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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-12 CPAC, Inc. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies:  
; (2) Aggregate number of securities to which transaction applies:  
; (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):  
; (4) Proposed maximum aggregate value of transaction: $44,212,243  
; (5) Total fee paid: $8,842  
; [X] 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:  
; (2) Form, Schedule or Registration Statement No.:  
; (3) Filing Party:  
; (4) Date Filed:  
; CPAC, INC.
Leicester, New York 14481-0175
(585) 382-3223
March 1, 2007
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders (the "special meeting") of CPAC, Inc. ("CPAC" or the "Company"), which will be held on Friday, March 30, 2007, beginning at 10:00 a.m., Eastern Time, at our principal executive offices at 2364 Leicester Road, Leicester, New York 14481.
Our board of directors has unanimously approved a merger providing for the acquisition of CPAC by Buckingham CPAC, Inc. If the merger is completed, you will be entitled to receive $8.65 in cash, without interest, for each share of CPAC common stock you own, and you will have no ongoing ownership interest in the continuing business of CPAC.
At the special meeting, you will be asked to approve and adopt the agreement and plan of merger. Our board of directors has adopted and unanimously approved the agreement and plan of merger, as well as the transactions contemplated by it, and has declared that the agreement and plan of merger, the merger and the transactions contemplated by the agreement and plan of merger are advisable, fair to and in the best interests of CPAC and its shareholders. Our board of directors unanimously recommends that our shareholders vote "FOR" approval of the agreement and plan of merger.
The proxy statement attached to this letter provides you with information about the proposed merger and the special meeting. We encourage you to read the entire proxy statement carefully. You may also obtain more information about CPAC from documents we have filed with the Securities and Exchange Commission.
Your vote is very important, so please vote by completing and returning your proxy card. The merger cannot be completed unless the agreement and plan of merger is approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of CPAC common stock. If you fail to vote on the agreement and plan of merger, the effect will be the same as a vote against approval of the agreement and plan of merger for purposes of the vote referred to above.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE VOTE YOUR SHARES BY MAIL. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES THAT ARE REGISTERED DIFFERENTLY, PLEASE VOTE ALL OF YOUR SHARES SHOWN ON ALL OF YOUR PROXY CARDS.
Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. If your shares are held in "street name," we encourage you to provide voting instructions to your brokerage firm by voting your proxy.
Thank you for your cooperation and continued support.
Very truly yours, |
/s/ Thomas N. Hendrickson |
Thomas N. Hendrickson |
President & Chief Executive Officer |
THIS PROXY STATEMENT IS DATED MARCH 1, 2007 AND IS FIRST
BEING MAILED TO SHAREHOLDERS ON OR ABOUT MARCH 1, 2007.
CPAC, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held MARCH 30, 2007
To Our Shareholders:
We hereby notify you that a special meeting of shareholders of CPAC, Inc. ("We," "our," "us," or "CPAC") will be held at our principal executive offices at 2364 Leicester Road, Leicester, New York 14481 on Friday, March 30, 2007, at 10:00 a.m., Eastern Time, for the following purposes:
1. |
To consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of December 22, 2006 (as amended from time to time, the "merger agreement"), between Buckingham CPAC, Inc. ("Buckingham"), Buckingham CPAC Acquisition Corp. ("MergerCo") and CPAC; and
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2. |
To authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement. |
Only holders of CPAC common stock at the close of business on February 26, 2007 are entitled to notice of the special meeting and to vote at the special meeting. You are cordially invited to attend the special meeting in person.
Your vote is important, regardless of the number of shares of CPAC common stock you own. If you do not plan to attend the special meeting and vote your shares of CPAC common stock in person, please authorize a proxy to vote your shares by marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope.
Any proxy may be revoked at any time prior to its exercise by delivery of a later-dated proxy or by voting in person at the special meeting.
The approval of the merger agreement requires the approval of the holders of at least two-thirds of the outstanding shares of CPAC common stock entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you vote your shares as described above.
If you fail to return your proxy card and do not attend the special meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting, and if a quorum is present, will have the same effect as a vote against approval of the merger agreement.
Prior to the special meeting, a complete list of our shareholders entitled to vote at the special meeting, or any adjournment thereof, will be available for inspection by any of our shareholders during normal business hours at our principal executive offices located at 2364 Leicester Road, Leicester, New York 14481. In addition, the same list will be available for examination by any of our shareholders at the special meeting.
You should not send your stock certificates with your proxy card.
