month period ended September 30, 1998. Under the terms
of the Merger Agreement, the Surviving Corporation is not required to continue
the employment of any person or, with respect to the union obligations, to
take any action or refrain from taking any action that the Company and its
subsidiaries, prior to the Effective Time, could have taken or refrained from
taking.
DISPOSITION OF LITIGATION. The Merger Agreement provides that the Company
agrees that it will not settle any litigation currently pending, or commenced
after the date thereof, against the Company or any of its directors by any
stockholder of the Company relating to the Offer or the Merger Agreement,
without the prior written consent of the Parent (which will not be
unreasonably withheld). The Merger Agreement further provides that, subject to
compliance with its fiduciary obligations under applicable law as advised by
legal counsel, the Company will not voluntarily cooperate with any third party
which has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and cooperate with the Parent and the Purchaser
to resist any such effort to restrain or prohibit or otherwise oppose the
Offer or the Merger.
ADVICE OF CHANGES. The Merger Agreement provides that the Company must
promptly advise the Parent, and the Parent must promptly advise the Company,
of the occurrence or non-occurrence of (i) any event the occurrence or non-
occurrence of which would be likely to cause any representation or warranty
contained in the Merger Agreement to be untrue or inaccurate in any material
respect and (ii) any failure of the Company, the Parent or the Purchaser, as
the case may be, to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
the Merger Agreement.
9
NOMINATION OF TIMOTHY R. DUKE. Upon acceptance and payment for the
Shares in the Offer, Parent, acting through its Board of Directors, will cause
its Board of Directors to be expanded and shall appoint Mr. Duke to fill the
vacancy created by such expansion. Thereafter, the Parent shall cause Mr. Duke
to be nominated for such position at the next annual meeting of stockholders
of the Parent.
COMMITMENT LETTER. Under the Commitment Letter, the Parent has agreed
that until the Effective Time, unless the Company otherwise agrees in writing,
it shall operate its business, and cause each of its subsidiaries and
affiliates, including the Purchaser, to operate their respective businesses,
in a manner so as not to materially impact its ability to borrow the monies
contemplated to be loaned to it or them. By way of example, and not of
limitation, the Parent has agreed therein that neither it, nor any of its
subsidiaries or affiliates (including the Purchaser) will (i) enter into any
financing transaction (other than the sale of common equity for cash
consideration resulting in gross proceeds per share equal to the fair market
value of such common equity) or any merger, consolidation, or purchase or sale
of a substantial portion of the equity or assets, with or of any other person
or entity, or (ii) enter into any recapitalization, reorganization,
liquidation or dissolution, to the extent that any such action under clauses
(i) or (ii) above would materially and adversely impact the Parent's ability
to borrow funds pursuant to the Commitment Letter. From and after the date
hereof and continuing until completion of the Merger, or the earlier
termination of the Merger Agreement in accordance with its terms, the Parent
and the Purchaser have agreed to use the funds currently available under the
Revolving Credit Facility, solely to fund the purchase of Shares pursuant to
the Offer and the payment of the Merger Consideration. In the Merger
Agreement, the Parent and the Purchaser jointly and severally represented and
warranted to the Company that, as of November 10, 1998, (x) at least
$30,000,000 was available under the Revolving Credit Facility and (y) the
Parent had unrestricted cash on its balance sheet of at least $20,000,000,
which $20,000,000 was agreed to only be used to fund the purchase of Shares
pursuant to the Offer and the payment of the Merger Consideration.
REPRESENTATION AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations and warranties by the Company concerning the Company's
capitalization, required filings and consents, the Board's approval of the
Merger Agreement and the transactions contemplated thereby (including
approvals so as to render inapplicable thereto the limitation on business
combinations contained in Section 203 of the DGCL), Commission filings and
financial statements, absence of certain changes or events, compliance with
law, absence of litigation, employee benefit plans, environmental matters, tax
matters, real estate matters, contracts and the engagement of brokers in the
Offer, intellectual property, contracts, potential conflicts of interest and
Year 2000 compliance. Some of the representations are qualified to cover only
those matters that would have a Material Adverse Effect on the Company or its
subsidiaries taken as a whole. As used herein, the term "Material Adverse
Effect" means any change or effect that would be materially adverse to the
results of operations, financial condition or business of the Company and its
subsidiaries taken as a whole.
CONDITIONS OF THE MERGER. Under the Merger Agreement, the respective
obligations of the Parent, the Purchaser and the Company to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions: (i) if required by the DGCL, the Merger Agreement has
been approved by the requisite affirmative vote of the stockholders of the
Company in accordance with the Company's Certificate of Incorporation, as
amended, and the DGCL (which requisite vote the Company has represented to be
solely the affirmative vote of a majority of the outstanding Shares); (ii) no
statute, rule, regulation, executive order, decree, ruling, injunction or
other order (whether temporary, preliminary or permanent) has been enacted,
entered, promulgated or enforced by any United States, foreign, federal or
state court or governmental authority that prohibits, restrains, enjoins or
restricts the consummation of the Merger; provided, however, that each of the
parties has used reasonable best efforts to prevent entry of any such
restraints and to appeal promptly any such restraints that may be entered;
(iii) the Purchaser has purchased Shares pursuant to the Offer; and (iv) any
waiting period applicable to the Merger under the HSR Act has been terminated
or expired.
