UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
DIXON TICONDEROGA COMPANY
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Common stock, par value $1.00 per share, of Dixon Ticonderoga
Company.
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2) Aggregate number of securities to which transaction applies:
3,207,894 shares.
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): The
filing fee was based upon he sum of (a) 3,207,894 shares of common
stock multiplied by $7.00 per share and (b) options to purchase
165,500 shares of common stock multiplied by $3.76 per share (which
is the weighted average exercise price per share). In accordance
with Section 14(g) of the Securities Exchange Act of 1934, as
amended, the filing fee was determined by multiplying $0.0001267 by
the sum of the preceding sentence.
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4) Proposed maximum aggregate value of transaction: $22,991,478.
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5) Total fee paid: $2,913.02.
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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DIXON TICONDEROGA COMPANY
195 INTERNATIONAL PARKWAY
HEATHROW, FL 32746
(407) 829-9000
NOTICE OF ACTION BY WRITTEN CONSENT
AND OF APPRAISAL RIGHTS
[________], 2005
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
THIS INFORMATION STATEMENT IS DATED [___________], 2005 AND IS FIRST BEING
MAILED TO DIXON STOCKHOLDERS ON [____________], 2005.
Dear Stockholder:
Dixon Ticonderoga Company, a Delaware corporation ("Dixon"), is writing to
you in connection with the Agreement and Plan of Merger dated as of December 16,
2004, among Fila-Fabbrica Italiana Lapis ed Affini S.p.A, an Italian corporation
("Fila"), Pencil Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Fila (the "Purchaser"), and Dixon. The merger agreement provides
for an offer by the Purchaser to purchase all of the issued and outstanding
shares of Dixon's common stock, followed by the merger of the Purchaser into
Dixon, with Dixon as the surviving corporation. Upon completion of the merger,
Dixon will be a wholly-owned subsidiary of Fila. We refer to the Agreement and
Plan of Merger as the merger agreement, to the offer to purchase all the issued
and outstanding shares of Dixon's common stock contemplated by the merger
agreement as the offer and to the merger contemplated by the merger agreement as
the merger.
The board of directors of Dixon has unanimously determined that the merger
agreement and the transactions contemplated thereby, including the offer and the
merger, are fair to and in the best interests of Dixon and its stockholders;
approved and declared advisable the merger agreement and the transactions
contemplated thereby, including the offer and merger; and recommended that the
stockholders of Dixon vote to approve and adopt the merger agreement and the
merger. A copy of the merger agreement is attached to the accompanying
information statement as Annex A.
The offer was the first step in the acquisition of Dixon by Fila. The
Purchaser commenced the offer on January 7, 2005 and on [__________], 2005,
consummated the offer by purchasing and paying for a total of [_________]
shares. The merger is the second and final step of the acquisition of Dixon by
Fila. As a result of the consummation of the offer, Dixon's common stock ceased
to be quoted on the American Stock Exchange and is no longer publicly traded.
In the merger, each share of Dixon common stock outstanding immediately
prior to the effective time (other than shares owned by (i) Fila or an affiliate
of Fila, the Purchaser or Dixon or its subsidiaries, which shall be cancelled,
and (ii) stockholders who are entitled to demand and have properly exercised and
perfected appraisal rights under Delaware law) will, by virtue of the merger and
without any action on the part of the holders of such shares, be converted into
the right to receive $7.00 per share in cash, less any required withholding
taxes and without interest, as soon as reasonably practicable after surrender of
the certificate(s) formerly representing such shares.
Simultaneously with the execution of the merger agreement, certain Dixon
stockholders entered into a stock purchase agreement with the Purchaser to sell
their shares of Dixon common stock to the Purchaser for $7.00 per share and
appointed designees of the Purchaser as proxies to vote their shares in favor of
the merger or execute a stockholder written consent to the merger.
Under Delaware law and Dixon's organizational documents, the approval and
affirmative vote (or written consent in lieu thereof) of the holders of not less
than 66 2/3% of the voting power of the outstanding shares of Dixon stock, is
required to adopt the merger agreement. As the result of the stock purchase
agreement and the consummation of the offer, the Purchaser currently owns [__]%
of the shares of Dixon's outstanding common stock as of [_________], 2005, which
also represents approximately [__]% of the voting power of the outstanding
shares of capital stock of Dixon as of [__________], 2005, the record date fixed
by Dixon's board of directors for the action by written consent.
The Purchaser has delivered to Dixon a written consent in accordance with
Section 228 of the Delaware General Corporation Law (the "DGCL"), adopting the
merger agreement and approving the merger and the other transactions
contemplated by the merger agreement. Because the Purchaser beneficially owns
shares of common stock representing greater than 66 2/3% of the voting power of
the outstanding shares of capital stock of Dixon entitled to be cast on the
adoption of the merger agreement, the action by written consent is sufficient to
adopt the merger agreement and to approve the merger and the other transactions
contemplated by the merger agreement without any further action by any other
Dixon stockholder. As a result, no other votes are necessary to adopt the merger
agreement, and your approval is not required and is not being requested. Neither
Dixon nor Fila is soliciting proxies from Dixon stockholders. When actions are
taken by written consent of less than all of the stockholders entitled to vote
on a matter, Section 228(e) of the DGCL requires prompt notice of the action to
those stockholders who did not vote.
Under Section 262 of the DGCL, if you did not consent to the adoption of
the merger agreement, you may be entitled to appraisal rights in connection with
the merger as described in the attached information statement. If you comply
with the requirements of Section 262 of the DGCL, you will have the right to
seek an appraisal and to be paid the "fair value" of your shares of Dixon common
stock, at the effective time of the merger (exclusive of any element of value
arising from the accomplishment or expectation of the merger), together with a
fair rate of interest, if any, as determined by the Delaware Court of Chancery,
instead of $7.00 per share in cash without interest.
THIS NOTICE AND THE INFORMATION STATEMENT ATTACHED HERETO SHALL CONSTITUTE
NOTICE TO YOU OF ACTION TAKEN BY WRITTEN CONSENT AS REQUIRED UNDER SECTION
228(e) OF THE DGCL AND OF THE AVAILABILITY OF APPRAISAL RIGHTS UNDER SECTION 262
OF THE DGCL, A COPY OF WHICH IS ATTACHED AS ANNEX C TO THE INFORMATION
STATEMENT.
Please read the information statement carefully and in its entirety.
By order of the Board of Directors,
/s/ Laura Hemmings
-----------------------------
Laura Hemmings
Secretary
DIXON TICONDEROGA COMPANY
INFORMATION STATEMENT
[__________], 2005
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
This information statement is being furnished to the holders of common
stock of Dixon Ticonderoga Company, a Delaware corporation ("Dixon", or the
"Company"), by Dixon's board of directors in connection with the Agreement and
Plan of Merger (the "Merger Agreement"), dated as of December 16, 2004, among
Fila-Fabbrica Italiana Lapis ed Affini S.p.A, an Italian corporation, ("Fila"),
Pencil Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Fila (the "Purchaser"), and Dixon. The Merger Agreement provides for an offer
by the Purchaser to purchase all of the issued and outstanding common stock of
Dixon (the "Offer"), followed by the merger of the Purchaser into Dixon, with
Dixon as the surviving corporation (the "Merger"). Upon completion of the
Merger, Dixon will be a wholly-owned subsidiary of Fila.
The Offer was the first step in the acquisition of Dixon by Fila. The
Purchaser commenced the Offer on January 7, 2005 and on [__________], 2005,
consummated the Offer by purchasing and paying for a total of [_________]
shares. The Merger is the second and final step of the acquisition of Dixon by
Fila. As a result of the consummation of the Offer, Dixon's common stock ceased
to be quoted on the American Stock Exchange and is no longer publicly traded.
The board of directors of Dixon has unanimously determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, are fair to and in the best interests of Dixon and its stockholders;
approved and declared advisable the merger agreement and the transactions
contemplated thereby, including the Offer and the Merger; and recommended that
the stockholders of Dixon vote to approve and adopt the merger agreement and the
merger. A copy of the Merger Agreement is attached to this information statement
as Annex A.
In the Merger, each share of Dixon common stock, $1.00 par value per share
(the "Shares") outstanding immediately prior to the Effective Time (other than
Shares owned by (i) Fila or an affiliate of Fila, the Purchaser or Dixon or its
subsidiaries, which shall be cancelled, and (ii) stockholders who are entitled
to demand and have properly exercised and perfected appraisal rights under
Delaware law) will, by virtue of the Merger and without any action on the part
of the holders of Shares, be converted into the right to receive $7.00 per Share
in cash, less any required withholding taxes and without interest, as soon as
reasonably practicable after surrender of the certificate(s) formerly
representing such Shares.
Simultaneously with the execution of the Merger Agreement, certain Dixon
stockholders entered into a Stock Purchase Agreement with the Purchaser to sell
their Shares to the Purchaser for $7.00 per Share and appointed designees of the
Purchaser as proxies to vote their Shares in favor of the Merger or execute a
stockholder written consent to the Merger.
Under Delaware law and Dixon's organizational documents, the approval and
affirmative vote (or written consent in lieu thereof) of the holders of not less
than 66 2/3% of the voting power of the outstanding shares of Dixon stock, is
required to adopt the merger agreement. As the result of the Stock Purchase
Agreement and the consummation of the Offer, the Purchaser currently owns [__]%
of the outstanding Shares as of [_________], 2005, which also represents
approximately __% of the voting power of the
i
outstanding shares of capital stock of Dixon as of __________, 2005, the record
date fixed by Dixon's board of directors for the action by written consent that
is the subject of this information statement.
The Purchaser has delivered to Dixon a written consent in accordance with
Section 228 of the Delaware General Corporation Law (the "DGCL") adopting the
Merger Agreement and approving the Merger and the other transactions
contemplated by the Merger Agreement. Because the Purchaser beneficially owns
shares of common stock representing greater than 66 2/3% of the voting power of
the outstanding shares of capital stock of Dixon entitled to be cast on the
adoption of the Merger Agreement, the action by written consent is sufficient to
adopt the Merger Agreement and to approve the Merger and the other transactions
contemplated by the Merger Agreement without any further action by any other
Dixon stockholder. As a result, no other votes are necessary to adopt the Merger
Agreement, and your approval is not required and is not being requested.
Neither Dixon nor Fila is soliciting proxies from Dixon stockholders. When
actions are taken by written consent of less than all of the stockholders
entitled to vote on a matter, Section 228(e) of the DGCL requires prompt notice
of the action to those stockholders who did not vote. THIS INFORMATION STATEMENT
AND NOTICE ATTACHED HERETO SHALL CONSTITUTE NOTICE TO YOU OF ACTION TAKEN BY
WRITTEN CONSENT AS CONTEMPLATED BY SECTION 228(e) OF THE DGCL.
Under Section 262 of the DGCL, if you did not consent to the adoption of
the Merger Agreement, you may be entitled to appraisal rights in connection with
the Merger, as described in this information statement. If you comply with the
requirements of Section 262 of the DGCL, you will have the right to seek an
appraisal and to be paid the "fair value" of your Shares at the effective time
of the Merger (exclusive of any element of value arising from the accomplishment
or expectation of the Merger) together with a fair rate of interest, if any, as
determined by the Delaware Court of Chancery, instead of $7.00 per Share in
cash, without interest. THIS INFORMATION STATEMENT AND NOTICE ATTACHED
HERETOSHALL CONSTITUTE NOTICE TO YOU OF THE AVAILABLILTY OF APPRAISAL RIGHTS
UNDER SECTION 262 OF THE DGCL, A COPY OF WHICH IS ATTACHED AS ANNEX C TO THIS
INFORMATION STATEMENT.
Under applicable securities regulations, the Merger may not be completed
until 20 calendar days after the date of mailing of this information statement
to Dixon stockholders. Therefore, notwithstanding the execution and delivery of
the written consent by the Purchaser, the Merger may not be completed until that
time has elapsed, and therefore, the earliest possible date on which the merger
can be completed is [_____________], 2005.
PLEASE READ THIS INFORMATION STATEMENT CAREFULLY AND IN
ITS ENTIRETY, AS IT CONTAINS IMPORTANT INFORMATION
Please do not send in your Dixon stock certificates at this time. If the
Merger is completed, you will receive instructions regarding the surrender of
your stock certificates and payment for your shares of Dixon common stock as
promptly as practicable after the merger is completed.
Neither the Securities and Exchange Commission, (the "SEC"), nor any state
securities commission has passed upon the adequacy or accuracy of this
information statement or determined if this information statement is complete.
Any representation to the contrary is a criminal offense.
By order of the Board of Directors,
/s/ Laura Hemmings
-----------------------------------
Laura Hemmings, Secretary
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................................................. Q-1
SUMMARY ................................................................................................ S-1
The Proposed Transaction.......................................................................... S-1
The Companies..................................................................................... S-1
Merger Consideration.............................................................................. S-2
Effect of the Merger on Options................................................................... S-2
Record Date....................................................................................... S-2
Recommendation of our Board of Directors.......................................................... S-2
Fairness Opinion.................................................................................. S-3
Required Approval of the Merger; Written Consent.................................................. S-3
Interests of Executive Officers in the Merger..................................................... S-3
Material U.S. Federal Income Tax Consequences of
the Merger to Our Stockholders............................................................. S-4
The Merger Agreement.............................................................................. S-4
THE COMPANIES .......................................................................................... 1
Dixon Ticonderoga Company......................................................................... 1
Fila.............................................................................................. 1
The Purchaser..................................................................................... 2
THE MERGER.............................................................................................. 2
Required Approval of the Merger; Written Consent.................................................. 8
Record Date....................................................................................... 8
Recommendation of the Board of Directors.......................................................... 8
Reasons for the Board's Recommendation............................................................ 9
Fairness Opinion.................................................................................. 12
Financing Condition............................................................................... 24
Material US Federal Income Tax Consequences of the
Merger to Our Stockholders................................................................. 24
Interests of Directors and Executive Officers in the Merger....................................... 26
Dissenters' Appraisal Rights...................................................................... 28
Form of the Merger................................................................................ 31
Conversion of Shares; Procedure for Exchange of Certificates...................................... 31
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................................................. 32
The Merger Agreement.............................................................................. 32
The Offer.................................................................................. 32
Directors.................................................................................. 32
Conversion of Securities................................................................... 33
Certificate of Incorporation and Bylaws.................................................... 34
Directors and Officers of the Surviving Corporation........................................ 34
Options.................................................................................... 34
The Merger................................................................................. 34
Stockholders Meeting....................................................................... 34
Merger Without Meeting of Stockholders..................................................... 35
Representations and Warranties............................................................. 35
Company Conduct of Business Covenants...................................................... 36
No Solicitation............................................................................ 36
Insurance and Indemnification.............................................................. 37
Rights Agreement........................................................................... 38
Conditions to the Merger................................................................... 38
Termination................................................................................ 38
Fees and Expenses.......................................................................... 39
Amendment.................................................................................. 39
Stock Purchase Agreement.......................................................................... 39
Transfer of Shares......................................................................... 39
Voting Arrangements........................................................................ 40
Representations and Warranties of the Stockholders......................................... 40
Representations and Warranties of Purchaser................................................ 40
Termination................................................................................ 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................................................ 40
WHERE YOU CAN FIND MORE INFORMATION..................................................................... 41
Annex A Agreement and Plan of Merger
Annex B Opinion of Sheldrick, McGehee & Kohler, Inc.
Annex C Section 262 of the Delaware General Corporation Law
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly some
commonly asked questions regarding the merger agreement and the merger. These
questions and answers may not address all questions that may be important to you
as a stockholder. Please refer to the more detailed information contained
elsewhere in this information statement, the annexes to this information
statement and the documents referred to in this information statement.
Q. WHY DID I RECEIVE THIS INFORMATION STATEMENT?
A. Provisions of Delaware law and applicable securities regulations
require us to provide you with information regarding the merger even
though your consent is neither required nor requested to adopt the merger
agreement or complete the Merger.
Q. WHAT IS THE PROPOSED TRANSACTION?
A. The proposed transaction is a Merger of the Purchaser with and into
Dixon, with Dixon surviving as a wholly owned subsidiary of Fila. It is
the second step in transactions that provide for the acquisition of Dixon
by Fila. The first step was the Offer commenced by Fila on January 7, 2005
to purchase all of the outstanding Shares. As a result of the consummation
of the Offer, the Shares ceased to be quoted on the American Stock
Exchange and are no longer publicly traded.
Q. WHY AM I NOT BEING ASKED TO VOTE ON THE MERGER?
A. The merger requires the affirmative vote (or consent in writing in
lieu thereof) of the holders of not less than 66 2/3% of the voting power
of Dixon's outstanding capital stock. As the result of the consummation of
the Offer and the Stock Purchase Agreement, the Purchaser currently owns
[__]% of the outstanding Shares as of [_________], 2005, which also
represents approximately [__]% of the voting power of the outstanding
shares of capital stock of Dixon as of [__________], 2005, the record date
fixed by Dixon's board of directors for the action by written consent that
is the subject of this information statement. The Purchaser has delivered
to Dixon a written consent in accordance with Section 228 of the DGCL
adopting the Merger Agreement and approving the Merger and the other
transactions contemplated by the Merger Agreement. Because the Purchaser
beneficially owns Shares representing greater than 66 2/3% of the voting
power of the outstanding shares of capital stock of Dixon entitled to be
cast on the adoption of the Merger Agreement, the action by written
consent is sufficient to adopt the Merger Agreement and to approve the
Merger and the other transactions contemplated by the Merger Agreement
without any further action by any other Dixon stockholder. As a result, no
other votes are necessary to adopt the Merger Agreement, and your approval
is not required and is not being requested.
Q. WHY DID THE BOARD OF DIRECTORS RECOMMEND THE MERGER AGREEMENT?
A. After careful consideration and evaluation, the Dixon board of
directors voted unanimously to approve, adopt and declare advisable the
Merger Agreement and the Merger. The board also determined that the Merger
and the other transactions contemplated by the Merger Agreement are in the
best interest of the stockholders of Dixon. Important factors in the
board's determination included, the results of a process begun in 2000 to
determine if other parties were interested in entering into a strategic
transaction relating to Dixon, the results of extensive negotiations with
Fila for the sale of Dixon, the consideration of the risks of Dixon
remaining as an independent, stand-alone company, the receipt by the board
of a fairness opinion stating that the
Q-1
Merger consideration is fair, from a financial point of view, to the
stockholders covered by the fairness opinion (as described below in the
section entitled "Fairness Opinion ") and other important factors
described in this information statement. To review our board of director's
reasons for recommending that our stockholders adopt the merger agreement
and approve the merger and the other transactions contemplated by the
merger agreement, see "The Merger -- Reasons for the Board's
Recommendation".
Q. IF THE MERGER IS COMPLETED, WHAT WILL I RECEIVE FOR MY SHARES?
A. Upon completion of the merger, each Share outstanding immediately
prior to the merger (other than Shares owned by Dixon or any subsidiary of
the Dixon, Fila or any affiliate of Fila, all of which will be cancelled,
and other than Shares that are held by stockholders, if any, who properly
exercise their appraisal rights under the DGCL) will be converted into the
right to receive $7.00 in cash, without interest (the "merger
consideration"). Following the completion of the Merger, upon the
surrender of your common stock certificates, you will receive an amount in
cash equal to the product obtained by multiplying the merger consideration
by the number of Shares that you own. In the event of a transfer of
ownership of common stock that is not registered in the records of our
transfer agent, the cash consideration for Shares may, subject to certain
requirements, be paid to a person other than the person in whose name the
certificate so surrendered is registered. See "The Merger -- Conversion of
Shares; Procedures for Exchange of Certificates."
Q. WILL THE MERGER CONSIDERATION I RECEIVE IN THE MERGER INCREASE IF DIXON'S
RESULTS OF OPERATIONS IMPROVE?
A. No. The value of the Merger consideration is fixed. The Merger
Agreement does not contain any provision that would adjust the Merger
consideration based on the amount of working capital held by Dixon at the
effective time of the Merger or improvements in the results of operations
of Dixon prior to the effective time of the Merger.
Q. IS THE MERGER AGREEMENT SUBJECT TO THE FULFILLMENT OF CONDITIONS?
A. Yes. Before the Merger can be completed, Dixon, Fila and the
Purchaser must fulfill or waive several closing conditions. If these
conditions are not satisfied or waived, the merger will not be completed.
We do not know of any reason that all conditions to the Merger will not be
satisfied. See "The Merger Agreement -- Conditions to the Merger".
Q. WHAT VOTE (OR CONSENT IN WRITING IN LIEU THEREOF) OF STOCKHOLDERS IS
REQUIRED TO ADOPT THE MERGER AGREEMENT?
A. The approval and affirmative vote (or written consent in lieu
thereof) of the holders of not less than 66 2/3% of the voting power of
the outstanding shares of Dixon stock is required to adopt the Merger
Agreement. As the result of the consummation of the Offer and the Stock
Purchase Agreement, the Purchaser currently owns __% of the Shares as of
[_________], 2005, which also represents approximately __% of the voting
power of the outstanding shares of capital stock of Dixon as of
[__________], 2005, the record date fixed by the Dixon board of directors
for the action by written consent that is the subject of this information
statement. The Purchaser has already acted by written consent to adopt the
Merger Agreement and approve the Merger and the other transactions
contemplated by the Merger Agreement. The action by written consent is
sufficient to adopt the Merger Agreement and approve the Merger and the
other transactions contemplated by the Merger Agreement without the
approval of any other stockholder of Dixon.
Q-2
Therefore, your vote is not required and is not being sought. We are not
asking you for a proxy and you are requested not to send us a proxy.
Q. WHAT RIGHTS DO I HAVE TO SEEK AN APPRAISAL OF THE FAIR VALUE OF MY SHARES?
(SEE PAGE __)
A. If you wish, you may seek an appraisal of the fair value of your
Shares, but only if you comply with all requirements of Delaware law as
described on pages __ through __ and in Annex C of this Information
Statement. Depending upon the determination of the Delaware Court of
Chancery, the appraised fair value of your Shares, which is the amount you
will receive for your Shares if you properly seek an appraisal, may be
less than, equal to or more than the $7.00 per Share to be paid in the
Merger.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. We expect the merger to occur on or about [_____________], 2005,
which is 20 calendar days after Dixon expects to mail this information
statement.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the completion of the merger, you will be sent detailed
instructions for exchanging your common stock certificates for the Merger
Consideration.
Q. WILL I OWE TAXES AS A RESULT OF THE MERGER?
A. The Merger will be a taxable transaction for all U.S. holders of
Shares. As a result, assuming you are a U.S. holder, the cash you receive
in the Merger for your Shares will be subject to United States federal
income tax and also may be taxed under applicable state, local, and other
tax laws. In general, you will recognize gain or loss equal to the
difference between (1) the amount of cash you receive and (2) the adjusted
tax basis of your surrendered Shares. See "The Merger -- Material U.S.
Federal Income Tax Consequences of the Merger to Our Stockholders" for a
more detailed explanation of the tax consequences of the Merger. You
should consult your tax advisor on how specific tax consequences of the
Merger apply to you.
Q. WHERE CAN I FIND OUT MORE INFORMATION ABOUT DIXON?
A. We file periodic reports and other information with the SEC. You may
read and copy this information at the SEC's public reference facilities.
Please call the SEC at 1-800-SEC-0330 for information about these
facilities. This information is also available on the internet site
maintained by the SEC at http://www.sec.gov. For a more detailed
description of the information available, please refer to the section
entitled "Where You Can Find More Information".
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have questions about the Merger after reading this
information statement, require assistance or need additional copies of
this information statement, please call Richard A. Asta, Executive Vice
President and Chief Financial Officer of Dixon.
Q-3
SUMMARY
This summary highlights important information in this information
statement. Because this summary may not contain all of the information that is
important to you, you should carefully read this entire information statement,
the annexes attached to this information statement and the other documents to
which this information statement refers you for a more complete understanding of
the Merger, including in particular the copy of the Merger Agreement and the
opinion of Sheldrick, McGehee & Kohler, Inc. that are attached to this
information statement as Annex A and Annex B, respectively. We have included
page references in parentheses to direct you to the appropriate place in this
information statement for a more complete description of the topics presented in
this summary.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THE PROPOSED TRANSACTION
The Merger is the second step of a transaction that began with the Offer
commenced on January 7, 2005, to purchase all of the issued and outstanding
Shares. Simultaneously with the execution of the Merger Agreement, certain
Dixon stockholders entered into a Stock Purchase Agreement with the Purchaser
to sell their Shares to the Purchaser for $7.00 per Share and appointed
designees of the Purchaser as proxies to vote their Shares in favor of the
Merger or execute a stockholder written consent to the Merger. As the result of
the Stock Purchase Agreement and consummation of the Offer, the Purchaser
currently owns __% of the outstanding Shares as of [_________], 2005, the
record date fixed by the Dixon board of directors for the action by written
consent that is the subject of this information statement. As a result of the
consummation of the Offer, the Shares ceased to be quoted on the American
Stock Exchange.
Pursuant to the Merger Agreement, the Purchaser will merge with and into
Dixon, with Dixon surviving the Merger as a wholly owned subsidiary of Fila.
Upon completion of the Merger, each issued and outstanding Share owned by us or
any of our subsidiaries, or by Fila or any affiliate of Fila, including the
Purchaser, will automatically be cancelled and no payment will be made with
respect to such Shares, and each outstanding Share not owned by us or any of our
subsidiaries, or by Fila or any affiliate of Fila, including the Purchaser
(other than Shares held by stockholders, if any, who properly exercise their
appraisal rights under Delaware law), will be converted into the right to
receive $7.00 in cash, without interest. Shares held by Fila in the Purchaser
will be converted to shares of Dixon common stock.
THE COMPANIES (PAGE 1)
Dixon. Dixon, which we also refer to in this information statement as we,
us or our company, is headquartered in Heathrow, Florida and manufactures and
markets a wide range of writing instruments, art materials and office products,
including the well-known Ticonderoga(R), Prang(R) and Dixon(R) brands.
Our principal executive office is located at 195 International Parkway
Heathrow, Florida 32746, and our telephone number is (407) 829-9000.
Fila. Fila is headquartered in Milan, Italy and is a privately held
Italian company. It manufactures and markets a wide range of design and writing
instruments, art materials and modeling paste. Its leading brands in the
European market are Giotto, Tratto, Pongo, Das and Dido.
Fila's principal executive office is located at Via Sempione, 2/C
20016 Pero (MI), Milan, Italy and its telephone number is 011-39-02-38-100-363.
S-1
The Purchaser. The Purchaser is a Delaware corporation organized in
connection with the Offer and Merger and has engaged in no activities other than
those incident to its formation and the completion of the transactions provided
for in the Merger Agreement. The Purchaser is a wholly owned subsidiary of Fila.
The mailing address of the Purchaser's principal executive offices is Via
Sempione, 2/C 20016 Pero (MI), Milan, Italy and its telephone number is
011-39-02-38-100-363.
CONVERSION OF SECURITIES (PAGE 33)
Upon completion of the Merger, each Share issued and outstanding (other
than shares held by Fila or its affiliates, including the Purchaser, or Dixon or
its subsidiaries, or held by stockholders, if any, who properly exercise their
appraisal rights under Delaware law) will be converted into the right to receive
$7.00 in cash, without interest. As a result of the Merger, unless you have
properly exercised your appraisal rights as described in this information
statement, you will receive a total amount equal to the product obtained by
multiplying $7.00 by the number of Shares that you own upon surrender of your
common stock certificates.
EFFECT OF THE MERGER ON OPTIONS (PAGE 33)
Dixon agreed to take or cause to be taken such actions as are reasonably
required to ensure that (i) each holder of a an option to purchase Shares that
has not previously expired or been exercised in full as of or prior to the
effective time of the Merger, whether vested or unvested has the right to
irrevocably elect, no later than immediately prior to the consummation of the
Merger, to surrender, following the consummation of the Merger, any eligible
option then held by the optionee in exchange for the right to receive a cash
payment equal to (x) the excess, if any, of (A) the per share price paid in the
Merger over (B) the exercise price per share of the Shares subject to such
eligible option, multiplied by (y) the number of Shares then issuable pursuant
to the unexercised portion of such eligible option, payable not later than five
days after the effective time, (ii) each optionee shall have the right to
purchase, effective no later than immediately prior to the consummation of the
Merger, subject to the consummation of the Merger and in accordance with the
terms of the relevant plan or document, all or any part of the Shares covered by
any eligible option held by the optionee (that has not been surrendered pursuant
to (i) above), and each Share so purchased shall be converted, as of the
effective time of the Merger, into the right to receive the per Share price paid
in the Merger, and (iii) each eligible option (with respect to which an optionee
has not exercised one of the rights set forth in (i) and (ii) above) will,
following the Merger, confer upon the optionee only the right to receive upon
exercise in accordance with the terms of the relevant plan or document
(including payment of the aggregate exercise price), for each Share that
otherwise would be issuable pursuant to the unexercised portion of such eligible
option, $7.00 per Share.
RECORD DATE (PAGE 8)
The board of directors of Dixon fixed [_______________], 2005, as the
record date to determine the stockholders entitled to consent to the adoption of
the Merger Agreement, to receive notice of the proposed Merger and to receive
this information statement. On [____________] the Purchaser executed and
delivered to us a written consent in respect of __% of the voting power of the
outstanding shares of capital stock of Dixon entitled to consent to adopt the
Merger Agreement and approve the Merger and the other transactions contemplated
by the Merger Agreement. On [_____________], 2005, there were 3,207,894 Shares
outstanding. Each Share is entitled to one vote in respect of the adoption of
the Merger Agreement.
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RECOMMENDATION OF OUR BOARD OF DIRECTORS (PAGE 8)
After evaluating a variety of business, financial and market factors and
consulting with our legal and financial advisors, our board of directors
unanimously:
- determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer, the Merger and the Stock
Purchase Agreement, were fair to and in the best interests of Dixon
and its stockholders;
- approved and declared advisable the Merger Agreement and the
transactions contemplated thereby, including the Offer, the Merger
and the Stock Purchase Agreement;
- recommended that Dixon's stockholders accept the Offer and tender
their Shares pursuant to the Offer and approve and adopt the Merger
Agreement and the Merger; and,
- approved the Merger Agreement, the Stock Purchase Agreement, the
Offer, and the Merger for purposes of Section 203 of the Delaware
General Corporation Law of the State of Delaware so that the
restrictions on "business combinations" and "interested
stockholders" set forth in Section 203 will not apply to the Merger
Agreement, the Stock Purchase Agreement, the Offer or the Merger.
For a discussion of the material factors considered by our board of
directors in reaching their conclusion, see "The Merger -- Reasons for the
Merger."
FAIRNESS OPINION (PAGE 12)
We retained Sheldrick, McGehee & Kohler, Inc. ("SMK") to provide a
financial fairness opinion to the board of directors of Dixon in connection with
the Offer and the Merger. At meetings of the board of directors on December 2,
2004 and on December 15, 2004, SMK rendered its oral opinion, subsequently
confirmed in writing on December 16, 2004, that as of December 16, 2004, and
based upon and subject to the assumptions, qualifications and limitations set
forth therein, the consideration to be received by the holders of Shares
pursuant to the Merger Agreement was fair from a financial point of view to such
holders (other than Fila, the Purchaser and their affiliates).
The full text of SMK's written opinion which sets forth, among other
things, the assumptions made, procedures followed, matters considered and
qualifications and limitations of the reviews undertaken in rendering its
opinion, is attached as Annex B to this information statement. The summary of
SMK's fairness opinion set forth in this information statement is qualified in
its entirety by reference to the full text of the opinion. Stockholders should
read the opinion carefully and in its entirety. SMK's opinion is directed to the
board of directors of Dixon, addresses only the fairness from a financial point
of view of the consideration to be received by holders of Shares pursuant to the
Merger Agreement (other than Fila, the Purchaser and their affiliates), and does
not address any other aspect of the Merger.
REQUIRED APPROVAL OF THE MERGER; WRITTEN CONSENT (PAGE 8)
Under Delaware law and Dixon's organizational documents, the adoption of
the Merger Agreement by Dixon's stockholders may be effected by written consent
of the stockholders holding not less than 66 2/3% of the voting power of the
outstanding Shares. On [____________] the Purchaser executed and delivered to us
a written consent in respect of __% of the voting power of the outstanding
shares of capital stock of Dixon entitled to consent to adopt the Merger
Agreement and approve the Merger and the other transactions contemplated by the
Merger Agreement. On [_____________], 2004,
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there were 3,207,894 Shares outstanding. Each Share is entitled to one vote in
respect of the adoption of the Merger Agreement. As a result, no further action
of Dixon's stockholders will be required to adopt the Merger Agreement or
approve the Merger, and Dixon will not hold a stockholders' meeting at which
stockholders will vote or take other action on the adoption of the Merger
Agreement.
Federal securities laws state that the Merger may not be completed until
20 calendar days after the date of mailing of this information statement to
Dixon stockholders. Therefore, notwithstanding the execution and delivery of the
written consents, the Merger will not occur until that time has elapsed. We
expect the Merger to close on or about that time. However, there can be no
assurance that the Merger will close at that time, or at all.
When actions are taken by written consent of less than all of the
stockholders entitled to vote (or consent in writing in lieu thereof) on a
matter, Section 228(e) of the DGCL requires notice of the action to those
stockholders who did not vote (or consent in writing in lieu thereof). This
information statement and the notice attached hereto shall constitute notice to
you of action by written consent as required by Section 228(e) of the DGCL.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (PAGE 25)
Some of our executive officers and the members of our board of directors
have interests in the Merger that are different from, or in addition to, the
interests of Dixon and our stockholders generally. The members of our board of
directors were aware of these interests and considered them at the time they
approved the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger.
These interests include:
- the cancellation and cash-out of all outstanding options to
acquire our Shares, whether or not then vested or exercisable,
held by directors and executive officers;
- assurance of severance payments and benefits following the
Merger; and
- the right to continued indemnification and directors' and
officers' liability insurance for our directors and officers
by the surviving corporation for events occurring prior to the
time of the Merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS
(PAGE 24)
The receipt of the merger consideration for each Share pursuant to the
Merger Agreement will be a taxable transaction to U.S. holders for U.S. federal
income tax purposes. For U.S. federal income tax purposes, each of our
stockholders that are U.S. holders generally will recognize taxable gain or loss
as a result of the Merger measured by the difference, if any, between the Merger
consideration, and the adjusted tax basis in that Share owned by the
stockholder. That gain or loss will be a capital gain or loss if the Share is
held as a capital asset in the hands of the stockholder, and will be long-term
capital gain or loss if the Share has been held for more than one year at the
time of the completion of the Merger. Stockholders are urged to consult their
own tax advisors as to the particular tax consequences to them of the Merger.
THE MERGER AGREEMENT (PAGE 31)
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Conditions to the Completion of the Merger (page 37). As more fully
described in this information statement and the Merger Agreement, the completion
of the merger depends on the satisfaction or waiver of certain conditions. If
these conditions are not satisfied or waived, the Merger will not be completed.
Dissenters' Rights of Appraisal (page 27). If you did not consent in
writing to the Merger and you take all steps required to perfect your appraisal
rights under Delaware law, you will be entitled to dissent from the Merger and
to have the fair value of your Shares judicially determined and paid to you in
cash, together with a fair rate of interest, if any, as the Delaware Court of
Chancery may determine. The text of Section 262 of the Delaware General
Corporation Law, which sets forth the specific steps you must take to perfect
your appraisal rights, is attached to this Information Statement as Annex C. If
you are a stockholder of record and wish to exercise your right to dissent from
the Merger and demand appraisal of your Shares under Delaware law, you must:
- hold your Shares on the date of the making of the demand for
appraisal;
- continuously hold your Shares through the effective date of the
Merger; and
- deliver to Dixon a written demand for appraisal of your Shares
within 20 days after the date of mailing by Dixon of the notice that
the Merger was approved to which this information statement is
attached and that appraisal rights are available, which demand must
reasonably inform us of your identity and that you intend to demand
the appraisal of your shares. This twenty-day period will expire on
[_________], 2005.
ANY HOLDER WHO WISHES TO EXERCISE HIS OR HER RIGHT TO DISSENT FROM THE
MERGER AND DEMAND APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO
DO SO SHOULD REVIEW THE DISCUSSION IN THE SECTION CAPTIONED "DISSENTERS'
APPRAISAL RIGHTS" (PAGE 27) AND ANNEX C CAREFULLY. FAILURE TO TIMELY AND
PROPERLY COMPLY WITH THE REQUIREMENTS AND PROCEDURES SPECIFIED THEREIN WILL
RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER DELAWARE LAW.
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THE COMPANIES
DIXON TICONDEROGA COMPANY
Dixon, with operations dating back to 1795, is one of the oldest
publicly held companies in the U.S. Its consumer group manufactures and markets
a wide range of writing instruments, art materials and office products,
including the well-known Ticonderoga(R), Prang(R) and Dixon(R) brands. Dixon
employs approximately 1,600 people at eight facilities in the U.S., Canada,
Mexico, the U.K. and China.
Dixon manufactures its leading brand Ticonderoga(R) and a full line
of pencils at its facility in Versailles, Missouri. It manufactures and markets
advertising specialty pencils, pens and markers through its promotional products
division. It also manufactures and markets Wearever(R) and Dixon(R) pen writing
products as well as Prang(R) and Ticonderoga(R) lines of markers, mechanical
pencils and allied products. The majority of its Prang(R) brand of soybean-based
and wax crayons, chalks, dry and liquid tempera, water colors and art materials
are manufactured at the facility of its subsidiary, Grupo Dixon, S.A. de C.V.
("Grupo Dixon"), located in Mexico City.
Through its subsidiaries, Grupo Dixon manufactures and sells black
and color writing and drawing pencils, correction materials, lumber crayons and
allied products in Mexico. It also manufactures and sells the same types of
products marketed in the U.S. under the Prang(R) brand, but uses its Vinci(R)
brand in Mexico. Grupo Dixon also manufactures marker products, modeling clay
and special markers for industrial use, all of which are marketed and sold
together with the Prang(R) products by the U.S. Consumer division.
Dixon Ticonderoga, Inc., a wholly-owned subsidiary of Dixon with a
distribution center in Newmarket, Ontario, and a manufacturing plant in Acton
Vale, Quebec, Canada, sells black and color writing and drawing pencils, pens,
lumber crayons, correction materials, erasers, rubber bands and related products
in Canada. It also distributes certain of Dixon's school product lines and
produces eraser products and correction materials for distribution by the U.S.
