EXHIBIT 99.2
August 18, 2003
Board of Directors
Prab, Inc.
5944 East Kilgore Road
Kalamazoo, MI 49048
Re: Proposal to Acquire Prab, Inc. (the "Company") by Merger
Gentlemen:
We have reviewed the correspondence to you from Kalamazoo Acquisition
Corporation ("KAC") dated July 23, 2003, and from Stevens Financial Group, LLC
("SFG") dated July 28, 2003, offering to acquire all of the outstanding capital
stock of Prab, Inc. (the "Company") at a price of $2.00 per share (KAC) and
$2.20 per share (SFG). We hereby submit what we believe to be a substantially
superior proposal for the Company's shareholders. In order to facilitate your
analysis of the comparability of our respective proposals, we are submitting an
offer that is, word for word, virtually identical to KAC's July 23 letter,
except in the following major respects, all of which favor the Company's
shareholders:
1. Our Purchase Price is $2.25 per share.
2. We already have a preliminary commitment for financing at our Purchase
Price.
3. We are not seeking any break-up fee or liquidated damages, and have
therefore not included any such provision below.
We are also prepared to discuss entering into mutually satisfactory
employment agreements with key personnel.
Our formal offer is set forth below. It is based on KAC's July 23
letter and publicly available information.
BACKGROUND
This letter, when executed on behalf of the Company, is intended to
summarize the principal terms of a proposal by Inter-Source Acquisition, Inc.,
or its nominee ("Buyer"), regarding Buyer's proposed acquisition of all of the
outstanding capital stock of the Company from the Company's shareholders (the
"Shareholders") pursuant to a merger transaction. In this letter, Buyer and the
Company are sometimes called the "Parties" and Buyer's proposed acquisition of
the stock of the Company pursuant to a merger transaction is sometimes called
the "Proposed Acquisition."
The Company is a Michigan corporation. Its only outstanding class of
capital stock is its common stock, $0.10 par value ("Common Stock"). Based on
the most recent information publicly available, there are approximately 892
shareholders of record of Common Stock and 1,418,610 shares of Common Stock are
issued and outstanding. In addition, there are outstanding stock options which,
if fully exercised, would result in the issuance of an additional 191,000 shares
of Common Stock. All of the outstanding options are currently exercisable.
Members of the Company's Board of Directors own (directly, indirectly
or beneficially) approximately 369,108 shares of Common Stock, or approximately
26% of the outstanding shares of Common Stock. The foregoing figure includes
216,549 shares held in the Company's profit-sharing plan, or approximately 15%
of the outstanding shares.
We wish to begin negotiating a definitive written acquisition agreement
(a "Definitive Agreement"). The execution of any Definitive Agreement would be
subject to approval by each of the Board of Directors of the Company and Buyer.
Based on the information currently known to Buyer, it is proposed that
the Definitive Agreement would include the following terms:
PRINCIPAL TERMS OF PROPOSED ACQUISITION
1. Basic Transaction. The Proposed Acquisition will be structured as a
merger, whereby the Company will be merged with Buyer or a wholly-owned
subsidiary of Buyer, and the Shareholders will receive cash in exchange for
their shares of Common Stock. Upon the effective time of such merger, each share
of Common Stock, other than shares owned directly or indirectly by Buyer, would
be converted into the right to receive the cash consideration described below.
As a result of the merger, Buyer would acquire all of the outstanding capital
stock of the Company.
It is anticipated that the closing of this transaction (the "Closing")
would occur as soon as reasonably practicable following the negotiation and
execution of a Definitive Agreement, the filing with the Securities and Exchange
Commission of all required documents and other information, the preparation and
mailing of a Proxy Statement to the Shareholders, and approval of the
transaction by the Shareholders. Promptly following the Closing, Buyer would
mail to each Shareholder of record a letter of transmittal whereby such
Shareholder would return his or her certificates formerly representing shares of
Common Stock for the cash consideration described below.
2. Purchase Price. Buyer contemplates that the purchase price
("Purchase Price") per share of Common Stock in the Proposed Acquisition would
be $2.25. The Purchase Price represents an approximate 12.5% premium over the
proposal set forth in KAC's July 23, 2003 letter, and a 2.27% premium over the
proposal set forth in SFG's July 28, 2003 letter.