TERMINATION EVENTS. The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time (notwithstanding
approval thereof by the stockholders of the Company):
(a) by mutual written consent of the Parent, the Purchaser and the
Company;
10
(b) by any of the Purchaser, the Parent or the Company if, by the
Outside Date, any of the Offer Conditions has not been satisfied or
(except with respect to the Minimum Condition) has not been waived by
the Purchaser;
(c) by the Company prior to the purchase of Shares pursuant to the
Offer, if (i) there has been a material breach of any representation,
warranty, covenant or agreement on the part of the Parent or the
Purchaser contained in the Merger Agreement that materially adversely
affects the Parent's or the Purchaser's ability to consummate (or
materially delays commencement or consummation of) the Offer and that
has not been cured prior to the earlier of (A) 10 business days
following notice of such breach by the Company to the Parent and the
Purchaser and (B) two business days prior to the Expiration Date or
(ii) the Purchaser has (x) terminated the Offer or (y) failed to pay
for Shares pursuant to the Offer;
(d) by the Company if, prior to the purchase of Shares pursuant to
the Offer, any person has made a bona fide offer to acquire the Company
(i) that the Board determines in its good faith judgment is more
favorable to the Company's stockholders than the Offer and the Merger
and (ii) as a result of which the Board determines in good faith, based
upon the advice of outside counsel, that the failure to terminate the
Merger Agreement is reasonably likely to constitute a breach of the
Board's fiduciary obligations under applicable law, provided, however,
that termination under this paragraph would not be effective until the
Company made payment of the Termination Fee (as defined below);
(e) by the Parent prior to the purchase of Shares pursuant to the
Offer, if (1) there has been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in the
Merger Agreement that is likely to have a Material Adverse Effect and
that has not been cured prior to the earlier of (A) 10 business days
following notice of such breach and (B) two business days prior to the
date on which the Offer expires; (2) the Board has (x) modified
(including by amendment of the Schedule 14D-9) in a manner adverse to
the Purchaser or withdrawn its approval or recommendation of the Offer,
the Merger Agreement or the Merger, (y) approved or recommended another
offer or transaction pursuant to, or otherwise knowingly and
intentionally breached in a material manner the provisions of, Section
6.5 of the Merger Agreement (relating to solicitation of other offers),
or (z) amended the Rights Agreement to facilitate an offer by any other
person to acquire the Company, or has resolved to effect any of the
foregoing; (3) there has been, solely as a result of the operation of
the Rights Agreement, a material breach of any representation,
warranty, covenant or agreement contained in Section 3.3 or 3.4 of the
Merger Agreement, which material breach has not been cured by the
earlier of (X) the Outside Date or (Y) 20 days after receipt by the
Company of notice of such breach from the Parent or the Purchaser; or
(4) there has been a material breach of any representation, warranty,
covenant or agreement contained in Section 3.5(c) or 5.2 (each relating
to the Rights Agreement) of the Merger Agreement; or
(f) by the Parent or the Company, upon the entry or issuance of any
order, preliminary or permanent injunction, decree, judgment or ruling
in any action or proceeding before any court or governmental,
administrative or regulatory authority or agency, or any statute, rule
or regulation enacted, entered, enforced, promulgated, amended or
issued that is applicable to the Parent, the Purchaser, the Company or
any subsidiary or affiliate of the Purchaser or the Company or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
likely to have the effect of (i) making illegal or otherwise directly
or indirectly restraining or prohibiting the making of the Offer in
accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by the Purchaser
or any of its affiliates or the consummation of the Merger; (ii)
prohibiting the ownership or operation of the Company and its
subsidiaries by the Parent or any of the Parent's subsidiaries; (iii)
imposing material limitations on the ability of the Parent, the
Purchaser or any of the Parent's affiliates effectively to acquire or
hold or to exercise in all material respects full rights of ownership
of the Shares, including without limitation the right to vote any
Shares acquired or owned by the Parent or the Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption of the Merger
Agreement or the right to vote any
11
shares of capital stock of any subsidiary directly or indirectly owned
by the Company; or (iv) requiring divestiture by the Parent or the
Purchaser or any of their affiliates of any Shares.
EFFECT OF TERMINATION. In the event of the termination of the Merger
Agreement pursuant to the foregoing, the Merger Agreement will then become
void and there will be no liability on the part of any party thereto except as
to certain provisions thereof; provided, however, that the payment of the
Termination Fee pursuant to certain provisions thereof would be considered
with respect to the calculation of any damages resulting from any such willful
breach by the Company. This, however, will not relieve any party from
liability for fraud or breach of any covenant, agreement or any other term in
the Merger Agreement. If the Merger Agreement is terminated by the Company and
a Termination Fee is paid pursuant to Sections 8.3(a)(i)(B) or 8.3(a)(ii) of
the Merger Agreement, the Termination Fee will be deemed to be liquidated
damages rather than a penalty, and will constitute the total damages and sole
remedy of the Parent and the Purchaser upon any such termination.