Consumer division. Also, under a licensing agreement with Warner Bros. Consumer
Products, Dixon markets in Canada a line of pencils, pens and related products
featuring the famous Looney Tunes(R) and Scooby Doo(R) characters.
Dixon Europe, Limited, a wholly-owned subsidiary of Dixon, is
engaged in the distribution of many Dixon consumer products in the United
Kingdom and other European countries.
Beijing Dixon Ticonderoga Stationery Company, Ltd., Dixon's
wholly-owned Chinese subsidiary, manufactures wood slats for pencil
manufacturing and sources and distributes certain consumer products for
international sale by Dixon. It also manufactures colored and graphite pencils
for export sale.
Dixon is a Delaware corporation. Our principal executive office is
located at 195 International Parkway Heathrow, Florida 32746, and our telephone
number is (407) 829-9000.
FILA-FABBRICA ITALIANA LAPIS ED AFFINI S.P.A.
Fila, with operations dating back to 1920, is a privately held
Italian company. It manufactures and markets a wide range of design and writing
instruments, art materials and modeling paste. Its leading brands in the
European market are Giotto, Tratto, Pongo, Das and Dido. Headquartered in Milan,
Italy, Fila's group employs about 600 people at four facilities in Italy,
France, Spain and Chile.
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Fila is an Italian corporation. Its principal executive office is located
at Via Sempione, 2/C, 20016 Pero (MI), Milan, Italy and the telephone number at
that address is 011-39-02-38-100-363.
PENCIL ACQUISITION CORP.
Pencil Acquisition Corp. is a Delaware corporation organized in connection
with the merger and has engaged in no activities other than those incident to
its formation and the completion of the Offer and the merger. It is a wholly
owned subsidiary of Fila. The mailing address of its principal executive office
is Via Sempione, 2/C, 20016 Pero (MI), Milan, Italy and the telephone number at
that address is 011-39-02-38-100-363.
THE MERGER
BACKGROUND
In August, 2000, after it had defaulted on covenants in its senior and
subordinated debt instruments, Dixon engaged an investment banker to assist the
board in evaluating its strategic alternatives. After an extensive analysis, the
investment banker advised Dixon to explore a merger or a sale. By March, 2001,
the investment banker had contacted numerous potential strategic and financial
buyers, including private equity funds. From March 2001 until August 2004, Dixon
permitted a number of interested parties, including California Cedar Products
Company ("CCPC"), to conduct due diligence, and Dixon began preliminary
negotiations with some of them with respect to a possible transaction. It was
not until May, 2003 that Dixon's negotiations with interested parties progressed
to the point of entering into an exclusivity agreement for a transaction. Dixon
entered into an exclusivity agreement with a potential buyer of its assets in
May, 2003, but negotiations with that potential buyer terminated later in 2003.
In December, 2003, Dixon received a proposal from Jarden Corporation
("Jarden") indicating an interest in making a tender offer for all of the issued
and outstanding Shares at a price of not less than $4.25 per Share, with a 90%
tender requirement. At or about that time, the board retained Delaware legal
counsel to advise the board and appointed from its members a negotiating
committee comprised of Philip M. Shasteen, Wesley D. Scovanner, and John
Ritenour (the "Committee"), all independent directors, to assist the board in
negotiating a transaction. Messrs. Pala, Joyce and Asta attended most of the
Committee meetings by invitation of the Committee.
After negotiations, Jarden increased its offer to $5 per Share and Dixon
and Jarden entered into and publicly disclosed an exclusivity agreement with an
expiration date of February 10, 2004, which was later extended three times. On
March 25, 2004, the Jarden exclusivity agreement and all negotiations with
Jarden were terminated. At about that time, Dixon and its investment banker
mutually decided to end the investment banking engagement.
During April through June, 2004, various interested parties, including
CCPC, conducted due diligence with respect to Dixon under confidentiality
agreements. In June, 2004, Dixon received a proposal from a financial buyer for
the acquisition for cash of all outstanding Shares at a price of $5.60 per
Share. The price was later increased to $6.00 per Share. During that time,
although CCPC and Dixon engaged in negotiations with respect to a similar
transaction, neither CCPC nor any other interested party other than the
financial buyer indicated an interest in a transaction at a price at or above
$6.00 per Share. On June 28, 2004, Dixon and the financial buyer entered into a
sixty day exclusivity agreement contemplating a cash-out merger at a price of
$6.00 per Share.
2
Dixon understands that during the summer of 2004, CCPC asked Fila to join
with it to make an offer to acquire Dixon. On August 6, 2004, Lazard & Co.
S.R.L. ("Lazard"), on behalf of Fila and CCPC (together, "FC"), wrote two
letters to Dixon expressing FC's interest in acquiring Dixon at a price of $7.00
per share and requesting due diligence information regarding Dixon. Dixon
responded to those inquiries by informing FC that it was not in a position to
discuss a transaction at that time. After receipt of the Lazard letters, a
member of the Committee discussed the Lazard letters with the financial buyer to
determine if the financial buyer would agree to increase its price, but it
declined to do so at that time.
On August 10, 2004, the Committee held a meeting to consider Lazard's
August 6 letters, at which it discussed engaging an investment banker to advise
the board and the Committee, determined that a board meeting should be held to
determine how Dixon should proceed, and decided to continue to attempt to
persuade the financial buyer to increase its price.
On August 13, 2004, Dixon received a letter from the financial buyer
indicating that it had substantially completed its due diligence. Attached to
that letter were draft commitment letters from the financial buyer's financing
sources. At about the same time, legal counsel to the financial buyer had
indicated in conversations with legal counsel to Dixon that the financial buyer
was still not inclined to increase its price.
The Committee met again on August 17, 2004 for an update on the
discussions with the financial buyer, and to discuss its recommendation to the
board with respect to the Lazard letters. At that meeting, the Committee decided
to explore the hiring of an investment banker to advise the board and, in order
to keep the negotiations with the financial buyer alive, to authorize Dixon's
legal counsel to begin, based on discussions with counsel to the financial
buyer, the preparation of a draft of the protective provisions Dixon would
expect to be included in any definitive agreement for a transaction it might
enter with the financial buyer. The Committee instructed legal counsel to make
it clear to the financial buyer that Dixon expected a price increase if
negotiations with the financial buyer were to continue.
The Dixon board held a meeting on August 18, 2004 to consider its position
with respect to the financial buyer and FC. At that meeting, the board
instructed the Committee to continue to press the financial buyer for a price
increase, determined that it might be advisable to engage an investment banker
to assist the board and the Committee in reviewing and evaluating offers and
deal terms with prospective buyers, and requested more information on prices and
possible candidates before it did so.
The Committee held a meeting on August 25, 2004 to discuss the status of
the negotiations with the financial buyer and the progress of discussions with
investment banking firms. The Committee decided to recommend the approval of the
engagement of KPMG Corporate Finance LLC ("KPMG") to assist the Committee and
the board in reviewing and evaluating offers and offer terms with prospective
buyers and to assist it in its analysis of a sale of Dixon. Also on August 25,
2004, Dixon received a letter from Lazard on behalf of FC congratulating Dixon
on its third quarter earnings and indicating that if FC were to have access to
more information, it could consider increasing its $7.00 per Share price.
At a meeting on August 27, 2004, the Committee received an update from its
advisors as to the status of the negotiations with the financial buyer and the
due diligence review that might be conducted by FC if Dixon allowed it to do so
if and when the exclusivity agreement with the financial buyer might expire.
Immediately after that Committee meeting, the board held a meeting during which
it discussed the risks and benefits of extending the exclusivity agreement with
the financial buyer beyond its expiration date of August 27, 2004, or
alternatively beginning negotiations with FC. At that meeting, counsel to Dixon
advised the board that the financial buyer's position at that time was that it
would not agree to increase its price and would refuse to continue to expend
money to further negotiate a transaction unless Dixon would agree to extend the
exclusivity agreement for 45 days and agree to pay half of the
3
financial buyer's expenses, up to $250,000, if Dixon did not enter into a
definitive agreement with the financial buyer for any reason. Counsel also
reported that the financial buyer would require that Mr. Pala and Mr. Joyce
enter into a voting agreement with respect to their Shares and that Messrs. Pala
and Joyce would need to pay the financial buyer any amounts received for their
Shares over the financial buyer's acquisition price if Dixon ultimately
consummated a transaction with another buyer. After extensive discussion, the
board (i) approved the engagement of KPMG as an advisor, (ii) directed the
Committee and KPMG to continue to press the financial buyer for a price increase
and acceptable terms upon which its exclusivity agreement could be extended to
allow time to negotiate a definitive agreement for a transaction, (iii) directed
the Committee and KPMG, should the exclusivity agreement with the financial
buyer expire without an extension, to begin discussions with FC with respect to
its proposal, including its financing sources and timing, and (iv) decided to
meet again on August 31, 2004 to receive an update and to take any required
action.
The exclusivity agreement with the financial buyer expired on August 27,
2004, but discussions with the financial buyer continued, during which the
Committee, counsel and KPMG continued to press the financial buyer for a price
increase. Over the next few days, legal counsel to Dixon continued to discuss
with legal counsel to the financial buyer the circumstances under which its
exclusivity agreement could be renewed and extended. During those conversations,
the financial buyer declined to increase its proposed price and reiterated that
it would not continue to spend money further negotiating a transaction unless
Dixon granted a 45 day renewal and extension of the exclusivity agreement and
agreed to expense reimbursement obligations if no definitive agreement was
reached with the financial buyer.
On August 29, 2004, the Committee advised an FC representative that Dixon
was continuing discussions with another party but that as of that date, Dixon
was not restricted from discussing a possible transaction with FC. The Committee
requested more information about FC's proposal, including the nature and status
of arrangements between CCPC and Fila, FC's ability to finance a transaction,
any contingencies to a closing, and the timing of a transaction. FC was informed
by the Committee that the financial buyer had substantially completed its due
diligence investigation of Dixon and that if FC wanted to proceed with a
transaction, it would have to be able to proceed very quickly. Lazard then sent
Dixon a letter dated August 31, 2004, responding to some of the Committee's
questions, including pricing, due diligence, financing and timing.
On or about September 3, 2004, after discussions among the Committee, its
representatives, FC's representative, and Lazard about FC's ability to close a
transaction and the Committee's other concerns about FC's proposal, Dixon
informed FC that it would be afforded access to information regarding Dixon and
would be given until September 17, 2004, subsequently extended to September 22,
2004 due to complications posed by hurricanes in Florida, to make an offer for
all of Dixon's outstanding Shares.
Further negotiations with the financial buyer after the expiration of its
exclusivity agreement resulted in indications that it would increase its price
first to $6.20 per Share, then to $6.40 per Share, but the price increases were
conditioned on, among other things, a 30 day extension of the exclusivity
agreement and a requirement that Dixon reimburse the financial buyer up to $1
million of its expenses if for any reason Dixon and the financial buyer did not
enter into a definitive merger agreement by the end of the extended 30 day
exclusivity period.
The board held a meeting on September 8, 2004 to consider its course of
action with respect to the financial buyer and FC. At that meeting, the board
directed legal counsel to Dixon to present a counterproposal to the financial
buyer accepting the $6.40 per Share price, agreeing to provisions to pay, under
certain circumstances, the maximum amount of break up fee and expense
reimbursement that Dixon believed would be reasonable under Delaware law, and
giving the financial buyer 24 hours to respond. The board directed the Committee
to proceed with negotiations with FC if the counterproposal
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to the financial buyer was not accepted. The board's counterproposal was
presented to the financial buyer after the board meeting and was rejected.
FC signed a confidentiality agreement with Dixon dated September 8, 2004,
and was then provided detailed documentation regarding, among other things,
Dixon's operations, financial results and condition, corporate structure,
agreements and litigation. FC informed Dixon that FC had hired
PriceWaterhouseCoopers to assist in its due diligence efforts, which were
conducted during September 2004 and included visits to Dixon's executive offices
in Heathrow, Florida, and its plants in Versailles, Missouri and Mexico.
On or about September 22, 2004, Lazard, on behalf of FC, proposed to the
Committee that the parties negotiate a definitive agreement whereby FC would
acquire all of the issued and outstanding Shares for $7.00 per Share. Such
proposal was subject to, among other things, the approval by the respective
boards of Fila and CCPC.
The Committee held a meeting on September 23, 2004 to discuss FC's
proposal. At that meeting, KPMG updated the Committee on discussions with an FC
representative about the proposal, including the price. The Committee determined
that it should seek a price of $7.25 per Share, with a 30 day negotiating
period, that the transaction should be structured as a tender offer, that no
financing contingency would be accepted, and that FC should be required to post
an $800,000 deposit when a definitive agreement was signed. KPMG then
immediately advised an FC representative of the Committee's position by
telephone.
On September 24, 2004, the Committee reiterated its position in a letter
to Lazard. On FC's behalf, Lazard responded on September 29, 2004, confirming
that Fila's and CCPC's respective boards had authorized proceeding with the
proposed acquisition and confirming FC's proposal to acquire the outstanding
Shares for $7.00 per Share. In that letter, Lazard confirmed that any offer by
FC would not be subject to financing.
The Committee held a meeting on September 30, 2004, at which KPMG advised
the Committee about discussions with counsel to FC in which KPMG had raised,
among other issues, the Committee's concerns that the price had not been
increased above $7.00 per Share. After discussion, the Committee directed that
its position, including its disappointment in the price, be expressed in a
letter to Lazard, and on October 1, 2004, the Committee responded to Lazard's
September 29 letter. In its response, the Committee again requested a price of
$7.25 per Share, and set forth its position regarding a termination fee and FC's
request that Dixon obtain a waiver from its senior and subordinated lenders of
the change of control provisions contained in their respective loan agreements.
On October 4, 2004, Lazard responded, on FC's behalf, to the Committee's
October 1, 2004 letter. Lazard stated FC's belief that $7.00 per share
represented a full and fair price for all of Dixon's outstanding shares. Lazard
also requested certain information relating to Dixon's inventories, which Dixon
supplied on or about October 8, 2004.
On October 8, 2004, counsel for the Committee and Dixon sent FC's counsel
a proposed letter agreement providing that the parties would negotiate
exclusively for the acquisition of all issued and outstanding Shares at a price
of not less than $7.00 per Share. Thereafter, counsel for the parties and the
Committee negotiated the proposed letter agreement.
The board held a meeting on October 13, 2004 to consider a proposed form
of letter agreement with FC providing for an exclusive 30 day period for the
parties to negotiate a definitive merger agreement. After discussing the
provisions of the draft letter agreement, the board concluded that entering into
a letter agreement with FC would present the best opportunity for Dixon to get
the highest
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price reasonably available for its stockholders and authorized Dixon to enter
into the letter agreement in a form previously delivered to the board members,
but with certain changes to be made by the Committee.
The board met again on October 15, 2004 to consider authorizing a revised
letter agreement with FC, reflecting changes negotiated by counsel to Dixon and
the Committee, and authorized entering into the letter agreement as revised. The
parties then executed the letter agreement dated October 15, 2004 and effective
on October 18, 2004 when it was signed by Fila (the "Letter").
The Letter provided for an exclusive 30 day period for the parties to
negotiate a definitive agreement. The Letter assumed that FC had completed its
due diligence other than that related to the calculation of reserves for Dixon's
inventories in Mexico, and contemplated that the definitive agreement would
provide for FC to commence a tender offer to purchase all of the outstanding
Shares at a price of not less than $7.00 per Share in cash to be followed by a
cash-out merger at the same price. The Letter also contemplated that Gino Pala
and Rick Joyce, Co-CEOs of Dixon, would enter into a Stock Purchase Agreement
requiring them to tender their Shares into the Offer, if consummated, and that
certain Dixon executives would remain employed by the surviving corporation for
a period of time after the consummation of the transactions.
Following execution of the Letter, the parties continued to negotiate the
terms of a definitive merger agreement and of second amendments to the
employment agreements of certain Dixon executives. On or about October 29, 2004,
representatives of FC met with Dixon's management in Heathrow, Florida to
discuss FC's concerns regarding certain of Dixon's inventory and to discuss
Dixon's preliminary fiscal year end results.
The Committee held meetings on November 4, 2004 and on November 10, 2004
to discuss the progress of the negotiation of a definitive agreement with FC.
On November 16, 2004, Lazard sent a letter to the Committee requesting
that the exclusivity provision contained in the Letter be extended to December
3, 2004 to allow Fila's lender, Banca Intesa, time to document its credit
approval of the loan to Fila to acquire the Shares. In the November 16, 2004
letter, Lazard advised Dixon that CCPC had withdrawn from the proposed
acquisition, and that Fila would purchase the Shares without CCPC's
participation. At a November 16, 2004 board meeting, the board approved an
extension of the Letter to December 3, 2004 subject to Fila being advised that
if Fila was not ready to proceed with a definitive agreement on December 3,
2004, Dixon would not be willing to grant another extension unless Fila posted a
non-refundable deposit.
On November 17, 2004, the Committee responded to Lazard's November 16,
2004 letter. The response included a request for an acknowledgment by Fila that
Dixon did not intend to extend the exclusivity period further unless Fila agreed
that any further extension beyond December 3, 2004 would require Fila to make a
non-refundable deposit in the amount of $800,000. Fila declined to agree to such
a condition being contained in the extension letter, and on November 18, 2004,
Dixon agreed to extend Fila's exclusivity period under the Letter until December
3, 2004.
Between the November 17, 2004 Committee meeting and a board meeting held
on December 2, 2004, Lazard told Dixon that Fila was considering reducing the
$7.00 per Share offer price, to which Dixon and Mr. Pala responded that any
price reduction would be unacceptable to Dixon and Mr. Pala.
The board held a meeting on December 2, 2004 with its legal and financial
advisors to consider the proposed Merger Agreement and related transactions with
Fila. At that meeting, Delaware legal counsel to Dixon reviewed with the board
its duties under Delaware law and the terms of the proposed transactions that
had been negotiated to date, including the terms and conditions of the proposed
Merger
6
Agreement, the Stock Purchase Agreement and the proposed amendments to the Dixon
Rights Agreement. At the meeting, the board received the oral opinion of SMK,
subsequently confirmed in writing, that, as of December 2, 2004 and based upon
and subject to the considerations set forth in its opinion, the $7.00 per Share
in cash to be received by the holders of the Shares (other than Fila and its
affiliates) in the Offer and the Merger was fair from a financial point of view
to such holders. The board also received the financial analysis prepared by SMK,
which had been provided to the board prior to the meeting and was reviewed at
the meeting.
During the December 2, 2004 board meeting, counsel for Fila contacted
Messrs. Joyce and Asta to request a further extension of the exclusivity
provision of the Letter to allow time for it to finalize its financing
arrangements with Banca Intesa. As a result of that request, and because, among
other things, certain terms of the consents from Dixon's lenders had not been
finalized, the board did not vote on the approval of the Merger Agreement and
related transactions at its December 2 meeting, but approved an extension of the
Letter through December 14, 2004 if a non-refundable deposit of $150,000 was
made by Fila. The parties were unable to agree upon the terms of such extension,
but continued to negotiate the terms of the Merger Agreement and related
transactions.
Before and during the week of December 13, 2004, counsel for Dixon and
Fila negotiated for, and obtained, amendments and/or waivers from Dixon's
lenders regarding the change of control provisions under their respective loan
agreements and continued the negotiation of the remaining open issues under the
Merger Agreement. The agreements with Dixon's lenders provide that the execution
and delivery of the Merger Agreement and the Stock Purchase Agreement and
commencement of the Offer will not cause a "change in control" of Dixon and
further provide, in the case of Dixon's senior lenders, that none of the
consummation of the Offer, the purchase of Shares pursuant to the Stock Purchase
Agreement, or the Merger will constitute a "change in control," provided certain
conditions are met.
The board reconvened on December 15, 2004 to consider and act upon the
Merger Agreement. After receiving a report on the status of Fila's financing for
the Merger and changes to the Merger Agreement since the last board meeting, and
after receiving confirmation from SMK that it was prepared to issue its fairness
opinion on that date, the board discussed the proposed transactions and, after
taking into account the factors discussed in "Reasons for the Board's
Recommendation" below, resolved that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair, advisable
and in the best interests of Dixon and its stockholders. The board also approved
an amendment to the Dixon Rights Agreement dated March 3, 1995 which provides
that the approval, execution or consummation of the Offer, the Merger Agreement,
the Stock Purchase Agreement and the Merger do not and will not result in the
ability of any person to exercise any right issued under the Rights Agreement
and do not and will not cause the rights to separate from the Shares to which
they are attached or to be triggered or to become exercisable. The board also
made the recommendations to stockholders stated in "Recommendation of the Board
of Directors" below.
The full text of the SMK opinion, which sets forth assumptions made,
procedures followed, matters considered and limitations on the scope of the
review undertaken by SMK in rendering its opinion, is attached as Annex B to
this document and is incorporated by reference in its entirety. The SMK opinion
addresses only the fairness, from a financial point of view, to the holders of
the Shares other than Fila and its affiliates of the consideration to be
received by such holders pursuant to the Offer and the Merger, as of the date of
the SMK opinion, and does not constitute a recommendation to any stockholder as
to whether or not such stockholder should tender Shares pursuant to the Offer,
as to how such stockholder should vote or act on any matter relating to the
Merger, or whether such stockholder should seek to perfect his or her appraisal
rights in connection with the Merger. Stockholders are urged to, and should,
read the SMK opinion carefully and in its entirety.
7
On December 16, 2004, after the close of the financial markets, the
parties executed the definitive Merger Agreement and the Purchaser and the other
parties thereto executed the Stock Purchase Agreement. A joint press release
announcing the transaction was issued prior to the opening of the financial
markets the next morning.
On January 7, 2005, the Purchaser filed its Tender Offer Statement with
the SEC and launched the Offer. Also on January 7, 2005, Dixon filed its
Solicitation Recommendation with the SEC.
On [________], 2005, the Purchaser accepted and paid for a total of
_______ Shares in the Offer, which together with the Shares acquired pursuant to
the Stock Purchase Agreement, represent approximately __% of the outstanding
Shares and approximately __% of the voting power of the outstanding Shares as of
that date. On [________], 2005, the Purchaser delivered to Dixon a written
consent in accordance with Section 228 of the DGCL, adopting the merger
agreement.
REQUIRED APPROVAL OF THE MERGER; WRITTEN CONSENT
Under Delaware law and Dixon's organizational documents, the approval and
affirmative vote (or written consent in lieu thereof) of the holders of not less
than 66 2/3% of the voting power of the outstanding shares of Dixon stock, is
required to adopt the Merger Agreement. Our board of directors has previously
approved and adopted the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement. The Purchaser has delivered to Dixon a
written consent in accordance with Section 228 of the DGCL, adopting the Merger
Agreement. Because the Purchaser beneficially owns Shares representing greater
than 66 2/3% of the voting power of the outstanding shares of Dixon's capital
stock entitled to be cast on the adoption of the Merger Agreement, the
Purchaser's action by written consent is sufficient to adopt the Merger
Agreement and to approve the Merger and the other transactions contemplated by
the Merger Agreement without any further action by any other Dixon stockholder.
As a result, no other votes are necessary to adopt the Merger Agreement and your
approval is not required and is not being requested.
Federal securities laws state that the Merger may not be completed until
20 calendar days after the date of mailing of this information statement to
Dixon stockholders. Therefore, notwithstanding the execution and delivery of the
written consent by the Purchaser, the Merger will not occur until that time has
elapsed. We expect the Merger to close on or about [________], 2005. However,
there can be no assurance that the Merger will close at that time.
RECORD DATE
The board of directors of Dixon fixed [________], 2005, as the record date
to determine the stockholders entitled to consent to the adoption of the Merger
Agreement, to receive notice of the proposed Merger and to receive this
information statement. The Purchaser's written consent in respect of __% of the
voting power of the outstanding shares of capital stock of Dixon entitled to
consent to adopt the Merger Agreement and approve the Merger and the other
transactions contemplated by the Merger Agreement was executed on [________],
2005. On [________], 2005, there were 3,207,894 Shares outstanding and entitled
to vote on (or consent in writing to in lieu thereof) the adoption of the Merger
Agreement. Each share of our common stock is entitled to one vote in respect of
the adoption of the Merger Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
8
On December 15, 2004, after evaluating a variety of business, financial
and market factors and consulting with our legal and financial advisors, and
after due discussion and due consideration, our board of directors unanimously:
- determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer, the Merger and the Stock
Purchase Agreement, were fair to and in the best interests of Dixon
and its stockholders;
- approved and declared advisable the Merger Agreement and the
transactions contemplated thereby, including the Offer, the Merger,
and the Stock Purchase Agreement;
- recommended that Dixon's stockholders accept the Offer and tender
their Shares pursuant to the Offer and approve and adopt the Merger
Agreement and the Merger; and
- approved the Merger Agreement, the Stock Purchase Agreement, the
Offer, and the Merger for purposes of Section 203 of the Delaware
General Corporation Law of the State of Delaware so that the
restrictions on "business combinations" and "interested
stockholders" set forth in Section 203 will not apply to the Merger
Agreement, the Stock Purchase Agreement, the Offer or the Merger.
REASONS FOR THE BOARD'S RECOMMENDATION
In approving the Offer, the Merger, the Merger Agreement and the other
transactions contemplated thereby, including the Stock Purchase Agreement and
the transactions contemplated thereby, and recommending that all holders of
Shares accept the Offer and tender their Shares pursuant to the Offer and vote
to approve and adopt the Merger Agreement and the Merger, the board considered a
number of factors, including, without limitation, the following:
(1) Dixon's high level of debt, including payments on Dixon's
subordinated debt in the amount of $2.5 million due on March 31, 2005 in
order to prevent the exercise of warrants held by the subordinated lenders
and the requirement that Dixon refinance over $30 million of debt in 2005;
(2) the historical, current and prospective financial condition,
results of operations, business and business strategy of Dixon, including
its inability to grow its revenues over the past several years;
(3) the advice from Dixon's former investment bankers that Dixon
should consider a merger or sale;
(4) the historical and current market prices and trading volumes of
the Shares, and the premiums that $7.00 per Share represents with respect
to the average market prices of the Shares during the last four years
(134%), the last two years (101%), the last year (64%), the last six
months (75%), and the closing price on August 30, 2004 (68%), the time the
parties began negotiating, respectively;
(5) the extensive efforts of Dixon over a period of over four years
to explore strategic alternatives, including a similar transaction with
another party, including such factors as (a) the comparison of the $7.00
Offer Price to indications of interest received by Dixon in the past from
other potential buyers, and given the extensive canvassing of the market
for potential acquirers by Dixon and its former investment bankers, the
relative likelihood that other potential acquirors
9
would submit competitive proposals, (b) the potential harm to Dixon's
business of engaging with a bidder that did not present a significant
likelihood of achieving a successful transaction, (c) the risk of losing
an opportunity to enter into a transaction with the proposed purchaser and
the lack of assurance that there would be another opportunity for Dixon's
stockholders to receive as significant of a premium as that contemplated
by the proposed transactions, and (d) the loss of potential opportunities
to enter into transactions with previously interested parties;
(6) the substantial cost to Dixon in fiscal 2005 for initial
compliance with the internal audit requirements of Section 404 of the
Sarbanes-Oxley Act, estimated at approximately $400,000;
(7) that the Merger Agreement provides that the Offer may not close
until a minimum of 20 trading days following the announcement of the
transaction, which the board believed provides an adequate opportunity for
alternative proposals to be made, and for the board to consider such
alternative proposals and agreements, if any;
(8) the current and prospective conditions of the industry, the
economy and the capital markets, including certain challenges facing Dixon
with respect to competition from foreign manufacturers;
(9) discussions with senior management of Dixon and Potter, Anderson
& Corroon, LLP, Dixon's Delaware legal counsel, regarding certain business
and legal aspects, respectively, of the transactions contemplated by the
Merger Agreement and the Stock Purchase Agreement;
(10) the inability of Dixon's stockholders to participate in the
growth of Dixon's business after the consummation of the proposed
transactions;
(11) the negotiations between Dixon and Fila with respect to the
Merger Agreement;
(12) the opinion of SMK delivered to the board that, as of December
16, 2004 and based upon and subject to the factors and assumptions set
forth in the opinion, the $7.00 per Share in cash to be received by the
holders of the Shares (other than Fila and its affiliates) in the Offer
and the Merger is fair from a financial point of view to such holders,
which opinion is attached hereto as Annex B and incorporated herein by
reference; the presentation by, and discussions with, a representative of
SMK as to matters relevant to such opinion, as described in "Background"
above; and the board being aware that SMK's compensation was not
contingent on the consummation of the Offer;
(13) that the Offer and Merger, because they are solely for cash
consideration, provide certainty as to the value of the consideration to
be received in the proposed transactions;
(14) that the consideration received by Dixon's shareholders in the
proposed transactions would be taxable to them;
(15) that as described below in "Interests of Directors and
Executive Officers in the Merger," existing agreements with executive
officers will result in the acceleration of rights and payments as a
result of consummation of the transactions and that all outstanding
options for Shares granted under Dixon's stock option plans will vest and
the Purchaser is obligated to pay in cash an amount equal to the positive
difference, if any, between $7.00 per option Share and the exercise price
of such option;
10
(16) that the Merger Agreement requires Dixon to terminate all
current stock option plans and any other benefit plan that provides for
any issuance or grant of Shares and that accumulated payroll deductions
credited to each participant's account under Dixon's Employee Stock
Purchase Plan will be returned to participants;
(17) that the terms of the Offer and Merger provided reasonable
certainty that the Purchaser would be required to purchase Shares tendered
in the Offer and to close the Merger, and that the Purchaser's obligations
to purchase Shares in the Offer and to close the Merger were not subject
to its ability to secure financing commitments;
(18) that, notwithstanding the generality of factor 17 above, the
Purchaser was not obligated to purchase Shares in the Offer unless, among
other conditions, 66 2/3% of the issued and outstanding Shares were
tendered in the Offer; that the Purchaser is obligated to close the Merger
unless, among other conditions, holders of 66 2/3% of the issued and
outstanding Shares vote to approve the Merger Agreement; and that certain
stockholders of Dixon owning approximately 28% of the Shares outstanding
as of December 16, 2004 had agreed to sell their Shares to the Purchaser
conditioned on the Offer closing, or to tender their Shares into the
Offer;
(19) that the Merger Agreement permits Dixon to furnish information,
or enter into discussions or negotiations with, any person in response to
an Acquisition Proposal (as defined in the Merger Agreement) that the
board or a board committee determines in good faith, after consultation
with outside legal counsel, reasonably could be expected to lead to a
Superior Proposal (as defined in the Merger Agreement) provided that
Dixon, its subsidiaries, or any of their representatives have not violated
certain of the restrictions set forth in the Merger Agreement, and that
the board or a board committee determines in good faith, after
consultation with outside legal counsel, that failure to take such action
is likely to constitute a breach of the fiduciary duties of the board
under applicable law;
(20) that the Merger Agreement permitted the board to withdraw,
amend or modify its recommendation of the Offer or Merger if the board or
a board committee determined in good faith, after consultation with its
outside legal counsel, that its failure to do so would likely constitute a
breach of its fiduciary duties;
(21) that the Merger Agreement permitted the Purchaser to terminate
the Offer or the Merger Agreement in certain circumstances, including the
withdrawal, amendment or modification by the board in a manner adverse to
Fila, of its recommendation of the Offer or Merger;
(22) that the Merger Agreement required Fila to deposit $800,000 in
Escrow and that if the Merger Agreement had been terminated because Fila
or the Purchaser materially breached any of its representations,
warranties or covenants in the Merger Agreement, the deposit was payable
to Dixon and Fila would have been obligated to pay all reasonable and
documented out-of-pocket expenses incurred by Dixon since September 1,
2004 in connection with the Merger Agreement, the Offer and the Merger in
an aggregate amount not to exceed $750,000;
(23) that the Merger Agreement provided for termination of the
Merger Agreement by either Fila or Dixon, at any time prior to
consummation of the Offer, if the board shall have authorized Dixon to
enter into a written agreement for a transaction that constitutes a
Superior Proposal, and if the Merger Agreement had been validly terminated
for that reason or for Dixon's breach of the Merger Agreement that creates
such right of termination, Dixon would have been obligated to pay to Fila
a non-refundable termination fee of either $400,000 or $800,000 (depending
on whether the breach gives rise to a Material Adverse Effect, as defined
in the Merger Agreement)
11
and to reimburse Fila for all reasonable and documented out-of-pocket
expenses incurred by Fila after September 1, 2004 in connection with the
Merger Agreement, the Offer and the Merger in an aggregate amount not to
exceed $750,000;
(24) the ability of Dixon's stockholders who object to the Merger to
obtain "fair value" for their shares if they exercise and perfect their
appraisal rights under Delaware law; and
(25) the other terms and conditions of the Merger Agreement and the
transactions contemplated thereby, including the Offer, the Merger, and
the Stock Purchase Agreement.
The foregoing discussion of information and factors considered and given
weight by the board is not intended to be exhaustive, but is believed to include
all of the material factors, both positive and negative, considered by the
board. In evaluating the transactions, the members of the board considered their
knowledge of the business, financial condition and prospects of Dixon, and the
views of Dixon's management and its financial and legal advisors. In view of the
wide variety of factors considered in connection with its evaluation of the
transactions, 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.
The board recognized that, while the transactions give Dixon's
shareholders the opportunity to realize a significant premium over the trading
price of the Shares over the past four years, adopting the Merger Agreement
would eliminate the opportunity for Dixon's shareholders to participate in the
future growth and profits of Dixon. The board also realized that the fee and
expense reimbursement required by the terms of the Merger Agreement to be paid
by Dixon in certain circumstances would make it more costly for another
potential purchaser to acquire Dixon. The board believed that the loss of the
stockholders' opportunity to participate in the growth and profits of Dixon
following the Offer and the Merger and the risks associated with the termination
fee and expense reimbursement provisions were reflected in the $7.00 per Share
price offered by the Purchaser in the Offer and the Merger, and that fee and
expense reimbursement provisions are customary in transactions of this type.
FAIRNESS OPINION
SMK rendered its opinion to the board that, as of December 16, 2004 and
based upon and subject to the factors and assumptions set forth in the written
opinion, the $7.00 per Share in cash to be received by the holders (other than
Fila and its affiliates) of the Shares in the Offer and the Merger is fair from
a financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF SMK, DATED DECEMBER 16, 2004,
WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED AS ANNEX B. YOU SHOULD READ THE OPINION IN ITS ENTIRETY. SMK PROVIDED
ITS OPINION FOR THE INFORMATION AND ASSISTANCE OF THE BOARD IN CONNECTION WITH
ITS CONSIDERATION OF THE TRANSACTIONS. THE SMK OPINION IS NOT A RECOMMENDATION
AS TO WHETHER ANY HOLDER OF SHARES SHOULD TENDER SUCH SHARES IN CONNECTION WITH
THE OFFER, HOW ANY HOLDER OF SUCH SHARES SHOULD VOTE WITH RESPECT TO THE MERGER,
OR WHETHER ANY HOLDER OF SHARES SHOULD SEEK TO PERFECT HIS OR HER APPRAISAL
RIGHTS IN CONNECTION WITH THE Merger.
In connection with rendering the opinion described above and performing
its related financial analyses, SMK reviewed, among other things:
- the Merger Agreement;
12
- internally generated financial statements of Dixon for the fiscal
year ended September 30, 2004;
- annual reports to stockholders and Annual Reports on Form 10-K of
Dixon for the five fiscal years ended September 30, 2003;
- certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of Dixon;
- certain other communications from Dixon to its stockholders; and
- certain internal financial analyses and forecasts for Dixon prepared
by its senior management.
SMK also held discussions with members of the senior management of Dixon
and Dixon's financial advisors regarding the assessment of Dixon's past and
current business operations, financial condition and future prospects. In
addition, SMK reviewed the reported price and trading activity for the Shares,
compared certain financial and stock market information for Dixon with similar
information for certain other companies, the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the U.S. writing instruments industry specifically and in other industries
generally and performed such other studies and analyses, and considered such
other factors, as it considered appropriate.
SMK relied upon the accuracy and completeness of all of the financial,
accounting, legal, tax and other information discussed with or reviewed by it
and assumed such accuracy and completeness for purposes of rendering the opinion
described above. In addition, SMK did not make an independent evaluation or
appraisal of the assets and liabilities (including any contingent liabilities)
of Dixon or any of its subsidiaries and SMK was not furnished with any such
evaluation or appraisal. SMK's opinion did not address the underlying business
decision of Dixon to engage in the Offer or the Merger. SMK was not requested to
solicit, and did not solicit, interest from other parties with respect to an
acquisition of or other business combination with Dixon. SMK's opinion described
above was provided for the information and assistance of the board in connection
with its consideration of the transactions contemplated by the Merger Agreement
and such opinion does not constitute a recommendation whether or not any holder
of Shares should tender such Shares in connection with the Offer, how any holder
of Shares should vote with respect to the Merger or whether any holder of shares
should seek to perfect his or her appraisal rights in connection with the
Merger.
The following is a summary of the material financial analyses used by SMK
in connection with rendering the opinion described above. The following summary,
however, does not purport to be a complete description of the financial analyses
performed by SMK. The order of analyses described does not represent relative
importance or weight given to those analyses by SMK. Some of the summaries of
the financial analyses include information presented in tabular format. The
tables must be read together with the full text of each summary and are alone
not a complete description of SMK's financial analyses. Except as otherwise
noted, the following quantitative information, to the extent that it is based on
market data, is based on market data as it existed as of November 29, 2004 and
is not necessarily indicative of current market conditions.
Selected Companies Analysis. While SMK found it difficult to locate
companies directly comparable to Dixon, SMK reviewed and compared certain
financial information for Dixon to corresponding financial information for the
following publicly traded guideline companies which SMK believed have a
reasonable degree of comparability:
13
- Avery Dennison Corp.
- Cross (A.T.) & Co.
- CSS Industries, Inc.
- General Binding Corp.
- JAKKS Pacific, Inc.
- Jarden Corporation
- Newell Rubbermaid, Inc.
- School Specialty, Inc.
- Staples, Inc.
- United Stationers, Inc.