By Order of the Board of Directors, |
/s/ Thomas N. Hendrickson |
Thomas N. Hendrickson |
President & Chief Executive Officer |
March 1, 2007 |
TABLE OF CONTENTS
Page |
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SUMMARY |
1 |
|
The Parties to the Merger |
1 |
|
The Special Meeting |
2 |
|
The Merger |
3 |
|
QUESTIONS AND ANSWERS ABOUT THE MERGER |
9 |
|
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION |
12 |
|
THE PARTIES TO THE MERGER |
13 |
|
THE SPECIAL MEETING |
14 |
|
Time, Place and Purpose of the Special Meeting |
14 |
|
Record Date, Quorum and Voting Power |
14 |
|
Required Vote; Abstentions; Broker Non-Votes |
14 |
|
Voting by Directors and Executive Officers |
15 |
|
Proxies; Revocation |
15 |
|
Expenses of Proxy Solicitation |
15 |
|
Adjournments and Postponements |
16 |
|
Shareholder List |
16 |
|
THE MERGER |
17 |
|
Background of the Merger |
17 |
|
Recommendation of CPAC's Board of Directors; Reasons for the Merger |
23 |
|
Opinion of KeyBanc |
27 |
|
Operations of CPAC Following the Merger |
34 |
|
Interests of CPAC's Directors and Executive Officers in the Merger |
34 |
|
Material U.S. Federal Income Tax Consequences |
41 |
|
Regulatory Approvals |
42 |
|
Absence of Appraisal Rights |
42 |
|
THE MERGER AGREEMENT |
44 |
|
Effective Time |
44 |
|
Structure of the Merger |
44 |
|
Merger Consideration; Treatment of Stock and Options |
44 |
|
Further Ownership Rights |
45 |
|
Procedure for Receiving Merger Consideration |
45 |
|
Certificate of Incorporation and Bylaws |
46 |
|
Directors and Officers |
46 |
|
Representations and Warranties |
46 |
|
Conduct of the Company's Business Pending the Merger |
49 |
|
No Solicitation of Transactions |
51 |
|
Agreement to Take Further Action and to Use Reasonable Efforts |
54 |
|
Conditions to the Merger |
54 |
|
Termination of the Merger Agreement |
56 |
|
Fees and Expenses |
57 |
|
Amendment and Waiver |
57 |
|
MARKET PRICES OF THE COMPANY'S STOCK |
58 |
|
Market Information |
58 |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
59 |
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ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING |
62 |
|
OTHER MATTERS |
62 |
|
Submission of Shareholder Proposals |
62 |
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Delivery of this Proxy Statement |
63 |
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WHERE YOU CAN FIND ADDITIONAL INFORMATION |
63 |
CPAC, INC.
PROXY STATEMENT
March 1, 2007
The following summary highlights selected information about the merger and the special meeting and may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. In this proxy statement, references to the merger agreement include all amendments thereto and the terms "CPAC," "the Company," "we," "our," "ours," and "us" refer to CPAC, Inc. and its subsidiaries. Each item in this summary includes a page reference directing you to a more complete description of that item.
CPAC, Inc. (Page 13)
2364 Leicester Road
P.O. Box 175
Leicester, New York 14481-0175
(585) 382-3223
Established in 1969, CPAC, Inc. is a New York corporation that manages holdings in two industry segments: the Fuller Brands segment, which consists of cleaning and personal care products, and the Imaging segment. The Fuller Brands segment develops, manufactures, and markets more than 2,700 branded and private label products for commercial cleaning, household cleaning, and personal care. The Imaging segment manufactures, packages, and distributes branded and private label chemicals for color photographic, health care, and graphic arts markets, as well as associated imaging equipment and silver refining services. This segment also distributes photographic film, paper, single-use and reusable cameras, and batteries through distribution agreements.
Buckingham CPAC, Inc. (Page 13)
c/o Buckingham Capital Partners II, L.P.
950 Third Avenue, 19th Floor
New York, NY 10022
Buckingham CPAC, Inc., which we refer to as "Buckingham," is a Delaware corporation that was formed for the purposes of entering into the merger agreement, completing the transactions contemplated by the merger agreement and serving as a holding company for the operations of CPAC after the merger. Buckingham has not conducted any activities to date other than activities relating to its formation and in connection with the transactions contemplated by the merger agreement. Buckingham was formed by Buckingham Capital Partners II, L.P., a private investment firm specializing in leveraged buyouts of U.S.-based, lower middle market industrial and manufacturing companies.
Buckingham CPAC Acquisition Corp. (Page 13)
c/o Buckingham Capital Partners II, L.P.
950 Third Avenue, 19th Floor
New York, NY 10022
Buckingham CPAC Acquisition Corp., which we refer to as "MergerCo", is a New York corporation and a wholly owned subsidiary of Buckingham formed for the sole purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement. It has not conducted any activities to date other than activities relating to its formation and in connection with the transactions contemplated by the merger agreement.
Time, Place and Purpose of the Special Meeting (Page 14)
A special meeting of shareholders will be held on Friday, March 30, 2007, beginning at 10:00 a.m., Eastern Time, at our principal executive offices at 2364 Leicester Road, Leicester, New York 14481.