TERMINATION FEE AND EXPENSES. If (i) the Company terminates the Merger
Agreement (A) pursuant to paragraph (d) under the heading "Termination" above
or (B) in a manner or for a reason not expressly permitted thereby or (ii) the
Parent terminates the Merger Agreement pursuant to paragraphs (e)(2), (e)(3)
or (e)(4) under the heading "Termination" above, then the Company will pay to
the Parent, within three business days following termination a fee, in cash,
of $5,000,000 (the "Termination Fee"). If, from and after July 20, 1998, and
prior to the purchase of Shares pursuant to the Offer, (i) any other person
has made a bona-fide offer to acquire at least 50% of the Shares or
substantially all of the assets of the Company, or otherwise to acquire the
Company (the "Third-Party Offer"), at a price per Share (or the equivalent
price per Share, in the case of an asset purchase) (x) that is higher on its
face than the price per Share to be paid in the Offer or (y) that the Company
determines, based upon the advice of Janney, is higher than the price per
Share to be paid in the Offer, (ii) the Offer remains outstanding until the
Outside Date but is not consummated solely as a result of the failure of the
Minimum Condition and (iii) the Third-Party Offer is consummated within 180
days of the termination of the Merger Agreement, then the Company must pay to
the Parent, within three business days following the consummation of the Third
Party Offer, the Termination Fee. The Company in no event will be obligated to
pay more than one such fee with respect to all such agreements and
occurrences. Each party will bear its own expenses in connection with the
Merger Agreement and the transactions contemplated thereby.
Stock Option Agreement
Pursuant to the Stock Option Agreement, the Purchaser has the irrevocable
right (the "Stock Option"), under certain circumstances, to acquire the Option
Shares at a price of $10.375 per Share (the "Exercise Price"). The Exercise
Price is payable in cash. The Stock Option Agreement could have the effect of
making an acquisition of the Company by a third party more costly because of
the need to acquire in any such transaction the Option Shares issued under the
Stock Option Agreement. The Stock Option may be exercised by the Purchaser, in
whole or in part, at any time or from time to time for 180 days following the
termination of the Merger Agreement, upon the occurrence of a Triggering
Event. Under the Stock Option Agreement, the term "Triggering Event" means any
occurrence of (A) the termination of the Merger Agreement under circumstances
causing a Termination Fee; (B)(i) a Third-Party Offer with a price per Share
(or the equivalent price per Share, in the case of an asset purchase) (x) that
is higher on its face than the price per Share to be paid in the Offer or (y)
that the Company determines, based upon the advice of Janney, is higher than
the price per Share to be paid in the Offer and (ii) the Offer remaining
outstanding until the Outside Date but not being consummated solely as a
result of the failure of the Minimum Condition and (iii) the Third-Party Offer
being consummated within 180 days of the termination of the Merger Agreement;
or (C) the purchase by the Purchaser of Shares pursuant to the Offer following
satisfaction of the Minimum Condition. As a condition to the exercise of the
Stock Option, the Company must promptly notify the Purchaser and the Parent in
writing of the occurrence of any Triggering Event. The Company's obligation to
issue Option Shares upon exercise of the Stock Option is subject to the
conditions that (a) all waiting periods under the HSR Act required for the
purchase of the Option Shares upon such exercise have expired or been waived
and (b) there has not been in effect any preliminary injunction or other order
issued prohibiting the exercise of the Stock Option pursuant to the Stock
Option Agreement.
12
If, at any time during the period after the occurrence of a Triggering Event
and before termination of the Stock Option, any third party (a) acquires
beneficial ownership of more than 50% of the then outstanding Shares or (b)
enters into an agreement with the Company to acquire the Company, by merger,
consolidation or the purchase of all or substantially all of its assets or
other similar business combination, reorganization or recapitalization, then
the Purchaser may, in lieu of exercising the Stock Option, surrender the Stock
Option to the Company. Upon surrender of the Stock Option to the Company, the
Company will pay to the Purchaser upon the Purchaser's written demand, an
amount in cash for each of the Option Shares equal to the excess of (a) the
highest price per Share paid or to be paid by such third party pursuant to
such transaction (or such consideration paid to the Company, in the case of an
asset acquisition or similar transaction, divided by the number of Shares
outstanding on a fully-diluted basis (after taking into consideration the
exercise of all outstanding options, warrants, rights (other than the rights
issued pursuant to that Rights Agreement), convertible securities or
exchangeable securities issued by the Company), excluding Shares issuable
pursuant to the Stock Option Agreement) over (b) the Exercise Price.