The financial information was based on information from SEC filings. The
data presented below for the public companies is based on pricing as of November
29, 2004 and the then most recently reported financial statements (as of June or
July 2004). The pricing of $4.00 per Share for Dixon (DXT) is based on the
trading price of the Shares prior to the presumed effect of the pending Offer on
the marketplace, as discussed below. The second row containing Dixon information
assumes a price of $7.00 per Share based on the Offer Price so that proper
comparisons can be made between the Offer and the market trading price.
Relevant data regarding the public guideline companies described above, in
addition to comparative financial information for Dixon, is as follows:
NET
PRIMARY INCOME STKHLDERS' PRICE- EPS BASIC COM SHARES
COMPANY TICKER SIC SALES (LOSS) EQUITY CLOSE FROM OUTSTANDING
NAME SYMBOL CODE ($MIL) ($MIL) ($MIL) 11/29/04 OPERATIONS (MIL)
------------------------ ------ ------- ---------- ---------- ---------- -------- ---------- -----------
AVERY DENNISON CORP AVY 2670 5,005.900 246.900 1,377.600 58.480 2.480 99.570
CROSS (A.T.) & CO - CL A ATX 3950 128.399 (0.426) 71.839 4.800 (0.028) 15.021
CSS INDUSTRIES INC CSS 2670 530.614 29.482 244.646 32.050 2.492 11.830
GENERAL BINDING CORP GBND 3579 702.629 4.815 57.078 13.890 0.300 16.032
JAKKS PACIFIC INC JAKK 3942 358.106 22.343 423.794 19.210 0.898 24.867
JARDEN CORP JAH 3634 716.626 41.157 275.380 39.340 1.524 27.007
NEWELL RUBBERMAID INC NWL 3089 7,305.600 (150.200) 1,900.300 23.340 (0.547) 274.400
SCHOOL SPECIALTY INC SCHS 5961 940.832 45.655 413.222 37.640 2.394 19.070
STAPLES INC SPLS 5940 13,707.346 625.860 3,711.837 32.340 1.254 499.194
UNITED STATIONERS INC USTR 5110 3,876.580 89.628 690.100 48.150 2.644 33.903
MEDIAN 828.729 35.319 418.508 32.195 1.389 25.937
Dixon Ticonderoga DXT 3950 88.147 1.143 21.893 4.000 0.356 3.208
(based on 9/30/04 fin.
Stmts. and $4 p/s price)
Dixon Ticonderoga DXT 3950 88.147 1.143 21.893 7.000 0.356 3.208
(based on 9/30/04 fin.
Stmts. and $7 p/s price)
Dixon Ticonderoga DXT 3950 95.524 2.026 23.919 0.000 0.632 3.208
14
(2005 fin. projections)
SMK believed that in terms of sales and standard industrial code
classification, Cross (A.T.) & Co. and JAKKS Pacific, Inc. are the most
comparable to Dixon. Newell Rubbermaid was included by SMK as a guideline
company because it competes directly with Dixon; however, given its relative
size, SMK believed that Newell could not be considered reasonably comparable.
School Specialty, Inc. and Staples, Inc. were reviewed because Dixon supplies
these companies; however, due to the fact that these businesses are retailers
and are much larger in size, SMK did not consider them to be directly
comparable. SMK noted that Dixon is much smaller than the public guideline
companies as indicated by the sales and equity levels.
The following chart provides performance and pricing comparisons between
the public guideline companies and DXT:
RETURN ON PRICE RETURN ON RETURN ON PRICE TO
COMPANY PRICE TO SALES TO EQUITY PRICE TO ASSETS TOTAL
NAME EARNINGS (AS %) SALES (AS %) BOOK (AS %) ASSETS
------------------------ --------- --------- ------- --------- -------- --------- --------
AVERY DENNISON CORP 23.584 4.932 1.163 17.922 4.227 5.983 1.411
CROSS (A.T.) & CO - CL A (169.251) (0.332) 0.562 (0.593) 1.004 (0.387) 0.654
CSS INDUSTRIES INC 12.860 5.556 0.715 12.051 1.550 8.008 1.030
GENERAL BINDING CORP 46.248 0.685 0.317 8.436 3.901 0.895 0.414
JAKKS PACIFIC INC 21.380 6.239 1.334 5.272 1.127 3.652 0.781
JARDEN CORP 25.815 5.743 1.483 14.946 3.858 4.092 1.056
NEWELL RUBBERMAID INC (42.640) (2.056) 0.877 (7.904) 3.370 (2.188) 0.933
SCHOOL SPECIALTY INC 15.722 4.853 0.763 11.049 1.737 4.593 0.722
STAPLES INC 25.795 4.566 1.178 16.861 4.349 9.676 2.496
UNITED STATIONERS INC 18.213 2.312 0.421 12.988 2.365 7.008 1.276
MEDIAN 19.797 4.709 0.820 11.550 2.868 4.342 0.981
Dixon Ticonderoga
(based on 9/30/04 fin.
Stmts. and $4 p/s price) 11.226 1.297 0.146 5.221 0.586 1.538 0.173
Dixon Ticonderoga
(based on 9/30/04 fin.
Stmts. and $7 p/s price) 19.646 1.297 0.255 5.221 1.026 1.538 0.302
Dixon Ticonderoga
(based on 2005 fin.
proj. and $7 p/s price) 11.084 2.121 0.235 8.470 0.939 2.653 0.294
SMK's review of Dixon's performance as compared to the public guideline
companies indicated that Dixon's returns on sales, equity and assets in 2004
were substantially lower than the median returns indicated by the public
guideline companies. Accordingly, Dixon's trading price at the end of the 2004
fiscal year yielded pricing multiples that generally fall below the guideline
public multiples as indicated in the first row of data for Dixon.
The second row of Dixon data reflects pricing multiples based on Dixon's
September 30, 2004 financial results and the assumed price of $7.00 per Share as
indicated in the proposed transaction. The third row shows returns and pricing
multiples based on Dixon's management's 2005 projection and the assumption of a
$7.00 per Share price. SMK's analysis indicated that the proposed price of $7.00
per Share yields a price-to-earnings multiple for 2004 that exceeds the public
guideline company median and that $7.00 per share for the Shares is an
attractive price based on the current earnings level. SMK's analysis indicated
that the projected 2005 data and the proposed price of $7.00 per Share indicates
a price-
15
to-earnings multiple consistent with Dixon's current P/ E ratio, but still below
the public median. However, SMK believed that since the projected 2005 data
suggests an increase in earnings of over 75% in the 2005 fiscal year, based on
Dixon's history, an investor would perceive substantial risk in the projected
numbers and therefore the discount to the current public median is reasonable.
SMK believed that overall, the public guideline company analysis yielded a
wide range of pricing multiples from which it could gain some level of guidance
for pricing the Shares. The price-to-earnings multiples of the public guideline
companies ranged from a negative P/ E to 46.25x, with an overall median of
19.8x. The positive range of value for Dixon derived from these public P/ Es is
$14.7 million to $52.86 million, with the median P/ E yielding a value of $22.63
million based on Dixon's 2004 after-tax earnings. SMK noted that this median is
very close to the Offer Price of $7.00 per Share, or $22.46 million based on
approximately 3.2 million Shares outstanding. SMK believed that based on Dixon's
relative performance, balance sheet and size, a value consistent with the median
of the public companies is strong support for the fairness of the price to be
paid for Shares in the Offer and the Merger.
The price-to-book value range for the public guideline companies was
1.004x to 4.35x, with a median of 2.87x. These public multiples, when applied to
Dixon's stockholder equity in 2004, yield values ranging from $21.98 million to
$95.2 million, with a median of $62.8 million. SMK believed that given Dixon's
lower return on equity relative to the public median and a more leveraged
balance sheet, it is reasonable that the market value of Dixon falls in the
lower end of the public range. SMK noted that in terms of size and operations,
Dixon is most comparable to Cross which trades at a price-to-book value of
1.004x and that although Cross has incurred recent losses, its balance sheet
reflects a much stronger position than Dixon's.
SMK's analysis indicated that the price-to-sales and price-to-assets
ratios for the public guideline companies yielded value indications for Dixon
ranging from approximately $28 million to $186 million, with a median of roughly
$73 million. SMK believed that these value indications are clearly high and not
particularly useful in its analysis, although Dixon's performance and financial
position clearly cause its value to be at the lower end based on the public
sales and asset multiples.
SMK's analysis indicated that the two most comparable public guideline
companies (Cross and JAKKS) have returns on equity below 10% and are trading at
price-to-book multiples well below the public median. SMK's review of Dixon's
financial statements indicated that Dixon's performance improved substantially
in the 2004 fiscal year, while Cross incurred losses for the twelve-month period
ended September 30, 2004. However, SMK noted that Dixon's balance sheet is
substantially encumbered with debt compared to Cross as evidenced by an
interest-bearing debt-to-equity ratio of 147% compared to Cross' ratio of 13%.
SMK also noted that JAKKS has had more consistent earnings in addition to a less
leveraged balance sheet as indicated by a debt-to-equity ratio of 23%. SMK's
analysis indicated that overall, the financial comparisons support a lower
pricing multiple for Dixon of approximately 59% of book value.
SMK believed that the Offer Price of $7.00 per Share reflects a
price-to-book value ratio of approximately 102.6% based on Dixon's stockholders'
equity at September 30, 2004, again, indicating that the $7.00 Offer Price is
an attractive one for the Shares. SMK's analysis also indicated that the
price-to-book value indicated by the Offer Price is consistent with that of
Cross, a similar-sized business that, although incurring recent losses, has a
much stronger financial position than Dixon as indicated by the debt ratios
discussed above and an equity percentage of 65% compared to Dixon's equity
percentage of 29%.
SMK believed that overall, the public guideline company analysis is
limited for its purposes due to the lack of direct comparables. However, it was
SMK's opinion that the guideline company analysis
16
indicates amounts investors are willing to pay for securities of similar
businesses and the comparative analysis supports the $7.00 per Share Offer
Price.
Selected Transactions Analysis. SMK also analyzed certain information
relating to the July, 2000 acquisition by JAKKS of Pentech International, Inc.
("Pentech"). Pentech and its wholly-owned subsidiary, Sawdust Pencil Company,
were engaged in the production, design and marketing of writing and drawing
instruments which are marketed to major mass marketers located in the United
States. Pentech generated approximately $40 million in annual revenue in 2000
and had assets totaling approximately $30 million.
JAKKS acquired all outstanding Pentech shares for $1.60 per share, or a
total consideration of $19,117,500 for 11,946,259 shares of common stock. SMK
noted that prior to the acquisition, JAKKS had purchased 625,000 shares of
Pentech in the open market at a per share price of $1.29 per share, suggesting a
premium for the controlling shares of approximately 24% over the market price.
SMK noted certain similarities between Pentech and Dixon including:
- Both companies incurred losses in recent years prior to acquisition;
- Pentech's balance sheet was substantially leveraged, with total
interest-bearing debt representing approximately 42% of total
assets, compared to Dixon's interest-bearing debt of 43% of total
assets at September 30, 2004;
- Like Dixon, a high percentage of Pentech's debt was listed as
current at the acquisition date; and,
- Prior to the acquisition, Pentech had been in violation of certain
financial covenants related to the existing credit agreement, which
was restructured for a three-year period at which time the covenants
were modified.
SMK noted that when compared to the recent trading price of $4.00 per
Share, the $7.00 per Share Offer Price represents a substantial premium of 75%
over that trading price. Although that level of premium exceeds the premium
indicated by the acquisition of Pentech, SMK believed that it can be attributed
to Dixon's significant improvement in operating results in the most recent year
in addition to improvements in the capital markets.
SMK concluded that the Offer Price of $7.00 per Share represents a large
premium above the recent trading price of the Shares, which compares favorably
to the Pentech acquisition. Given the similarities between Pentech and Dixon
with respect to products, performance and financial position, it was SMK's
opinion that the Pentech transaction supports the fairness of the price to be
paid for Shares in the Offer and the Merger, particularly based on the higher
relative premium reflected in the Offer Price.
Discounted Cash Flow Analysis. To establish a range of value for the
Shares, SMK employed the discounted cash flow method which involves calculating
the present value of estimated future available cash flows. The discount rate
used to calculate present value is commensurate with return requirements in the
capital markets and the risks inherent in the specific investment. SMK used the
debt-free or invested capital method of discounting to eliminate the impact of
financial leverage by calculating the value of cash flows available to both debt
and equity investors. Then, Dixon's interest-bearing debt was subtracted to
determine the value of the equity.
SMK conducted this analysis using the after-tax cash flow available to
debt and equity investors (known as the "debt free" or "invested capital"
method) calculated as follows:
17
Earnings before interest & tax
x (1 - tax rate)
Earnings to debt & equity investors
+ Depreciation & amortization (non-cash expenses)
- Capital expenditures
- Increases in working capital requirements (excluding interest
bearing debt)
= Net cash flow available to investors (both debt and equity
holders)
The duration of Dixon's financial projections used by SMK in this analysis
was based on the length of time necessary to reach stable revenue, volume
growth, expense structure and capacity utilization. SMK estimated net cash flow
available to debt and equity investors on an annual basis in the short-term. In
the long-term, SMK estimated that net cash flows would increase at a stable,
average annual growth rate, indefinitely. The cash flow projections expected by
a typical willing buyer were based on Dixon's management's 2005 projection and
management discussions, as well as economic and industry conditions. SMK was not
provided with comprehensive financial projections by Dixon's management.
The assumptions made by SMK in developing the financial projections for
Dixon are as follows:
- Revenue growth of 8.4% in 2005 was based on management's projection.
Volume was projected to increase at rates declining from 8% in 2006
to 5% in 2010. Cash flow was projected to grow at a 3% annual rate
based on economic growth expectations into perpetuity;
- Cost of revenue and cash operating expenses as a percentage of sales
were based on management's 2005 financial projections throughout the
projection period;
- Working capital needs were based on historic levels of working
capital relative to sales; and,
- Capital expenditures and depreciation levels were based on Dixon's
recent history with these items, as well as management's 2005
projections.
SMK next determined the discount rate applicable to cash flows available
to debt and equity investors based on the weighted average cost of capital
(WACC), which represents the blended, after-tax costs of debt and equity.
The cost of equity, or return required by an equity investor, was based on
the return requirements for alternative investments in the capital markets and
the risks inherent in Dixon. Based on historic returns yielded by small publicly
traded companies and considering specific Dixon risks, SMK developed a cost of
equity ranging from 12.83% to 13.13%.
The cost of debt assumed an 8.75% interest cost based on the blended rate
currently being paid on Dixon's debt. After consideration of an approximate 38%
tax rate, SMK determined that the after-tax cost of debt is 5.46%. The
proportion of invested capital attributable to equity (50%) and debt (50%) was
based on the current and anticipated capital structure of Dixon's business.
SMK's determination of the weighted average cost of capital for DXT is as
follows:
18
Weighting
----------------------------------
After-tax cost of debt 5.46% x 50% = 2.73%
After-tax cost of equity 15.13% x 50% = 7.57%
----
Weighted average cost of capital (WACC) 10.3%
====
Weighting
----------------------------------
After-tax cost of debt 5.46% x 50% = 2.73%
After-tax cost of equity 13.88% x 50% = 6.94%
----
Weighted average cost of capital (WACC) 9.67%
====
As indicated above, SMK applied discount rates of 10.3% and 9.67% to the
projected cash flow streams. The discounted cash flow schedules under these two
costs of capital assumptions are as follows:
19
DIXON TICONDEROGA COMPANY
Valuation as of November 30, 2004
Fiscal Years Ending September 30
DISCOUNTED CASH FLOW METHOD - INVESTED CAPITAL
FYE 2004 FYE 2005 FYE 2006 FYE 2007
Adjusted % Projected % Projected % Projected %
Revenue $88,147,118 100.0% $95,524,000 100.0% $102,210,680 100.0% $108,854,374 100.0%
Cost of Revenue 54,581,911 61.9% 58,460,000 61.2% 62,552,200 61.2% 66,618,093 61.2%
----------- ----- ----------- ----- ------------ ----- ------------ -----
Gross Profit 33,565,207 38.1% 37,064,000 38.8% 39,658,480 38.8% 42,236,281 38.8%
Cash Operating Expense 25,687,253 29.1% 28,218,370 29.5% 30,152,151 29.5% 32,112,040 29.5%
----------- ----- ----------- ----- ------------ ----- ------------ -----
EBITDA 7,877,954 8.9% 8,845,630 9.3% 9,506,329 9.3% 10,124,241 9.3%
Depreciation 2,137,000 2.4% 1,728,447 1.8% 1,589,298 1.6% 1,490,650 1.4%
----------- ----- ----------- ----- ------------ ----- ------------ -----
Operating Income 5,740,954 6.5% 7,117,183 7.5% 7,917,031 7.7% 8,633,591 7.9%
Other Income & (Expense) (93,963) -0.1% - 0.0% - 0.0% - 0.0%
----------- ----- ----------- ----- ------------ ----- ------------ -----
EBIT 5,646,991 6.4% 7,117,183 7.5% 7,917,031 7.7% 8,633,591 7.9%
----------- -----
Federal & State Income Tax 2,676,061 2.8% 2,976,804 2.9% 3,246,230 3.0%
----------- ----- ------------ ----- ------------ -----
Earnings after Tax* $ 4,441,122 4.6% $ 4,940,227 4.8% $ 5,387,361 4.9%
=========== ===== ============ ===== ============ =====
FYE 2008 FYE 2009 FYE 2010
Projected % Projected % Projected %
Revenue $115,385,637 100.0% $121,731,847 100.0% $127,818,439 100.0%
Cost of Revenue 70,615,179 61.2% 74,499,013 61.2% 78,223,964 61.2%
------------ ----- ------------ ----- ------------ -----
Gross Profit 44,770,458 38.8% 47,232,833 38.8% 49,594,475 38.8%
Cash Operating Expense 34,038,763 29.5% 35,910,895 29.5% 37,706,440 29.5%
------------ ----- ------------ ----- ------------ -----
EBITDA 10,731,695 9.3% 11,321,938 9.3% 11,888,035 9.3%
Depreciation 1,424,301 1.2% 1,383,526 1.1% 1,362,774 1.1%
------------ ----- ------------ ----- ------------ -----
Operating Income 9,307,394 8.1% 9,938,413 8.2% 10,525,262 8.2%
Other Income & (Expense) - 0.0% - 0.0% - 0.0%
------------ ----- ------------ ----- ------------ -----
EBIT 9,307,394 8.1% 9,938,413 8.2% 10,525,262 8.2%
Federal & State Income Tax 3,499,580 3.0% 3,736,843 3.1% 3,957,498 3.1%
------------ ----- ------------ ----- ------------ -----
Earnings after Tax* $ 5,807,814 5.0% $ 6,201,570 5.1% $ 6,567,763 5.1%
============ ===== ============ ===== ============ =====
* The impact of tax deductible interest expense is accounted for in determining
the after-tax cost of debt
FYE 2005 FYE 2006 FYE 2007 FYE 2008 FYE 2009 FYE 2010
Cash Flow to Invested Capital
Earnings after Tax* $ 4,441,122 $ 4,940,227 $ 5,387,361 $ 5,807,814 $ 6,201,570 $ 6,567,763
Plus: NonCash Items 1,728,447 1,589,298 1,490,650 1,424,301 1,383,526 1,362,774
----------- ----------- ----------- ----------- ----------- -----------
Gross Cash Flow 6,169,569 6,529,526 6,878,011 7,232,115 7,585,095 7,930,537
Less: Working Capital Needs (2,735,316) (2,611,524) (2,648,816) (2,745,613) (2,863,764) (2,817,867)
Less: Capital Expenditures (955,240) (1,022,107) (1,088,544) (1,153,856) (1,217,318) (1,278,184)
----------- ----------- ----------- ----------- ----------- -----------
Net Cash Flow to Inv. Capital $ 2,479,013 $ 2,895,894 $ 3,140,650 $ 3,332,646 $ 3,504,013 $ 3,834,486
time Period 0.50 1.50 2.50 3.50 4.50 5.50
PV Factor 0.95 0.86 0.78 0.71 0.64 0.58
----------- ----------- ----------- ----------- ----------- -----------
Present Value $ 2,360,483 $ 2,500,052 $ 2,458,273 $ 2,365,069 $ 2,254,574 $ 2,236,918
Value of Cashflows - next 6 yrs. $ 14,175,369 KWacc= 10.3%
Present Value of Terminal 31,583,628 Long Term Growth g= 3.0%
------------ -----------
Value of Invested Capital $ 45,759,000 rounded Capitalization Rate(k-g) 7.3%
Less: All Interest Bearing Debt (32,509,988)rounded Cash Flow in 2010 3,834,486
------------
100% Equity Interest** $ 13,249,000 rounded x(1 + g) 103.0%
============ -----------
Cash Flow in 2001 = CF1 3,949,520
Terminal Value (CFI/Cap. Rate) $54,140,100
PV Factor 0.58
-----------
Present Value of Terminal Value $31,583,628
20
DIXON TICONDEROGA COMPANY
Valuation as of November 30, 2004
Fiscal Years Ending September 30
DISCOUNTED CASH FLOW METHOD - INVESTED CAPITAL
FYE 2004 FYE 2005 FYE 2006 FYE 2007
Adjusted % Projected % Projected % Projected %
Revenue $88,147,118 100.0% $95,524,000 100.0% $102,210,680 100.0% $108,854,374 100.0%
Cost of Revenue 54,581,911 61.9% 58,460,000 61.2% 62,552,200 61.2% 66,618,093 61.2%
----------- ----- ----------- ----- ------------ ----- ------------ -----
Gross Profit 33,565,207 38.1% 37,064,000 38.8% 39,658,480 38.8% 42,236,281 38.8%
Cash Operating Expense 25,687,253 29.1% 28,218,370 29.5% 30,152,151 29.5% 32,112,040 29.5%
----------- ----- ----------- ----- ------------ ----- ------------ -----
EBITDA 7,877,954 8.9% 8,845,630 9.3% 9,506,329 9.3% 10,124,241 9.3%
Depreciation 2,137,000 2.4% 1,728,447 1.8% 1,589,298 1.6% 1,490,650 1.4%
----------- ----- ----------- ----- ------------ ----- ------------ -----
Operating Income 5,740,954 6.5% 7,117,183 7.5% 7,917,031 7.7% 8,633,591 7.9%
Other Income & (Expense) (93,963) -0.1% - 0.0% - 0.0% - 0.0%
----------- ----- ----------- ----- ------------ ----- ------------ -----
EBIT 5,646,991 6.4% 7,117,183 7.5% 7,917,031 7.7% 8,633,591 7.9%
----------- -----
Federal & State Income Tax 2,676,061 2.8% 2,976,804 2.9% 3,246,230 3.0%
----------- ----- ------------ ----- ------------ -----
Earnings after Tax* $ 4,441,122 4.6% $ 4,940,227 4.8% $ 5,387,361 4.9%
=========== ===== ============ ===== ============ =====
FYE 2008 FYE 2009 FYE 2010
Projected % Projected % Projected %
Revenue $115,385,637 100.0% $121,731,847 100.0% $127,818,439 100.0%
Cost of Revenue 70,615,179 61.2% 74,499,013 61.2% 78,223,964 61.2%
------------ ----- ------------ ----- ------------ -----
Gross Profit 44,770,458 38.8% 47,232,833 38.8% 49,594,475 38.8%
Cash Operating Expense 34,038,763 29.5% 35,910,895 29.5% 37,706,440 29.5%
------------ ----- ------------ ----- ------------ -----
EBITDA 10,731,695 9.3% 11,321,938 9.3% 11,888,035 9.3%
Depreciation 1,424,301 1.2% 1,383,526 1.1% 1,362,774 1.1%
------------ ----- ------------ ----- ------------ -----
Operating Income 9,307,394 8.1% 9,938,413 8.2% 10,525,262 8.2%
Other Income & (Expense) - 0.0% - 0.0% - 0.0%
------------ ----- ------------ ----- ------------ -----
EBIT 9,307,394 8.1% 9,938,413 8.2% 10,525,262 8.2%
Federal & State Income Tax 3,499,580 3.0% 3,736,843 3.1% 3,957,498 3.1%
------------ ----- ------------ ----- ------------ -----
Earnings after Tax* $ 5,807,814 5.0% $ 6,201,570 5.1% $ 6,567,763 5.1%
============ ===== ============ ===== ============ =====
* The impact of tax deductible interest expense is accounted for in determining
the after-tax cost of debt.
FYE 2005 FYE 2006 FYE 2007 FYE 2008 FYE 2009 FYE 2010
Cash Flow Invested Capital
Earning after Tax* $ 4,441,122 $ 4,940,227 $ 5,387,361 $ 5,807,814 $ 6,201,570 $ 6,567,763
Plus: NonCash Items 1,728,447 1,589,298 1,490,650 1,424,301 1,383,526 1,362,774
----------- ----------- ----------- ----------- ----------- -----------
Gross Cash Flow 6,169,569 6,529,526 6,878,011 7,232,115 7,585,095 7,930,537
Less: Working Capital Needs (2,735,316) (2,611,524) (2,648,816) (2,745,613) (2,863,764) (2,817,867)
Less: Capital Expenditures (955,240) (1,022,107) (1,088,544) (1,153,856) (1,217,318) (1,278,184)
----------- ----------- ----------- ----------- ----------- -----------
Net Cash Flow to Inv. Capital $ 2,479,013 $ 2,895,894 $ 3,140,650 $ 3,332,646 $ 3,504,013 $ 3,834,486
time Period 0.50 1.50 2.50 3.50 4.50 5.50
PV Factor 0.95 0.87 0.79 0.72 0.66 0.60
----------- ----------- ----------- ----------- ----------- -----------
Present Value $ 2,367,200 $ 2,521,453 $ 2,493,446 $ 2,412,580 $ 2,312,972 $ 2,307,937
Value Cashflows - next 6 yrs. $ 14,415,589 KWacc = 9.7%
Present Value of Terminal 35,639,810 Long Term Growth g = 3.0%
------------ -----------
Value of Invested Capital $ 50,055,000 rounded Capitalization Rate(k - g) 6.7%
Less: All Interest Bearing Debt (32,509,988)rounded Cash Flow in 2010 3,834,486
------------
100% Equity Interest** $ 17,545,000 rounded x(1 + g) 103.0%
============ -----------
Cash Flow in 2011 = CF1 3,949,520
Terminal Value(CF1/Cap.Rate) $59,213,198
PV Factor 0.60
-----------
Present Value of Terminal Value $35,639,810
21
SMK discounted the annual cash flows in the short-term using the weighted
average cost of capital and determined the value of the long-term cash flows
(known as the terminal value) based on the capitalization of cash flows using
the weighted average cost of capital and adjusting for estimated annual
long-term growth. Discounting the short-term and long-term cash flows available
to debt and equity investors resulted in a range of value for invested capital
ranging from $45,759,000 to $50,055,000. After subtracting total
interest-bearing debt of $32,510,000 the resulting equity value ranges from
$13,429,000 to $17,545,000. Based on 3,207,894 shares of common stock
outstanding, the per Share value ranges from approximately $4.10 to $5.50.
SMK found that for a financial buyer, the discounted cash flow method
supports the $4.00 per Share market price of the stock (prior to the recent
effect of the pending Offer on the market price as discussed below) up to a
premium over that price of approximately 38% and that the $7.00 per Share Offer
Price would be beneficial to Dixon's stockholders and represents a synergistic
value to Fila.
Price History. SMK researched the pricing history of the Shares from the
end of September 2002 to November 29, 2004. SMK noted that from September 25,
2002 through June 2, 2003, the price of the Shares fluctuated between $1.00 and
$2.00 per Share, averaging $1.67 per Share during this period. On June 3, 2003,
the trading price increased 42% (from $1.80 per Share to $2.55 per Share)
although there were no major changes in Dixon's operations or announcements that
would cause such a dramatic rise in value. Given that a nonbinding indication of
interest from a potential buyer was submitted to Dixon just a few days before,
SMK believed it is reasonable to assume that the run up in price is related to
some speculation in the marketplace as to a possible transaction.
The price of the Shares continued to climb in the following weeks to a
high of $3.55 per Share and closed at $3.27 per Share on August 12, 2003, the
day before Dixon's June 30, 2003 earnings announcement. On August 13, 2003 after
the positive earnings announcement, the price of the Shares rose approximately
18%, closing at $3.85 per share, although at the end of trading on August 15,
2003 (end of week), the Shares closed down at a price of $3.71 per Share. SMK
concluded that Dixon's improved performance had a positive impact on the trading
price of the Shares, but believed it is logical to assume that much of the
increase in price since the indication of interest made by the potential buyer
related to that potential transaction. SMK believed that the impact of the
termination of the proposed purchase in September 2003 was evident in the
trading price of the Shares, which decreased from $4.00 in early September to as
low as $3.00 per Share in the latter part of the month.
During the succeeding months, the price of the Shares fluctuated between
approximately $3.00 and $3.70 per Share, closing at $3.27 per Share on December
26, 2003. On December 29, 2003, the next trading day, Dixon announced its 2003
earnings which resulted in an 18.7% rise in the price to $3.88 per Share, very
similar to the June earnings announcement. The Shares subsequently traded above
$4.00 per Share, closing at $4.18 per Share on January 9, 2004. On the next
trading day of January 12, 2004, Dixon announced it had signed an exclusivity
agreement with Jarden Corporation, at which time the trading price of the Shares
rose 13.6%, closing at $4.75 per Share. The exclusivity agreement was amended
three times from January 12, 2004 through March 15, 2004 during which the price
of the stock dropped from a high of $4.89 to $4.19 per Share. When the
discussions with Jarden Corporation were officially terminated on March 29,
2004, the price of the Shares declined 15.5% from the previous day's close (from
$4.26 per Share to $3.60). The Shares traded at a price ranging from $3.20 to
$4.43 per Share in the subsequent eight-month period, with a closing price of
$4.05 per Share on November 17, 2004. SMK
22
noted that on January 2, 2004, prior to the signing of an exclusivity agreement
with Jarden Corporation, the Shares also closed at a price of $4.05 per share.
On November 22, 2004, the Shares closed at a price of $4.00 per Share.
From November 23 through November 29, the closing price of the Shares rose from
$4.31 to $6.05 per Share, reflecting an increase of over 50% above the November
22, 2004 trading price. SMK concluded that it is reasonable to assume that the
increase in trading price in November, 2004 was due to market speculation
concerning a possible offer because Dixon did not disclose any financial or
operational information during this period that could reasonably have been
expected to result in such an increase in trading price.
From the above review of Dixon's trading history, SMK believed it is
evident that a per Share price of approximately $4.00 represents the true market
value of the Shares based on Dixon's performance. Therefore, SMK concluded that
the 75% premium over the unaffected trading value represented by a sale at $7.00
per Share is a true economic benefit to be received by the Dixon stockholders
without any influence of knowledge in the investment community of the pending
Offer.
Although the per share trading price of the Shares represents arm's-length
trading activity, ostensibly reflecting a true economic market value to
stockholders, SMK believed that if all of Dixon's stockholders wanted to receive
the value of their stock holdings, Dixon would not have the liquidity to
purchase them, nor would the market sustain the current market value in the
event of such a large sell order. SMK concluded that this factor further
supports its conclusion that the price of $7.00 per Share represents a
substantial premium.
Overall Fairness of the Transaction. SMK determined that the Offer at
$7.00 per Share represents a significant premium above the current trading price
of the stock, and that, to the extent comparable companies and transactions are
considered, the Offer Price exceeds the median values for those companies using
nearly all metrics SMK considered relevant. Thus, SMK concluded that from a
financial point of view, the Offer and the Merger are fair to Dixon's
stockholders. SMK concluded that the overall transaction represented by the
Offer and the Merger is economically sound. In this case, there are several
factors considered by SMK in rendering an opinion as indicated below:
- although Dixon was able to restructure its long-term debt, over $30
million is due in 2005 and it is probable that another restructuring
would be necessary at a material cost to Dixon;
- Dixon's former investment bankers attempted to identify a potential
buyer for Dixon through a long and arduous process during which a
number of interested parties were contacted. However, valuations
continued to fall due to concerns over Dixon's performance and
ability to service its debt;
- although Dixon has shown improvement in its recent operations, the
public guideline company analysis indicates Dixon's unfavorable
historic performance and weaker financial position relative to
similar publicly traded businesses. Overall, the public company
analysis supports the Offer and Merger and the amount to be received
by Dixon's stockholders;
- given the operating and financial similarities of Pentech
International, Inc. and Dixon, the recent sale of Pentech and the
indicated premium over the trading price that was paid by the buyer
in that transaction strongly support the Offer and Merger;
- the 75% premium over the unaffected trading value represented by the
$7.00 per Share Offer Price is in itself a strong argument and
motivation for selling the Shares. Fila represents the first truly
synergistic potential purchaser of Dixon since the discussions with
Jarden
23
Corporation were terminated and it is unlikely that Dixon's
stockholders could currently receive such a premium from a
non-synergistic, financial buyer;
- Dixon does not have the liquidity to redeem all outstanding Shares,
nor would the market be able to sustain market value for such a
large sell order, thus Dixon's stockholders would not be able to
realize full value in the event that 100% of the Shares were offered
for sale in the market; and,
- Fila had expressed concerns regarding the proposed form of purchase
(stock versus asset) and the assumption of any unknown liabilities
that may exist. Also, Fila has additional concerns regarding the
level of inventory held and potential obsolescence, Dixon's
inability to reach sales and EBITDA targets, and the level of
Dixon's debt. The reality of these concerns in the marketplace
supports the Offer and Merger at an attractive price of $7.00 per
Share.
SMK believed that Dixon's management has performed the appropriate
analysis to ensure the best deal for the stockholders and has allowed for Dixon
to continue in the most stable and profitable manner. Although Dixon has
improved its financial performance through expense reductions, the uncertainty
related to future pricing pressure and top line volume, as well as the condition
of Dixon's balance sheet, led SMK to conclude that the Offer and Merger
represents an attractive price for the stockholders of Dixon.
In the course of its review, SMK relied upon and assumed without
independent verification the accuracy and completeness of all financial records
and related information supplied by Dixon and its representatives.
As described above, SMK's opinion to the board was one of many factors
taken into consideration by the board in making its determination to approve the
Merger Agreement. The foregoing summary does not purport to be a complete
description of the analyses performed by SMK in connection with the fairness
opinion and is qualified in its entirety by reference to the written opinion of
SMK attached as Annex B.
SMK specializes in valuing businesses and securities in connection with
acquisitions and dispositions of both closely held and publicly traded companies
and in advising clients on matters pertaining to equity ownership. SMK has
performed valuation and advisory services since 1946 for clients in over 20
states. SMK's fees for its analysis and opinion are not contingent on the
closing of the Offer or the Merger. Dixon has agreed to indemnify SMK against
certain liabilities arising out of its engagement.
FINANCING CONDITION
The merger is not conditioned on any financing arrangements.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS
The following is a general summary of certain United States federal income
tax consequences of the Merger relevant to a beneficial holder of Shares whose
Shares are converted into the right to receive cash in the Merger (a "Holder").
This discussion is for general information only and does not purport to consider
all aspects of United States federal income taxation that may be relevant to
Holders. The discussion is based on the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as
24
in effect as of the date hereof and all of which are subject to change (possibly
with retroactive effect). This discussion applies only to Holders that hold
Shares as "capital assets" within the meaning of Section 1221 of the Code
(generally, property held for investment) and does not apply to Shares acquired
pursuant to the exercise of employee stock options or otherwise as compensation,
shares held as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security" or other integrated investment, or to certain types of
Holders (including, without limitation, financial institutions, insurance
companies, tax-exempt organizations and dealers in securities) that may be
subject to special rules. This discussion does not address the United States
federal income tax consequences to a Holder that, for United States federal
income tax purposes, is a non-resident alien individual, a foreign corporation,
a foreign partnership or a foreign estate or trust and does not consider the
effect of any state, local, foreign or other tax laws.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD CONSULT ITS
OWN TAX ADVISOR REGARDING THE PARTICULAR TAX EFFECTS TO SUCH STOCKHOLDER OF THE
OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for United States federal income tax purposes. For United States
federal income tax purposes, a Holder who receives cash in exchange for Shares
pursuant to the Merger will generally recognize capital gain or loss equal to
the difference (if any) between the amount of cash received and the Holder's
adjusted tax basis in Shares exchanged for cash pursuant to the Merger. Gain or
loss must be determined separately for each block of Shares exchanged for cash
pursuant to the Merger (for example, Shares acquired at the same cost in a
single transaction). Such capital gain or loss will be long-term capital gain or
loss if the Holder has held such Shares for more than one year at the time of
the completion of the Offer or consummation of the Merger. Long-term capital
gain of non-corporate stockholders generally is subject to federal income tax at
the maximum rate of 15%. There are limitations on the deductibility of capital
losses.
Payments in connection with the Merger may be subject to "backup
withholding" at a rate of 28% unless a Holder of Shares (i) provides a correct
TIN (which, for an individual Holder, is the Holder's social security number)
and any other required information, or (ii) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, and
otherwise complies with applicable requirements of the backup withholding rules.
A Holder that does not provide a correct TIN may be subject to penalties imposed
by the Internal Revenue Service (the "IRS"). Holders may prevent backup
withholding by completing and signing the Substitute Form W-9 included as part
of the Letter of Transmittal mailed to stockholders on January 7, 2005. Any
amount paid as backup withholding does not constitute an additional tax and will
be creditable against the Holder's United States federal income tax liability,
provided that the required information is given to the IRS. If backup
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS. Each Holder should consult its tax advisor as to such Holder's
qualification for exemption from backup withholding and the procedure for
obtaining such exemption.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
As provided for in the Merger Agreement, on [___________], 2005, after the
Purchaser's payment for the Shares purchased in the Offer, the Purchaser
designated ___ persons as members of Dixon's nine member board of directors,
replacing [___________________]. Those prior members of our board of directors
and our executive officers at the time of the approval by the board of the
Merger Agreement had various interests in the merger described in this section
that are different from, or in addition to, the interests of Dixon and our
stockholders generally. The members of our board of directors were aware of
these interests and considered them at the time they approved the merger
agreement.