3. Negotiation of Definitive Agreement by Special Committee. Because
KAC is affiliated with a member of the Company's Board of Directors, Buyer
understands that the Board has formed a special committee of the Board of
Directors (the "Special Committee"), for the purpose of reviewing the KAC
proposal, and may be asked to review our proposal as well. We request prompt
notification of the names of the members of the Special Committee and the basis
for their selection.
4. Other Terms.
(a) In the Definitive Agreement, the Company would make customary
representations and warranties to Buyer, and would provide customary covenants
and other protections for the benefit of Buyer. The consummation of the Proposed
Acquisition by Buyer would be subject to the satisfaction of various conditions,
including but not limited to: (i) Buyer receiving financing for the Proposed
Acquisition on terms satisfactory to Buyer (provided that Buyer uses all
commercially reasonable efforts to secure such financing on reasonably
acceptable terms); and (ii) the absence of a material adverse change with
respect to the assets, properties or financial or other condition of the Company
prior to the Closing.
(b) Buyer and the Company's Board of Directors would each take
such actions to cause to be inapplicable to the transaction contemplated hereby
any (i) supermajority voting provisions required under the Company's articles or
bylaws, or pursuant to the Michigan Business Corporation Act or other law; and
(ii) provisions of any "fair price," "control share acquisition" or "moratorium"
act or other anti-takeover statute that, upon consummation of the contemplated
transaction, would restrict the ability of Buyer or any affiliate to acquire or
vote the shares of capital stock of the Company or conduct the Company's
business.
BINDING PROVISIONS
The following paragraphs of this letter (the "Binding Provisions") are
the legally binding and enforceable agreements of Buyer and the Company.
1. Access. While the Buyer has already received a preliminary financing
commitment, the Company acknowledges that in order for Buyer to secure its
transaction financing, Buyer will need the cooperation of the Company and
Company's representatives. From the date this letter is signed (the "Signing
Date") until the date on which either Party provides the other Party with
written notice that negotiations toward a Definitive Agreement are terminated in
accordance with this letter (the "Termination Date"), the Company will permit
Buyer and Buyer's representatives (including Buyer's lender and its
representatives) full and free access to the Company, its personnel, properties,
contracts, books and records, and all other documents and data. Buyer will
undertake to cause the due diligence investigations of Buyer and its lender to
be completed on a timely basis.
2. Exclusive Dealing. Buyer is devoted to committing the time and
resources required to consummate this transaction expeditiously. In
consideration of these efforts, from the Signing Date until the execution of the
definitive Merger Agreement or the Termination Date, the Company and its
directors, officers, employees, agents and representatives will not, directly or
indirectly, solicit or initiate discussions or negotiations with, or provide any
information to or otherwise cooperate in any way with or enter any agreement
with, any corporation, partnership, person or other entity or group (a "Person")
other than Buyer concerning any proposal relating to a merger, sale of assets
(other than sales of inventory in the ordinary course of business) or sale of
equity securities of the Company, or any similar transaction (each, an
"Acquisition Proposal"). Any existing discussions or negotiations shall be
terminated. Buyer shall be immediately notified in writing of the terms and
identity of any unsolicited Acquisition Proposal or any modifications thereto.
Notwithstanding the foregoing, the Company may furnish
information concerning its business, properties, or assets to any Person
pursuant to appropriate confidentiality and standstill agreements, and may
negotiate and participate in discussions and negotiations with such Person
concerning an Acquisition Proposal if: (1) such Person has, on an unsolicited
basis, submitted a bona fide written Acquisition Proposal to the Company's Board
of Directors that the Board determines in good faith represents a superior
transaction to the transactions contemplated hereby, and that (a) is not subject
to the receipt of any necessary financing; and (b) is reasonably capable of
being completed in a reasonable period of time, taking into account all legal,
financial and all other aspects of the proposal and the third party making such
proposal; and (2) in the good faith opinion of the Company's Board of Directors,
such action is required to discharge the Board's fiduciary duties under
applicable law, determined only after receipt of (a) advice from the Company's
financial advisor that the Acquisition Proposal is superior, from a financial
point of view, to the transactions contemplated by this letter (which advice may
include analysis of the enterprise value if the Company's Board of Directors has
been advised by independent legal counsel that its fiduciary duties require them
to do so), and (b) advice from independent legal counsel to the Company that the
failure to provide such information or access or to engage in such discussions
or negotiations would cause the Board to violate its fiduciary duties under
applicable law. As used in this letter, a "Superior Proposal" means an
Acquisition Proposal that satisfies both subsections (1) and (2) above.