In the event any additional Shares (other than the Option Shares) are either
(i) issued and become outstanding, or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding, the number of Option Shares will be
increased or decreased, as appropriate, so that, after such issuance, the
Option Shares represent 19.9% of the number of Shares then issued and
outstanding (not counting the Option Shares).
The Stock Option Agreement further provides that at any time and from time
to time after exercise of the Stock Option, if the Shares or any other
securities to be acquired upon exercise of the Stock Option are then listed on
the Nasdaq National Market (or any other national securities quotation system
or national securities exchange), then upon the request of the Purchaser, the
Company will promptly file an application to list the Shares or other
securities to be acquired upon exercise of the Stock Option on the Nasdaq
National Market (or any other national securities quotation system or national
securities exchange) and will use commercially reasonable efforts to obtain
approval of such listing as promptly as practicable. The Purchaser has agreed
to pay all fees and expenses in connection with such listing.
Stock Tender and Voting Agreements
Each of the Company's directors and certain of its officers have
contractually agreed with the Parent in certain Stock Tender and Voting
Agreements, each dated November 10, 1998 (each, a "Stock Tender Agreement"),
so long as the Merger Agreement is in effect, to tender their Shares in the
Offer and to vote their Shares in favor of the Merger and against any action
or agreement that would impede the Merger or the Offer.
The Rights Amendment
On March 19, 1997, pursuant to the Rights Agreement the Board declared a
distribution of one right (a "Right") for each outstanding share of Common
Stock to stockholders of record at the close of business on March 28, 1997 and
for each share of Common Stock issued (including Shares distributed from
treasury) by the Company thereafter and prior to the Distribution Date (as
defined in the Rights Agreement). Each Right entitles the registered holder,
subject to the terms of the Rights Agreement, to purchase from the Company
one-half of a share of Common Stock at a purchase price of $26.00 per share of
Common Stock, equivalent to $13.00 for each one-half of a share of Common
Stock, subject to adjustment. On November 2, 1998, a majority of the
Independent Directors (as defined in the Rights Agreement) voted to amend the
terms of the Rights to permit the Offer and the Merger, and to provide for the
termination of the Rights upon acceptance for payment of the Shares validly
tendered and not withdrawn in the Offer. The Rights Amendment is filed as
Exhibit 8 to this Schedule 14D-9.
Certain Arrangements with Directors and Executive Officers
The Company entered into Change of Control Severance Agreements with Timothy
R. Duke and Mark G. Meikle, dated July 9, 1997, and July 7, 1997,
respectively, that provide that, upon a "change of control (as defined
therein)," Mr. Duke or Mr. Meikle will be entitled to receive an amount equal
to the greater of 125% of his annual base salary for the year in which a
change of control of the Company occurs and 125% of his annual
13
base salary for the year preceding the year in which such change of control of
the Company occurs, payable at Mr. Duke's or Mr. Meikle's option in a lump sum
or bi-monthly during the 12 months following such change of control. Mr. Duke
had maintained a similar agreement with the Company since July 1996. The
purchase of the Shares in the Offer will be deemed a change of control under
these agreements, requiring the payments set forth in the agreements to be
paid by the Surviving Corporation.
The following is a summary of an employment agreement, dated November 10,
1998 between the Company and Mr. Duke (the "Employment Agreement") which has
been filed as Exhibit 3 to this Schedule 14D-9 and is incorporated herein by
reference. This summary is qualified in its entirety by reference to the full
text of the Employment Agreement. The Employment Agreement becomes effective
upon the acceptance and payment for the Shares in the Offer and continuing for
three years thereafter (except that, if the Effective Time of the Merger does
not occur within 120 days of the Outside Date, the Company or the Parent may
declare the Employment Agreement null and void). The Employment Agreement
provides that, among other things, Mr. Duke will be employed as the President
and Chief Executive Officer of the Company, will be appointed to the Board of
Directors of the Parent and thereafter nominated for such position at the next
annual meeting of stockholders of the Parent, and will be nominated and
elected as a director of the Company for such terms as he shall serve as a
director of the Parent. Mr. Duke's annual base salary will remain at $225,000,
and he will be entitled to any incentive compensation that would be paid
pursuant to an incentive formula contained therein or, after September 30,
1998, which may be paid in the sole discretion of the Board of the Company.
Mr. Duke has agreed not to compete with the Company during the term of the
Employment Agreement. The Employment Agreement terminates upon the death or
disability of Mr. Duke or the expiration of the term of such agreement. The
Employment Agreement may also be terminated by the Company with Cause (as
defined therein), upon which in all cases no further payments (other than
accrued salary) will be payable to Mr. Duke, or by Mr. Duke with Good Reason
(which includes, among other things, demotion, relocation and change of
control (other than a management buy-out)), in which case Mr. Duke will be
paid his base salary for the remainder of the term of the Employment
Agreement. The Parent has guaranteed the performance of the covenants and
agreements in the Employment Agreement made by the Company.