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Severance Arrangements. Dixon entered into an employment agreement with
Mr. Pala in 1995 which, until amended effective January 1, 2004, had a rolling
one-year term until Dixon or Mr. Pala terminates it. At the time of the approval
of the Merger Agreement, Mr. Pala was paid a base salary at a rate of $278,800
per annum, subject to increase from time to time in accordance with Dixon's
normal business practices and, if so increased, his employment agreement
precluded a subsequent decrease. Under the agreement, Mr. Pala was also entitled
to participate in other Dixon compensation programs and other benefits.
Dixon was also permitted to terminate Mr. Pala's employment for cause
(as defined in the agreement), in which case Dixon was obligated to pay him his
full salary through the date of termination. If Dixon terminated the agreement
other than for cause or other than for his disability or if he terminated the
agreement for good reason (as defined in the agreement, including if a
successor to all or substantially all of Dixon's business and/or assets did not
expressly assume and agree to perform the agreement), he would:
- Continue to receive his full salary through the date of
termination;
- Receive an amount equal to the product of (i) his annual
salary, multiplied by (ii) the greater of the number of years
remaining in the term of employment under the agreement or the
number two, such payment to be made (a) if resulting from a
termination based on a change of control of Dixon, in a lump
sum on or before the fifth day following the date of
termination, or (b) if resulting from any other cause, in
substantially equal semi-monthly installments; and
- Receive a bonus in an amount determined by multiplying his
base salary by a percentage that is the average percentage of
base salary that was paid (or payable) to him as a bonus under
any Dixon bonus plan or arrangement, for the three full fiscal
years immediately preceding the termination.
Before the Dixon board of directors approved the Merger Agreement, Dixon
had also entered into employment agreements with Messrs. Joyce, Asta and
Dahlberg which are similar in their terms to the agreement the Company had
entered into with Mr. Pala, except for the amounts of their salaries.
Amendments to the employment agreements described above were approved by
Dixon's compensation committee on July 7, 2004, signed on December 15, 2004, and
effective as of January 1, 2004 (each, an "Amendment", and together, the
"Amendments"). The Amendments establish a three year term of employment
commencing as of January 1, 2004, with annual renewals thereafter, update
salaries and titles, change the definition of a change in control as defined in
the employment agreements so that a change in control approved by Dixon's board
of directors is within the definition of that term, add a provision that during
a disability period and after termination by Dixon for cause or by the
executive for Dixon's breach of the
employment agreement or for good reason as defined in the employment agreement,
benefits and other compensation will be paid as provided for under the
employment agreements. The amount of the severance payments as provided for in
the employment agreements upon a change in control was not changed.
On December 15, 2004, Dixon entered into a Second Amendment to employment
agreement (each, a "Second Amendment", and together, the "Second Amendments")
with each of Messrs Pala, Joyce, Asta, and Dahlberg, (each, an "Executive", and
together, the "Executives"). Each Second Amendment amends the Employment
Agreement previously entered into between the applicable Executive and Dixon, as
previously amended by the Amendment. All of the Second Amendments are
conditioned on the closing of the Offer.
The Second Amendments for Messrs. Pala and Joyce provide that Messers.
Pala and Joyce are not entitled to terminate their respective Employment
Agreements because of a change in control until the
26
expiration of the six month period immediately following the payment by the
Purchaser for Shares of Dixon pursuant to the Offer, (the "Transition Period")
and that the payment by the Purchaser for Shares pursuant to the Offer will
constitute a change in control giving rise to the right of the Executive to
terminate his employment for good reason under the employment agreement and the
Executive has the right to terminate his employment for good reason as a result
of a change in control only during the three month period immediately following
the end of the Transition Period. The Second Amendments for Messrs. Asta and
Dahlberg are the same as those for Messrs. Pala and Joyce, except that the
Transition Period is twelve months.
Success Bonus Plan. In July, 2004, Dixon's compensation committee approved
in concept and in late November, 2004, approved the terms of a written Success
Bonus Plan to encourage the Executives to remain with Dixon and to support the
sale of Dixon on terms approved by the independent members of Dixon's board. The
success bonuses will be paid six months after a closing of the Offer and will be
forfeited if the Executive does not honor his employment agreement through that
six month period unless Dixon agrees to allow the Executive to voluntarily
terminate his employment before that time. The bonuses are in the following
amounts: Mr. Pala and Mr. Joyce - $46,000 each, Mr. Asta - $34,000, and Mr.
Dahlberg - $22, 500.
Indemnification of Directors and Executive Officers and Insurance. The
Merger Agreement provides Dixon, as the surviving corporation, or any successor
to the surviving corporation must jointly and severally indemnify each person
who is now, or has been at any time prior to the date of the Merger Agreement,
or who becomes prior to the effective time of the Merger, a director or officer
of Dixon or any of its Subsidiaries against all certain claims, losses,
liabilities, damages, judgments, fines, and reasonable fees, costs, and
expenses. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS - The Merger
Agreement - Insurance and indemnification", beginning on page 37..
DISSENTERS' APPRAISAL RIGHTS
General. Stockholders of a Delaware corporation that is proposing to merge
with another entity are sometimes entitled under Section 262 of the DGCL to what
are known as appraisal or dissenters' rights in connection with the proposed
merger. Such rights generally confer on stockholders who oppose a merger or the
consideration to be received in a merger, and who comply with the applicable
statutory procedures to perfect and preserve their appraisal rights, the right
to receive, in lieu of the consideration being offered in the merger, the "fair
value" of their shares in cash as determined in a judicial appraisal proceeding.
The Delaware Supreme Court has stated that the determination of fair value
requires consideration of all relevant factors involving the value of a company
and that proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court should be considered. Elements of future value, including the nature of
the enterprise, that are known or susceptible of proof as of the date of the
merger and not the product of speculation may be considered, but any element of
value arising from the accomplishment or expectation of the merger may not be
considered.
The Merger was approved by written consent on [________], 2005, and
Dixon's stockholders are entitled to appraisal rights in connection with the
Merger under Delaware law.
Under the DGCL, if a stockholder does not wish to accept, in accordance
with the Merger Agreement, the cash payment of $7.00 for each Share that he or
she owns, the stockholder must not have consented in writing to the Merger and
must deliver, in accordance with the requirements of Section 262 of the DGCL, a
written demand for appraisal of such Shares within 20 days after the date of
mailing by Dixon of the notice to which this information statement is attached.
A stockholder who has taken all steps required to perfect his or her appraisal
rights under Delaware law may elect to have his or her
27
Shares appraised by the Delaware Court of Chancery and to receive, in lieu of
the cash payment of $7.00 per Share, payment in cash of the judicially
determined "fair value" of such Shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, as determined by the Delaware Court of Chancery,
provided that the stockholder complies with the provisions of Section 262 of the
DGCL. FAILURE TO STRICTLY COMPLY WITH THOSE PROCEDURES WILL RESULT IN THE LOSS
OF APPRAISAL RIGHTS.
THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING TO
YOUR APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF SECTION 262, WHICH IS REPRINTED AS ANNEX C. YOU SHOULD READ ANNEX C
IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF YOUR APPRAISAL RIGHTS UNDER
DELAWARE LAW.
All references in this summary to a "stockholder" are to the record holder
of shares of Dixon common stock. Only a holder of record of Shares is entitled
to assert appraisal rights for the Shares registered in that holder's name. A
person having a beneficial interest in Shares that are held in "street name" or
otherwise held of record in the name of another person, such as a broker or
nominee, and who desires to seek appraisal of his or her Shares, is responsible
for ensuring that a demand for appraisal is made by the record holder and must
act promptly to cause the record holder to properly follow the steps summarized
below in a timely manner to exercise whatever appraisal rights the record owner
may have.
Notice by Dixon of Appraisal Rights. Under Section 262 of the DGCL, where
a merger was approved by the written consent of a corporation's stockholders
without a meeting, either the corporation before the effective date of the
merger or the surviving corporation within 10 days after the effective date of
the merger must notify each of the stockholders entitled to appraisal rights of
the approval of the merger and that such appraisal rights are available. Such
notice also must include a copy of Section 262 of the DGCL. The notice to which
this information statement is attached constitutes notice to the holders of
Shares that the Merger was approved by written consent and that appraisal rights
are available for those Shares. The effective date of the Merger is expected to
be [________].
Perfection of Appraisal Rights To perfect appraisal rights under Section
262 of the DGCL, you must:
- hold your Shares on the date of the making of the demand for
appraisal; and
- continuously hold your Shares through the effective date of the
Merger (a stockholder who is the record holder of Shares on the date
the written demand for appraisal is made, but who subsequently
transfers Shares prior to the completion of the Merger, will lose
any right to appraisal in respect of those Shares); and
- deliver to Dixon, as the surviving corporation in the Merger, a
written demand for appraisal of your Shares within 20 days after the
date of mailing by Dixon of the notice to which this information
statement is attached, which demand must reasonably inform us of
your identity and that you intend to demand the appraisal of your
Shares.
A demand for appraisal should be executed by or on behalf of the record
holder, fully and correctly, as the holder's name appears on the holder's stock
certificates and must state that such person intends thereby to demand appraisal
of such holder's Shares in connection with the Merger. If the Shares for which
appraisal rights are available are owned of record in a fiduciary capacity, for
example by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if those Shares are owned of record by more than one
owner, as in a joint tenancy or tenancy in common, the
28
demand should be executed by or on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal on
behalf of a holder of record. The agent, however, must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is acting as agent for such owner.
A record holder of Shares who holds Shares as a broker or nominee for
several beneficial owners for which appraisal rights are available may exercise
appraisal rights with respect to Shares held for one or more beneficial owners,
while not exercising these rights with respect to the Shares held for other
beneficial owners. In such case, the written demand should set forth the number
of Shares for which appraisal rights are available and are being sought. When no
number of Shares for which appraisal rights are available is expressly
mentioned, the demand will be presumed to cover all the Shares in brokerage
accounts or other nominee forms held by such record holder. IF YOUR SHARES ARE
HELD IN STREET NAME AND YOU WISH TO DISSENT FROM THE MERGER, YOU ARE URGED TO
CONSULT WITH YOUR BROKER TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE MAKING
OF A DEMAND FOR APPRAISAL BY SUCH A NOMINEE.
All written demands for appraisal must be mailed or delivered to:
Dixon Ticonderoga Company
Attention: Richard A. Asta
195 International Parkway
Heathrow, Florida 32746
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights. If any
stockholder who demands appraisal for his or her Shares under Section 262 of the
DGCL fails to perfect, or effectively withdraws or loses, his or her right to
appraisal as provided in the DGCL, the Shares of that stockholder will be
converted into the right to receive the Merger consideration of $7.00 per share
in cash in accordance with the Merger Agreement.
Filing a Petition for Appraisal. Within 120 days after the effective date of
the Merger, but not thereafter, Dixon, as the surviving corporation, or any
stockholder who has complied with the statutory requirements summarized above,
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the Shares that are entitled to appraisal rights. Neither
we nor the Purchaser is under any obligation to, and neither of us has any
present intention to, file a petition with respect to the appraisal of the fair
value of the Shares that are entitled to appraisal rights. Accordingly, it will
be the obligation of stockholders wishing to assert appraisal rights to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 262 of the DGCL.
Stockholder Request for Information. Within 120 days after the effective date
of the Merger, any Dixon stockholder that has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request, to receive
from Dixon, as the surviving corporation, a statement setting forth the
aggregate number of Shares not voted in favor of the Merger and with respect to
which demands for appraisal have been timely received and the aggregate number
of holders of those Shares. These statements must be mailed to the stockholder
within 10 days after a written request by such stockholder for the information
has been received by the surviving corporation, or within 10 days after
expiration of the period for delivery of demands for appraisal under Section 262
of the DGCL, whichever is later.
Appraisal Proceeding in the Delaware Court of Chancery. If a petition for an
appraisal is timely filed with the Delaware Court of Chancery and a copy served
upon Dixon, as the surviving corporation, the surviving corporation will then be
obligated within 20 days of service to file with the Delaware Register in
Chancery a list containing the names and addresses of all the stockholders who
have demanded appraisal of their Shares and with whom agreements as to the value
of their Shares have not
29
been reached. After notice to the stockholders by the Register in Chancery, as
required under Section 262 of the DGCL, the Delaware Court of Chancery may
conduct a hearing on such petition to determine those Dixon stockholders
entitled to appraisal rights. The Court of Chancery may require the stockholders
who demanded appraisal of their Shares to submit their stock certificates to the
Register in Chancery for notation of the pendency of the appraisal proceeding.
If any Dixon stockholder fails to comply, the Court of Chancery may dismiss the
proceedings as to that stockholder.
After determining which stockholders are entitled to appraisal, the
Delaware Court of Chancery will appraise the "fair value" of their Shares,
excluding any element of value arising from the accomplishment or expectation of
the Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The Delaware Court of Chancery will
determine the amount of interest, if any, to be paid upon the amounts to be
received by Dixon's stockholders whose Shares have been appraised.
DIXON STOCKHOLDERS CONSIDERING THE EXERCISE OF APPRAISAL RIGHTS SHOULD BE
AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 OF THE
DGCL COULD BE MORE THAN, THE SAME AS OR LESS THAN THE VALUE OF THE MERGER
CONSIDERATION THEY WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID
NOT SEEK APPRAISAL OF THEIR SHARES AND THAT OPINIONS AS TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW ARE NOT NECESSARILY OPINIONS
AS TO THE FAIR VALUE OF SUCH STOCK UNDER SECTION 262 OF THE DGCL. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods that
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
In addition, Delaware courts have decided that a stockholder's statutory
appraisal remedy may not be a dissenter's exclusive remedy, depending on the
factual circumstances. In such cases, additional remedies may be available to
dissenting stockholders that could result in a recovery that is different than
the appraised value of the Shares.
The costs of the appraisal action may be determined by the Delaware Court
of Chancery and taxed upon the parties as the Court deems equitable. The Court
also may order that all or a portion of the expenses incurred by any stockholder
in connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the Shares entitled
to appraisal.
Withdrawal of Appraisal Demand. At any time within 60 days after the
effective date of the Merger, any Dixon stockholder will have the right to
withdraw his or her demand for appraisal and to accept the cash amount of $7.00
for each Share that he or she owns, without interest, in accordance with the
terms of the Merger Agreement. After this period, a stockholder may withdraw his
or her demand for appraisal only with our written consent. However, no appraisal
proceeding in the Court of Chancery will be dismissed as to any stockholder
without the approval of the Court of Chancery, which may be conditioned on such
terms as the Court deems just.
No Right to Vote Appraisal Shares or Receive Dividends or Distributions on
Appraisal Shares. Any holder of Share for which appraisal rights are available
that has duly demanded an appraisal in compliance with Section 262 of the DGCL
and which demand has not been effectively withdrawn will not, after the
effective date of the Merger, be entitled to vote those Shares for which he or
she seeks appraisal for any purpose or be entitled to the payment of dividends
or other distributions on those Shares,
30
except dividends or other distributions payable to holders of record of those
Shares as of a record date prior to the effective time of the Merger.
FORM OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the DGCL, at the effective time of the Merger, the Purchaser
will merge with and into Dixon. Dixon will survive the Merger as a wholly owned
subsidiary of Fila.
CONVERSION OF SHARES; PROCEDURE FOR EXCHANGE OF CERTIFICATES
The conversion of Shares into the right to receive the Merger
consideration of $7.00 in cash, without interest, will occur automatically at
the effective time of the Merger. Promptly after the effective time of the
Merger, the paying agent will send a letter of transmittal to each holder of
record of a certificate or certificates representing Shares. The letter of
transmittal will contain instructions for obtaining cash in exchange for Shares.
Stockholders should not return stock certificates before receiving the letter of
transmittal.
In the event of a transfer of ownership of Shares that are not registered
in the records of our transfer agent, the cash consideration for Shares may be
paid to a person other than the person in whose name the certificate so
surrendered is registered if:
- the certificate is properly endorsed or otherwise is in proper form
for transfer; and
- the person requesting such payment (i) pays any transfer or other
taxes to a person other than the registered holder of the
certificate or (ii) establishes that the tax has been paid or is not
applicable.
The cash paid in exchange for Shares will be issued in full satisfaction
of all rights relating to Shares.
THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this information statement.
The summary is qualified in its entirety by reference to the Merger Agreement,
which is incorporated by reference herein. Capitalized terms used in this
summary but not defined have the meanings given them in the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement by the
Purchaser of a tender offer to purchase all outstanding Shares at a purchase
price of $7.00 per Share net to the seller as promptly as reasonably practicable
but in no event later than fifteen business days after the execution of the
Merger Agreement, which occurred on December 16, 2004. Purchaser commenced the
Offer on January 7, 2005. The obligation of Purchaser to accept for payment and
pay for Shares tendered pursuant to the Offer was subject to the satisfaction of
a number of conditions, including the valid tender of a number of Shares which,
when added together with the Shares subject to purchase by Purchaser under the
Stock Purchase Agreement, results in Fila and the Purchaser owning at least
66-2/3% of Dixon's outstanding Shares. We refer to that condition as the
"minimum condition" in this Information Statement.
31
On February [___], 2005, Purchaser consummated the offer and purchased the
Shares covered by the Stock Purchase Agreement. As a result, the Purchaser owns
approximately [__]% of the outstanding Shares.
Directors. The Merger Agreement provides that, promptly upon the
payment for Shares pursuant to the Offer and the Stock Purchase Agreement, the
Purchaser became entitled to designate up to such number of directors, rounded
to the closest whole number, of the board of directors, as will give the
Purchaser representation on the board equal to its proportionate ownership of
the Shares acquired and required us, upon request by the Purchaser, to promptly,
at our election, either increase the size of the board or secure the resignation
of such number of directors as is necessary to enable the Purchaser's designees
to be elected or appointed to the board and to use our reasonable best efforts
to cause the Purchaser's designees to be so elected or appointed. Our
obligations relating to the board are subject to Section 14(f) of the Exchange
Act and Rule 14f-1 under the Exchange Act. Pursuant to this provision, on
[_________], 2005, [FOUR] members of Dixon's board of directors, Messrs. [_____,
______, ______ and _______], resigned effective February [________], 2005, and
the following persons were elected to the board: [___________________________].
The Merger Agreement requires that, following this election until the effective
time, Dixon's board shall have at least two directors [(CURRENTLY
_____________________)], or such greater number as may be required by the rules
of the American Stock Exchange, who are Independent Directors. The term
"Independent Director" means a member of the board (i) who (except as otherwise
provided in the Merger Agreement) was a member of the board on the date of the
Merger Agreement, (ii) who is not an Affiliate or Associate of Fila or the
Purchaser, (iii) who is not an employee of Dixon or any of our subsidiaries, and
(iv) who is otherwise considered an independent director within the meaning of
the rules of the American Stock Exchange. If the number of Independent Directors
is reduced below two, or such greater number as may be required by the rules of
the American Stock Exchange, the remaining Independent Director(s) will be
entitled to designate persons to fill such vacancies who are not affiliates or
associates of Fila or the Purchaser and who otherwise are considered independent
directors within the meaning of the rules of the American Stock Exchange, and
such persons shall be deemed to be Independent Directors for purposes of the
Merger Agreement. If there are no Independent Directors, then the other
directors must use commercially reasonable efforts to designate two persons, or
such greater number as may be required by the rules of the American Stock
Exchange, to fill such vacancies who are not affiliates or associates of Fila or
the Purchaser and who otherwise are considered independent directors within the
meaning of the rules of the American Stock Exchange, and those persons will be
deemed to be Independent Directors for purposes of the Merger Agreement.
Following the purchase by the Purchaser of Shares pursuant to the
offer, and prior to the effective time of the merger, Fila and The Purchaser
must use their reasonable best efforts to ensure that at least two Independent
Directors (or such greater number as may be required by the rules of the
American Stock Exchange) serve as directors until the effective time and neither
Fila nor twill take any action to cause any Independent Director to be removed
as a director except for cause. The Independent Directors must form a committee
that, during the period from the time Shares are accepted for purchase pursuant
to the Offer until the Merger becomes effective, shall, to the extent permitted
by the DGCL and the Merger Agreement, have the sole power and authority, by a
majority vote of such Independent Directors, to cause Dixon to (a) agree to
amend the Merger Agreement or to extend the time for the performance of any of
the obligations or other acts of Fila or Purchaser under the Offer, the Merger
or the Merger Agreement, or (b) exercise or waive any of Dixon's rights,
benefits, or remedies under the Merger Agreement, except for the right to
terminate the Merger Agreement. In addition, during the period from the time
Shares are accepted for purchase pursuant to the Offer until the effective time,
any (a) amendment to our Certificate of Incorporation or Bylaws, (b) termination
of the Merger Agreement by us, (c) other action that could adversely affect the
interests of the holders of Shares (other than Fila or Purchaser), and (d)
action specified in the immediately preceding sentence with respect to which the
32
DGCL does not permit a committee of the board to exercise sole power and
authority, shall require, in addition to any other affirmative vote required
under the DGCL or our certificate of incorporation or bylaws, the affirmative
vote of not less than a majority of the entire board, which majority shall
include the concurrence of a majority of the Independent Directors, and neither
Fila nor the Purchaser shall approve (either in its capacity as a stockholder or
as a party to the Merger Agreement, as applicable), and each shall use its
reasonable best efforts to prevent the occurrence of, any such actions, unless
such action shall have received the concurrence of a majority of the Independent
Directors.
Conversion of Securities. Pursuant to the Merger Agreement, at the
effective time (a) each Share outstanding immediately prior to the effective
time (other than Shares owned by Dixon or any subsidiary, Fila or any affiliate
of Fila, all of which will be cancelled, and other than shares that are held by
stockholders, if any, who properly exercise their appraisal rights under the
DGCL) will be converted into the right to receive the Offer price of $7.00 per
share; and (b) each Share that is owned by us or any of our subsidiaries, Fila
or any affiliate of Fila immediately prior to the effective time will be
canceled and no payment will be made with respect to such shares. Each share of
capital stock of Purchaser issued and outstanding immediately prior to the
effective time will be converted into one share of common stock of Dixon as the
surviving corporation of the Merger.
Certificate of Incorporation and Bylaws. The Merger Agreement
provides that at the Merger effective time, Dixon's certificate of
incorporation, as amended and restated in its entirety, will be the certificate
of incorporation of Dixon as the surviving corporation, until thereafter amended
as provided therein or under the DGCL. The Merger Agreement also provides that
the bylaws of Purchaser, as in effect immediately prior to the effective time,
will be the bylaws of Dixon as the surviving corporation.
Directors and Officers of the Surviving Corporation. The Merger
Agreement provides that, immediately prior to the effective time, each of our
directors will resign, and that the directors and officers of the Purchaser
immediately prior to the effective time will, from and after the effective time,
be the directors and officers, respectively, of Dixon as the surviving
corporation.
Options. Pursuant to the Merger Agreement, as soon as practicable
following the execution of the Merger Agreement, we agreed to take or cause to
be taken such actions as are reasonably required to ensure that (i) each holder
of a an option to purchase Shares (referred to as a "Company Stock Option" - in
the Merger Agreement) that has not previously expired or been exercised in full
as of or prior to the effective time of the Merger, whether vested or unvested
(each such option, an "Eligible Option"), has the right to irrevocably elect, no
later than immediately prior to the consummation of the Merger, to surrender,
following the consummation of the Merger, any Eligible Option then held by the
optionee in exchange for the right to receive a cash payment equal to (x) the
excess, if any, of (A) the per share price paid in the Merger over (B) the
exercise price per share of the Shares subject to such Eligible Option,
multiplied by (y) the number of Shares then issuable pursuant to the unexercised
portion of such Eligible Option, payable not later than five days after the
effective time, (ii) each optionee shall have the right to purchase, effective
no later than immediately prior to the consummation of the Merger, subject to
the consummation of the Merger and in accordance with the terms of the relevant
plan or document, all or any part of the Shares covered by any Eligible Option
held by the optionee (that has not been surrendered pursuant to (i) above), and
each Share so purchased shall be converted, as of the effective time, into the
right to receive the per Share price paid in the merger, and (iii) each Eligible
Option (with respect to which an optionee has not exercised one of the rights
set forth in (i) and (ii) above) will following the Merger confer upon the
optionee only the right to receive upon exercise in accordance with the terms of
the relevant plan or document (including payment of the aggregate exercise
price), for each Share that otherwise would be issuable pursuant to the
unexercised portion of such Eligible Option, $7.00 per Share.
33
The Merger. The Merger Agreement provides that, at the effective
time of the Merger, the Purchaser will be merged with and into Dixon with Dixon
being the surviving corporation. Following the Merger, the separate existence of
the Purchaser will cease, and Dixon will continue as the surviving corporation,
wholly owned by Fila.
Stockholders Meeting. If, after consummation of the Offer, a meeting
of the Company's stockholders became necessary to consummate the Merger and the
Merger had not become effective without a meeting of stockholders as described
below and in this information statement, and had not been approved by
stockholders' written consent, then Dixon would have been required to call and
hold a meeting of its stockholders as soon as is reasonably practicable
following consummation of the Offer for the purpose of voting upon the approval
of the Merger Agreement. In this case, Dixon would have been required to prepare
and file with the SEC a proxy statement for such a meeting, and the Company's
board of Directors, subject to any withdrawal, modification or amendment in
accordance with the provisions of the Merger Agreement, would have been required
to recommend approval and adoption of the Merger Agreement and approval of the
merger by the stockholders (and include such recommendation in the proxy
statement). Dixon also agreed that the will not withdraw or modify such
recommendation and would use its reasonable best efforts to solicit such
stockholder approval and obtain the vote required of the stockholders to approve
the Merger. At any such meeting all shares then owned by Fila, the Purchaser or
any other subsidiary of Fila will be voted in favor of approval of the Merger
Agreement and the Merger. Because the Purchaser acquired a sufficient number of
shares to act by written consent to approve the Merger, no such stockholder
meeting is required, and no meeting will be held.
Merger Without Meeting of Stockholders. If the Purchaser had
accepted for payment pursuant to the Offer a number of Shares that, when
aggregated with all Shares owned by Fila or its affiliates including shares of
stock subject to the Stock Purchase Agreement, represented 90% or more of our
Shares, then we and Fila agreed to take all necessary action to cause the Merger
to become effective pursuant to Section 253 of the DGCL as soon as practicable
after the Purchaser accepted for payment and paid for shares tendered in the
offer. This event did not occur. Instead, because the Purchaser acquired
pursuant to the Offer and the Stock Purchase Agreement a number of shares
greater than 66 2/3% but less than 90% of the then outstanding Shares, Fila and
the Purchaser were required to, and did, execute and deliver to us, in
accordance with Section 228 of the DGCL, a consent or consents in writing voting
all Shares beneficially owned by them or over which they exercised control in
favor of the approval and adoption of the Merger Agreement and the Merger.
Representations and Warranties. Pursuant to the Merger Agreement,
Dixon has made customary representations and warranties to the Purchaser and
Fila, including representations relating to: organization, standing, and
corporate power; board recommendation; rights agreement; Section 203 of the
DGCL; subsidiaries; capitalization; authorization; enforceability; no violation
or conflict; governmental approvals; SEC documents; financial statements;
information provided by us for inclusion in the offer documents, the tender
offer documents and proxy statement; absence of certain changes or events; legal
proceedings; existing permits and violations of law; environmental matters; real
estate; title to tangible assets; intellectual property; agreements, documents
and minute books; insurance; benefit plans; labor matters; taxes; vote required;
brokers and finders fees; fairness opinion; interests of officers and directors;
and absence of questionable payments.
Certain representations and warranties made by Dixon in the Merger
Agreement are qualified as to "materiality" or "Material Adverse Effect." For
purposes of the Merger Agreement, the term "Material Adverse Effect" means any
effect, change, event, circumstance or condition which when considered with all
other effects, changes, events, circumstances or conditions has materially
adversely affected or would reasonably be expected to materially adversely
affect the results of operations, financial condition, or business of Dixon,
including its subsidiaries together with it taken as a whole. Any of the
34
foregoing constitutes a "Material Adverse Effect" or "Material Adverse Change"
if such effect, change, event, circumstance or condition (i) does or would
reasonably be expected to result in reducing our EBITDA (earnings before
interest, tax, depreciation and amortization expenses) for the 12 months ending
September 30, 2004 by 5% or more of our EBITDA for the 12 months ending
September 30, 2004, as reflected in the September 30, 2004 financial statements
we provided to Fila and the Purchaser prior to execution of the Merger
Agreement, or (ii) does or would reasonably be expected to result in reducing
our EBITDA for the 12 months ending September 30, 2005 by 5% or more from the
projected amount of EBITDA for the 12 months ending September 30, 2005, as
reflected in the projections we delivered to Fila and the Purchaser prior to
execution of the Merger Agreement.
Pursuant to the Merger Agreement, Fila and the Purchaser have made
customary representations and warranties to us, including representations
relating to: organization; standing; corporate power; authorization;
enforceability; no violation or conflict; government approvals; information
supplied; information in other documents; ownership of capital stock of the
company; interested stockholders; legal proceedings; and limited operation of
Fila or the Purchaser. Certain representations and warranties in the Merger
Agreement made by Fila and the Purchaser are qualified as to "materiality."
Company Conduct of Business Covenants. The Merger Agreement provides
that, except (a) as expressly contemplated by the Merger Agreement, or (b) as
Fila may consent in writing, after the date of the Merger Agreement, and prior
to the earliest of (i) the termination of the Merger Agreement in accordance
with its terms, (ii) the time that the Purchaser's designees are elected or
appointed to our board of directors, or (iii) the effective time of the merger,
Dixon would, and would cause its subsidiaries, to carry on their respective
businesses only in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use commercially reasonable efforts to
preserve intact their current business organizations, use commercially
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those persons having
business dealings with them and we will not, and will not permit any of our
subsidiaries, to take a number of actions enumerated in the Merger Agreement. As
Fila and the Purchaser have assumed control of Dixon's board of directors, these
restrictions are no longer in effect.
No Solicitation. In the Merger Agreement, Dixon agreed that it will
not, nor will any of our subsidiaries, or their or our directors, officers,
employees, investment bankers, accountants, attorneys or other professional
advisors (collectively, our "representatives") (i) solicit, initiate, or
knowingly encourage (including by way of furnishing nonpublic information) any
acquisition proposal (as defined in the Merger Agreement), (ii) enter into,
continue, or otherwise participate in any discussions or negotiations regarding,
or furnish to any person any nonpublic information with respect to, any
acquisition proposal, or (iii) enter into any agreement providing for an
acquisition proposal. However, nothing in the Merger Agreement prohibited us,
our subsidiaries, or our respective representatives from furnishing information
regarding Dixon to, or entering into discussions or negotiations with, any
person in response to an acquisition proposal that the board of directors (or a
committee thereof) determines in good faith, after consultation with outside
legal counsel, reasonably could be expected to lead to a superior proposal (as
defined) if (1) none of us, our subsidiaries, or any of our representatives
shall have violated certain restrictions set forth in the Merger Agreement in a
manner that resulted in the submission of such acquisition proposal; (2) the
board of directors (or a committee thereof) determines in good faith, after
consultation with outside legal counsel, that failure to take such action is
likely to constitute a breach of the fiduciary duties of the board of directors
under applicable law; and (3) we receive from such person an executed
confidentiality agreement (the provisions of which are no less restrictive than
the comparable provisions, and do not omit any restrictive provisions, contained
in the confidentiality agreement between Fila and Dixon. We must notify Fila
promptly (and at least 24 hours prior to furnishing nonpublic
35
information to, or entering into discussions or negotiations with, any person
who has made or submitted an acquisition proposal) of our intention to furnish
nonpublic information to, or enter into discussions or negotiations with, any
person who has made or submitted an acquisition proposal.
As used in the Merger Agreement, "acquisition proposal" means any
inquiry, proposal, or offer from any third party relating to (i) any direct or
indirect acquisition or purchase of substantially all of the assets of Dixon and
its subsidiaries, taken as a whole, or a majority of our equity securities, (ii)
any tender offer or exchange offer that if consummated would result in any
person beneficially owning more than 50% of Dixon's common stock or (iii) any
merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution, or similar transaction involving Dixon, other than the
Offer and the Merger.
"Superior proposal" means any offer made by a third party to
consummate an acquisition proposal on terms that the board of directors (or a
committee thereof) determines in good faith, after consultation with outside
legal counsel, to be more favorable to Dixon's stockholders than the Offer and
the Merger (as the terms of the Offer and the Merger may be amended in
accordance with the Merger Agreement) after consideration of any factors
permitted to be considered in such circumstances under Delaware law, including
without limitation, any condition for obtaining financing and all financial,
regulatory, legal and other aspects of such proposal.
Nothing in the Merger Agreement prohibits Dixon or its board of
directors from taking and disclosing to its stockholders a position contemplated
by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to our stockholders required by applicable law, or from making
any disclosure to our stockholders if, in the good faith judgment of the board
of directors (or a committee thereof), after consultation with outside legal
counsel, failure to make such other disclosure could create a reasonable
possibility of a breach of Dixon's or the board's obligations (including,
without limitation, any fiduciary obligations) under applicable law.
In the Merger Agreement, we agreed that we will advise Fila promptly
(and in no event later than two business days after receipt) of any acquisition
proposal or any request for nonpublic information in connection with any
acquisition proposal (including the identity of the person making or submitting
such acquisition proposal or request, and the principal terms of any such
acquisition proposal) that is made or submitted by any person (other than Fila
and its Affiliates) at any time prior to consummation of the merger.
Insurance and Indemnification. The Merger Agreement provides that,
for a period of six years after the time Merger becomes effective, Fila and
Dixon as the surviving corporation, or any successor to Dixon will jointly and
severally indemnify each person who is now, or has been at any time prior to the
date of the Merger Agreement, or who becomes prior to the effective time, a
director or officer of Dixon, or any of its subsidiaries, against all claims,
losses, liabilities, damages, judgments, fines, and reasonable fees, costs, and
expenses, including reasonable attorneys' fees and disbursements (collectively,
"costs"), incurred in connection with any claim, action, suit, proceeding, or
investigation, whether civil, criminal, administrative or investigative (a
"proceeding"), arising out of or pertaining to the fact that a person covered by
this provision is or was an officer, director, employee or agent of Dixon or any
of our subsidiaries, to the fullest extent permitted under applicable law. Each
person covered by this provision shall be entitled to advancement from Dixon of
reasonable expenses (including attorneys' fees and disbursements) incurred in
the defense of any covered proceeding arising out of or pertaining to the fact
that the covered person is or was an officer, director, employee or agent of
Dixon or any of its subsidiaries, such advancement to be made within twenty days
of receipt by Dixon from the person of a request therefor, provided, that any
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.
36
Following the effective time of the Merger, Dixon must maintain, at
no expense to the persons covered by the indemnification obligations described
above, directors' and officers' liability insurance coverage for those persons
for six (6) years following the effective time with respect to claims arising
from or related to facts or events that occurred at or before the effective
time, which insurance coverage shall provide them with the same coverage and
amounts and shall contain terms and conditions that are in the aggregate no less
advantageous to them than those in effect on the date of the Merger Agreement,
so long as the annual premium Dixon must pay for such coverage does not exceed
two hundred percent (200%) of the annual premiums we currently pay in respect of
our current policy or policies (the "maximum premium"). If such directors' and
officers' liability insurance coverage expires, is terminated or is canceled
during that six (6) year period or if the annual premium required to maintain
such insurance exceeds the maximum premium, Dixon must obtain and maintain, and
Fila shall cause Dixon to obtain and maintain, at no expense to the persons
required to be covered, as much directors' and officers' insurance coverage as
can be obtained and maintained for the remainder of such period for an
annualized premium not in excess of the maximum premium, on terms and conditions
no less advantageous to them than the terms and conditions of the coverage in
effect on the date of the Merger Agreement. In lieu of maintaining such
liability insurance coverage, Purchaser or Dixon may obtain a "tail" policy that
provides the same coverage and amounts and contains terms and conditions that
are in the aggregate no less advantageous to the covered persons than those in
effect on the date of the Merger Agreement.
Rights Agreement. The Merger Agreement required Dixon's board of
directors to take all action necessary to prevent any rights issued under our
Rights Agreement dated as of March 3, 1995, with First Union National Bank of
North Carolina, as Rights Agent, as amended, from becoming exercisable by virtue
of the Merger Agreement, the offer, or the Merger, or any combined effect of the
foregoing while the Merger Agreement remains in effect or upon its consummation.
The board took such action at a meeting held on December 15, 2004 by authorizing
an amendment to the Rights Agreement that became effective on December 16, 2004.
Conditions to the Merger. The Merger Agreement provides that the
obligations of each party to effect the Merger are subject to the satisfaction
or waiver of each of the following conditions:
(a) Any approval by Dixon's stockholders, if required for
consummation of the merger, shall have been obtained. This
condition would not apply if the Purchaser had acquired 90% or
more of Dixon's outstanding common stock. This condition was
satisfied when Fila and the Purchaser delivered their
stockholder written consent approving the Merger Agreement and
the Merger.
(b) No judgment, order, decree, statute, law, ordinance, rule
or regulation, entered, enacted, promulgated, enforced or
issued by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition shall be
in effect preventing the consummation of the Merger.
(c) The Purchaser must purchase, or cause to be purchased, all
Shares validly tendered and not withdrawn pursuant to the
Offer. This condition was satisfied on February [__], 2005
when the offer was consummated.
(d) The filing of a Certificate of Merger with the Secretary
of State of the State of Delaware must be made and must become
effective.
37
(e) Because the stockholders' written consent has been
delivered to Dixon, then more than twenty (20) calendar days
must elapse after the date that Dixon mails this information
statement to its stockholders such that Rule 14c-2 promulgated
under the Securities Exchange Act of 1934 is satisfied in all
respects.
Termination. The Merger Agreement may be terminated prior to the
time the Merger becomes effective, whether before or after stockholder approval
as follows:
(a) by mutual written consent of Fila and us;
(b) by either Fila or us if (1) as a result of the failure of
any conditions described in the Merger Agreement, the offer
shall have terminated or expired in accordance with its terms
without Purchaser having purchased shares of common stock
pursuant to the offer or (2) the offer had not been
consummated on or before March 1, 2005, subject to certain
conditions (This provision is moot in light of the Purchaser's
completion of the Offer); or
(c) by either Fila or us if a court of or other governmental
entity shall have issued a final and nonappealable order,
judgment, decree or ruling, or shall have taken any other
action, having the effect of permanently restraining,
enjoining or otherwise prohibiting the offer or the merger.