4. Disclosure. Except as and to the extent required by law, without the
prior written consent of the other Party, neither Party will, and each will
direct its representatives not to, directly or indirectly, make any comment,
statement or communication with respect to, or otherwise to disclose or to
permit the disclosure of the existence of discussions regarding, the Proposed
Acquisition or any of the terms, conditions, or other aspects of the Proposed
Acquisition, except to such Party's professional advisors who have a need to
know of the Proposed Acquisition. If a Party is advised by its counsel that it
is required by law to make any such disclosure, it must first provide to the
other Party written notice of the content of the proposed disclosure, the
reasons that such disclosure is required by law and the time and place that the
disclosure will be made.
5. Costs. Each Party will be responsible for and bear all of its own
costs and expenses (including any broker's or finder's fees and the expenses of
its representatives) incurred at any time in connection with pursuing or
consummating the Proposed Acquisition. If, however, the Closing occurs, Buyer
will, by virtue of the merger transaction, indirectly assume the fees and
expenses of the Company related to the transaction.
6. Consents and SEC Filings. During the period from the Signing Date
until the Termination Date, Buyer and the Company will cooperate with each other
and proceed, as promptly as is reasonably practicable, to identify and obtain
any necessary or appropriate consents and approvals.
Without limiting the generality of the foregoing, as soon as
practicable after the signing of the Definitive Agreement by the Parties, the
Parties will work together to prepare and file all documents required by the
Securities and Exchange Commission relating to the Proposed Acquisition,
including but not limited to a Schedule 14A Proxy Statement.
7. Entire Agreement. The Binding Provisions constitute the entire
agreement between the Parties, and supersede all prior oral or written
agreements, understandings, representations and warranties, and courses of
conduct and dealing between the Parties on the subject matter hereof. Except as
otherwise provided herein, the Binding Provisions may be amended or modified
only by a writing executed by all of the Parties.
This letter does not contain all matters upon which agreement must be
reached in order for the transaction to be completed. This letter does not
constitute a binding commitment with respect to the Proposed Acquisition itself,
which shall only result form the execution of a Definitive Agreement mutually
agreeable to the Parties and approved by the Board of Directors of each Party.
8. Governing Law. The Binding Provisions will be governed by and
construed under the laws of the State of Michigan without regard to conflicts of
laws principles
9. Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this letter may be brought
against either of the Parties in the courts of the State of Michigan, County of
Kalamazoo, or, if it has or can acquire jurisdiction, in the United States
District Court for the Western District of Michigan, and each of the Parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein.
10. Termination. The Binding Provisions (1) will automatically
terminate on February 28, 2004; and (2) may be terminated (a) at any time after
December 31, 2003, upon written notice by either Party to the other Party
unilaterally, for any reason or no reason, with or without cause; or (b) at any
time by the Company to allow the Company to enter into a definitive agreement to
consummate a Superior Proposal, provided that it has complied with all of the
provisions of this letter; provided, however, in all cases that the termination
of the Binding Provisions will not affect the liability of a Party for breach of
any of the Binding Provisions prior to the termination. Upon termination of the
Binding Provisions, the Parties will have no further obligations hereunder,
except as stated in Paragraphs 2, 5, and 7 through 12 of the Binding Provisions,
which will survive any such termination.
11. Counterparts. This letter may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this letter
and all of which, when taken together, will be deemed to constitute one and the
same agreement.
12. No Liability. The paragraphs and provisions set forth under the
heading, "Principal Terms of Proposed Acquisition" do not constitute and will
not give rise to any legally binding obligation on the part of either Party.
Moreover, except as expressly provided in the Binding Provisions (or as
expressly provided in any binding written agreement that the Parties may enter
into in the future), no past or future action, course of conduct, or failure to
act relating to the Proposed Acquisition, or relating to the negotiation of the
terms of the Proposed Acquisition or any Definitive Agreement, will give rise to
or serve as a basis for any obligation or other liability on the part of the
Parties.
If you are in agreement with the foregoing, please sign and return one
copy of this letter agreement to the undersigned, which thereupon will
constitute our agreement with respect to its subject matter.
Very truly yours,
INTER-SOURCE ACQUISITION, INC.
By: /s/ William D. Nemedi
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William D. Nemedi
Its President
Prab, Inc. wishes to proceed with negotiations with respect to a
Definitive Agreement.
PRAB, INC.
By:
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Name:
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Its:
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Title:
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Date:
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