Certain other contracts, agreements, arrangements and understandings between
the Company and certain of its directors and executive officers are described
in an "Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 Thereunder" (the "Information Statement")
dated the date hereof, which is attached hereto as Annex II and incorporated
herein by reference.
Except as described in this Item 3(b) or under the captions "Directors,"
"Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated
Fiscal Year-end Option Values" "Agreements Regarding Termination of
Employment," "Directors' Compensation," "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the Company's Proxy
Statement, dated April 10, 1998, which sections are filed as Exhibit 2 to this
Schedule 14D-9 and incorporated herein by reference, as of the date hereof,
there are no material contracts, agreements, arrangements or understandings,
or any actual or potential conflicts of interest between the Company or its
affiliates and (i) its executive officers, directors or affiliates or (ii) the
Parent, the Purchaser or their respective officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board has unanimously determined that each of the transactions
contemplated by the Merger Agreement, including the Offer and the Merger, are
fair to and in the best interests of the stockholders of the Company and
unanimously recommends that the Company's stockholders accept the Offer and
tender their Shares to the Purchaser pursuant to the Offer.
A letter to the Company's stockholders communicating the Board's
recommendation is filed herewith as Exhibit 4 and is incorporated herein by
reference.
14
(b) BACKGROUND; REASONS FOR THE COMPANY BOARD'S RECOMMENDATION
Set forth below is a chronology of events and a description of contacts
between representatives of the Company and the Parent. The description of
certain meetings of the Parent's Board of Directors has been supplied by the
Parent.
Over the past few years, the Board has actively studied the current and
future state of the Company's business, strategic position, and long-term
prospects, including a review of its strategic alternatives to increase
shareholder value.
In early January, 1997, CPT Holdings, Inc. ("CPT") advised Robert L.
Bunting, Jr., then Chief Executive Officer and Chairman of the Company, that
it was making an unsolicited offer to acquire the Company for a price of $9.00
per Share. After a full review and consideration of the proposal, the Board
determined that the offer was inadequate, and that it was not in the best
interests of the Company or its stockholders to proceed with an acquisition of
the Company by CPT.
On January 14, 1997, Mr. Bunting and Timothy R. Duke, the then President and
Chief Operating Officer of the Company (and currently its Chief Executive
Officer and President), met with Donald G. Smith, the President, Chief
Executive Officer and Chairman of the Parent, at the offices of the Parent.
The purpose of the meeting was to discuss the possibility of the Parent being
a "white knight" in the event that CPT proceeded to attempt a hostile takeover
of the Company.
The Parent retained the services of Ewing Monroe Bemiss & Co. ("Ewing
Monroe") to evaluate the possibility of the Parent acquiring the Company and
to advise the Board of Directors of the Parent in this regard. After
consideration of the factors affecting the Company and the Parent at that
time, and in light of the advice of Ewing Monroe, the Board of Directors of
the Parent determined to pursue discussions with the Company for the possible
acquisition of the Company.
At the meeting of the Board held on March 5, 1997, Mr. Duke advised the
Board that the Parent advised him that it might have an interest in acquiring
the Company at a price to be negotiated, but in no event greater than $11.00
per Share.
In April 1997, based on information from the Parent, Mr. Duke understood
that due to the possible entry of new competitors into the Company's markets,
the Parent's revised valuation was in the neighborhood of $10.00 per Share.
Later in April 1997, Mr. Duke informed Mr. Smith that the Board concluded that
it was not in the best interests of the Company's stockholders to enter into a
transaction with the Parent given the Parent's suggested valuation. There were
no further contacts between the Company and the Parent until June 1998, other
than with regard to the Company's purchasing of billets from the Parent.
At a meeting of the Board held on June 5, 1998, the Board reviewed the
operations of the Huntington facility, including the progress of the Company's
modernization program, industry trends, potential competitors, various
possible strategic alliances, and, in light of the Company's stock trading
price at the time, the possibility of an unsolicited, inadequate offer to
stockholders which could also disrupt the Company's operations and employment
levels, and leave the Company unable to serve its customers. The Board
authorized Mr. Duke to contact Mr. Smith to ascertain whether the Parent might
have an interest in a strategic alliance.
On June 11, 1998, Mr. Duke and Mr. Smith discussed the possible advantages
of a strategic alliance between the Company and the Parent, including that the
combined entity would have greater financial strength, that the Company's
Huntington facility would have a ready source of billets from the Parent's
facility, and that the Parent would have a "built-in" customer for its
billets. At the same time, Mr. Smith expressed a concern regarding any
strategic alliance with the Company due to the possible entry of new
competitors into the Company's markets.
The Parent again consulted Ewing Monroe to evaluate a possible transaction
with the Company and to advise its Board of Directors in this regard.
15
On July 20, 1998, the Parent and the Company entered into the Parent
Confidentiality Agreement preceding the Parent's review of certain information
concerning the Company. Following the execution of this agreement, Mr. Duke
and Daniel N. Pickens, a director of the Company and a First Vice President of
Janney, kept the directors informed regularly regarding discussions with the
Parent and the Parent's representatives.