A number of additional conditions relating to the Offer or applying
only until its consummation have been satisfied or have expired, including,
among other things, conditions relating to breaches of representations,
warranties and covenants, a change of Dixon's recommendation in favor of the
offer, and the entry by Dixon into an agreement for an alternative acquisition
transaction.
Fees and Expenses. Fila deposited $800,000 with an escrow agent (the
"Deposit"), which would have been returned to Fila within three business days
after termination of the Merger Agreement if the Agreement had been terminated
(i) by agreement between the parties, (ii) as a result of the failure of any
condition to Fila's obligations or (ii) as a result of the breach of any
representation, warranty or covenant by the Company. If Fila breached its
obligations under the Merger Agreement, the Deposit was payable to us. At the
time the offer expired, the Deposit was delivered to the paying agent for the
offer for the purpose of purchasing Shares in the offer.
All fees and expenses incurred in connection with the Merger
Agreement, the Offer and the Merger will be paid by the party incurring such
expenses, whether or not the offer or merger are consummated. If the Merger
Agreement had been terminated for breach, in connection with the execution of an
alternative acquisition agreement or because of a change in Dixon's
recommendation of the Offer, Dixon or, in certain circumstances, Fila, would
have been required to pay a termination fee of $800,000 (or, in certain
instances $400,000) plus certain expenses up to a cap of $750,000. Because the
offer has been consummated and the Merger Agreement has been approved, these
termination fee provisions no longer apply.
Amendment. The Merger Agreement may be amended by the parties at any
time prior to the effective time; provided that stockholder approval must be
obtained for any amendments for which the DGCL requires such approval.
38
STOCK PURCHASE AGREEMENT.
The following is a summary of the material provisions of the Stock
Purchase Agreement entered into by Fila, the Purchaser, and certain senior
executives of Dixon, including Gino Pala, Rick Joyce and Rick Asta, among
others. A form of the Stock Purchase Agreement was filed by the Purchaser as an
exhibit to its Tender Offer Statement on Schedule TO. The summary is qualified
in its entirety by reference to the form of Stock Purchase Agreement.
Transfer of the Shares. Pursuant to the Stock Purchase Agreement,
Gino Pala, Rick Joyce and certain of their affiliates, Richard Asta, Len
Dahlberg, John Adornetto and Laura Hemmings, who owned 911,824 outstanding Dixon
shares in the aggregate, or approximately 28% of the outstanding shares (each
referred to as a "stockholder," and collectively as the "stockholders") each
agreed to sell the shares owned by him or her to Purchaser at a purchase price
of $7.00 per share (or any higher price that may be paid pursuant to the offer).
In the event that, after entering into the Stock Purchase Agreement, any
stockholder became the beneficial owner of any additional shares of Dixon stock,
those would become subject to purchase and sale pursuant to and subject to all
terms and conditions of the Stock Purchase Agreement. The closing of the
purchase of the shares pursuant to the Stock Purchase Agreement took place
simultaneously with the closing of the offer.
The obligations of Purchaser to purchase the shares pursuant to the
Stock Purchase Agreement and of the stockholders to sell their shares, was
subject to the fulfillment of certain conditions.
Prior to the termination of the Stock Purchase Agreement, each
stockholder agreed he or it would not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of or limit his or its right vote in any
manner, or otherwise encumber, any of the shares which were the subject matter
of the Stock Purchase Agreement, or enter into any agreement to do any of the
foregoing. Each stockholder agreed not to take any action which would have the
effect of preventing or disabling such stockholder from performing his or its
obligations under the Agreement.
Voting Arrangements. Effective upon the execution of the Stock
Purchase Agreement, each Stockholder appointed Massimo Candela, President of
Fila, and Greg Byrne, an independent financial consultant who assisted Fila in
connection with certain aspects of the transaction, and each of them, as
proxies, (a) to vote their shares at any meeting of stockholders of Dixon or any
adjournment or adjournments thereof or (b) to execute and deliver consents with
respect to the shares upon any and all such matters as each such proxy or his
substitute shall in his sole discretion deem proper. Effective upon the
execution and delivery of the Stock Purchase Agreement, each stockholder agreed
to vote their shares in favor of the approval of the merger and adoption of the
Merger Agreement at any meeting of stockholders or any adjournment or
adjournments thereof and in opposition to any transaction or action inconsistent
with the merger or the Merger Agreement and, if requested by the Purchaser, to
execute and deliver a consent to the approval of the merger and adoption of the
Merger Agreement and in opposition to any transaction or action inconsistent
with the merger or the Merger Agreement.
Representations and Warranties of the Stockholders. Each stockholder
made certain representations and warranties to the Purchaser, including
representations relating to: ownership of the shares; legal capacity, power and
authority; due authorization and execution, enforceability; absence of
conflicts; title to shares; consents; and certain tax matters.
Representations and Warranties of Purchaser. The Purchaser made
certain representations and warranties to the Stockholders, including
representations relating to: power and authority to execute and consummate the
transactions contemplated by the Stock Purchase Agreement; and due authorization
and enforceability.
39
Termination. The Stock Purchase Agreement was subject to automatic
termination immediately upon termination of the Merger Agreement in accordance
with the terms of the Merger Agreement.
All transactions contemplated by the Stock Purchase Agreement have
now been completed.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial
ownership of our common stock as of [___________], 2005, by each person known by
Dixon to be a beneficial owner of five percent or more of the Shares. None of
our current directors and executive officers own Shares.
AMOUNT OF
BENEFICIAL
BENEFICIAL OWNER OWNERSHIP % OF CLASS(1)
---------------- ------------ -------------
PENCIL ACQUISITION CORP........................... [___________] [___]
VIA SEMPIONE, 2/C, 20016 PERO (MI)
MILAN, ITALY
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain more information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website
located at http://www.sec.gov, which contains reports, proxy statements and
other information regarding companies that file electronically with the SEC.
Pursuant to the rules of the SEC, services that deliver Dixon's
communications to stockholders that hold their Shares through a bank, broker or
other holder of record may deliver to multiple stockholders sharing the same
address a single copy of Dixon's information statement, unless Dixon has
received contrary instructions from one or more of the stockholders. Upon
written or oral request, Dixon will promptly deliver a separate copy of the
information statement to any stockholder at a shared address to which a single
copy of the information statement was delivered. Multiple stockholders sharing
the same address may also notify Dixon if they wish to receive separate copies
of Dixon's communications to stockholders in the future or if they are currently
receiving multiple copies of such communications and they would prefer to
receive a single copy in the future. Stockholders may notify Dixon of their
requests by calling or writing Richard A. Asta, Executive Vice President and
Chief Financial Officer, Dixon Ticonderoga Company, 195 International Parkway,
Heathrow, Florida 32746, telephone (407) 829-9000.
40
You should rely only on the information contained in this information
statement or to which we have referred you. We have not authorized anyone to
provide you with any additional information. This information statement is dated
as of the date listed on the cover page of this information statement. You
should not assume that the information contained in this information statement
is accurate as of any date other than such date, and neither the mailing of this
information statement to Dixon's stockholders nor the payment of the merger
consideration shall create any implication to the contrary.
41
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FILA - FABBRICA ITALIANA LAPIS ED AFFINI S.P.A.,
PENCIL ACQUISITION CORP
AND
DIXON TICONDEROGA COMPANY
DATED AS OF DECEMBER 16, 2004
A-1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of December 16, 2004 (this
"AGREEMENT"), is by and among Fila - Fabbrica Italiana Lapis Ed Affini S.p.A.,
an Italian corporation (the "PARENT"), Pencil Acquisition Corp, a newly formed
Delaware corporation and wholly-owned subsidiary of the Parent (the "Merger
Sub"), and Dixon Ticonderoga Company, a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the respective boards of directors of the Parent, Merger Sub and
the Company have each determined that it is in the best interests of their
respective corporations and stockholders to approve the acquisition of the
Company by the Parent upon the terms and subject to the conditions set forth
herein;
WHEREAS, in furtherance thereof, this Agreement provides for Merger Sub to
commence a cash tender offer (the "OFFER") to acquire all of the issued and
outstanding shares of common stock, par value $1.00 per share, of the Company
(the "COMPANY COMMON STOCK") for $7.00 per share in cash (such price, or any
such higher price per share as may be paid in the Offer, referred to herein as
the "OFFER PRICE");
WHEREAS, the respective boards of directors of the Parent, Merger Sub, and
the Company have each approved, and have each declared advisable the merger of
Merger Sub with and into the Company, following consummation of the Offer, upon
the terms and subject to the conditions set forth in this Agreement, whereby
each issued and outstanding share of Company Common Stock, other than shares
owned by the Parent, the Parent's Affiliates (including Merger Sub), the Company
or the Company's Subsidiaries, and other than Dissenting Shares (as defined
below), will be converted into the right to receive the Merger Consideration (as
defined below);
WHEREAS, the respective boards of directors of the Parent, Merger Sub, and
the Company have each determined that the Offer and the Merger (as defined
below) are consistent with, and in furtherance of, their respective business
strategies and goals;
WHEREAS, simultaneously with the execution of this Agreement Merger Sub
and certain of the Company's stockholders have entered into a stock purchase
agreement (the "STOCK PURCHASE AGREEMENT"); and
WHEREAS, the board of directors of the Company has determined that this
Agreement and the consideration to be paid for each share of Company Common
Stock in the Offer and the Merger are fair to the Company's stockholders and has
recommended that the stockholders accept the Offer, tender their shares of
Company Common Stock pursuant thereto, and vote in favor of the Merger and the
adoption of the Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements in this Agreement, the parties, intending to be legally bound,
agree as follows:
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ARTICLE I
THE OFFER AND THE MERGER
1.1 THE OFFER.(a) Provided that this Agreement shall not have been
terminated in accordance with Section 6.1 of this Agreement and none of the
events set forth in Annex I shall have occurred and be continuing, then as
promptly as reasonably practicable following the execution of this Agreement
(but in no event later than fifteen (15) Business Days following the date
hereof), Merger Sub shall, and Parent shall cause Merger Sub to, commence
(within the meaning of Rule 14d-2 under the Exchange Act) the Offer to purchase
for cash all the shares of Company Common Stock at the Offer Price; provided,
however, that Merger Sub shall not commence the Offer prior to the tenth
Business Day following the date hereof without the prior written consent of the
Company. The obligations of Merger Sub to, and of Parent to cause Merger Sub to,
accept for payment, and pay for, shares of Company Common Stock validly tendered
pursuant to the Offer on or prior to the final expiration of the Offer and not
withdrawn shall be subject only to (i) there being validly tendered and not
withdrawn prior to the final expiration of the Offer that number of shares of
Company Common Stock which, together with the shares of Company Common Stock
then beneficially owned by the Parent or Merger Sub (including, without
limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant
to the Stock Purchase Agreement), represents at least 66-2/3% of the outstanding
shares of Company Common Stock (the "MINIMUM CONDITION") and (ii) the other
conditions set forth in Annex I hereto. Subject to the terms of the Offer and
this Agreement, and the prior satisfaction or waiver by Parent or Merger Sub of
the Minimum Condition and the other conditions set forth in Annex I hereto as of
any expiration date of the Offer, Merger Sub shall, in accordance with the terms
of the Offer, promptly after the expiration of the Offer, consummate the Offer
and accept for payment and pay for, and Parent shall cause Merger Sub to accept
for payment and pay for, all shares of Company Common Stock validly tendered and
not withdrawn pursuant to the Offer (subject to the applicable provisions of
Rule 14d-11 under the Exchange Act, to the extent applicable). The Offer shall
be made by means of an offer to purchase (the "OFFER TO PURCHASE") containing
the terms set forth in this Agreement and having only the Minimum Condition and
the other conditions set forth in Annex I hereto. Each of Parent and Merger Sub
agrees that the Offer to Purchase will provide a statement in all appropriate
places therein to the effect that Merger Sub's obligation to purchase shares of
Company Common Stock pursuant to the Offer is not conditioned on any financing
arrangements or subject to any financing condition. Unless extended in
accordance with this Section 1.1(a), the Offer shall provide for an initial
expiration date of twenty (20) Business Days following the commencement of the
Offer (the "INITIAL EXPIRATION DATE"). Parent and Merger Sub shall have the
right to extend the Offer for one ten Business Day period for any reason in
their sole discretion. The latest time and date at which the Offer, as may be
extended beyond the Initial Expiration Date as permitted or required by this
Section 1.1(a), shall expire shall not be later than the Outside Date (except as
may otherwise be required by rule, regulation, interpretation, or position of
the SEC or its staff) and is herein referred to as the "EXPIRATION DATE." Merger
Sub expressly reserves the right to waive or modify the terms of the Offer,
except that, without the prior written consent of the Company (such consent to
be authorized by the board of directors of the Company or a duly authorized
committee thereof), neither Parent nor Merger Sub shall (i) amend or waive
satisfaction of the Minimum Condition, (ii) decrease the Offer Price, (iii)
change the form of
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consideration payable in the Offer, (iv) decrease the number of shares of
Company Common Stock sought in the Offer, (v) impose additional conditions to
the Offer, (vi) amend any of the conditions set forth in Annex I in any manner
adverse to the holders of the shares of Company Common Stock, (vii) amend any
other term of the Offer in a manner that is adverse to the holders of the shares
of Company Common Stock, or (viii) extend the Offer except as expressly
permitted or required by this Section 1.1(a). Each of Parent and Merger Sub
agree that they shall not terminate or withdraw the Offer unless, at the Initial
Expiration Date, the Minimum Condition shall not have been satisfied or the
other conditions to the Offer described in Annex I shall not have been satisfied
or earlier waived. Notwithstanding the foregoing:
(1) without limiting the right of Parent and Merger Sub to extend the Offer as
permitted by this Section 1.1(a), provided that this Agreement shall not have
been terminated in accordance with Section 6.1 hereof, at the request of the
Company, Merger Sub will, and Parent will cause Merger Sub to, extend the Offer
for one or more periods of ten (10) Business Days each, but in no event beyond
the Outside Date, if the conditions set forth in Annex I hereto are not
satisfied or, to the extent permitted by this Agreement, waived at or prior to
the time the Offer otherwise would expire, except to the extent any such
conditions that have not been waived are incapable of being satisfied.
(2) Parent and Merger Sub may (but shall not be obligated to), without the
consent of the Company, provided that this Agreement shall not have been
terminated in accordance with Section 6.1 hereof, extend the Offer
(A) beyond the Initial Expiration Date from time to time, for such
period or periods of time, no later than the Outside Date, as Parent or
Merger Sub reasonably believes are necessary to cause the conditions to
be satisfied if, at or prior to the time the Offer otherwise would
expire, any conditions to the Offer shall not have been satisfied or,
to the extent permitted by this Agreement, waived;
(B) for any period required by any rule, regulation, interpretation, or
position of the SEC or the staff thereof applicable to the Offer; and
(C) beyond the latest Expiration Date that would otherwise be permitted
by this Section 1.1(a) on up to two occasions for periods of ten (10)
Business Days each, but in no event beyond the Outside Date, if, on
such Expiration Date, all of the conditions to the Merger Sub's
obligation to accept for payment and pay for shares of Company Common
Stock validly tendered pursuant to the Offer are satisfied or, to the
extent permitted by this Agreement, waived, but the number of shares of
Company Common Stock validly tendered (and not withdrawn) pursuant to
the Offer, together with the Company Common Stock then beneficially
owned by Parent and Merger Sub (including, without limitation, the
shares of Company Common Stock to be sold to Merger Sub pursuant to the
Stock Purchase Agreement), represents less than ninety percent (90%) of
the outstanding shares of Company Common Stock; provided, however, that
Merger Sub's decision to extend the Offer in the case of this clause
(C) shall constitute a
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waiver of the conditions set forth in clauses (b) and (d) of Section
(ii) of Annex I and of its right to terminate the Agreement under
Section 6.1(f) of the Agreement (except, in the case of Section 6.1(f),
any failure by the Company to perform a covenant or agreement), but, in
each case, such waiver shall apply only to the extent that any Material
Adverse Effect or any breach of representation or warranty giving rise
to the failure of such condition or to such termination right resulted
from events that occurred after the time of such extension.
In the event the Minimum Condition is satisfied and Merger Sub purchases the
shares of Company Common Stock tendered pursuant to the Offer, Merger Sub may,
in its sole discretion, provide a subsequent offering period in accordance with
Rule 14d-11 promulgated under the Exchange Act (a "SUBSEQUENT OFFERING PERIOD").
In addition, Merger Sub may increase the Offer Price (but not change any other
condition to the Offer) and extend the Offer to the extent required by law in
connection with such increase, in each case in its sole discretion and without
the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced,
Parent and Merger Sub shall file with the SEC, a Tender Offer Statement on
Schedule TO with respect to the Offer (together with all amendments and
supplements thereto and including the exhibits thereto, the "SCHEDULE TO"). The
Schedule TO will comply as to form in all material respects with the provisions
of all applicable federal securities Laws and will contain or incorporate by
reference the summary term sheet required thereby and, as exhibits, the Offer to
Purchase, forms of the related letters of transmittal, and summary
advertisement, and all other ancillary Offer documents (which documents,
together with any amendments and supplements thereto, and any other SEC schedule
or form which is filed in connection with the Offer and related transactions,
are referred to collectively herein as the "OFFER DOCUMENTS"). Parent and Merger
Sub further agree to take all steps necessary to cause the Offer Documents to be
filed with the SEC and to be disseminated to the holders of the Company Common
Stock, together with the Schedule 14D-9, in each case, as and to the extent
required by applicable federal securities Laws. The Company shall provide Parent
and Merger Sub with any information regarding the Company or its Subsidiaries
that may be required by applicable Law or reasonably requested by Parent or
Merger Sub in order to effectuate the preparation and filing of the Offer
Documents. Parent and Merger Sub agree promptly to correct the Schedule TO or
the Offer Documents if and to the extent that any information shall have become
false or misleading in any material respect or as otherwise required by Law (and
the Company, with respect to written information supplied by it specifically for
use in the Schedule TO or the Offer Documents, shall promptly notify Parent of
any required corrections of such information and shall cooperate with Parent and
Merger Sub with respect to correcting such information). Parent and Merger Sub
further agree to take all steps necessary to cause the Schedule TO, as so
corrected, to be filed with the SEC and the Offer Documents, as so corrected, to
be disseminated to the holders of the Company Common Stock as required by
applicable federal securities Laws. Parent and Merger Sub shall consult with the
Company and its counsel with respect to the Offer Documents and shall afford the
Company and its counsel a reasonable opportunity to review and comment on the
Offer Documents and all documents required to be furnished by Parent or Merger
Sub under Rules 14d-2(b) and 14a-12 of the Exchange Act before they are
transmitted to or filed with the SEC or disseminated to the Company's
stockholders, and Parent and Merger Sub shall consider any such comments in good
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faith. In addition, Parent and Merger Sub agree to provide in writing to the
Company and its counsel any comments or communications, written or oral, that
Parent, Merger Sub or their counsel may receive from time to time from the SEC
or its staff with respect to the Offer Documents promptly after Parent's or
Merger Sub's, as the case may be, receipt of such comments. Prior to responding
to any such comments, Parent and Merger Sub shall consult with the Company and
its counsel and provide them with a reasonable opportunity to review and
participate in any response to any such comments. Parent and Merger Sub shall
consider in good faith any suggestions from the Company or its counsel with
respect to such comments or response. Parent and Merger Sub shall provide the
Company and its counsel with copies of all correspondence between the Parent,
Merger Sub, their counsel, or their representatives, on the one hand, and the
SEC or its staff, on the other hand.
(c) Parent shall provide or cause to be provided to Merger Sub on
a timely basis all of the funds necessary to purchase all of the shares of
Company Common Stock that Merger Sub becomes obligated to purchase pursuant to
the Offer. Prior to the time the Offer expires, the Parent shall appoint a bank
or trust company in the United States reasonably acceptable to the Company to
act as the paying agent hereunder (the "PAYING AGENT") to receive in trust the
funds to which stockholders of the Company shall become entitled upon validly
tendering and not withdrawing prior to the final expiration of the Offer their
shares pursuant to the Offer. At or prior to the time the Offer expires, Parent
shall cause to be deposited with the Paying Agent the aggregate amount necessary
for payment in full of all consideration that holders of Company Common Stock
are entitled to receive pursuant to the Offer.
(d) If this Agreement has been terminated pursuant to Section 6.1
of this Agreement, Merger Sub shall, and the Parent shall cause Merger Sub to,
promptly terminate the Offer without accepting any of the shares of Company
Common Stock for payment.
1.2 COMPANY ACTIONS.
(a) Simultaneously with the filing of the Offer Documents with the
SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement
on Schedule 14D-9 with respect to the Offer (together with all amendments,
supplements, and exhibits thereto, the "SCHEDULE 14D-9"). The Schedule 14D-9
will comply as to form in all material respects with the provisions of all
applicable federal securities Laws. The Schedule 14D-9 shall, subject to the
provisions of Section 4.3(e) of this Agreement, contain the recommendation of
the Company's board of directors that the stockholders of the Company accept the
Offer, tender their shares of Company Common Stock to Merger Sub pursuant to the
Offer, and approve and adopt this Agreement and the Merger (the "COMPANY
RECOMMENDATION"). The Parent and Merger Sub shall provide the Company with any
information regarding Parent, Merger Sub, or their Affiliates that may be
required by applicable Law or reasonably requested by the Company in order to
effectuate the preparation and filing of the Schedule 14D-9. The Company agrees
to cause the Schedule 14D-9 to be filed with the SEC and disseminated to the
holders of shares of Company Common Stock, together with the Offer Documents, in
each case as and to the extent required by applicable federal securities Laws.
The Company, on the one hand, and Parent and Merger Sub, on the other hand,
agree promptly to correct any information provided by it for use in the Schedule
14D-9 if it shall have become false or misleading in any material respect or as
otherwise required by Law. The Company further
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agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to the holders of the Company Common
Stock as required by applicable federal securities Laws. The Company shall
consult with Parent, Merger Sub, and their counsel with respect to the Schedule
14D-9 and shall afford Parent, Merger Sub, and their counsel a reasonable
opportunity to review and comment on the Schedule 14D-9 before it is filed with
the SEC. The Company shall consider any such comments in good faith. In
addition, the Company agrees to provide in writing to Parent, Merger Sub and
their counsel any comments or communications, written or oral, that the Company
or its counsel may receive from time to time from the SEC or its staff with
respect to the Schedule 14D-9 promptly after the Company's receipt of such
comments. Prior to responding to any such comments, the Company shall consult
with Parent, Merger Sub and their counsel and provide them with a reasonable
opportunity to review and participate in any response to such comments. The
Company shall consider in good faith any suggestions from Parent, Merger Sub or
their counsel with respect to such comments or response. The Company shall
provide the Parent, Merger Sub, and their counsel with copies of all
correspondence between the Company, its counsel, or its representatives, on the
one hand, and the SEC or its staff, on the other hand.
(b) In connection with the Offer, the Company will as promptly as
practicable furnish or cause to be furnished to Merger Sub any available listing
or electronic file containing the names and addresses of the record holders of
shares of Company Common Stock as of a recent date, together with copies of
security position listings, and shall promptly furnish or cause to be furnished
to Merger Sub such information and assistance (including, but not limited to,
updated lists of holders of shares of Company Common Stock and updated listings
of security positions) as Merger Sub may reasonably request for purposes of
communicating the Offer to the Company's stockholders. Except for such steps as
are reasonably necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer, the Parent and Merger Sub shall
hold in confidence the information contained in any such listings and files,
shall use such information only in connection with the Offer and the Merger and,
if this Agreement shall be terminated, shall, upon request, deliver to the
Company all copies of such information then in their possession or in the
possession of their agents or representatives. Parent and Merger Sub shall take
such action as is necessary to disseminate the Offer Documents and Company
Recommendation to holders of the Company Common Stock.
(c) Promptly upon the payment by Merger Sub for shares of Company
Common Stock pursuant to the Offer and the Stock Purchase Agreement and from
time to time thereafter, Merger Sub shall be entitled to designate such number
of directors of the Board of Directors of the Company (the "BOARD"), rounded to
the closest whole number, as is equal to the product of the number of directors
on the Board, after giving effect to such representation, and the percentage of
the outstanding Shares owned by Merger Sub, and the Company, upon request of
Merger Sub, subject to applicable law and the Company's Certificate of
Incorporation, shall promptly, at the Company's election, either increase the
size of the Board or secure the resignation of such number of directors as is
necessary to enable Merger Sub's designees to be elected or appointed to the
Board and shall use its reasonable best efforts to cause Merger Sub's designees
to be so elected or appointed.
(d) The Company's obligations to appoint designees to the Board
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder.
The Company shall
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promptly take all actions required pursuant to Section 14 (f) and Rule 14f-1 and
shall include in the Schedule 14D-9 such information with respect to the Company
and its officers and directors as is required under Section 14 (f) and Rule
14f-1 so long as Parent and Merger Sub have provided the Company on a timely
basis all information required to be provided pursuant to the last sentence of
this subsection (d). Parent and Merger Sub will provide the Company with all
necessary assistance, in order to fulfill the Company's obligations under this
Section 1.2(d), and will supply to the Company in writing and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by Section 14 (f) and Rule
14f-1.
(e) Anything in this Section 1.2 to the contrary notwithstanding,
if Merger Sub's designees are elected or appointed to the Company's Board, then
until the Effective Time, the Company's Board shall have at least two directors,
or such greater number as may be required by the rules of the American Stock
Exchange, who are Independent Directors. For purposes of this Agreement, the
term "Independent Director" shall mean a member of the Company's Board (i) who
(except as otherwise provided in this subsection (e)) was a member thereof on
the date hereof, (ii) who is not an Affiliate or Associate of Parent or Merger
Sub, (iii) who is not an employee of the Company or any of its Subsidiaries, and
(iv) who is otherwise considered an independent director within the meaning of
the rules of the American Stock Exchange. If the number of Independent Directors
shall be reduced below two, or such greater number as may be required by the
rules of the American Stock Exchange, the remaining Independent Director(s)
shall be entitled to designate persons to fill such vacancies who are not
Affiliates or Associates of Parent or Merger Sub and who otherwise are
considered independent directors within the meaning of the rules of the American
Stock Exchange, and such persons shall be deemed to be Independent Directors for
purposes of this Agreement. If there shall be no Independent Directors, then the
other directors shall use commercially reasonable efforts to designate two
persons, or such greater number as may be required by the rules of the American
Stock Exchange, to fill such vacancies who are not Affiliates or Associates of
Parent or Merger Sub and who otherwise are considered independent directors
within the meaning of the rules of the American Stock Exchange, and such persons
shall be deemed to be Independent Directors for purposes of this Agreement.
Following the purchase by Merger Sub of shares of Company Common Stock pursuant
to the Offer, and prior to the Effective Time, Parent and Merger Sub shall use
their reasonable best efforts to ensure that at least two Independent Directors
(or such greater number as may be required by the rules of the American Stock
Exchange) serve as directors of the Company until the Effective Time and neither
Parent nor Merger Sub will take any action to cause any Independent Director to
be removed as a director of the Company except for cause. The Independent
Directors shall form a committee that, during the period from the time shares of
Company Common Stock are accepted for purchase pursuant to the Offer until the
Effective Time, shall, to the extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") and this Agreement, have the sole power and
authority, by a majority vote of such Independent Directors, to cause the
Company to (a) agree to amend this Agreement or to extend the time for the
performance of any of the obligations or other acts of the Parent or Merger Sub
under the Offer, the Merger or this Agreement, or (b) exercise or waive any of
the Company's rights, benefits, or remedies under this Agreement except for the
right to terminate the Agreement. In addition, during the period from the time
shares of Company Common Stock are accepted for purchase pursuant to the Offer
until the Effective Time, any (a) amendment to
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the Company's Certificate of Incorporation or Bylaws, (b) termination of this
Agreement by the Company, (c) other action that could adversely affect the
interests of the holders of shares of Company Common Stock (other than the
Parent or Merger Sub), and (d) action specified in the immediately preceding
sentence with respect to which the DGCL does not permit a committee of the Board
to exercise sole power and authority, shall require, in addition to any other
affirmative vote required under the DGCL or the Company's Certificate of
Incorporation or Bylaws, the affirmative vote of not less than a majority of the
entire Board, which majority shall include the concurrence of a majority of the
Independent Directors, and neither Parent nor Merger Sub shall approve (either
in its capacity as a stockholder or as a party to this Agreement, as
applicable), and each shall use its reasonable best efforts to prevent the
occurrence of, any such actions, unless such action shall have received the
concurrence of a majority of the Independent Directors.
1.3 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the DGCL, Merger Sub shall be merged
with and into the Company at the Effective Time (the "MERGER"). At the Effective
Time the separate corporate existence of Merger Sub shall cease, the Company
shall be the surviving corporation (sometimes referred to as the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
Merger Sub in accordance with the DGCL.
1.4 CLOSING. The closing of the Merger (the "CLOSING") will take place
at a time and on a date to be specified by the parties (the "CLOSING DATE"),
which shall be no later than the second Business Day following the later of: (a)
the expiration of the Offer (or the expiration of any Subsequent Offering Period
if Merger Sub elects to provide such a Subsequent Offering Period) and (b)
satisfaction or waiver of all of the conditions set forth in Article V (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions), unless another
time or date is agreed to by the parties. The Closing shall take place at the
offices of Shapiro Forman Allen & Miller LLP at 380 Madison Avenue, New York,
New York 10017, or such other location as agreed to by the parties.
1.5 EFFECTIVE TIME; FILING OF CERTIFICATE OF MERGER. Subject to the
provisions of this Agreement, on the Closing Date, the parties shall cause the
Merger to be consummated by filing a properly executed certificate of merger
(the "CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware in accordance with the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at the
time of such filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, or at such later date or time as the Parent and the
Company shall agree and specify in the Certificate of Merger (the "EFFECTIVE
TIME").
1.6 EFFECTS OF THE MERGER.
(a) The Merger shall have the effects set forth in this Agreement
and in the applicable provisions of the DGCL.
(b) At the Effective Time, (i) the certificate of incorporation of
the Company shall be amended and restated to read in its entirety as set forth
on Exhibit A hereto
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and (ii) the bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
(c) Immediately prior to the Effective Time, each of the directors
of the Company shall resign such position. At the Effective Time, the directors
and officers of Merger Sub immediately prior to the Effective Time shall become
the initial directors and officers of the Surviving Corporation and shall hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until his or her death, disability, resignation or removal
or until his or her successor is duly elected and qualified, as the case may be.
(d) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that consistent with the terms of this
Agreement any deeds, bills of sale, assignments, assurances in Law or any other
acts or things are necessary or desirable (i) to continue, vest, perfect or
confirm, of record or otherwise, the Surviving Corporation's right, title or
interest in, to or under any of the rights, properties, privileges, franchises
or assets of either of the constituent corporations acquired or to be acquired
by the Surviving Corporation by reason of, as a result of, or in connection
with, the Merger, or (ii) otherwise to carry out the purposes of this Agreement,
the officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of either of such constituent
corporations, all such deeds, bills of sale, assignments and assurances, and to
take and do, in the name and on behalf of each of such constituent corporations
or otherwise, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties, privileges, franchises or assets in the Surviving
Corporation or otherwise to carry out the intent of this Agreement.
1.7 THE PROXY STATEMENT; SPECIAL MEETING; COMPANY RECOMMENDATION.
(a) If, after consummation of the Offer, a meeting of the
Company's stockholders is necessary to consummate the Merger and the Merger has
not become effective without a meeting of stockholders pursuant to Section
1.8(a) hereof and has not been approved by the Stockholders' Written Consent
pursuant to Section 1.8(b) hereof, then:
(1) As promptly as practicable after the consummation of the Offer
and if required by the Exchange Act, the Company shall prepare and cause
to be filed with the SEC a preliminary Proxy Statement in connection with
the Special Meeting (as defined below), and shall use reasonable efforts
to have the Proxy Statement cleared by the SEC as soon as possible. As
promptly as reasonably practicable after the Proxy Statement has been
cleared by the SEC, the Company shall mail the definitive Proxy Statement
to stockholders of the Company. Except as permitted by Section 4.3(e), the
Proxy Statement shall contain the Company Recommendation. The Parent and
Merger Sub shall provide the Company with any information regarding
Parent, Merger Sub, or their Affiliates that may be required by applicable
Law or reasonably requested by the Company in order to effectuate the
preparation and filing of the Proxy Statement. The Company shall consult
with the Parent and Merger Sub with respect to the Proxy Statement and
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shall afford the Parent and Merger Sub reasonable opportunity to review
and comment thereon prior to its finalization. The Company shall consider
any such comments in good faith. If, at any time prior to the Special
Meeting, any event shall occur which is required to be set forth in an
amendment or supplement to the Proxy Statement, the Company or the Parent,
as the case may be, shall promptly notify the other of such event. In such
case, the Company, with the cooperation of the Parent and Merger Sub, will
promptly prepare and mail such amendment or supplement to its
stockholders, and the Company shall consult with the Parent and Merger Sub
with respect to such amendment or supplement and shall afford the Parent
and Merger Sub reasonably opportunity to comment thereon prior to such
mailing. The Company shall consider any such comments in good faith.
(2) Except as otherwise permitted in this Agreement, the Company
shall take all action reasonably necessary in accordance with the DGCL,
its certificate of incorporation, and its bylaws to cause a special
meeting of its stockholders to be duly called, noticed and convened to
consider the adoption of this Agreement (including any postponement or
adjournment thereof, the "SPECIAL MEETING"). Subject to applicable Law,
the Special Meeting shall be held (on a date selected by the Company in
consultation with the Parent) as promptly as reasonably practicable after
the acceptance of payment and purchase of Company Common Stock by Merger
Sub pursuant to the Offer and the definitive Proxy Statement has been
mailed to the stockholders of the Company. Notwithstanding anything to the
contrary contained in this Agreement, the Company may adjourn or postpone
the Special Meeting (i) to ensure that any supplement or amendment to the
Proxy Statement is provided to its stockholders in advance of a vote on
this Agreement, or (ii) if as of the time for the Special Meeting as set
forth in the Proxy Statement there are insufficient shares of Company
Common Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of such Special Meeting.
(b) The Parent shall cause all shares of Company Common Stock
beneficially owned by the Parent or any Affiliate of the Parent or over which
Parent or any of its Affiliates exercise voting control to be voted in favor of
the adoption of this Agreement at the Special Meeting.
(c) As soon as practicable after the Special Meeting, the Company
shall deliver to Parent a certificate of its corporate secretary setting forth
the voting results from the Special Meeting.
1.8 MERGER WITHOUT MEETING OF STOCKHOLDERS.
(a) Notwithstanding anything in Section 1.7 of this Agreement to
the contrary, if Merger Sub shall have accepted for payment pursuant to the
Offer such number of shares of Company Common Stock which, when aggregated with
the shares of Company Common Stock otherwise beneficially owned by the Parent or
its Affiliates (including, without limitation, shares of Company Common Stock
sold to Merger Sub pursuant to the Stock Purchase Agreement), represents a
number of shares sufficient to enable Merger Sub (if all such shares of Company
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Common Stock were owned by Merger Sub) to cause the Merger to become effective
without a meeting of stockholders of the Company pursuant to Section 253 of the
DGCL, then the parties will take all necessary and appropriate action to cause
the Merger to become effective pursuant to Section 253 of the DGCL as soon as
practicable after Merger Sub accepts for payment and pays for shares tendered in
the Offer (including, without limitation, causing any shares of Company Common
Stock beneficially owned by Parent or any of its Affiliates but not owned
directly by Merger Sub to be transferred to Merger Sub).
(b) Notwithstanding anything in Section 1.7 of this Agreement to
the contrary, if Merger Sub shall have accepted for payment pursuant to the
Offer such number of shares of Company Common Stock which, when aggregated with
the shares of Company Common Stock otherwise beneficially owned by the Parent or
its Affiliates or over which any of them exercises voting control (including,
without limitation, shares of Company Common Stock sold to Merger Sub pursuant
to the Stock Purchase Agreement), represents a number of shares equal to not
less than 66-2/3% of the then outstanding shares of Company Common Stock but
less than that number of shares sufficient to enable Merger Sub (if all such
shares of Company Common Stock were owned by Merger Sub) to cause the Merger to
become effective without a meeting of stockholders of the Company pursuant to
Section 253 of the DGCL, Merger Sub shall, and Parent shall cause its Affiliates
and any record holder of Company Common Stock over which Parent or any of its
Affiliates exercises voting control to, execute and deliver to the Company, in
accordance with Section 228 of the DGCL, a consent or consents in writing voting
all shares of Company Common Stock beneficially owned by Parent and any of its
Affiliates or over which Parent or any of its Affiliates exercises voting
control in favor of the approval and adoption of this Agreement and the Merger
(the "STOCKHOLDERS' WRITTEN CONSENT"). Simultaneously with the filing of the
Company's Schedule 14D-9, the Company shall file with the SEC an information
statement on Schedule 14C pursuant to Section 14(c) of the Exchange Act and the
rules and regulations promulgated thereunder (the "SCHEDULE 14C INFORMATION
STATEMENT"). The Company shall use all reasonable efforts to respond as promptly
as practicable to any comments of the SEC or its staff with respect to the
Schedule 14C Information Statement. The Company shall promptly notify the Parent
upon the receipt of any comments from the SEC or its staff or any request from
the SEC or its staff for amendments or supplements to the Schedule 14C
Information Statement and shall provide the Parent with copies of all
correspondence between the Company and its representatives, on the one hand, and
the SEC and its staff, on the other hand. Notwithstanding the foregoing, prior
to filing or mailing the Schedule 14C Information Statement (or any amendment or
supplement thereto) or responding to any comments of the SEC or its staff with
respect thereto, the Company (i) shall consult with Parent, Merger Sub, and
their counsel and provide them with a reasonable opportunity to review and
comment on such document or response and (ii) shall consider any such comments
in good faith. Upon Parent's request, if the Offer is consummated but the number
of shares of Company Common Stock accepted for payment in the Offer, together
with the shares of Company Common Stock then beneficially owned by the Parent or
its Affiliates (including, without limitation, shares of Company Common Stock
sold to Merger Sub pursuant to the Stock Purchase Agreement) is less than 90% of
the Company Common Stock then outstanding, the Company shall cause the Schedule
14C Information Statement to be mailed to the Company's stockholders as promptly
as practicable following the Expiration Date and delivery by Merger Sub of the
Stockholders' Written Consent.