At the special meeting you will be asked to consider and vote upon the following proposals:
Record Date, Quorum and Voting Power (Page 14)
You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on February 26, 2007, the record date for the special meeting. Each outstanding share of our common stock on the record date entitles the holder to one vote on each matter submitted to shareholders for approval at the special meeting. As of the record date, there were 4,946,774 shares of our common stock entitled to be voted. The holders of one-third of the shares of our common stock outstanding on the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting.
Required Vote; Abstentions; Broker Non-Votes (Page 14)
The approval of the merger agreement requires the approval of the holders of at least two-thirds of the outstanding shares of our common stock entitled to vote thereon. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement. The proposal to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement requires that more votes be cast in favor of the proposal than against it; however, if holders of less than a quorum of the shares of our common stock outstanding on the record date are represented at the special meeting, the affirmative vote of holders of a majority of the shares so represented is necessary to adjourn or postpone the meeting. A failure to vote on that proposal will not have an effect on the outcome of the vote on that proposal.
2
Voting by Directors and Executive Officers (Page 15)
As of the record date, on February 26, 2007, our directors and executive officers held and are entitled to vote, in the aggregate, 343,713 outstanding shares of our common stock, representing approximately 6.95% of the outstanding shares of our common stock. We have been informed by our directors and executive officers that they intend to vote all of their shares of CPAC common stock "FOR" the approval of the merger agreement.
Proxies; Revocation (Page 15)
If you hold shares in your name as the shareholder of record, then you received this proxy statement and a proxy card from us. If you hold shares in street name through a broker, bank or other nominee, then you received this proxy statement from the nominee, along with the nominee's form of proxy card, which includes voting instructions. In either case, you may vote your shares by mail without attending the special meeting. To vote by mail, mark, sign and date the proxy card and return it in the postage-paid envelope provided.
After you vote your shares by mail, you may change your vote at any time before voting is closed at the special meeting. If you hold shares in your name as the shareholder of record, you should write to our Corporate Secretary at our principal offices, 2364 Leicester Road, P. O. Box 175, Leicester, New York 14481-0175, stating that you want to revoke your proxy and that you need another proxy card. If you hold your shares in street name through a broker, bank or other nominee, you should contact the nominee and ask for a new proxy card. If you attend the special meeting, you may vote by ballot as described above, which will cancel your previous vote. Your last vote before voting is closed at the special meeting is the vote that will be counted.
Structure of the Merger (Page 44)
Pursuant to the merger agreement, MergerCo, a wholly owned subsidiary of Buckingham, will merge with and into CPAC. CPAC will be the surviving corporation in the merger.
Merger Consideration (Page 44)
If the merger is completed, you will be entitled to receive $8.65 in cash, without interest, less any applicable withholding taxes, for each share of our common stock that you own.
Treatment of Outstanding Stock Options (Page 45)
If the merger is completed, CPAC will enter into Option Cancellation Agreements with holders of options to purchase CPAC's shares. Under the Option Cancellation Agreements, option holders will receive the excess, if any, of the $8.65 per share merger consideration over the per share exercise price of their options, less any tax withholding, for each option share underlying each option that they hold at the effective time of the merger, whether or not the option is currently vested. Option holders who hold any options with exercise prices above the $8.65 per share merger consideration will receive total payments of $100 per option holder as consideration for the cancellation of their options.
3
Board Recommendation (Page 23)
After careful consideration and by a unanimous vote of all members of our board of directors, our board of directors:
Reasons for the Merger (Page 23)
Our board of directors carefully considered the terms of the proposed transaction and the strategic alternatives available to the Company in deciding to enter into the merger agreement and to recommend that shareholders vote "FOR" the approval and adoption of the merger agreement. Among the factors considered by our board of directors were:
In deciding to enter into the merger agreement and to recommend that shareholders vote "FOR" the approval and adoption of the merger agreement, the board of directors carefully considered the fact that the Company's directors and executive officers may have interests in the transaction that are different from, or in addition to, those of the Company's other shareholders.
4
Opinion of KeyBanc (Page 27)
KeyBanc was retained by CPAC's board of directors to issue a "fairness opinion" in connection with the merger. On December 22, 2006, KeyBanc rendered to CPAC's board of directors its opinion that, as of that date and based upon and subject to the assumptions, qualifications and limitations set forth therein, and other factors that KeyBanc considers relevant, the merger consideration of $8.65 in cash per share to be received by holders of CPAC common stock pursuant to the merger agreement is fair, from a financial point of view, to those holders. The full text of KeyBanc's opinion, which sets forth the assumptions made, matters considered and limitations on the scope of review undertaken by KeyBanc in rendering its opinion, is included as Annex B to this proxy statement. CPAC encourages shareholders to read the KeyBanc's opinion carefully and in its entirety. KeyBanc's opinion was provided to CPAC's board of directors in connection wit h the board's consideration of the merger and addresses only the fairness, from a financial point of view and as of the date of KeyBanc's opinion, of the consideration to be received by the holders of CPAC common stock pursuant to the merger agreement, to those holders and does not address any other aspect of the merger. KeyBanc's opinion does not constitute a recommendation as to how any holder of CPAC common stock should vote on the merger or any matter relating thereto.