On July 28, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr. A. Hugh
Ewing III, President of Ewing Monroe, Ms. Mary Adams Bacon, a Managing
Director of Ewing Monroe, and other representatives of the Parent. At the
meeting the parties discussed the Company's business, the Parent's business,
industry trends, potential competitors, and general parameters and concerns
regarding possible terms and conditions of any transaction between the Company
and the Parent.
At a meeting of the Parent's Board of Directors on August 14, 1998, Mr.
Ewing and Ms. Bacon made a detailed presentation regarding a possible
transaction between the Company and the Parent. After considerable discussion,
the Parent's Board of Directors determined to consider the issue further at
its regularly scheduled meeting on August 18, 1998. At the meeting on August
18, the Parent's Board of Directors again met with Mr. Ewing and Ms. Bacon and
again discussed the transaction under consideration. After a further detailed
presentation by management and discussion, including consideration of the
possible benefits to the Parent of a combination of the business of the
Company and the Parent, the Parent's Board of Directors authorized management
to negotiate the terms and conditions for the possible acquisition of the
Company.
At a meeting on August 19, 1998, the Board reviewed and analyzed the
discussion of July 28, together with the updated information on the operations
of the Huntington facility, including the progress of the Company's
modernization program, competitive trends in the industry and the Company's
stock price and performance. At the meeting, the Board further discussed the
identity and key characteristics of other potential strategic partners. After
considerable discussion, the Board authorized Mr. Duke and Mr. Pickens to
continue discussions with the Parent.
On August 24, 1998, Mr. Duke and Mr. Pickens met again with Mr. Smith, Mr.
Ewing and Ms. Bacon to review historical and projected performance of the
Company and the Parent, strategic opportunities, valuation parameters and
terms and conditions of a possible transaction.
On September 9, 1998, the Board met to discuss a possible transaction with
Parent. The Board reviewed materials prepared by management and by Janney
regarding the Company's historical performance, projected financial results,
industry trends, stock price history, stock market data, and potential
competition. The Board also reviewed the meeting held with the Parent's
representatives on August 24, 1998 and authorized further discussion with the
Parent.
On September 11, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr.
Ewing and Ms. Bacon to discuss a possible transaction. At this meeting, Mr.
Smith indicated that the Parent was only prepared to proceed with a
transaction in which it acquired 100% of the Shares for $11.00 cash. After
considerable discussion, Mr. Smith agreed to recommend to the Parent's Board
of Directors that the Parent pay a price of $11.50 per Share in cash to
acquire the Company. Mr. Smith's willingness to recommend that price to the
Parent's Board of Directors was conditioned upon various other issues,
including protective devices such as break-up fees, Company options and
stockholder lock-ups, completion of due diligence and the negotiation of
definitive agreements. At a recess in the meeting, Mr. Duke, Mr. Pickens,
Albert W. Eastburn, the Chairman of the Company, and Stephen A. Albert, a
director of the Company and a member of Sierchio & Albert, P.C., general
counsel to the Company, discussed the proposed sale of the Company via a
conference call and concluded that Mr. Duke and Mr. Pickens should continue
further discussions with the Parent. Negotiations between the Company and the
Parent continued through the day.
On September 14, 1998, via a conference call, counsel to the Company and
counsel to the Parent discussed a possible transaction, including structure,
due diligence, and the preparation of documents.
16
The Parent's Board of Directors met again on September 15, 1998, and
discussed the September 11, 1998 meeting described above. The Parent's Board
of Directors authorized the commencement of extensive due diligence activities
by the Parent's counsel and consultants and, subject to the results thereof
and satisfaction of further conditions of management, the continued
negotiation of a possible agreement.
On September 17, 1998, the Board held a telephonic meeting at which it
reviewed the Company's historical and projected results, industry trends,
stock market trends, and competitive factors. The Board also analyzed and
discussed the proposed purchase price in light of these factors, the Company's
stock price, performance and trading volume, and other possible strategic
alternatives. The Board approved the Company's retention of Janney as the
Company's investment banker with regard to the transaction, and the Company's
retention of legal counsel with regard to the transaction. Thereafter, legal
counsel advised the Board with respect to certain legal matters, including the
Board's fiduciary obligations in connection with any possible sale of the
Company. The Board authorized the Company to continue negotiations with
Parent.
On September 29, 1998, the Board held a meeting at which Mr. Duke, Janney
and legal counsel reviewed the status of negotiations with the Parent. Legal
counsel again advised the Board with respect to certain legal matters and
reviewed the principal aspects of the Merger Agreement, including protective
devices such as break-up fees, Company options and stockholder lock-ups.
Representatives of Janney delivered its oral opinion to the Board as to the
fairness of the $11.50 cash consideration to be paid to the holders of the
outstanding Shares. The Board then analyzed and discussed the offer, the
Merger Agreement and the transactions contemplated thereby in light of the
Company's historical performance, projected financial results, industry
trends, potential competitors, stock price history and data, other strategic
alternatives and various other matters that it considered relevant.