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1.9 CONVERSION OF STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Company, the Parent, Merger Sub
or the stockholders thereof:
(a) Each share of capital stock, par value $0.01 per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one fully paid and nonassessable share of common stock, par
value $0.01 per share, of the Surviving Corporation.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than shares to be canceled in
accordance with Section 1.9(c) and Dissenting Shares, shall be converted into
the right to receive $7.00 in cash, payable to the holder thereof, without any
interest thereon (the "MERGER CONSIDERATION"), as soon as reasonably practicable
after the surrender of the certificate(s) representing such Company Common Stock
as provided in Section 1.10. Notwithstanding the foregoing, if Parent or Merger
Sub increases the Offer Price as permitted by Section 1.1(a) of this Agreement,
then the Merger Consideration shall be the same cash amount as the Offer Price
paid to holders in connection with consummation of the Offer. At and after the
Effective Time, all shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each holder of a share certificate which immediately prior to the Effective Time
represented shares of Company Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration to be
issued in consideration therefor upon surrender of such certificate in
accordance with Section 1.10, or in the case of holders of Dissenting Shares,
such rights as are granted pursuant to Section 262 of the DGCL and this
Agreement.
(c) Each share of Company Common Stock that is held in the
Company's treasury or owned or held by any Subsidiary of the Company, the
Parent, or any Affiliate of Parent shall automatically be canceled and retired
and shall cease to exist, and no consideration shall be delivered or deliverable
in exchange therefor.
1.10 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, the Parent shall appoint the
Paying Agent and authorize the Paying Agent to receive in trust the funds to
which stockholders of the Company shall become entitled upon surrender of the
certificates in accordance with this Section 1.10. At or prior to the Effective
Time, Parent shall cause to be deposited with the Paying Agent the aggregate
amount necessary for payment in full of all consideration that holders of
Company Common Stock and Eligible Options are entitled to receive pursuant to
Section 1.9 and Section 1.13, respectively, to be held for the benefit of, and
distribution to, such holders in accordance with this Agreement. The Paying
Agent shall agree to hold such funds (the "PAYMENT FUND") for delivery as
contemplated by this Section 1.10. The Payment Fund shall be invested as
directed by Parent or the Surviving Corporation pending payment thereof by the
Paying Agent to holders of Company Common Stock and Eligible Options. Earnings
from such investments in excess of the aggregate Merger Consideration shall be
the sole and exclusive property of the Surviving Corporation, and no part of
such earnings shall accrue to the benefit of the holders of Company Common Stock
or Eligible Options. If for any reason (including losses) the Payment
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Fund is inadequate to pay the cash amounts to which holders of shares of Company
Common Stock and Eligible Options shall be entitled, Parent and the Surviving
Corporation shall in all events remain liable for the payment thereof and Parent
shall take all steps necessary to enable and cause the Surviving Corporation to
provide to the Paying Agent on a timely basis, as and when needed after the
Effective Time, cash necessary to pay for the shares of Company Common Stock
converted into the right to receive cash pursuant to Section 1.9 and to pay the
cash amount due to holders of Eligible Options pursuant to Section 1.13. The
Payment Fund shall not be used for any purpose except as expressly provided in
this Agreement.
(b) As soon as reasonably practicable after the Effective Time,
but in no event later than ten (10) Business Days thereafter, the Paying Agent
shall mail to each holder of record of a certificate that immediately prior to
the Effective Time represented shares of Company Common Stock (other than
Parent, any Affiliate of Parent, the Company, any Subsidiary of the Company and
any holder of Dissenting Shares): (i) a letter of transmittal (a "LETTER OF
TRANSMITTAL"), which Letter of Transmittal shall specify that delivery shall be
effected, and risk of loss and title to each such certificate shall pass, only
upon delivery of such certificates to the Paying Agent, and contain such other
provisions as the Company and Parent may reasonably specify; and (ii)
instructions for use in surrendering such certificates in exchange for Merger
Consideration. Thereafter, upon surrender of a certificate representing Company
Common Stock for cancellation to the Paying Agent, together with a Letter of
Transmittal, duly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such certificate shall (subject to
applicable abandoned property, escheat and similar Laws) receive in exchange
therefor the amount of cash equal to the product of (x) the Merger Consideration
and (y) the number of shares of Company Common Stock represented by such
certificate, and the certificate so surrendered shall be canceled. If a transfer
of ownership of shares of Company Common Stock has not been registered in the
transfer records of the Company, payment may be made to a Person other than the
Person in whose name the certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment shall pay any transfer or other
Taxes required by reason of the payment to a Person other than the registered
holder of such certificate or establish to the satisfaction of the Parent that
such Taxes have been paid or are not applicable.
(c) All cash paid upon the surrender of certificates representing
Company Common Stock in accordance with the terms of this Article I shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
that may have been declared or made by the Company on such shares of Company
Common Stock and that remain unpaid at the Effective Time. If, after the
Effective Time, certificates representing Company Common Stock are presented to
the Surviving Corporation or the Paying Agent for any reason, they shall be
canceled and exchanged as provided in this Article I, except as otherwise
provided by Law.
(d) None of the Parent, Merger Sub, the Company, the Surviving
Corporation or the Paying Agent shall be liable to any Person in respect of any
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Law. No Person previously entitled to any amounts
payable pursuant to this Article I shall have any claim to such
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amount to the extent such amount has escheated or become the property of, and
paid to, any Governmental Entity. At any time following six months after the
Effective Time, the Surviving Corporation shall be entitled to require that the
Paying Agent deliver to it any funds (including any earnings received with
respect thereto) that had been made available to the Paying Agent and that have
not been disbursed to holders of certificates representing Company Common Stock
or holders of Eligible Options, and thereafter such holders shall be entitled to
look only to the Surviving Corporation (subject to abandoned property, escheat
or other similar Laws) as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their certificates.
(e) The Paying Agent shall be authorized to pay the Merger
Consideration attributable to any certificate(s) representing Company Common
Stock that have been lost, stolen or destroyed upon receipt of evidence of
ownership of the Company Common Stock represented thereby and of appropriate
indemnification and/or bond in each case reasonably satisfactory to the
Surviving Corporation.
(f) The Parent, the Surviving Corporation, and the Paying Agent
shall be entitled to deduct and withhold from amounts otherwise payable pursuant
to this Agreement to any holder of certificates previously representing Company
Common Stock or to any holder of Eligible Options such amounts as the Parent,
the Surviving Corporation, or the Paying Agent, respectively, reasonably
determines is required to be deducted and withheld with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the "CODE"),
or any provision of state, local or foreign Tax Law. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of such certificates or of such
Eligible Options in respect of which such deduction and withholding was made by
the Parent, the Surviving Corporation, or the Paying Agent.
1.11 NO FURTHER RIGHTS OR TRANSFERS. Except for the surrender of the
certificate(s) in exchange for the Merger Consideration or the perfection of
appraisal rights with respect to the Dissenting Shares, at and after the
Effective Time, each holder of shares of Company Common Stock issued and
outstanding immediately prior to the Merger shall cease to have any rights as a
stockholder of the Company, and no transfer of shares of Company Common Stock
issued and outstanding immediately prior to the Merger shall thereafter be made
on the stock transfer books of the Surviving Corporation.
1.12 DISSENTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable Law, shares of Company Common Stock that
are owned by stockholders of the Company who have properly perfected their
rights of appraisal in accordance with the provisions of Section 262 of the DGCL
(the "DISSENTING SHARES") shall not be converted into the right to receive the
Merger Consideration, unless and until such stockholders shall have failed to
perfect or shall have effectively withdrawn or lost their rights of appraisal
under applicable law, but, instead, the holders thereof shall be entitled only
to such rights as are granted pursuant to Section 262 of the DGCL. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such right of appraisal, each share of Company Common Stock held by such
stockholder shall thereupon be deemed to have been converted into the right
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to receive and become exchangeable for, as of the Effective Time, the Merger
Consideration, as provided in Section 1.9(b).
(b) The Company shall notify the Parent of any written demands for
appraisal with respect to any shares of Company Common Stock received by the
Company in accordance with Section 262 of the DGCL, and any withdrawals of such
written demands, and any other instruments served in connection with such
written demands pursuant to the DGCL. The Company shall give Parent the
opportunity to participate in all negotiations and proceedings with respect to
such demands for appraisal under the DGCL consistent with the obligations of the
Company thereunder, and shall keep Parent reasonably informed with respect to
such negotiations or proceedings. The Company shall not, except with the prior
written consent of the Parent, (x) voluntarily make any payment with respect to
any such demand for appraisal, (y) offer to settle or settle any such demand for
appraisal, or (z) waive any failure to timely deliver a written demand for
appraisal in accordance with the DGCL.
1.13 STOCK OPTIONS AND PURCHASE PLAN.
(a) As soon as practicable following the date of this Agreement,
the Company shall take or cause to be taken such actions as are reasonably
required to ensure that (i) each holder (each, an "OPTIONEE") of a Company Stock
Option that has not previously expired or been exercised in full as of or prior
to the Effective Time, whether vested or unvested (each such option, an
"ELIGIBLE OPTION"), shall have the right to irrevocably elect, no later than
immediately prior to the consummation of the Merger, to surrender following the
consummation of the Merger any Eligible Option then held by the Optionee in
exchange for the right to receive a cash payment equal to (x) the excess, if
any, of (A) the Merger Consideration over (B) the exercise price per share of
Company Common Stock subject to such Eligible Option, multiplied by (y) the
number of shares of Company Common Stock then issuable pursuant to the
unexercised portion of such Eligible Option, payable not later than five days
after the Effective Time, (ii) each Optionee shall have the right to purchase,
effective no later than immediately prior to the consummation of the Merger,
subject to the consummation of the Merger and in accordance with the terms of
the relevant plan or document, all or any part of the shares of Company Common
Stock subject to any Eligible Option held by the Optionee (that has not been
surrendered pursuant to (i) above), and each share of Company Common Stock so
purchased shall be converted, as of the Effective Time, into the right to
receive the Merger Consideration, all in accordance with Section 1.10 hereof,
and (iii) each Eligible Option (with respect to which an Optionee has not
exercised one of the rights set forth in subsection (i) or (ii) of this Section
1.13(a)) shall following the Merger confer upon the Optionee only the right to
receive upon exercise in accordance with the terms of the relevant plan or
document (including payment of the aggregate exercise price), for each share of
Company Common Stock that otherwise would be issuable pursuant to the
unexercised portion of such Eligible Option, the Merger Consideration.
(b) Prior to the Effective Time, the Company shall take or cause
to be taken such actions as are required to cause (i) the Company Stock Plans to
terminate as of the Effective Time, (ii) the provisions in any other Company
Benefit Plan providing for the issuance, transfer or grant of any shares of
capital stock of the Company or any interest in respect of any capital stock of
the Company to be terminated as of the Effective Time, and (iii) the exemption
set forth in Rule 16b-3(e) under the Exchange Act to be applicable to the
disposition of the Company
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Common Stock and Company Stock Options in or in connection with the Merger as
contemplated by this Agreement by all persons who are officers or directors of
the Company.
1.14 WITHHOLDING RIGHTS. The Surviving Corporation shall be entitled to
deduct and withhold, or cause to be deducted and withheld, from the
consideration payable pursuant to this Agreement to any holder of Company Common
Stock or Eligible Options such amounts as are required to be deducted and
withheld with respect to the making of such payment under the Code, or any other
provision of applicable state, local or foreign Tax Law. To the extent that
amounts are so deducted or withheld, such deducted and withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holders in
respect of which such deduction and withholding was made.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Merger Sub, subject
to the exceptions disclosed in writing in the disclosure letter dated as of the
date hereof delivered to the Parent by the Company pursuant to, and as an
integral part of, this Agreement (the "COMPANY DISCLOSURE LETTER"), as follows:
2.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(a) Organization. Each of the Company and its Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the Laws of the jurisdiction in which it is organized and is
qualified to do business as a foreign corporation or similar entity and in good
standing in the jurisdictions in which the ownership, leasing, or operation of
property or the conduct of its business requires its qualification as a foreign
corporation or similar entity, except where the failure so to qualify would not
have a Material Adverse Effect on the Company.
(b) Powers. Each of the Company and its Subsidiaries has the
requisite corporate or other entity power and authority to carry on its business
as it is now conducted.
(c) Certificate of Incorporations and Bylaws. Prior to the date
hereof, the Company has made available to the Parent complete and correct copies
of its certificate of incorporation and bylaws, as currently in effect.
2.2 COMPANY RECOMMENDATION; RIGHTS AGREEMENT; TAKEOVER STATUTES.
(a) Recommendation. The board of directors of the Company, at a
meeting duly called and held, has (i) determined that each of the Offer, this
Agreement, and the Merger contemplated hereby is advisable and in the best
interests of the Company and its stockholders and is fair to the Company's
stockholders and (ii) resolved to make the Company Recommendation to the
Company's stockholders, and none of such determinations, approvals or
resolutions has been amended, rescinded, or modified as of the date of this
Agreement.
(b) Rights Agreement. Subject to the accuracy of the
representations and warranties contained in Sections 3.7 and 3.8 of this
Agreement, the Company and the board of directors of the Company have taken all
necessary action so that the approval, execution or consummation of the Offer,
this Agreement, the Stock Purchase Agreement and the Merger do not and will not
result in the ability of any Person to exercise any Right issued under the
Rights Agreement and do not and will not cause the Rights to separate from the
shares of Company Common Stock to which they are attached or to be triggered or
to become exercisable. The Company and the board of directors of the Company
have taken all actions necessary under the Rights Agreement so that neither the
execution of this Agreement or any amendments thereto, nor the consummation of
the Offer, the Stock Purchase Agreement or the Merger shall cause (i) Parent
and/or Merger Sub or their respective Affiliates or Associates to become an
Acquiring Person (as such terms are defined in the Rights Agreement) or (ii) a
Distribution Date, a Stock
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Acquisition Date, or a Triggering Event (as such terms are defined in the Rights
Agreement) to occur by reason of the approval, execution, or consummation of
this Agreement, the Offer, or the Merger.
(c) Takeover Law. Subject to the accuracy of the representations
and warranties contained in Sections 3.7 and 3.8 of this Agreement, the board of
directors of the Company has taken all actions required to be taken by it in
order to render the restrictions on business combinations contained in Section
203 of the DGCL inapplicable to the Offer, this Agreement, the Stock Purchase
Agreement and the Merger. No other state takeover, anti-takeover, moratorium,
fair price, interested stockholder, business combination or similar statute or
rule is applicable to the Offer, this Agreement, the Stock Purchase Agreement or
the Merger other than those that may be made applicable solely by reason of
Parent's or Merger Sub's (as opposed to the Company's or any of its
Subsidiaries') participation in the Offer or the Merger.
2.3 SUBSIDIARIES. Section 2.3 of the Company Disclosure Letter sets
forth a true and complete list of each of the Company's Subsidiaries and the
manner in which the Company's ownership in such Subsidiary is held. Section 2.3
of the Company Disclosure Letter lists all subsidiaries and divisions (it being
understood that a group of assets shall not be deemed to have been a "division"
unless the Company considered it to be such) of the Company owned and divested
by the Company since 1999 and the manner and to whom such subsidiary or division
was divested. Except as noted in Section 2.3 of the Company Disclosure Letter,
all of the outstanding shares of capital stock of, or other equity interests in,
each Subsidiary of the Company have been validly issued, are fully paid and
nonassessable and are owned directly or indirectly by the Company, free and
clear of all pledges, claims, liens, charges, encumbrances, mortgages, security
interests or adverse claims of any kind or nature whatsoever (collectively,
"LIENS") and free of any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests, except restrictions
arising under applicable securities laws. Other than the capital stock of, or
other equity interests in, its Subsidiaries, and other than securities held by
or through any Company Benefit Plan, the Company does not, directly or
indirectly, beneficially own any securities or other beneficial ownership
interests in any other entity.
2.4 CAPITALIZATION.
(a) Capital Stock. The authorized capital stock of the Company
consists of (i) 8,000,000 shares of common stock, par value $1.00 per share, and
(ii) 100,000 shares of preferred stock, par value $1.00 per share, having such
rights and preferences as the Company's board of directors may designate. As of
the date hereof, 3,207,894 shares of the Company's common stock, par value $1.00
per share, are issued and outstanding; 502,415 shares of the Company's common
stock, par value $1.00 per share, are held in treasury; and no shares of the
Company's preferred stock, par value $1.00 per share, are outstanding. Section
2.4(a) of the Company Disclosure Letter sets forth all of the Company Stock
Options and the number of shares of Company Common Stock that are issuable in
respect of the Company Stock Options and the price at which each option is
exercisable.
(b) Issuance; Ownership. All of the outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and not issued in
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violation of any preemptive rights. The Company is not a party to any voting
agreement with respect to the voting of any such securities. Except for the
Company Stock Options and Warrants, there are no options, warrants, conversion
rights or other rights to subscribe for or purchase, or other contracts with
respect to, any capital stock of the Company or its Subsidiaries and there are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or its
Subsidiaries.
(c) Voting Debt; Repurchase Obligations. As of the date hereof,
(i) no bonds, debentures, notes or other Indebtedness of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) are issued or outstanding, and (ii) there are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company.
2.5 AUTHORIZATION; ENFORCEABILITY. The execution and delivery by the
Company of this Agreement and the performance of this Agreement and consummation
of the Merger by the Company are within the corporate power and authority of the
Company and have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Merger, to receipt of the
Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by each of the Parent and Merger Sub, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws now or
hereafter in effect generally affecting the rights of creditors and subject to
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
2.6 NO VIOLATION OR CONFLICT. The execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement and
consummation of the Merger by the Company will not, except as disclosed in
Section 2.6 of the Company's Disclosure Letter (i) result in any violation of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
under or to the loss of a material benefit under or to the increase of
obligations under any Material Contract of the Company or its Subsidiaries, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries, (ii) result in any violation of any
provision of the certificate of incorporation or bylaws of the Company or the
charter documents of its Subsidiaries, (iii) violate any Existing Permits of the
Company or its Subsidiaries or any Law applicable to the Company or its
Subsidiaries, other than, in the case of clauses (i) and (iii), any such
violations, defaults, rights, losses or Liens that, individually and in the
aggregate, would not (x) have a Material Adverse Effect on the Company, (y)
reasonably be expected to significantly impair the ability of the Company to
perform its obligations under this Agreement or (z) reasonably be expected to
prevent or materially delay the consummation of the Merger.
2.7 GOVERNMENTAL APPROVALS. The execution and delivery of this Agreement
by the Company do not, and the performance of this Agreement and consummation of
the Merger by the Company will not, require any consent of, or filing with or
notification to, any Governmental Entity, except (i) for applicable
requirements, if any, of the Exchange Act, the
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Securities Act and state securities or "blue sky" Laws, (ii) for the filing of a
certificate of merger as required by the DGCL and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (iii) where failure to obtain such Consents or make such filings or
notifications would not (x) have a Material Adverse Effect on the Company, (y)
reasonably be expected to significantly impair the ability of the Company to
perform its obligations under this Agreement or (z) reasonably be expected to
prevent or materially delay the consummation of the Merger, and (iv) as
disclosed in Section 2.7 of the Company Disclosure Letter.
2.8 SEC DOCUMENTS. The Company has filed with the SEC all forms,
reports, schedules, statements and other documents (including exhibits and all
other information incorporated therein) required to be filed by it since
September 30, 2002 (as such documents have been amended since the time of their
filing, collectively, the "COMPANY SEC DOCUMENTS"). As of their respective dates
or, if amended, as of the date of the last such amendment, the Company SEC
Documents, including, without limitation, any financial statements or schedules
included therein: (i) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (ii) complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act at the
time of such filing.
2.9 FINANCIAL STATEMENTS. (a) The Company's financial statements
contained in the Company SEC Documents comply in all respects with the
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and have been prepared in accordance with the
applicable generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated
therein). The Company's financial statements fairly present, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the date thereof and the consolidated results of their
operations and cash flows for the periods indicated (subject, in the case of
unaudited statements, to the absence of footnotes and year-end adjustments).
(b) The unaudited balance sheet, results of operations and
statement of cash flows of the Company for the year ended September 2004, fairly
present, in all material respects, the consolidated financial position of the
Company and its Subsidiaries as of the date thereof and the consolidated results
of their operations and cash flows for the periods indicated (subject to the
absence of footnotes and year-end adjustments). The standard cost information
for the Company's products delivered to Parent prior to the execution of this
Agreement were derived from the Company's accounting books and records
maintained in the ordinary course of the Company's business, were prepared in
accordance with the Company's past practice with respect to similar information
and, on that basis, accurately reflect the cost to manufacture such products.
(c) The Company and its Subsidiaries have no Liabilities having a
value individually or in the aggregate in excess of $400,000, except, (i) to the
extent reflected on the September 30, 2004 balance sheet (including the draft
footnotes to the September 30, 2004 balance sheet delivered to Parent prior to
the execution of this Agreement), (ii) Liabilities incurred in the normal and
ordinary course of business of the Company since September 30,
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2004, or (iii) Liabilities disclosed in Section 2.9(c) of the Company Disclosure
Letter. For purposes of this Section 2.9(c), the term "Liabilities" means
liabilities of any kind or nature, whether known or unknown, absolute or
contingent, other than Liabilities otherwise disclosed in any other
representation or warranty made in this Agreement or in any other section of the
Company Disclosure Letter.
2.10 INFORMATION SUPPLIED; CONTENT OF SCHEDULE 14D-9 AND PROXY STATEMENT.
(a) Information Supplied. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Offer Documents will, on the date filed with the SEC, or on the date first
published or sent to the Company's stockholders, or, if shares of Company Common
Stock are accepted for purchase pursuant to the Offer, on the date that the
Offer expires, or at the time of any amendment or supplement of the Offer
Documents, in each case, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Content of Schedule 14D-9 and Proxy Statement. The Schedule
14D-9, on the date it is filed with the SEC and, if shares of Company Common
Stock are accepted for purchase pursuant to the Offer, on the date that the
Offer expires, and at the time of any amendment or supplement of the Schedule
14D-9 will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, except that no representation is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub. The Proxy Statement, on the date
it is mailed to the stockholders of the Company, at the time of the Special
Meeting, and at the time of any amendment or supplement thereof will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied by Parent or Merger Sub. The Schedule 14D-9 and the Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act.
2.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for changes set forth
in Section 2.11 of the Company Disclosure Letter, since June 30, 2004, the
Company and its Subsidiaries have conducted their businesses only in the
ordinary course consistent with past practices, and since such date (i) there
has not been any Material Adverse Change to the Company and (ii) no action or
event listed in Section 4.1 has occurred.
2.12 LEGAL PROCEEDINGS. (a) Except as disclosed in Section 2.12(a) of the
Company Disclosure Letter, (i) there are no suits, actions, proceedings,
investigations, arbitrations or claims (collectively, "LEGAL PROCEEDINGS")
pending or threatened in writing against or affecting the Company or any of its
Subsidiaries that, individually or in the aggregate, would, if decided adversely
to the Company, have a Material Adverse Effect on the Company; and (ii) there
are no material judgments, settlements, decrees, injunctions, rules or orders of
any Governmental
A-22
Entity or arbitrator outstanding against the Company or any of its Subsidiaries
that would, individually or in the aggregate, have a Material Adverse Effect on
the Company.
(b) The Company has delivered to Parent a complete list of all
actions pending as of the date hereof and of which the Company has received
notice, against the Company or any of its current or former Subsidiaries or
divisions alleging injury from exposure to silica, asbestos or mixed dust, which
list includes the name of the plaintiff, date of filing, and court in which each
case is pending. To date, the Company's out of pocket expenditure with respect
to the defense of all such claims has been less than $5,000, it being understood
that such amount does not include (i) fees paid to the Company's registered
agents in connection with service of process or (ii) fees and related expenses
paid to Kleinbard, Bell & Brecker LLP.
(c) The Company has made available to Parent all material
information in the Company's possession concerning the corporate history of New
Castle Refractories from the time of its acquisition in July 1963 by the Company
until its disposition on July 31, 2003.
2.13 EXISTING PERMITS AND VIOLATIONS OF LAW. The Company and each of its
Subsidiaries have all permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities (the "EXISTING
PERMITS") required by Law which are material for the conduct of the business of
the Company and its Subsidiaries as currently conducted. The business of the
Company and its Subsidiaries is being conducted in material compliance with
applicable Law. No Governmental Entity has notified the Company or any of its
Subsidiaries of its intention to conduct an investigation or review with respect
to the Company or any of its Subsidiaries.
2.14 ENVIRONMENTAL. Except as set forth in Section 2.14 of the Company
Disclosure Letter, (i) the Company and its Subsidiaries are in compliance in all
material respects with all applicable Environmental Laws, (ii) the Company and
its Subsidiaries have obtained, and are in compliance in all material respects
with, all material permits, licenses, authorizations, registrations and other
governmental consents required by applicable Environmental Laws, (iii) neither
the Company nor any of its Subsidiaries has within the last five years received
any written communication from a governmental authority or third party that
alleges that the Company or any of its Subsidiaries is not in compliance with
applicable Environmental Law, (iv) neither the Company nor any of its
Subsidiaries has received any written communication from a governmental
authority or third party that alleges that the Company or any of its current or
former Subsidiaries is a potentially responsible party under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, or
subject to corrective actions requirements under the Resource Conservation and
Recovery Act, or other similar laws of any state or country, (v) neither the
Company nor its Subsidiaries have received notice that any claims for personal
injury or property damage relating to Hazardous Materials have been asserted
against the Company or any of its Subsidiaries, (vi) neither the Company nor any
of its Subsidiaries has assumed or otherwise agreed to be responsible for any
liabilities arising under any Environmental Law, and (vii) the Company has
provided to Parent and Merger Sub copies of all legal opinions, environmental
reports and documents listed or referred to in Section 2.14 of the Company
Disclosure Letter. The representations and warranties in this Section 2.14 are
the Company's exclusive representations and warranties relating to environmental
matters.
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2.15 REAL ESTATE. All real property owned or leased by the Company or its
Subsidiaries is listed in Section 2.15 of the Company Disclosure Letter (the
"REAL ESTATE"). The Company has valid fee simple title to or valid leaseholder
interests in (as the case may be) its Real Estate, free and clear of any Liens,
and the Real Estate is not subject to any leases, tenancies, encumbrances or
encroachments of any kind, excluding Permitted Liens, except as set forth in
Section 2.15 of the Company Disclosure Letter.
2.16 TITLE TO TANGIBLE ASSETS. Each of the Company and its Subsidiaries
has valid title to or leases each of the tangible assets used in the conduct of,
and that are material to, the business of the Company and its Subsidiaries as
presently conducted, free and clear of any Liens, except for Permitted Liens or
Liens listed on Section 2.16 of the Company Disclosure Letter.
2.17 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries have such ownership of or
such rights by license or otherwise in all patents and patent applications, mask
works, trademarks and service marks, trademark and service mark registrations
and applications, trade names, logos, brands, titles, copyrights, subsidiary
rights, copyright registrations and applications, trade secrets, names and
likenesses, know-how, proprietary processes, compositions of matter, formulae,
designs, computer software programs and other proprietary rights (collectively,
the "INTELLECTUAL PROPERTY RIGHTS") as are necessary to conduct and permit the
conduct of the business of the Company and its Subsidiaries as currently
conducted, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
(b) Section 2.17(b) of the Company Disclosure Letter sets forth a
list of all (i) registered or applied for Intellectual Property Rights owned by
the Company and (ii) material Intellectual Property Rights licensed or otherwise
used by the Company in the conduct of its business.
(c) The manufacture, advertising, sale, distribution, promotion,
or offering of any products or services material to the Company now being
manufactured, offered or sold by the Company did not and does not infringe the
Intellectual Property Rights of others. Except as set forth on Section 2.17(c)
of the Company Disclosure Letter, during the period from November 1, 2003 to the
date of this Agreement, no third party has notified the Company or its
Subsidiaries in writing of any claim that any activities of the Company infringe
or constitute the unauthorized use of the Intellectual Property Rights of any
third party.
(d) Except as disclosed in Section 2.17(d) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to
or bound by any Contract (i) pursuant to which the Company or any of its
Subsidiaries has assigned, transferred, licensed or granted to a third party any
Intellectual Property Right on an exclusive basis or agreed to forego using or
asserting rights to any Intellectual Property Rights or (ii) that contains any
"most favored nation" pricing provision in favor of a third-party in connection
with any Intellectual Property Right.
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(e) Except as disclosed in Section 2.17(e) of the Company
Disclosure Letter, no third party is infringing on any material Intellectual
Property Rights of the Company or its Subsidiaries.
(f) The Company owns or has the right to use all software used in
the conduct of its business.
(g) To the Company's Knowledge, the Intellectual Property Rights
of the Company and its Subsidiaries that are registered in any jurisdictions are
not invalid or unenforceable, and those Intellectual Property Rights
constituting trade secrets used in the conduct of the business of the Company
and its Subsidiaries are non-public and have not been disclosed to third parties
without commercially reasonable restrictions on further disclosure.
2.18 AGREEMENTS; DOCUMENTS; MINUTE BOOKS.
(a) Material Contracts. Section 2.18(a) of the Company Disclosure
Letter sets forth the following written Contracts to which the Company or any of
its Subsidiaries is a party (the "MATERIAL CONTRACTS"):
(i) any Contract (or group of related Contracts) not
terminable upon notice within one hundred eighty (180) days (other than purchase
contracts and orders for inventory in the ordinary course of business consistent
with past practice) that (A) contemplates or involves the payment or delivery of
cash or other consideration in an amount or having a value in excess of $100,000
in the aggregate in any twelve month period, or (B) contemplates or involves the
furnishing, performance, or receipt of services or the delivery of products or
materials by or to the Company or any of its Subsidiaries having a value in
excess of $100,000 in the aggregate in any twelve month period;
(ii) any Contract under which the consequences of a default
or termination would have a Material Adverse Effect on the Company;
(iii) any Contract (or group of related Contracts) for the
lease of personal property from or to third parties providing (A) for lease
payments in excess of $50,000 per annum, or (B) for a term of more than one
year;
(iv) any Contract establishing a partnership or joint venture
involving the Company or any of its Subsidiaries;
(v) any Contract (or group of related Contracts) under which
the Company or any of its Subsidiaries had a Lien imposed on any of their
assets;
(vi) any Contract for the sale of any asset or related group
of assets of the Company or any of its Subsidiaries (other than sales in the
ordinary course of business) having a sales value in excess of $100,000;
(vii) any Contract by which the Company has agreed to
indemnify and hold harmless any Person for any material liability or any
liability that would be material to the
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Company if it became required to indemnify and hold harmless any such Person;
(viii) any Contract allowing an employee to terminate his
employment with the Company and receive payments from the Company upon a change
in control; and
(ix) any Contract with any consultant or independent
contractor for professional services having a remaining term of at least one
year and requiring payments of base salary or fee in excess of $75,000 per year
or aggregate payments of base salary in excess of $100,000.
Other than as set forth in Section 2.18(a) of the Company Disclosure Letter, the
Company is not party to any Material Contract. None of the Company or any of its
Subsidiaries is in violation of or in default under (nor does there exist any
condition that with the passage of time or the giving of notice or both would
cause such a violation of or default under) any Material Contract to which it is
a party or by which it or any of its properties or assets is bound, except for
violations or defaults that have not and would not, individually or in the
aggregate, result in a Material Adverse Effect on the Company. Each Material
Contract is in full force and effect, and is a legal, valid and binding
obligation of the Company or one of its Subsidiaries, enforceable in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws now or
hereafter in effect generally affecting the rights of creditors and subject to
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Neither the Company nor any of
its Subsidiaries is a party to any oral contract that, if reduced to written
form, would be required to be listed in 2.18(a) of the Company Disclosure Letter
under the terms of this Section 2.18(a).
(b) Debt Instruments. Set forth in Section 2.18(b) of the Company
Disclosure Letter is (i) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments under which the
Company or any of its Subsidiaries has incurred, assumed, or guaranteed any
Indebtedness in excess of $200,000, and (ii) the respective principal amounts
currently outstanding thereunder.
(c) Guarantees. Except as set forth in Section 2.18(c) of the
Company Disclosure Letter and other than guarantees by Subsidiaries of the
Company of the Company's obligations or liabilities, none of the material
obligations or liabilities of the Company or any of its Subsidiaries is
guaranteed by any Person. The Company has not guaranteed the obligations of any
Person other than any current Subsidiary.
(d) Related Party Agreements. Except as disclosed in Section
2.18(d) of the Company Disclosure Letter, there are no outstanding loans or
advances from the Company or any of its Subsidiaries currently owed by
directors, officers, employees, or stockholders of the Company or any of its
Subsidiaries, or by any Affiliate of any director or officer of the Company or
any of its Subsidiaries, other than advances in the ordinary and usual course of
business to officers and employees for reimbursable business expenses. The
Company has possession of the stock certificates securing the loans made to the
Company's directors, officers, and employees described in Section 2.18(d) of the
Company Disclosure Letter.
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(e) Documents Provided. All documents listed or described in the
Company Disclosure Letter have been previously furnished or made available to
Parent or its representatives. All such documents furnished to Parent are
correct and complete copies, and there are no amendments or modifications
thereto, except as expressly noted in the Company Disclosure Letter.
(f) Minute Books. The minute books of the Company and each of its
Subsidiaries contain accurate records of all corporate actions taken by the
directors and stockholders of the Company and each of its Subsidiaries since
January 1, 2001.
2.19 INSURANCE. Section 2.19 of the Company Disclosure Letter sets forth
a list of all current material policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of the Company or its Subsidiaries. Such policies
and binders are in full force and effect, are reasonably adequate for the
businesses engaged in by the Company or any of its Subsidiaries and are in
conformity in all material respects with the requirements of all Material
Contracts to which the Company or any of its Subsidiaries is a party and are
valid and enforceable in accordance with their terms. Neither the Company nor
any of its Subsidiaries is in default with respect to any provision contained in
any such policy or binder nor has the Company or any of its Subsidiaries failed
to give any notice or present any claim under any such policy or binder in due
and timely fashion. Except as set forth in Section 2.19 of the Company
Disclosure Letter, there are no outstanding unpaid claims under any such policy
or binder. Neither the Company nor any of its Subsidiaries has received notice
of cancellation or non-renewal of any such policy or binder. The Company has
given proper notice to its insurer of all claims that individually or in the
aggregate are material to the Company and its Subsidiaries. Except as disclosed
in Section 2.19 of the Company Disclosure Letter, the Company has not received
any notice from its insurers disclaiming coverage for any material claim of
which it has provided notice to its insurers.
2.20 BENEFIT PLANS.
(a) Company Benefit Plans. Section 2.20(a) of the Company
Disclosure Letter contains a complete list of all "employee benefit plans" as
defined in Section 3(3) of ERISA (the "COMPANY EMPLOYEE BENEFIT PLANS"),
"employee pension benefit plans" as defined in Section 3(2) of ERISA (the
"COMPANY EMPLOYEE PENSION PLANS"), and "employee welfare benefit plans" as
defined in Section 3(1) of ERISA (together with the Company Employee Benefit
Plans and the Company Pension Plans, the "COMPANY BENEFIT PLANS"), sponsored,
maintained or contributed to, or required to be contributed to, by the Company.
All Company Benefit Plans have been administered in compliance in all material
respects with their terms and the applicable provisions of ERISA and the Code.
With respect to each such Company Benefit Plan, (i) each Company Benefit Plan
which is intended to be qualified within the meaning of Section 401(a) of the
Code operates in all material respects in accordance with the requirements for
such qualifications and is the subject of a favorable determination letter as to
its qualification, and to the Company's Knowledge, nothing has occurred, whether
by action or failure to act, that could reasonably be expected to cause the loss
of such qualification; (ii) all contributions, premiums or other payments
required under the terms of the Company Benefit Plans or Other Plans (as defined
below) or under applicable Law have been made within the time required by Law
and the terms of the Company Benefit Plans or Other Plans; (iii) there have
A-27
been no "prohibited transactions" (as described in Section 4975 of the Code or
in Part 4 of Subtitle B of Title I of ERISA) with respect to any Company Benefit
Plan; and (iv) there are no inquiries, proceedings, claims or suits pending or,
to the Company's Knowledge, threatened by any Governmental Entity or by any
participant or beneficiary against any of the Company Benefit Plans, the assets
of any of the trusts under such Company Benefit Plans or the Company Benefit
Plan sponsor or the Company Benefit Plan administrator, or against any fiduciary
of any of such Company Benefit Plans with respect to the design or operation of
the Company Benefit Plans, other than routine claims for benefits.
(b) Multiemployer Plans. Neither the Company nor any entity
required to be aggregated with the Company under Section 414(b), (c), (m), or
(o) of the Code ("ERISA AFFILIATE") contributes (or is obligated to contribute)
to a "multiemployer plan" as such term is defined in ERISA Section 3(37) and,
except as set forth in Section 2.20(b) of the Company Disclosure Letter, neither
the Company nor any ERISA Affiliate has contributed or been obligated to
contribute to such a plan during the six-year period ending on the Closing Date.
(c) Unsatisfied Liabilities. There are no unsatisfied liabilities
to participants, the IRS, the United States Department of Labor ("DOL"), the
Pension Benefit Guaranty Corporation ("PBGC") or to any other Person that have
been incurred as a result of the termination of any Company Benefit Plan
maintained by the Company or any ERISA Affiliate since January 1, 2001. With
respect to each Company Benefit Plan maintained by the Company or any ERISA
Affiliate which is subject to the minimum funding requirements of Part 3 of
Subtitle B of Title I of ERISA or subject to Section 412 of the Code, (i) there
does not exist any "accumulated funding deficiency" within the meaning of
Section 302 of ERISA or Section 412 of the Code, whether or not waived; (ii) no
"reportable event," as defined in Section 4043(c) of ERISA for which notice has
not been waived by the regulations issued under such Section has occurred; and
(iii) all premiums to the PBGC have been timely paid in full.
(d) Consummation of the Transactions. Except as disclosed in
Section 2.20(d) of the Company Disclosure Letter, neither the execution of this
Agreement nor the consummation of the Merger will, either alone or in
combination with another event, (i) entitle any current or former employee,
officer, director, consultant or agent of the Company to severance pay,
unemployment compensation or any other payment, or (ii) accelerate the time of
payment or vesting of, or increase the amount of, compensation or benefits due
to any such individual.
(e) Continuing Coverage. The Company and its ERISA Affiliates are
in compliance in all material respects with respect to the "continuation
coverage requirement" of "group health plans" as set forth in Section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA (sometimes referred to as
"COBRA") with respect to any Company Benefit Plan maintained by the Company or
any ERISA Affiliate to which such continuation coverage requirements apply. The
Company and its ERISA Affiliates are in compliance in all material respects with
respect to the health insurance obligations imposed by Section 9801 of the Code
and Part 7 of Subtitle B of Title I of ERISA with respect to any Company Benefit
Plan to which such insurance obligations apply. Neither the Company nor any
ERISA Affiliate has contributed to a nonconforming group health plan (as defined
in Section 5000(c) of the Code) and no ERISA Affiliate has incurred a Tax under
Section 5000(a) of the Code that is or is reasonably expected
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to become a liability of the Company or an ERISA Affiliate. Other than such
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA and except as disclosed in Section 2.20(e) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries maintains
retiree life or retiree health plans providing for continuing coverage for any
employee or any beneficiary of an employee after the employee's termination of
employment.
(f) Other Plans. Section 2.20(f) to the Company Disclosure Letter
lists each other employee benefit plan, program or arrangement of any kind
maintained by the Company or any of its Subsidiaries that is not a Company
Benefit Plan (the "OTHER PLANS") to which the Company contributes or has any
obligation to contribute, or with respect to which the Company has any liability
or potential liability. Each Other Plan (and each related trust, insurance
contract, or fund) of the Company has been maintained, funded and administered
in all material respects in accordance with the terms of such Other Plan and the
terms of any applicable collective bargaining agreement and complies in form and
in operation in all material respects with the requirements of all applicable
Laws.
(g) Title IV Plans. Except as disclosed in Section 2.20(g) of the
Company Disclosure Letter, neither the Company nor any ERISA Affiliate
maintains, contributes to, has any obligation to contribute to, or has any
liability, whether direct or indirect (including withdrawal liability as defined
in Section 4201 of ERISA) under or with respect to any plan covered by Title IV
of ERISA, nor has the Company nor any ERISA Affiliate maintained, contributed
to, had any obligation to contribute to, or had any liability, whether direct or
indirect (including withdrawal liability as defined in Section 4201 of ERISA)
under or with respect to any plan covered by Title IV of ERISA in the past seven
years. Except as disclosed in Section 2.20(g) of the Company Disclosure Letter,
no Company Benefit Plan of the Company or any ERISA Affiliate has been
completely or partially terminated under Title IV of ERISA; nor has any Plan
covered by Title IV of ERISA been the subject of a reportable event (as defined
in ERISA and PBGC regulations) in the past seven years. The Company and any
ERISA Affiliates have not incurred, and to the Company's Knowledge do not have
any reason to expect that they will incur, any liability to the PBGC or any
other violation under Title IV of ERISA (including any withdrawal liability as
defined in ERISA Section 4201) or under the Code with respect to any Plan or
under COBRA. There are no Liens with respect to any Plan, including Liens
pursuant to Sections 302 and 4068 of ERISA and Section 412 of the Code.
(h) International Plans. Each compensation and benefit plan
required to be maintained or contributed to by the Law or applicable rule of the
relevant jurisdiction outside of the United States (the "COMPANY INTERNATIONAL
PLANS") is listed in Section 2.20(h) of the Company Disclosure Letter. As
regards each such Company International Plan, unless disclosed in Section
2.20(h) of the Company Disclosure Letter, (i) each of the Company International
Plans is in compliance in all material respects with the provisions of the Laws
of each jurisdiction in which each such Company International Plan is
maintained, to the extent those Laws are applicable to the Company International
Plans; (ii) all contributions to, and payments from, the Company International
Plans which may have been required to be made in accordance with the terms of
any such Company International Plan, and, when applicable, the Law of the
jurisdiction in which such Company International Plan is maintained, have been
timely made or shall be made by the Closing Date, and all such contributions to
the Company International
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Plans, and all payments under the Company International Plans, for any period
ending before the Closing Date that are not yet, but will be, required to be
made, are reflected as an accrued liability in the most recent audited financial
statements in the Company SEC Documents; (iii) there are no pending
investigations by any Governmental Entity involving the Company International
Plans of which the Company has received notice, and no pending claims (except
for claims for benefits payable in the normal operation of the Company
International Plans), suits or proceedings against any Company International
Plan or asserting in writing any rights or claims to benefits under any Company
International Plan; and (iv) the consummation of the Merger will not by itself
create or otherwise result in any liability with respect to any Company
International Plan, other than the triggering of payment to participants.
2.21 LABOR MATTERS.
(a) Agreements; Employee Relations. Except as set forth in Section
2.21(a) of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement
with employees or other Material Contract with a labor union or labor
organization. There are no strikes or lockouts by or with respect to any
employee of the Company or any of its Subsidiaries. To the Knowledge of the
Company, there is no union organizing effort pending or threatened against the
Company or any of its Subsidiaries.
(b) Proceedings. Except as disclosed in Section 2.21(b) of the
Company Disclosure Letter, there is no litigation pending or threatened in
writing against the Company or any of its Subsidiaries, at law or in equity,
alleging a violation of any applicable Law, rule or regulation respecting
employment and employment practices, terms and conditions of employment and
wages and hours, or unfair labor practice. Except as disclosed in Section
2.21(b) of the Company Disclosure Letter, there is no unfair labor practice or
labor arbitration proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries relating to their
business. Neither the Company nor any of its Subsidiaries has any liabilities
under the Worker Adjustment and Retraining Notification Act as a result of any
action taken by the Company.
(c) Compliance with Laws. The Company and its Subsidiaries are in
compliance in all material respects with all applicable Laws respecting (i)
employment and employment practices, (ii) terms and conditions of employment and
wages and hours, and (iii) unfair labor practices. All of the Company's products
were produced in compliance in all material respects with all applicable
requirements of (x) Sections 6, 7 and 12 of the Fair Labor Standards Act, as
amended (the "FLSA"), and all regulations and orders of the DOL issued under
Section 14 thereof; (y) state and local Laws pertaining to child labor, minimum
wage and overtime compensation; and (z) with respect to merchandise (including
components thereof) manufactured outside the United States, the wage and hour
Laws of the country of manufacture and without the use of child, prison or slave
labor. The Company has in effect a program of monitoring any sub-contractors who
performed work for it in connection with the production of merchandise for
compliance with the FLSA and comparable state, local and foreign Laws.
(d) Current Compensation. Section 2.21(d) of the Company
Disclosure Letter sets forth the current salary and benefits of the executive
officers listed in Section 2.21(d) of the
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Company Disclosure Letter.
2.22 TAXES.
(a) Tax Returns. For all years for which the applicable statutory
period of limitations has not expired, the Company and each of its Subsidiaries
have filed all material Tax Returns (including, but not limited to, income,
franchise, sales, payroll, employee withholding and social security and
unemployment) which were required to be filed by them and all such returns are
complete and correct in all material respects, or requests for extensions to
file such Tax Returns have been timely filed, granted and have not expired. The
Company and each of its Subsidiaries have paid (or caused to be paid) all Taxes
shown as due on such Tax Returns. The most recent financial statements contained
in Company SEC Documents reflect an adequate reserve (in addition to any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) for all Taxes not yet due and payable by the Company and its
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(b) Deliveries. The Company has made available to Parent correct
and complete copies of all Tax Returns and Tax reports of the Company filed for
all periods not barred by the applicable statute of limitations, through the
date hereof.
(c) Audits. To the Company's Knowledge, no Tax Return of the
Company or any of its Subsidiaries is under audit or examination by any Taxing
authority, and no written notice of such an audit or examination has been
received by the Company or any of its Subsidiaries. There is no material
deficiency, refund litigation, proposed adjustment or matter in controversy with
respect to any Taxes due and owing by the Company or any of its Subsidiaries.
Except as set forth in Section 2.22(c) of the Company Disclosure Letter, the
federal income Tax Returns of the Company and each of its Subsidiaries
consolidated in such Tax Returns have been either examined by and settled with
the IRS or closed by virtue of the applicable statute of limitations, and no
requests for waivers of the time to assess any such Taxes are pending.
(d) Liens. There are no Tax Liens upon any assets or properties of
the Company or any of its Subsidiaries necessary for the conduct of their
respective businesses as currently conducted, except for Liens for current Taxes
not yet due and payable and except for such claims which, individually or in the
aggregate, do not exceed $200,000.
(e) Income After the Effective Time. Except as disclosed in
Section 2.22(e) of the Company Disclosure Letter, for federal income tax
purposes, neither the Company nor any of its Subsidiaries will be required to
include in a taxable period ending after the Effective Time taxable income
attributable to income that accrued (for purposes of the financial statements of
the Company included in Company SEC Documents) in a prior taxable period but was
not recognized for tax purposes in any prior taxable period as a result of the
installment method of accounting, the completed contract method of accounting,
the long-term contract method of accounting, the cash method of accounting or
Section 481 of the Code or for any other reason.
2.23 VOTE REQUIRED. If the Merger is not approved pursuant to Section 253
of the DGCL as provided in Section 1.8(a) hereof, then subject to the accuracy
of the
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representations and warranties of Parent and Merger Sub in Sections 3.7 and 3.8
of this Agreement, following consummation of the Offer, the affirmative vote or
consent of the holders of not less than 66-2/3 percent of the voting power of
all outstanding shares of Company Common Stock entitled to vote with respect to
the Merger in favor of the Merger (the "COMPANY STOCKHOLDER APPROVAL") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the Merger.
2.24 BROKERS' AND FINDERS' FEES. Except as described in Section 2.24 of
the Company Disclosure Letter, the Company has not incurred any brokers',
finders', investment bankers' or any similar fee in connection with the Offer or
the Merger. Prior to the date of this Agreement, the Company has made available
to the Parent correct and complete copies of all agreements under which any such
fees are payable and all indemnification and other agreements related to the
engagement of the Persons to whom such fees are payable.
2.25 FAIRNESS OPINION. The Company has received the written opinion of
Sheldrick, McGehee & Kohler, Inc. to the effect that, as of the date of this
Agreement, based upon and subject to the assumptions and limitations set forth
in such opinion, the cash consideration to be received in the Offer and the
Merger by the Company's stockholders (other than Parent and its Affiliates) is
fair from a financial point of view to such stockholders.
2.26 INTERESTS OF OFFICERS AND DIRECTORS. None of the officers or
directors of the Company or any of its Subsidiaries has any material interest in
any property, real or personal, tangible or intangible, used in or pertaining to
the business of the Company or any of its Subsidiaries, except for the normal
rights of a stockholder and rights under the Company Benefit Plans and the
Company Stock Options.
2.27 ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries, has used any corporate or
other funds for unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in violation of Section 30A of the Exchange Act. Neither the Company nor
any of its Subsidiaries nor, to the Company's Knowledge, any current director,
officer, agent, employee or other Person acting on behalf of the Company or any
of its Subsidiaries, has accepted or received any unlawful contributions,
payments, gifts or expenditures.
2.28 ANTI-DUMPING NOTIFICATION. The Company received notification (the
"ANTI-DUMPING NOTIFICATION") dated November 26, 2004 from the United States
Customs and Border Protection that the Company would receive, within fifteen
(15) days of the notice, a check in the amount of $1,113,853.28 in satisfaction
of its "Continued Dumping and Subsidiary Offset Claim." The Company has received
no notice that amends, modifies or supersedes the Anti-Dumping Notification.
ARTICLE III.
REPRESENTATION AND WARRANTIES OF PARENT AND MERGER SUB
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The Parent and the Merger Sub jointly and severally represent and warrant
to the Company as follows:
3.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Parent and
the Merger Sub is a corporation or other entity duly organized, validly existing
and in good standing under the Laws of its jurisdiction of organization. Each of
the Parent and Merger Sub is qualified to do business as a foreign corporation
or other entity and is in good standing in the jurisdictions in which the
ownership, leasing, or operation of its property or the conduct of its business
requires its qualification as a foreign corporation or other entity, and has all
requisite corporate or other entity power and authority to carry on its business
as now being conducted, except where the failure to be so qualified and in good
standing or to have such power and authority would not reasonably be expected to
impair the ability of the Parent or Merger Sub to perform its obligations under
this Agreement.
3.2 AUTHORIZATION; ENFORCEABILITY. The execution and delivery of this
Agreement by each of the Parent and the Merger Sub and the performance of this
Agreement and consummation of the Offer and the Merger by each of Parent and
Merger Sub are within the respective corporate or other entity power and
authority of each of Parent and Merger Sub, and have been duly authorized by all
necessary entity action on the part of the Parent and Merger Sub. This Agreement
has been duly executed and delivered by each of the Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes the legal, valid and binding obligation of each of the Parent and
Merger Sub, enforceable against each of them in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect generally
affecting the rights of creditors and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 NO VIOLATION OR CONFLICT. The execution and delivery of this
Agreement by each of the Parent and Merger Sub does not, and the performance of
this Agreement and consummation of the Offer and the Merger by each of the
Parent and Merger Sub will not: (i) result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation under or to the loss
of a material benefit under, or to the increase of obligations under any
Contract of the Parent or Merger Sub, or result in the creation of any Lien upon
any of the properties or assets of the Parent or Merger Sub, (ii) result in any
violation of any provision of the certificate of incorporation or the bylaws or
similar organizational documents of the Parent or Merger Sub, (iii) violate any
Existing Permits of the Parent or Merger Sub or any Law applicable to the Parent
or the Merger Sub, other than, in the case of clauses (i) and (iii), any such
violations, defaults, rights, losses or Liens that, individually and in the
aggregate, would not (y) significantly impair the ability of the Parent or the
Merger Sub to perform its obligations under this Agreement or (z) prevent or
materially delay the consummation of the Offer or the Merger.
3.4 GOVERNMENTAL APPROVALS. The execution and delivery of this Agreement
by each of the Parent and Merger Sub do not, and the performance of this
Agreement and consummation of the Offer and the Merger by each of the Parent and
Merger Sub will not, require any consent of, or filing with or notification to,
any Governmental Entity, except for (i) applicable requirements, if any, of the
Exchange Act, the Securities Act and state securities or
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"blue sky" Laws, (ii) filing of a certificate of merger as required by the DGCL
and appropriate documents with the relevant authorities of other states in which
the Parent is qualified to do business, and (iii) where failure to obtain such
consents or make such filings or notifications is not reasonably likely to (y)
impair the ability of the Parent or Merger Sub to perform its obligations under
this Agreement, or (z) prevent or materially delay the consummation of the Offer
or the Merger.
3.5 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Parent or Merger Sub for inclusion or incorporation by reference
in the Schedule 14D-9 (including, without limitation, all information required
by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder) will, at the
time it is filed with the SEC or, if shares of Company Common Stock are accepted
for purchase pursuant to the Offer, on the date that the Offer expires, or at
the time of any amendment or supplement thereof, in each case, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by the Parent or Merger Sub for inclusion
or incorporation by reference in the Proxy Statement will, at the time it is
filed with the SEC, at the time it is mailed to the Company's stockholders, at
the time of the Special Meeting, or at the time of any amendment or supplement
thereof, in each case, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.6 INFORMATION IN THE OFFER DOCUMENTS. The Offer Documents will comply
as to form in all material respects with the provisions of applicable federal
securities Laws and, on the date filed with the SEC, on the date first published
or sent or given to the Company's stockholders, and, if shares of Company Common
Stock are accepted for purchase pursuant to the Offer, on the date that the
Offer expires, and at the time of any amendment or supplement of the Offer
Documents, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by Parent or Merger
Sub with respect to information furnished by the Company expressly for inclusion
in the Offer Documents.
3.7 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. As of the date of this
Agreement and prior to consummation of the Offer, none of Parent or Merger Sub
or any of their respective Affiliates or Associates (i) owns or will own of
record or beneficially, directly or indirectly (within the meaning of the
general rules and regulations promulgated under the Exchange Act), or (ii) is a
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in the case of either clause (i) or
(ii), shares of capital stock of the Company which exceed two percent (2%) of
the Company Common Stock, other than shares to be sold to Merger Sub pursuant to
the Stock Purchase Agreement.
3.8 INTERESTED STOCKHOLDER. Immediately prior to the time of the actions
of the Company's board of directors described in Section 2.2(c) and at all times
during the preceding three years, neither the Parent nor Merger Sub (nor any of
their Affiliates or
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Associates, as those terms are defined in Section 203 of the DGCL) is or has
been an Interested Stockholder of the Company (within the meaning of Section 203
of the DGCL). No other state takeover, anti-takeover, moratorium, fair price,
interested stockholder, business combination or similar statute or rule is
applicable to this Agreement, the Offer, or the Merger other than those that may
be made applicable solely by reason of the Company's or any of its Subsidiaries'
(as opposed to Parent's or Merger Sub's or any of their Affiliates')
participation in the Offer or the Merger.
3.9 LEGAL PROCEEDINGS. There are no Legal Proceedings pending or, to the
knowledge of the Parent or Merger Sub, threatened against or affecting the
Parent or any of its Subsidiaries that, individually or in the aggregate, would,
if decided adversely to the Parent or its Subsidiaries, significantly impair the
ability of Parent or Merger Sub to perform its obligations under this Agreement
or materially adversely affect or prevent or materially delay consummation of
the Offer or the Merger, nor is there any judgment, settlement, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Parent or any of its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to significantly impair the ability of
Parent or Merger Sub to perform its obligations under this Agreement or
materially adversely affect or prevent or materially delay consummation of the
Offer or the Merger.
3.10 LIMITED OPERATIONS OF MERGER SUB. Merger Sub was formed in 2004
solely for the purpose of engaging in the Offer and the Merger. Merger Sub has
not engaged in any other business activities. Except for (i) obligations or
liabilities incurred in connection with its organization, the Offer, and the
Merger and (ii) this Agreement and any other agreements and arrangements
contemplated hereby or entered into in furtherance hereof, Merger Sub has not
incurred any material obligations or liabilities or engaged in any business
activities.
ARTICLE IV.
COVENANTS
4.1 CONDUCT OF BUSINESS BY COMPANY. Except as otherwise expressly
contemplated by this Agreement or as consented to in writing by the Parent,
during the period from the date of this Agreement to the earliest of (a) the
termination of this Agreement in accordance with Article VI, (b) the time that
Merger Sub's designees are elected or appointed to the Company's Board of
Directors pursuant to Section 1.2(c), or (c) the Effective Time, the Company
shall, and shall cause its Subsidiaries to, carry on their respective businesses
only in the ordinary course consistent with past practice and in compliance in
all material respects with all applicable Laws and regulations and, to the
extent consistent therewith, use commercially reasonable efforts to preserve
intact their current business organizations, use commercially reasonable efforts
to keep available the services of their current officers and other key employees
and preserve their relationships with those Persons having business dealings
with them. Without limiting the generality of the foregoing (but subject to the
above exceptions), during the period from the date of this Agreement to the
earlier of (a) the termination of this Agreement in accordance with Article VI
or (b) the Effective Time, the Company shall not, and shall not permit any of
its Subsidiaries to:
(a) other than dividends and distributions (including liquidating
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distributions) by a direct or indirect wholly-owned Subsidiary of the Company to
its parent, (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock, property or otherwise) in respect of, any
of its capital stock, (ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iii) purchase,
redeem or otherwise acquire, directly or indirectly, for value any shares of
capital stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(b) issue, deliver, sell, pledge or otherwise encumber or subject
to any Lien (i) any shares of its capital stock, (ii) any other voting
securities, (iii) any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or (iv) any "phantom" stock or stock rights, SARs or stock-based performance
units, other than the issuance of shares of Company Common Stock and associated
rights upon the exercise of Company Stock Options outstanding as of the date
hereof in accordance with their present terms;
(c) amend its certificate of incorporation, bylaws or other
comparable organizational documents;
(d) merge or consolidate with another Person, acquire, license or
agree to acquire or license any business, division or Person or any equity or
debt interest therein, acquire, license or agree to acquire or license any
assets, other than immaterial assets or assets acquired in the ordinary course
of business consistent with past practice, or enter into any joint venture,
partnership or similar arrangement;
(e) sell, lease, license out, sell and leaseback, mortgage or
otherwise encumber or subject to any Lien (other than any Lien imposed by Law,
such as a carriers', warehousemen's or mechanics' Lien) or otherwise dispose of
any of its properties or assets having a value of $200,000 or more, other than
sales or non-exclusive licenses out of finished goods or services in the
ordinary course of business consistent with past practice;
(f) repurchase or incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person other than in the ordinary
course of business consistent with past practice, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Company or any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other Contract to maintain any financial
statement condition of another Person or enter into any Contract having the
economic effect of any of the foregoing, other than intercompany indebtedness
between the Company and any of its direct or indirect wholly-owned Subsidiaries
or between such Subsidiaries; provided, however, that upon notice to, and
consultation with, Parent, the Company and its Subsidiaries shall be permitted
to continue, renew, or extend for a period of no more than three (3) years any
existing revolving lines of credit on terms no less favorable in the aggregate
to the Company than currently exist;
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(g) make any loans, advances or capital contributions to, or
investments in, any other Person, other than the Company or any direct or
indirect wholly-owned Subsidiary of the Company and except for investments in
publicly traded securities or other investments in the ordinary course of the
Company's cash management or benefit plan management systems;
(h) make or agree to make any new capital expenditures, or enter
into any Contract providing for payments by the Company or any of its
Subsidiaries which, individually, are in excess of $100,000 or, in the
aggregate, are in excess of $200,000, except for Contracts to purchase inventory
or supplies entered into in the ordinary course of business or renewals or
extensions of existing Contracts relating to capital projects already in
progress as of the date of this Agreement, which existing projects are
identified in Section 4.1(h) of the Company Disclosure Letter;
(i) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) or Legal Proceeding (whether or not commenced prior to
the date of this Agreement), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities recognized or disclosed in the
most recent consolidated financial statements (or the notes thereto) of the
Company included in Company SEC Documents or incurred in the ordinary course of
business since the date of such financial statements;
(j) except as required in order to comply with Law, (i) establish,
enter into, adopt, amend or terminate any Company Benefit Plan or Company Stock
Plan, (ii) change any actuarial or other assumption used to calculate funding
obligations with respect to any Company Pension Plan, or change the manner in
which contributions to any Company Pension Plan are made or the basis on which
such contributions are determined, or (iii) take any action to accelerate any
rights or benefits, or make any material determinations not in the ordinary
course of business consistent with past practice, under any collective
bargaining agreement or Company Benefit Plan, except in each case to the extent
required to comply with any changes in the Laws applicable to any such Company
Benefit Plan or Company Stock Plan;
(k) other than in the ordinary course of business consistent with
past practice (except with respect to directors and officers whose compensation
may not be increased), (i) increase the compensation, bonus or other benefits of
any current or former director, consultant or employee, (ii) grant any Person
any increase in severance or termination pay, or (iii) pay any benefit or amount
not required by an agreement, plan, or arrangement as in effect on the date of
this Agreement to any such Person;
(l) transfer or license to any Person or otherwise extend, amend
or modify or allow to revert, lapse or expire any material rights to the
Intellectual Property Rights of the Company and its Subsidiaries, other than in
the ordinary course of business consistent with past practice;
(m) increase the number of full-time, permanent employees of the
Company or any of its Subsidiaries other than as a result of hiring permanent
employees for
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annual salaries of less than $100,000 in the ordinary course of business
consistent with past practice;
(n) except insofar as may be required by a change in GAAP or
regulatory requirements, make any material changes in accounting methods,
principles or practices;
(o) authorize, or commit, resolve or agree to take, any of
the foregoing actions.
4.2 ADVISE OF CHANGES. The Company shall promptly advise the Parent
orally and in writing to the extent it has Knowledge of (i) any representation
or warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, and (iii) any change or
event that would have a Material Adverse Effect on the Company or the ability of
the conditions in Article V of this Agreement to be satisfied, but no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
4.3 NO SOLICITATION BY THE COMPANY.
(a) The Company shall not, nor shall any of its
Subsidiaries, or their directors, officers, employees, investment bankers,
accountants, attorneys or other professional advisors (collectively, the
"REPRESENTATIVES") (i) solicit, initiate, or knowingly encourage (including by
way of furnishing nonpublic information) any Acquisition Proposal, (ii) enter
into, continue, or otherwise participate in any discussions or negotiations
regarding, or furnish to any Person any nonpublic information with respect to,
any Acquisition Proposal, or (iii) enter into any agreement providing for an
Acquisition Proposal; provided, however, that neither this Section 4.3(a) nor
any other provision contained in this Agreement shall prohibit the Company, its
Subsidiaries, or their respective Representatives from furnishing information
regarding the Company to, or entering into discussions or negotiations with, any
Person in response to an Acquisition Proposal that the Company's board of
directors (or a committee thereof) determines in good faith, after consultation
with outside legal counsel, reasonably could be expected to lead to a Superior
Proposal if (1) none of the Company, its Subsidiaries, or any of their
Representatives shall have violated any of the restrictions set forth in this
Section 4.3(a) in a manner that resulted in the submission of such Acquisition
Proposal; (2) the board of directors of the Company (or a committee thereof)
determines in good faith, after consultation with outside legal counsel, that
failure to take such action is likely to constitute a breach of the fiduciary
duties of the board of directors of the Company under applicable Law; and (3)
the Company receives from such Person an executed confidentiality agreement (the
provisions of which are no less restrictive than the comparable provisions, and
do not omit any restrictive provisions, contained in the confidentiality
agreement between the Parent and the Company (the "CONFIDENTIALITY AGREEMENT")).
The Company shall notify Parent promptly (and at least 24 hours prior to
furnishing nonpublic information to, or entering into discussions or
negotiations
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with, any Person who has made or submitted an Acquisition Proposal) of the
Company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, any Person who has made or submitted an
Acquisition Proposal.
For purposes of this Agreement, "ACQUISITION PROPOSAL" means any inquiry,
proposal, or offer from any third party relating to (i) any direct or indirect
acquisition or purchase of substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, or a majority of the equity securities of
the Company, (ii) any tender offer or exchange offer that if consummated would
result in any Person beneficially owning more than 50% of the Company's common
stock, or (iii) any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution, or similar transaction involving the
Company, other than the Offer and the Merger.
For purposes of this Agreement, "SUPERIOR PROPOSAL" means any offer made by a
third party to consummate an Acquisition Proposal on terms that the board of
directors of the Company (or a committee thereof) determines in good faith,
after consultation with outside legal counsel, to be more favorable to the
Company's stockholders than the Offer and the Merger (as the terms of the Offer
or the Merger may be amended in accordance with this Agreement) after
consideration of any factors permitted to be considered in such circumstances
under Delaware law, including without limitation, any condition for obtaining
financing and all financial, regulatory, legal and other aspects of such
proposal.
(b) The Company shall promptly (and in no event later than
two Business Days after receipt of any Acquisition Proposal or any request for
nonpublic information in connection with any Acquisition Proposal) advise Parent
in writing of any Acquisition Proposal or any request for nonpublic information
in connection with any Acquisition Proposal (including the identity of the
Person making or submitting such Acquisition Proposal or request, and the
principal terms of any such Acquisition Proposal) that is made or submitted by
any Person (other than Parent and its Affiliates) at any time prior to
consummation of the Merger.
(c) Nothing in this Section 4.3 or elsewhere in this
Agreement shall prohibit the Company or its board of directors from taking and
disclosing to its stockholders a position contemplated by Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders required by applicable Law, or from making any disclosure
to the Company's stockholders if, in the good faith judgment of the Company's
board of directors (or a committee thereof), after consultation with outside
legal counsel, failure to make such other disclosure could create a reasonable
possibility of a breach of the Company's or board's obligations (including,
without limitation, any fiduciary obligations) under applicable Law.
(d) Notwithstanding anything to the contrary in this Section
4.3, the fact that the Company, any of its Subsidiaries, or any of their
Representatives have had discussions or negotiations with Persons prior to the
date of this Agreement regarding a possible Acquisition Proposal shall not
prevent the Company from taking any of the actions specified in the proviso to
the first sentence of Section 4.3(a) with respect to a new Acquisition Proposal
submitted by any such Person after the date of this Agreement, that was not
solicited in violation
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of this Section 4.3.
(e) The board of directors of the Company may withdraw,
amend, or modify the Company Recommendation if, in the good faith judgment of
the Company's board of directors (or a committee thereof), after consultation
with outside legal counsel, failure to do so would likely constitute a breach of
the board's fiduciary obligations under applicable Law.
4.4 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
Confidentiality Agreement, upon reasonable notice, the Company shall, and shall
cause each of its Subsidiaries to, afford to the Parent and to its
Representatives, reasonable access during normal business hours during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, managerial personnel and records and, during such period, the
Company shall, and shall cause each of its Subsidiaries to, promptly furnish or
make available to the Parent (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities Laws and (b) all other information
concerning its business, properties and personnel as the Parent may reasonably
request. The Company shall authorize its attorneys to cooperate with Parent and
respond to Parent's inquiries regarding legal matters affecting the Company.
Notwithstanding anything in this Section 4.4 to the contrary, the Company and
its attorneys shall not be required to (i) provide access to or disclose
information where such access or disclosure would contravene any law, rule,
regulation, order, decree or agreement, or (ii) take any action or disclose any
information that would be likely to result in a waiver of any applicable
privilege or immunity.
4.5 FILINGS AND CONSENTS; REASONABLE BEST EFFORTS.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner reasonably practicable, the Offer and the Merger, including using
reasonable best efforts to accomplish the following: (i) the taking of all
reasonable acts necessary to cause the conditions to the Offer and the Closing
to be satisfied as promptly as practicable including, without limitation, (A)
any other filing necessary to obtain any consent of a Governmental Entity
necessary to consummate the Offer or the Merger, (B) any filings under any other
comparable pre-merger notification forms required by the merger notification or
control Laws of any applicable jurisdiction, as agreed by the parties hereto,
and (C) any filings required under the Securities Act of 1933, as amended, the
Exchange Act, any applicable state or securities or "blue sky" Laws and the
securities Laws of any foreign country, or any other legal requirement relating
to the Offer or the Merger; (ii) the obtaining of all actions or nonactions,
waivers, consents and approvals from Governmental Entities necessary to
consummate the Offer or the Merger and the making of all necessary registrations
and filings (including filings with Governmental Entities, if any) and the
taking of all steps as may be necessary to obtain an approval or waiver from, or
to avoid an action or proceeding by, any Governmental Entity; (iii) the
obtaining of all consents, approvals or waivers from third parties necessary to
consummate the Offer or the Merger (excluding any waiver or consent from the
Company's lenders); (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the Offer or the Merger, including seeking
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to prevent the entry of any judgment, order, or decree of any court or other
Governmental Entity or other legal restraint or prohibition, in each case,
preventing or staying consummation of the Offer or the Merger, and to appeal, or
otherwise seek to have vacated or reversed, as promptly as practicable any such
judgment, order, decree, restraint, or prohibition that may be entered; and (v)
the execution and delivery of any additional instruments necessary to consummate
the Merger and to fully carry out the purposes of this Agreement, but the Parent
will not be required to agree to, or offer to, cease to conduct business or
operations in any jurisdiction in which the Parent, the Company or any of their
respective Subsidiaries conducts business or operations as of the date of this
Agreement.
(b) Each of the Parent, Merger Sub and the Company shall
notify the other promptly upon the receipt of (i) any comments from any
officials of any Governmental Entity in connection with any filings made
pursuant hereto and (ii) any request by any officials of any Governmental Entity
for amendments or supplements to any filings made pursuant to, or information
provided to comply in all material respects with, any legal requirements.
Whenever any event occurs that is required to be set forth in an amendment or
supplement to any filing made pursuant to Section 4.5(a), the Parent, Merger Sub
or the Company, as the case may be, shall promptly inform the other of such
occurrence and cooperate in filing with the applicable Governmental Entity such
amendment or supplement.
(c) In connection with and without limiting the foregoing,
the Company and its board of directors shall (i) take all action reasonably
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Offer, the Merger or this Agreement
(other than those that may be made applicable solely by reason of Parent's or
Merger Sub's (as opposed to the Company's or its Subsidiaries') participation in
the Offer or the Merger) and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to the Offer, the Merger or this
Agreement (other than those that may be made applicable solely by reason of
Parent's or Merger Sub's (as opposed to the Company's or its Subsidiaries')
participation in the Offer or the Merger), take all action reasonably necessary
to ensure that the Offer and the Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer and the Merger.
(d) Nothing in this Agreement shall require the Company, the
Parent or Merger Sub to commence any litigation in order to prevent (or remove)
the entry of any Restraint under antitrust or similar Laws.
4.6 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) From the Effective Time through the sixth anniversary of
the date on which the Effective Time occurs, Parent and the Surviving
Corporation shall jointly and severally indemnify and hold harmless each person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, a director or officer of the Company or any of its
Subsidiaries (the "COVERED PERSONS"), against all claims, losses, liabilities,
damages, judgments, fines, and reasonable fees, costs, and expenses, including
reasonable attorneys' fees and disbursements (collectively, "COSTS"), incurred
in connection with any claim, action, suit, proceeding, or investigation,
whether civil, criminal, administrative or investigative
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(a "PROCEEDING"), arising out of or pertaining to the fact that the Covered
Person is or was an officer, director, employee or agent of the Company or any
of its Subsidiaries, to the fullest extent permitted under applicable Law. Each
Covered Person shall be entitled to advancement from the Surviving Corporation
of reasonable expenses (including attorneys' fees and disbursements) incurred in
the defense of any Proceeding arising out of or pertaining to the fact that the
Covered Person is or was an officer, director, employee or agent of the Company
or any of its Subsidiaries, such advancement to be made within twenty days of
receipt by the Surviving Corporation from the Covered Person of a request
therefor, provided, that any Covered Person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Covered Person is not entitled to indemnification. Alternatively, the
Surviving Corporation may provide the defense of any such claim with counsel
reasonably acceptable to the Covered Person; provided, however, that if in the
opinion of such Covered Person's attorney (who is licensed to practice in the
jurisdiction where the proceeding is pending) there exists a conflict of
interest between the Surviving Corporation and such Covered Person, such Covered
Person shall have the right to engage separate counsel, the reasonable expenses
(including attorneys' fees and disbursements) of which shall be paid by the
Surviving Corporation or, if not paid by the Surviving Corporation, by the
Company's insurance carrier contemplated by Section 4.6(d). The Covered Person
shall cooperate with the Surviving Corporation, at the Surviving Corporation's
expense, in connection with the defense of any Proceeding.
(b) All rights to indemnification and advancement of
expenses and exculpation from liabilities for acts or omissions occurring at or
prior to the Effective Time existing in favor of any Covered Person as provided
in the respective certificate of incorporation or bylaws (or comparable
organizational documents) of the Company and its Subsidiaries and any
indemnification agreements of the Company (as each is in effect prior to the
date of this Agreement), shall survive the Merger and shall continue in full
force and effect in accordance with their terms. The certificate of
incorporation and bylaws of the Surviving Corporation will contain provisions
with respect to such indemnification, advancement of expenses, and elimination
of liability for monetary damages at least as favorable in all material respects
to the Covered Persons as those set forth in the current certificate of
incorporation and bylaws of the Company, and for a period of six (6) years after
the Effective Time, any repeal, amendment or modification of the certificate of
incorporation or bylaws of the Surviving Corporation shall not adversely affect
the rights thereunder of the Covered Persons, except to the extent, if any, that
such modification is required by applicable law.
(c) If the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any Person or Persons, or otherwise dissolves or liquidates, then, and in
each such case, the Parent and the Surviving Corporation shall cause proper
provision to be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this Section 4.6.
(d) Following the Effective Time, the Surviving Corporation
shall maintain, at no expense to the Covered Persons, directors' and officers'
liability insurance
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coverage for the Covered Persons for six (6) years following the Effective Time
with respect to claims arising from or related to facts or events that occurred
at or before the Effective Time, which insurance coverage shall provide them
with the same coverage and amounts and shall contain terms and conditions that
are in the aggregate no less advantageous to the Covered Persons than those in
effect on the date hereof, so long as the annual premium therefor shall not be
in excess of two hundred percent (200%) of the annual premiums currently paid by
the Company in respect of the current policy or policies (the "MAXIMUM
PREMIUM"). If such directors' and officers' liability insurance coverage
expires, is terminated or is canceled during such six (6) year period or should
the annual premium required to maintain such insurance exceed the Maximum
Premium, the Surviving Corporation shall obtain and maintain, and the Parent
shall cause the Surviving Corporation to obtain and maintain, at no expense to
the Covered Persons, as much directors' and officers' insurance coverage as can
be obtained and maintained for the remainder of such period for an annualized
premium not in excess of the Maximum Premium, on terms and conditions no less
advantageous to the Covered Persons than the terms and conditions of the
coverage in effect on the date hereof. Notwithstanding anything in this
subsection (d) to the contrary, in lieu of maintaining liability insurance
coverage pursuant to this subsection (d), Merger Sub or the Surviving
Corporation may obtain, at no expense to the Covered Persons, a "tail" policy
for the Covered Persons that provides the same coverage and amounts and contains
terms and conditions that are in the aggregate no less advantageous to the
Covered Persons than those in effect on the date hereof with respect to claims
arising from or related to facts or events that occurred at or before the
Effective Time and that is effective for claims asserted during the full
six-year period referred to above.
(e) Notwithstanding anything herein to the contrary, if any
claim is asserted or any Proceeding is initiated or commenced against or
involving a Covered Person on or prior to the sixth anniversary of the Effective
Time (whether such claim or Proceeding is asserted, initiated, or commenced
prior to, at or after the Effective Time), the provisions of this Section 4.6
shall continue in effect until final disposition of such claim or Proceeding.
(f) The provisions of this Section 4.6 are intended to be
for the benefit of, and will be enforceable by, each Covered Person, his or her
heirs and his or her representatives and are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such Covered Person may have by contract or otherwise.