Thereafter, the Board unanimously resolved to recommend acceptance of the
offer and approval and adoption of the Merger Agreement by the Company's
stockholders.
On October 6, 1998, Parent's Board of Directors met again with
representatives of Ewing Monroe to consider the proposed transaction. Based
upon the Parent's due diligence investigation, as well as current competitive
conditions in the industry and the decline in the Company's stock price, all
of which were reviewed and addressed by Mr. Ewing and Ms. Bacon, the Parent's
Board of Directors determined not to proceed with consideration of a final
written agreement at that time, but did authorize Mr. Smith and other
representatives of the Parent to continue due diligence investigations, as
well as discussions and negotiations with representatives of the Company, and
determined to meet and consider the matter further after additional due
diligence and consideration of the financial aspects of the transaction.
During the following three weeks, discussions continued between the parties
and the Parent proceeded with its continuing due diligence investigation. The
Parent's Board of Directors met again on October 20, 1998, and considered the
status of the ongoing due diligence review and the differential between the
trading price of the Company's stock and $11.50. The Board determined to
reconvene to make a final decision on whether or not to proceed after
management had further discussions with the Company's representatives and
concluded other outstanding issues to management's satisfaction.
On October 26, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr. Ewing
and Ms. Bacon. During that meeting, Mr. Smith reviewed the results of the
Parent's due diligence investigation, industry trends and increased
competition, and proposed a revised offer price of $10.00 per share. After
discussion, although no agreement was reached regarding the possible terms and
conditions of a revised transaction, the parties narrowed their discussion of
price to a range of $10.50 to $11.00 per Share. Following the meeting, Mr.
Duke reported the results of the meeting to the other Board members, and a
meeting of the Board was scheduled for November 2, 1998.
On November 2, 1998, the Board met to review the proposed transaction in
light of all relevant data, including, in particular, industry trends,
potential new competition, the operations of the Huntington facility,
including the progress of the Company's modernization program, historical and
projected results, the Company's stock price history and performance, together
with other stock market data and trends, other strategic alternatives
17
available to the Company and the due diligence performed by the Parent. The
Board then discussed and analyzed the data, and concluded that a sale of the
Company to the Parent at a price of $10.75 per share would achieve for
stockholders a value that they would not likely be able to realize in the
foreseeable future and, accordingly, would be in the best interests of
stockholders. Janney delivered its oral opinion to the Board as to the
fairness of a $10.75 price per Share to the stockholders of the Company from a
financial point of view. The Board then unanimously resolved to recommend
acceptance of an offer of $10.75 per share, should the Parent make such an
offer, and directed Mr. Pickens to approach Mr. Ewing regarding the Parent's
willingness to enter into such a revised transaction who, in turn, talked to
Mr. Smith. Later that day, Mr. Smith indicated that he was prepared to
recommend an offer price of $10.75 per share to the Parent's Board of
Directors.
On November 9, 1998, the Board of Directors of the Parent met and considered
the offer price of $10.75, and the report of management on further
investigations and negotiations with the Company. Ewing Monroe delivered its
fairness opinion to the Parent's Board of Directors which stated that the
Offer Price was fair to the Parent from a financial point of view. The
Parent's Board of Directors reviewed the fairness opinion and financing
commitment letters. Following further discussion, the Parent's Board of
Directors unanimously approved the proposed transaction and directed the
officers to conclude the negotiations concerning various relevant documents
and, upon finalizing such documents, to execute the Merger Agreement. On
November 10, 1998, after finalization of the various open issues, including
completion of the Commitment Letter, the Merger Agreement, the Stock Option
Agreement, the Amendment to the Rights Agreement, the Stock Tender Agreements
and related agreements (the "Transaction Documents") were executed and
delivered, and the transaction was announced publicly after the closing of
trading on November 10, 1998.