4.7 PUBLIC ANNOUNCEMENTS. The Parent and the Company will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Agreement, the Offer, the Stock Purchase Agreement or the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as either party may determine, upon advice of counsel, is
required by applicable Law, the SEC, court process or by obligations pursuant to
any listing or quotation agreement with any national securities exchange or
national trading system. The parties agree that the initial press release to be
issued with respect to the Agreement, the Offer, the Stock Purchase Agreement,
and the Merger shall be a joint press release in the form attached hereto as
Exhibit 4.7. This Section 4.7 supercedes any contradictory provision that may be
included in the Confidentiality Agreement, and no disclosure made by any of the
parties in accordance with this Section 4.7 shall be construed as being in
violation of the Confidentiality Agreement.
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4.8 RIGHTS AGREEMENT. The board of directors of the Company shall take
all action necessary in order to prevent any Right (as defined in the Rights
Agreement) issued or issuable under the Rights Agreement from becoming
exercisable by virtue of this Agreement, the Offer, or the Merger, or the
combined effect of the foregoing, while this Agreement remains in effect or upon
its consummation.
4.9 DEPOSIT. Immediately upon execution of this Agreement, the Parent
shall deposit with Wachovia Bank, National Association, as escrow agent,
pursuant to an escrow agreement substantially in the form attached hereto as
Exhibit 4.9 (the "ESCROW AGREEMENT"), the amount of $800,000 in cash (the
"DEPOSIT"). In accordance with the Escrow Agreement, the Deposit shall be
returned to the Parent within three (3) Business Days of termination of this
Agreement pursuant to Section 6.1 of this Agreement, unless payable to the
Company pursuant to Section 6.4(b) of this Agreement. At the time the Offer
expires, upon the written request of Parent, the Deposit may be delivered to the
Paying Agent for the purpose of purchasing shares of Company Common Stock in the
Offer.
4.10 AUDITED FINANCIAL STATEMENTS. No later than the time the Company
files with the SEC its Form 10-K for the year ended September 30, 2004, the
Company shall deliver to Parent its financial statements for the fiscal year
ended September 30, 2004 together with the unqualified audit report of
PricewaterhouseCoopers. The Company's consolidated audited financial statements
for the year ended September 30, 2004 included in the Company's Form 10-K will
report net income and EBITDA (excluding (i) expenses related to the Transactions
contemplated by this Agreement and other efforts to achieve a sale of the
Company and (ii) costs associated with the claims giving rise to the
Anti-Dumping Notification) for the year ended September 30, 2004 of no less than
$1,050,000 and $8,500,000.00, respectively.
4.11 STOP TRANSFER INSTRUCTIONS. As soon as practicable after the date
hereof and as long as the Stock Purchase Agreement shall remain in effect, the
Company shall issue and deliver to the Company's transfer agent, stop transfer
instructions prohibiting the transfer of any shares of Company Common Stock to
be sold to Merger Sub pursuant to Section 1.01 of the Stock Purchase Agreement.
4.12 TRANSFER OF MEXICAN SUBSIDIARIES. At or before expiration of the
Offer, the Company shall cause Gino Pala to transfer to Massimo Candela each
share of each of the Company's Mexican Subsidiaries identified in Section 2.3 of
the Company Disclosure Letter.
4.13 OFFICER CERTIFICATION. If the conditions referred to in clauses (b),
(c), (d), and (e) of Section (ii) of Annex I are satisfied as of the Expiration
Date, the Company shall cause its chief executive officer and chief financial
officer to certify on behalf of the Company that, as of the Expiration Date, the
conditions referred to in clauses (b), (c), (d), and (e) of Section (ii) of
Annex I have been satisfied. If any of the conditions referred to in clauses
(b), (c), (d), or (e) of Section (ii) of Annex I is not satisfied as of the
Expiration Date, then the Company shall deliver to Parent a written notice
specifying which of those conditions has not been satisfied.
ARTICLE V.
CONDITIONS PRECEDENT TO THE MERGER
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5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO CONSUMMATE THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions (in addition to any other conditions set forth herein):
(a) The Company Stockholder Approval, if required for
consummation of the Merger, shall have been obtained, unless Merger Sub shall
have accepted for payment pursuant to the Offer such number of shares of Company
Common Stock which, when aggregated with the shares of Company Common stock
otherwise beneficially owned by Parent and its Affiliates, represents at least
90 percent of the outstanding shares of Company Common Stock.
(b) No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by any
court or other Governmental Entity of competent jurisdiction or other legal
restraint or prohibition (collectively, "RESTRAINTS") shall be in effect
preventing the consummation of the Merger.
(c) Merger Sub shall have purchased, or caused to be
purchased, all Company Common Stock validly tendered and not withdrawn pursuant
to the Offer.
(d) The filing of the Certificate of Merger with the
Secretary of State of the State of Delaware shall have been made and shall have
become effective.
(e) If the Stockholders' Written Consent has been delivered
to the Company, then more than twenty (20) calendar days shall have elapsed
since the date that the Company sent or gave the Schedule 14C Information
Statement to its stockholders such that Rule 14c-2 promulgated under the
Exchange Act is satisfied in all respects.
ARTICLE VI.
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time, notwithstanding the requisite adoption of this Agreement by the Company's
stockholders:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if (1) as a result of the
failure of any conditions set forth in Annex I, the Offer shall have terminated
or expired in accordance with its terms without Merger Sub having purchased
shares of Company Common Stock pursuant to the Offer or (2) the Offer shall not
have been consummated on or before the Outside Date; provided, however, that the
right to terminate this Agreement under this Section 6.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the circumstances specified in
clause (1) or (2), as the case may be, of this Section 6.1(b);
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(c) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Entity shall have issued a final and
nonappealable order, judgment, decree or ruling, or shall have taken any other
action, having the effect of permanently restraining, enjoining or otherwise
prohibiting the Offer or the Merger;
(d) by either Parent or the Company, at any time prior to
consummation of the Offer, if the board of directors of the Company shall have
authorized the Company to enter into a written agreement for a transaction that
constitutes a Superior Proposal, and the Company shall have notified Parent in
writing that it intends to enter into such an agreement;
(e) by the Parent, at any time prior to consummation of the
Offer, if the board of directors of the Company or any committee thereof,
pursuant to Section 4.3(e) of this Agreement or otherwise, shall have withdrawn,
amended or modified, or resolved to withdraw, amend or modify, in a manner
adverse to the Parent, the Company Recommendation;
(f) by the Parent, at any time prior to consummation of the
Offer, if (i) any representation or warranty of the Company contained in the
Agreement that is qualified as to materiality shall not be true and complete in
all respects, or any representation or warranty of the Company contained in the
Agreement that is not so qualified shall not be true and complete in all
material respects, in each case as of the date of the Agreement and at any time
through the time the Offer expires (provided that, to the extent any such
representation or warranty speaks as of a specified date, it need be true and
complete only as of such specified date) and such breach is incapable of being
or has not been cured by the Company, in all material respects, by the earlier
of 20 calendar days after Parent has given written notice to the Company of such
breach or the Outside Date and such breach would cause the conditions set forth
in clause (d) of Section (ii) of Annex I not to be satisfied, or (ii) the
Company shall have breached or failed to perform in any material respect any of
its covenants or other agreements contained in this Agreement and such breach or
failure to perform is incapable of being or has not been cured by the Company,
in all material respects, by the earlier of 20 calendar days after Parent has
given written notice to the Company of such breach or failure to perform or the
Outside Date and such breach or failure to perform would cause the conditions
set forth in clause (e) of Section (ii) of Annex I not to be satisfied; provided
that neither Parent nor Merger Sub is then in material breach of any of its
representations, warranties, covenants or other agreements in this Agreement;
(g) by the Company, at any time prior to consummation of the
Offer, if (i) any representation or warranty of the Parent or Merger Sub
contained in the Agreement that is qualified as to materiality shall not be true
and complete in all respects, or any representation or warranty of the Parent or
Merger Sub contained in the Agreement that is not so qualified shall not be true
and complete in all material respects, in each case as of the date of the
Agreement and at any time through the time the Offer expires (provided that, to
the extent any such representation or warranty speaks as of a specified date, it
need be true and complete only as of such specified date) and such breach is
incapable of being or has not been cured by the Parent or Merger Sub, in all
material respects, by the earlier of 20 calendar days after the Company has
given written notice to the Parent of such breach or the Outside Date, or (ii)
the Parent or Merger Sub shall have breached or failed to perform in any
material respect any of its covenants or other
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agreements contained in this Agreement and such breach or failure to perform is
incapable of being or has not been cured by the Parent or Merger Sub, in all
material respects, by the earlier of 20 calendar days after the Company has
given written notice to the Parent of such breach or failure to perform or the
Outside Date; provided that the Company is not then in material breach of any of
its representations, warranties, covenants or other agreements in this
Agreement; and
(h) by the Company, if, without the Company's consent, Merger Sub
fails to commence the Offer as provided in Section 1.1 of this Agreement or if
Parent or Merger Sub makes any material changes to the Offer in contravention of
this Agreement; provided that any changes that are adverse to the holders of
Company Common Stock shall be deemed material for purposes of this subsection
(h).
6.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 6.1, this Agreement shall be of no further
force or effect, and no party hereto (and no stockholder, director, officer,
agent, consultant, or representative of such party) shall have any further
obligation or liability pursuant hereto; provided, however, that the
Confidentiality Agreement, Section 4.7 (Public Announcements), this Section 6.2,
Section 6.4 (Expenses; Termination Fees), and Article VII (General Provisions)
shall survive the termination of this Agreement and shall remain in full force
and effect.
6.3 PROCEDURE FOR TERMINATION. If a party has a right to terminate this
Agreement under Section 6.1, it may exercise that right only by delivering
written notice of such termination to the other parties, stating the subsection
or subsections of Section 6.1 that provide the basis for such termination.
6.4 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 6.4, all fees and expenses
incurred in connection with this Agreement, the Offer and the Merger shall be
paid by the party incurring such expenses, whether or not the Offer and the
Merger are consummated.
(b) In the event the Agreement is validly terminated pursuant to
Section 6.1(g) or Section 6.1(h), the Company shall be entitled to retain the
Deposit as a non-refundable termination fee, and Parent shall reimburse the
Company for all reasonable and documented out-of-pocket expenses incurred by the
Company since September 1, 2004 in connection with this Agreement, the Offer and
the Merger in an aggregate amount not to exceed $750,000, which expenses shall
be reimbursed by Parent within three Business Days after the Company provides to
Parent a notice requesting reimbursement of expenses under this Section 6.4(b),
together with reasonable documentation of such expenses.
(c) In the event the Agreement is validly terminated pursuant to
Section 6.1(d) or Section 6.1(f) (and, with respect to termination pursuant to
Section 6.1(f), the Company's breach of any of its representations, warranties,
covenants or other agreements contained in this Agreement that creates such
right of termination under Section 6.1(f) shall give rise to a Material Adverse
Effect), the Company shall pay to Parent, within three Business Days of the
notice of termination, a non-refundable termination fee of $800,000 and shall
reimburse Parent for all reasonable and documented out-of-pocket expenses
incurred by Parent after September 1, 2004
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in connection with this Agreement, the Offer and the Merger in an aggregate
amount not to exceed $750,000, which expenses shall be reimbursed by the Company
within three Business Days after Parent provides to the Company a notice
requesting reimbursement of expenses under this Section 6.4(c), together with
reasonable documentation of such expenses. In the event the Agreement is validly
terminated pursuant to Section 6.1(f) and the Company's breach of any of its
representations, warranties, covenants or other agreements contained in this
Agreement that creates such right of termination under Section 6.1(f) shall not
give rise to a Material Adverse Effect, the Company shall pay to Parent, within
three Business Days of the notice of termination, a non-refundable termination
fee of $400,000 and shall reimburse Parent for all reasonable and documented
out-of-pocket expenses incurred by Parent after September 1, 2004 in connection
with this Agreement, the Offer and the Merger in an aggregate amount not to
exceed $750,000, which expenses shall be reimbursed by the Company within three
Business Days after Parent provides to the Company a notice requesting
reimbursement of expenses under this Section 6.4(c), together with reasonable
documentation of such expenses.
(d) In the event the Agreement is validly terminated pursuant to
Section 6.1(e) by reason of a withdrawal by the Board of Directors of the
Company of the Company Recommendation, the Company shall pay to Parent, within
three Business Days of the notice of termination, a non-refundable termination
fee of $800,000 and shall reimburse Parent for all reasonable and documented
out-of-pocket expenses incurred by Parent after September 1, 2004 in connection
with this Agreement, the Offer and the Merger in an aggregate amount not to
exceed $750,000, which expenses shall be reimbursed by the Company within three
Business Days after Parent provides to the Company a notice requesting
reimbursement of expenses under this Section 6.4(d), together with reasonable
documentation of such expenses.
(e) If (i) prior to the Expiration Date an Acquisition Proposal
shall have been publicly disclosed, announced, commenced, submitted, or made by
a third party (other than by Parent or an Affiliate of Parent) and shall not
have been withdrawn or abandoned, and (ii) the Agreement is validly terminated
pursuant to Section 6.1(b) because the Minimum Condition has not been satisfied,
and at the time of termination, there are no Restraints in effect preventing
consummation of the Offer, and Parent is not in breach of any material
obligation under the Agreement, then the Company shall pay to Parent, within
three Business Days of the notice of termination, a non-refundable termination
fee of $800,000 and shall reimburse Parent for all reasonable and documented
out-of-pocket expenses incurred by Parent after September 1, 2004 in connection
with this Agreement, the Offer and the Merger in an aggregate amount not to
exceed $750,000, which expenses shall be reimbursed by the Company within three
(3) Business Days after Parent provides to the Company a notice requesting
reimbursement of expenses under this Section 6.4(e), together with reasonable
documentation of such expenses.
(f) If either the Parent or the Company fails to pay when due any
amount payable under this Section 6.4, then the party failing to pay such amount
shall reimburse the other party for all reasonable costs and expenses (including
reasonable attorneys' fees and disbursements) incurred in connection with the
collection of such overdue amount and the enforcement by the other party of its
rights under this Section 6.4.
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(g) Payment of the fees and expenses described in this
Section 6.4 shall constitute the sole and exclusive remedy of Parent and Merger
Sub against the Company and the Company against Parent and Merger Sub for any
damages suffered or incurred in connection with this Agreement, except that the
parties shall be entitled to the equitable remedies set forth in Section 7.11,
including injunction and specific performance, and all other remedies available
in equity to which a party is entitled. It is specifically agreed that any
amount to be paid pursuant to this Section 6.4 represents liquidated damages and
not a penalty.
ARTICLE VII.
GENERAL PROVISIONS
7.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 7.1
shall not limit any covenant or agreement of the parties that by its terms
contemplates performance after the Effective Time.
7.2 AMENDMENT. This Agreement may be amended by the parties at any time
prior to the Effective Time; provided that after the Company Stockholder
Approval has been obtained, there shall not be made any amendment that by Law
requires further approval by the stockholders of the Company without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
7.3 EXTENSION; WAIVER. At any time prior to the Effective Time, a party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) subject to the proviso of Section
7.2, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if and to the extent set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
7.4 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by facsimile (which is confirmed) or sent by
internationally recognized overnight courier (providing proof of delivery) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to the Parent or Merger Sub, to:
Mr. Alberto Candela
Mr. Massimo Candela
Fila - Fabbrica Italiana Lapis Ed Affini S.p.A.
Via Pozzone
5, Milano, Italy
Facsimile: 39 02 35 38 546
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With a copy (which shall not constitute notice) to:
Robert W. Forman, Esq.
Shapiro Forman Allen Miller & McPherson LLP
380 Madison Avenue
New York, NY 10017
Facsimile: (212) 557-1275
and
Alessandro Marena
Studio legale Marena, Bonvinci, Aghina e Ludergnani
Via degli Omenoni, 2
20121 Milan
Italy
Facsimile: 39 02 72 02 39 04
(b) If to the Company, to:
Dixon Ticonderoga Company
Attention: Gino Pala
195 International Parkway
Heathrow, FL 32746
Facsimile: (407) 829-2574
With a copy (which shall not constitute notice) to each of:
Philip M. Shasteen, Esq.
Johnson, Pope, Bokor, Ruppel & Burns, LLP
100 N. Tampa Street, Suite 1800
Tampa, FL 33602
Facsimile: (813) 225-1857
and
Michael A. Pittenger, Esq.
Potter Anderson & Corroon LLP
1313 North Market Street
Hercules Plaza
P.O. Box 951
Wilmington, DE 19899
Facsimile: (302) 658-1192
7.5 DEFINITIONS. For purposes of this Agreement:
(a) Except as provided otherwise in Sections 2.2(b) and 3.7,
"AFFILIATE" shall mean, in relation to any party hereto, any entity directly or
indirectly,
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controlling, controlled by, or under common control with, such party, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of a party, whether through
the ownership of voting securities, by contract, as trustee or executor, or
otherwise.
(b) Except as provided otherwise in Sections 2.2(b) and 3.7,
"ASSOCIATE" shall have the meaning set forth in Rule 12b-2 under the Exchange
Act.
(c) "BUSINESS DAY" shall have the meaning set forth in Rule
14d-1(g)(3) under the Exchange Act.
(d) "COMPANY STOCK OPTIONS" shall mean outstanding stock
options granted pursuant to (i) the Company's Amended and Restated Stock Option
Plan (formerly known as the 1988 Executive Stock Plan) and (ii) the Company's
1999 Stock Option Plan, the plans in clauses (i) and (ii) being collectively
referred to as the "COMPANY STOCK PLANS."
(e) "CONTRACT" shall mean any written contract, agreement or
obligation of the Company or any of its Subsidiaries to which the Company or any
of its Subsidiaries is a party or by which the Company or any Subsidiary or any
of the assets of the Company or any of its Subsidiaries are bound.
(f) "ENVIRONMENTAL LAW" shall mean any federal, state, or
local law of the United States, Canada, Mexico, the Peoples Republic of China or
the United Kingdom, relating to (i) releases or threatened releases of Hazardous
Materials; (ii) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Materials; or (iii) pollution or protection of the
environment.
(g) "ENVIRONMENTAL LIEN" shall mean any Lien, whether
recorded or unrecorded, in favor of any Governmental Entity, relating to any
liability of the Company or any of its Subsidiaries, arising under any
Environmental Law.
(h) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974 as in effect on the date hereof.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(j) "EXISTING PERMITS" shall mean those permits, licenses,
approvals, qualifications, authorizations, and registrations required by Law
that the Company and its Subsidiaries have or hold.
(k) "GOVERNMENTAL ENTITY" shall mean any federal, state,
local or foreign court, arbitral tribunal, administrative agency or commission
or other governmental or regulatory authority or administrative agency.
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(l) "HAZARDOUS MATERIALS" shall mean (i) those substances
defined in or regulated under any of the following United States federal
statutes and any similar statutes or statutes with similar purposes in the
states or in Canada, Mexico, the Peoples Republic of China or the United
Kingdom, as each may be amended from time to time, and all regulations
promulgated thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act, the Toxic Substances Control Act and the Clean Air Act; (ii) petroleum and
petroleum products, including crude oil and any fractions thereof; (iii)
asbestos or silica or mixed dust; and (iv) any regulated radioactive materials,
hazardous or toxic substances, wastes, or chemicals regulated by any
Governmental Entity pursuant to any Environmental Law.
(m) "INDEBTEDNESS" shall mean (i) all obligations for
borrowed money, or with respect to deposits or advances of any kind, (ii) all
obligations evidenced by bonds, debentures, notes, loan agreements or other
similar instruments, (iii) all obligations upon which interest charges are
customarily paid, (iv) all obligations under conditional sale or other title
retention agreements relating to purchased property, (v) all obligations issued
or assumed as the deferred purchase price of property or services (excluding
obligations to creditors for raw materials, inventory, services and supplies
incurred in the ordinary and usual course of business), (vi) all capitalized
lease obligations, (vii) all obligations of others secured by a Lien, on
property or assets, whether or not the obligations secured thereby have been
assumed, (viii) all obligations under interest rate or currency hedging
transactions (valued at the termination value thereof), (ix) all obligations
arising under letters of credit (including standby and commercial), bankers'
acceptances, bank guaranties, surety bonds and similar instruments, (x) all
guarantees and arrangements having the economic effect of a guarantee of any
indebtedness of any other Person and (xi) net obligations under any swap or
derivative agreement.
(n) "IRS" shall mean the Internal Revenue Service.
(o) "KNOWLEDGE" shall mean the actual knowledge of the
directors and officers of the Company and its Subsidiaries listed in Section 7.5
of the Company Disclosure Letter.
(p) "LAW" shall mean any foreign, federal, state or local
governmental law, rule, regulation or requirement, including any rules,
regulations and orders promulgated thereunder and any orders, decrees, consents
or judgments of any governmental regulatory agencies and courts having the force
of law, excluding any Environmental Law.
(q) "LIEN" shall mean, with respect to any asset (real,
personal or mixed): (i) any mortgage, pledge, encumbrance, lien, easement,
lease, title defect or imperfection or any other form of security interest,
whether imposed by Law or by contract; and (ii) the interest of a vendor or
lessor under any conditional sale agreement, financing lease or other title
retention agreement relating to such asset.
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(r) "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE"
shall mean any effect, change, event, circumstance or condition which when
considered with all other effects, changes, events, circumstances or conditions
has materially adversely affected or would reasonably be expected to materially
adversely affect the results of operations, financial condition, or business of
the Company, including its Subsidiaries together with it taken as a whole. For
purposes hereof, any of the foregoing shall constitute a "Material Adverse
Effect" or "Material Adverse Change" if, among other things, such effect,
change, event, circumstance or condition (i) does or would reasonably be
expected to result in the amount of the Company's EBITDA for the 12 months
ending September 30, 2004 being reduced by 5% or more from the amount of the
Company's EBITDA for the 12 months ending September 30, 2004, as reflected in
the September 30, 2004 financial statements referred to in Section 2.9(b)
hereof, or (ii) does or would reasonably be expected to result in the amount of
the Company's EBITDA for the 12 months ending September 30, 2005 being reduced
by 5% or more from the projected amount of the Company's EBITDA for the 12
months ending September 30, 2005, as reflected in the projections previously
delivered to Parent and Merger Sub. In no event shall any of the following,
considered alone without regard to any other effects, changes, events,
circumstances or conditions, constitute a Material Adverse Effect or a Material
Adverse Change: (i) a change in the trading prices of the Company's securities
between the date hereof and the Effective Time; (ii) effects, changes, events,
circumstances or conditions generally affecting the industry in which either the
Parent or the Company operate or arising from changes in general business or
economic conditions, provided such effects, changes, events, circumstances or
conditions do not disproportionately impact the Company and its Subsidiaries,
taken as a whole; (iii) any effects, changes, events, circumstances or
conditions resulting from any change in Law or GAAP, which affect generally
entities such as the Company; (iv) any effects, changes, events, circumstances
or conditions resulting from the announcement or pendency of the Offer or the
Merger other than a breach of a representation or warranty pursuant to this
Agreement which would occur except for clauses (iv) or (v) of this definition of
Material Adverse Effect and Material Adverse Change; and (v) any effects,
changes, events, circumstances or conditions resulting from actions taken by the
Parent or the Company in order to comply with the terms of this Agreement other
than a breach of a representation or warranty pursuant to this Agreement which
would occur except for clauses (iv) or (v) of this definition of Material
Adverse Effect and Material Adverse Change.
(s) "OUTSIDE DATE" shall mean March 1, 2005; provided,
however, that if, on an Expiration Date occurring on or within ten (10) Business
Days prior to March 1, 2005, all conditions to Merger Sub's obligations to
accept for payment and pay for shares of Company Common Stock validly tendered
pursuant to the Offer are satisfied or, to the extent permitted by this
Agreement, waived, other than the condition set forth in Section (vi) of Annex
I, then the Company or Parent may elect, by notifying Parent or the Company,
respectively, in writing, to extend the Outside Date to a date up to ten (10)
Business Days after March 1, 2005, such date to be specified in such written
notice.
(t) "PERMITTED LIENS" shall mean those Liens affecting any
of the assets or properties of the Company or any of its Subsidiaries that do
not materially detract from the value of the property or assets of the Company
subject thereto and do not materially impair the business or operations of the
Company.
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(u) "PERSON" shall mean a natural person, corporation,
partnership (general or limited), limited liability company, joint venture,
association, trust, unincorporated organization, Governmental Entity, agency or
branch or department thereof, or any other legal entity.
(v) "PROXY STATEMENT" shall mean the proxy statement (as
such term is defined in Regulation 14(a)-1 under the Exchange Act) filed with
the SEC with respect to the Special Meeting, including the form of proxy, and
all amendments or supplements thereto, if any, similarly filed.
(w) "RELEASE" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching,
emanation or migration in, into, onto, or through the atmosphere, soil, surface
water or groundwater.
(x) "RIGHTS" shall mean those Rights issued pursuant to the
Rights Agreement.
(y) "RIGHTS AGREEMENT" shall mean the Rights Agreement,
dated as of March 3, 1995, between the Company and First Union National Bank of
North Carolina, as Rights Agent, and any supplements or amendments thereto.
(z) "SEC" shall mean the Securities and Exchange Commission.
(aa) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
(bb) An entity shall be deemed to be a "SUBSIDIARY" of a
Person if such Person directly or indirectly owns, beneficially or of record, an
amount of voting securities or other interests in such entity that is sufficient
to enable such Person to elect at least a majority of the members of such
entity's board of directors or other governing body, or, if there are no such
voting interests, 50% or more of the equity or financial interests of such
entity.
(cc) "TAX" shall include (i) all forms of taxation, whenever
created or imposed, and whether domestic or foreign, and whether imposed by a
national, federal, state, provincial, local or other Governmental Entity,
including all interest, penalties and additions imposed with respect to such
amounts, (ii) liability for the payment of any amounts of the type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (iii) liability for the payment of any amounts as
a result of being party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other Person with respect to the
payment of any amount described in clause (i) or (ii).
(dd) "TAX LAW" shall mean any Law relating to Taxes.
(ee) "TAX RETURNS" shall mean all domestic or foreign
(whether national, federal, state, provincial, local or otherwise) returns,
declarations, statements, reports, schedules, forms and information returns
relating to Taxes, and any amended Tax Return.
A-54
(ff) "WARRANTS" shall mean those warrants issued pursuant to
the Amended and Restated Note and Warrant Purchase Agreement, dated as of
October 3, 2002, by and between the Company and the institutional investors
named therein.
7.6 CONSTRUCTION AND INTERPRETATION. When a reference is made in this
Agreement to a section or article, such reference shall be to a section or
article of this Agreement unless otherwise clearly indicated to the contrary.
Whenever the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without limitation."
The words "hereof," "herein" and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole and
not to any particular provision of this Agreement, and article, section,
paragraph, exhibit and schedule references are to the articles, sections,
paragraphs, exhibits and schedules of this Agreement unless otherwise specified.
The plural of any defined term shall have a meaning correlative to such defined
term, and words denoting any gender shall include all genders and the neuter.
Where a word or phrase is defined herein, each of its other grammatical forms
shall have a corresponding meaning. A reference to any party to this Agreement
or any other agreement or document shall include such party's successors and
permitted assigns. A reference to any legislation or to any provision of any
legislation shall include any modification, amendment or re-enactment thereof,
any legislative provision substituted therefor and all rules, regulations and
statutory instruments issued thereunder or pursuant thereto. The parties have
participated jointly in the negotiation and drafting of this Agreement. If there
is an ambiguity or a question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement. Each provision of this Agreement
shall be given full separate and independent effect. Although the same or
similar subject matters may be addressed in different provisions of this
Agreement, the parties intend that, except as expressly provided in this
Agreement, each such provision be read separately, be given independent
significance and not be construed as limiting any other provision in this
Agreement (whether or not more general or more specific in scope, substance or
context). No prior draft of this Agreement nor any course of performance or
course of dealing shall be used in the interpretation or construction of this
Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered (whether delivered electronically
or otherwise) one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
7.8 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement, and supersedes all prior agreements, negotiations and
understandings, whether written, electronic or oral, among the parties with
respect to the subject matter of this Agreement, and each party hereto
represents and acknowledges that it has not relied in any way upon any such
other agreements, negotiations or understandings, and (b) except for the
provisions in Article I and Section 4.6 (Indemnification, Exculpation and
Insurance), is not intended to confer upon any Person, other than the parties,
any rights or remedies.
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7.9 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Delaware, without giving effect to any
other choice of law or conflict of law provision or rule (whether of the State
of Delaware or otherwise) that would cause the application of the Laws of any
jurisdiction, other than the State of Delaware.
7.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part, by
operation of Law or otherwise by any of the parties hereto without the prior
written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
7.11 ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in the Court of Chancery of the State
of Delaware (or, in the case of claims as to which there is exclusive federal
question jurisdiction, in the United States District Court for the District of
Delaware), this being in addition to any other remedy to which any party may be
entitled at law or in equity, subject to Section 6.4(g) hereof. In addition,
each of the parties (a) consents to submit itself to the personal jurisdiction
of the Court of Chancery of the State of Delaware (or, in the case of claims as
to which there is exclusive federal question jurisdiction, in the United States
District Court for the District of Delaware), in connection with any dispute
that arises out of or relates to this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (c) agrees that it will not bring any action
arising out of or relating to this Agreement in any court other than the Court
of Chancery of the State of Delaware (or, in the case of claims as to which
there is exclusive federal question jurisdiction, in the United States District
Court for the District of Delaware). In the event the Court of Chancery of the
State of Delaware (or the Delaware Supreme Court) determines that the Court of
Chancery does not have or should not exercise subject matter jurisdiction with
respect to any particular action or proceeding (or part thereof) arising out of
or relating to this Agreement, then each of the parties (a) consents to submit
itself to the personal jurisdiction of the United States District Court for the
District of Delaware, if such court has subject matter jurisdiction, and to any
other court having subject matter jurisdiction and personal jurisdiction over
the parties hereto, if the United States District Court for the District of
Delaware does not have subject matter jurisdiction, in connection with such
action or proceeding (or part thereof), (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from the United States District Court for the District of Delaware and (c)
agrees that it will not bring such action or proceeding (or part thereof) in, or
transfer such action or proceeding (or part thereof) to, any court other than
the United States District Court for the District of Delaware as provided in
this Section 7.11 unless the United States District Court for the District of
Delaware does not have subject matter jurisdiction. EACH OF THE PARENT, MERGER
SUB, AND THE COMPANY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY
HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE NEGOTIATION OR ENFORCEMENT HEREOF.
A-56
Each of the parties hereby consents to service of any summons and complaint and
any other process that may be served in any action or proceeding arising out of
or relating to this Agreement in the Court of Chancery of the State of Delaware
or the United States District Court for the District of Delaware as is specified
in this Section 7.11 by mailing by certified or registered mail copies of such
process to such party at its address for receiving notice pursuant to Section
7.4 hereof. Nothing herein shall preclude service of process by any other means
permitted by Law.
7.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. If the final judgment of a court of competent
jurisdiction or other authority declares that any term or provision hereof is
invalid, void or unenforceable, the parties agree that the court making such
determination shall have the power to and shall, subject to the discretion of
such court, reduce the scope, duration, area or applicability of the term or
provision, delete specific words or phrases, or replace any invalid, void or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
A-57
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
FILA - FABBRICA ITALIANA LAPIS ED
AFFINI S.P.A.
By:________________________________
Name: ___________________________
Title: __________________________
PENCIL ACQUISITION CORP
By:________________________________
Name: __________________________
Title: _________________________
DIXON TICONDEROGA COMPANY
By:_________________________________
Name: ___________________________
Title: __________________________
A-58
ANNEX I
CONDITIONS OF OFFER
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) Merger Sub's right to extend and amend the Offer as
permitted by the Agreement and subject to any applicable rules and regulations
of the SEC, including Rule 14e(1)(c) under the Exchange Act, Merger Sub shall
not be required to accept for payment, or may delay the acceptance for payment
of, any validly tendered Company Common Stock if:
(i) by the expiration of the Offer (as it may be extended in accordance
with the requirements of Section 1.1) the Minimum Condition shall
not be satisfied;
(ii) any of the following events shall occur and be continuing as of the
Expiration Date:
(a) there shall be any Restraints in effect preventing the
consummation of the Offer;
(b) since the date of this Agreement, there shall have occurred
any Material Adverse Effect on the Company and any of its
Subsidiaries taken as a whole;
(c) the Company's board of directors shall have (i) withdrawn or
modified in a manner adverse to Parent and Merger Sub the
Company Recommendation, (ii) recommended any Acquisition
Proposal, or (iii) resolved to do any of the foregoing of this
subsection (c);
(d) any representation or warranty of the Company contained in the
Agreement that is qualified as to materiality shall not be
true and complete in all respects or any representation or
warranty of the Company contained in the Agreement that is not
so qualified shall not be true and complete in all material
respects, in each case as of the time the Offer otherwise
would expire (provided that, to the extent any such
representation or warranty speaks as of a specified date, it
need be true and complete only as of such specified date);
(e) the Company shall have breached or failed, in any material
respect, to perform or to comply with its covenants and other
agreements to be performed or complied with by it under the
Agreement;
(f) all consents, permits and approvals of Governmental Entities
and other Persons necessary to permit Merger Sub to purchase
the shares of Company Common Stock validly tendered and not
withdrawn shall not have been obtained other than those the
failure of which to obtain,
A-59
individually or in the aggregate, would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a
whole; provided that in no event shall any consent of any kind
of the Company's lenders be a condition to consummation of the
Offer; or
(g) the Agreement shall have been validly terminated in accordance
with its terms;
(iii) any of the following have occurred and continue to exist (A) any
general suspension of trading in, or limitation on prices for,
securities on any major United States stock exchange or market,
(excluding suspensions or limitations resulting solely from physical
damage or interference with such exchanges not related to market
conditions), (B) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, or
(C) any material limitation (whether or not mandatory) by any United
States federal or United States state or governmental authority or
agency on the extension of credit by banks or other financial
institutions;
(iv) the Company has not filed with the SEC its Form 10-K for the year
ended September 30, 2004, accompanied by certifications, without
qualification, required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002;
(v) the Company's shareholders who are party to the Stock Purchase
Agreement with Merger Sub shall have failed to sell their stock
pursuant to such Stock Purchase Agreement; or
(vi) the number of shares of Company Common Stock validly tendered and
not withdrawn prior to the final expiration of the Offer, together
with the shares of Company Common Stock then beneficially owned by
the Parent or its Affiliates (including, without limitation, the
shares of Company Common Stock to be sold to Merger Sub pursuant to
the Stock Purchase Agreement), represents less than 90% of the
shares of Company Common Stock then outstanding and the Schedule 14C
Information Statement, as filed with the SEC, would not be permitted
by applicable SEC rules to be mailed to the Company's stockholders
immediately after the Offer is consummated and the Stockholders'
Written Consent is delivered to the Company.
The foregoing conditions are for the benefit of Parent and Merger Sub, may
be asserted by Parent or Merger Sub regardless of the circumstances giving rise
to such condition, and except for the Minimum Condition may be waived by Parent
or Merger Sub in whole or in part at any time and from time to time, subject in
each case to the terms of the Agreement. The failure by Parent or Merger Sub at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
A-60
The capitalized terms used in this Annex I shall have the meanings set
forth in the Agreement to which it is annexed.
A-61
ANNEX B
PERSONAL AND CONFIDENTIAL
December 16, 2004
The Board of Directors
Dixon Ticonderoga Company, Inc.
195 International Parkway, Suite 200
Heathrow, Florida 32746-5036
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders (other than Fila Fabbrica Lapis ed Affini S.p.A. ("Fila") and its
affiliates) of the outstanding shares of Common Stock, $1.00 par value per share
(the "Shares"), of Dixon Ticonderoga Company, Inc. (the "Company") of the $7.00
per Share in cash proposed to be received by holders of Shares in the Tender
Offer and the Merger (as defined below) pursuant to the Agreement and Plan of
Merger, dated as of December 16, 2004 (the "Agreement"), among Fila, Pencil
Acquisition Corp., a wholly owned subsidiary of Fila ("Merger Sub"), and the
Company; and the Stock Purchase Agreement, dated December 16, 2004 among Pencil
Acquisition Corp. and certain Shareholders . The Agreement provides for a tender
offer for all of the Shares (the "Tender Offer") pursuant to which Merger Sub
will pay $7 per share in cash for each Share accepted. The Agreement further
provides that, following the completion of the Tender Offer, Merger Sub will be
merged with and into the Company (the "Merger") and each outstanding Share
(other than Shares already owned by the Company, Fila or Merger Sub) will be
converted into the right to receive $7.00 in cash. The transaction contemplated
by the Agreement is referred to herein as the "Transaction."
In connection with this opinion, we have reviewed, among other things, the
Agreement; internally-generated financial statements for the fiscal year ended
September 30, 2004; Annual Reports to Stockholders and Annual Reports on Form
10-K of the Company for the three fiscal years ended September, 2003; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company; certain other communications from the Company to its stockholders; and
certain internal financial analyses and forecasts for the Company prepared by
its senior management. We also have held discussions with members of the senior
management of the Company and the Company's financial advisors regarding the
assessment of its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial information and stock market
information for the Company with similar information for certain other
companies, the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the U.S. writing instruments
industry specifically and in other industries generally and performed such other
studies and analyses, and considered such other factors, as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting, legal, tax and other information discussed with or reviewed by us
and have assumed such accuracy and completeness for purposes of rendering this
opinion. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities) of the Company or any of its
subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our opinion does not address the underlying business decision of the
Company to engage in the Transaction. We were not requested to solicit, and did
not solicit, interest from other parties with respect to an acquisition of or
other business combination with the Company. The opinion expressed herein is
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transactions contemplated by
the Agreement and such opinion does not constitute a recommendation whether or
not any holder of Shares should tender such Shares in connection with the Tender
Offer or how any holder of Shares should vote with respect to the Merger.
B-1
The Board of Directors
Dixon Ticonderoga Company, Inc.
Page Two
Based upon and subject to the foregoing it is our opinion that, as of the date
hereof, the $7.00 per Share in cash to be received by the holders (other than
Fila, Merger Sub or any of their affiliates) of the Shares in the Tender Offer
and the Merger is fair from a financial point of view to such holders.
Very truly yours,
/s/ SHELDRICK, McGEHEE & KOHLER, INC.
------------------
(SHELDRICK, McGEHEE & KOHLER, INC..)
B-2
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
C-1
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
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(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or resulting
corporation within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting
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corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
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of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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