In approving the Offer, the Merger, the Transaction Documents and the
transactions contemplated thereby, the Board considered a number of factors,
including:
1. The Board's view that a sale of the Company at this time is in the
best interest of the Company and its stockholders in light of: (a) the
Company's operating performance; (b) the Company's historical financial
results; (c) the likelihood of new competitors in the Company's markets,
both foreign and domestic; and, (d) the recent market price and performance
of the Company's Common Stock;
2. That the $10.75 per share cash offer price represents a premium of
approximately 68.6% over the closing price for the Shares of $6.375 on the
Nasdaq National Market on November 10, 1998, the last trading date prior to
the public announcement of the execution of the Merger Agreement, and a
value for the Shares that the stockholders are unlikely to otherwise be
able to realize in the foreseeable future;
3. The opinion of Janney presented to the Board on November 2, 1998, and
confirmed in writing on November 10, 1998, to the effect that the
consideration to be paid to the Company's stockholders in the Offer and the
Merger is fair to the stockholders of the Company from a financial point of
view; in considering such opinion, the Board was aware that, upon
completion of the Merger, Janney becomes entitled to certain fees described
in Item 5 below in connection with its engagement by the Company;
4. The presentation of Janney in connection with such opinion as to
various financial and other considerations deemed relevant to the Board's
evaluation of the Offer and the Merger, including (i) the terms and
conditions of the Merger Agreement; (ii) the business, financial condition,
results of operations and prospects of the Company; (iii) the financial
terms of certain business combinations that Janney deemed relevant; (iv)
selected financial and stock market data for certain other publicly traded
companies that Janney deemed relevant; (v) the recent trading history of
the Company's common stock; and (vi) other financial studies and analyses
that Janney deemed appropriate;
5. The terms and conditions of the Merger Agreement, which the Board
views as favorable to the Company's stockholders, including that the
Company's stockholders will realize the entire value of the purchase price
without the risk of post-closing indemnification obligations;
6. The Board's ability to withdraw or modify its approval or
recommendation of the Offer, the Merger and any of the other transactions
contemplated by the Merger Agreement if necessary for the Company Board to
comply with its fiduciary duties, and to terminate the Merger Agreement
under certain circumstances; and
18
7. The Purchaser's execution of the financing commitment and its
agreement to conclude the transaction expeditiously and without any
financing contingency.
The foregoing discussion of factors considered and given weight by the
Company Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determinations and recommendations. In addition, individual
members of the Board may have given different weights to different factors in
reaching their own respective determinations.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the Company's stockholders with respect to the Offer or
the Merger.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of a letter agreement dated July 17, 1998 (the
"Engagement Letter"), the Company retained Janney to assist the Board as its
financial advisor in evaluating the terms of the Offer and to render an
opinion as to the fairness, from a financial point of view, of the
consideration to be received by the stockholders of the Company pursuant to
the Offer. A copy of Janney's opinion is attached to this Schedule 14D-9 as
Annex I, filed herewith as Exhibit 6 and incorporated herein by reference. The
Company has agreed to pay Janney a fee of approximately $586,000 and to
reimburse Janney for all reasonable out-of-pocket expenses incurred in
carrying out its duties under the engagement. Pursuant to the Engagement
Letter, the Company has agreed to indemnify Janney and its directors,
officers, agents, employees affiliates, and controlling persons for certain
costs, expenses and liabilities, including liabilities under federal
securities laws, to which it might be subjected arising out of its engagement
as financial advisor. Daniel N. Pickens, a member of the Board, is a First
Vice President of Janney.
The Company has also agreed to pay $150,000 to the law firm of Sierchio &
Albert, P.C. for legal services performed by such firm in connection with the
Merger Agreement, the Offer and the Merger, except that if the Offer is not
completed, Sierchio & Albert, P.C. will charge for its legal services
performed in connection with the Merger Agreement and the Offer in accordance
with its standard hourly rates. Mr. Stephen Albert, a member of the Board, is
a shareholder of Sierchio & Albert, P.C.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the Company's stockholders with respect to the Offer or
the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth on Annex II hereto, no transactions in the Shares
have 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) Each of the Company's directors and certain of its officers have entered
into a Stock Tender Agreement requiring them, so long as the Merger Agreement
is in effect, to tender pursuant to the Offer all Shares owned of record or
beneficially by them (other than Shares issuable upon exercise of stock
options and Shares, if any, which if tendered could cause such persons to
incur liability under the provisions of Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which 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
19
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 described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex II is being furnished to
the Company's stockholders in connection with the possible designation by
Purchaser, pursuant to the Merger Agreement, of certain persons to be
appointed to the Company's Board other than at a meeting of the Company's
stockholders, and such information is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. Agreement and Plan of Merger dated as November 10, 1998, by
and among the Company, the Parent and the Purchaser.
Exhibit 2. Pages 1 through 13 of the Company's Proxy Statement dated
April 10, 1998, relating to its Annual Meeting of
Stockholders.
Exhibit 3. Employment Agreement between the Company and Timothy R. Duke
dated November 10, 1998.
Exhibit 4. Letter to Stockholders of the Company, dated November 17,
1998.*
Exhibit 5. Opinion of Janney Montgomery Scott Inc. dated November 10,
1998.*
Exhibit 6. Stock Option Agreement between the Company, the Purchaser
and the Parent dated November 10, 1998.
Exhibit 7. Form of Stock Tender and Voting Agreement between the
Purchaser and Certain Stockholders of the Company.
Exhibit 8. Amendment No. 1 to the Rights Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on November 13, 1998).
Exhibit 9. Confidentiality Agreement between the Parent and Janney
Montgomery Scott Inc., as agent for the Company, dated July
20, 1998.
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* Included in copies of the Schedule 14D-9 mailed to stockholders.
20
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: November 17, 1998 By: /s/ Timothy R. Duke
---------------------------------
Timothy R. Duke,
President and Chief Executive
Officer
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