Interests of the Company's Directors and Executive Officers in the Merger (Page 34)
As you consider the recommendation of our board of directors with respect to the merger, you should be aware that some CPAC directors and executive officers have interests that are different from, or in addition to, your interests, including those listed below:
CPAC Stock Options. In the ordinary course of CPAC's compensation practices, all directors and executive officers, like many other CPAC employees, were awarded options to purchase CPAC common stock, all of which were granted at an exercise price that was at least equal to the fair market value of the Company's common stock on their respective grant dates. In connection with the merger, all outstanding unvested options will become immediately exercisable, and all outstanding options (including previously unexercisable options) will be cancelled at the time of the merger pursuant to Option Cancellation Agreements to be entered into between the Company and the Option Holders. Under the Option Cancellation Agreements, the holders will be entitled to receive a cash payment in an amount equal to the excess, if any, of the merger consideration received with respect to CPAC common stock over the exercise price of the CPAC stock options .
Bonus Payments. Some of our employees, including all of our executive officers, will receive a cash bonus if the merger is completed successfully.
Severance Payments. Some of our employees, including all of our executive officers, are parties to pre-existing severance arrangements with CPAC. Following the merger, under certain circumstances some of our executive officers might be entitled to receive severance payments.
Acceleration of Deferred Compensation for Mr. Hendrickson. Our President and Chief Executive Officer, Thomas Hendrickson, has a pre-existing non-qualified deferred compensation arrangement with CPAC. Upon the completion of the merger, Mr. Hendrickson will be paid certain non-qualified deferred compensation, the payment of which he had previously deferred.
5
Acceleration of Deferred Compensation for Executive Officers. The completion of the merger will cause an acceleration of the payment of certain non-qualified deferred compensation to certain of our executive officers pursuant to the terms of a pre-existing nonqualified deferred compensation plan.
Legal Fees. Robert Oppenheimer, a member of our board of directors, is a partner with the law firm of Chamberlain D'Amanda Oppenheimer & Greenfield. Chamberlain D'Amanda Oppenheimer & Greenfield serves as general counsel to CPAC, and is representing CPAC in connection with the merger. For its representation of CPAC in connection with the merger and related matters, the firm will receive legal fees of $175,000.
Buckingham Stock Option Plan. If the merger is completed, Buckingham has indicated that a new employee stock option plan may be adopted for the Company. If such a plan is adopted, certain of our executive officers could receive stock options under such a plan if they continue to be employed by the Company after the merger.
Opportunity to Invest in Buckingham. Certain of our executive officers have had preliminary discussions with Buckingham about the possibility of them investing in Buckingham, on the same terms as Buckingham's other investors, if the merger is completed. No final understanding has been reached between Buckingham and any of our executive officers at this time.
Indemnification and Insurance. Buckingham has agreed to indemnify our directors and executive officers with respect to any claims or liabilities arising out of their positions with CPAC prior to the merger and to maintain directors' and officers' liability insurance covering directors and executive officers of CPAC for a period of six years following the merger.
Tax Consequences (Page 41)
The receipt of $8.65 in cash for each share of our common stock pursuant to the merger will be a taxable transaction to you if you are a U.S. person. For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of CPAC common stock will cause you to recognize a gain or loss measured by the difference, if any, between the cash you receive in the merger and your adjusted tax basis in your shares of CPAC common stock. Under U.S. federal income tax law, you may be subject to information reporting on cash received in the merger unless an exemption applies. Backup withholding may also apply (currently at a rate of 28%) with respect to the amount of cash received in the merger, unless you provide proof of an applicable exemption or a correct taxpayer identification number, and otherwise comply with the applicable requirements of the backup withholding rules. You should consult your own tax advisor for a full underst anding of how the merger will affect your federal, state and local and/or non-U.S. taxes.
Regulatory Approvals (Page 42)
Except for the filing of a certificate of merger in the State of New York Department of State upon the effective date of the merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.
6
No Solicitation of Transactions; Superior Proposal (Page 51)
The merger agreement restricts our ability to, among other things, solicit or participate in discussions or negotiations with, or provide information to, a third party regarding alternative acquisition, merger or other business combination transactions involving CPAC. Notwithstanding these restrictions, under certain circumstances, and subject to the limitations of the merger agreement, our board of directors may respond to an unsolicited written bona fide proposal for an alternative business combination by engaging in discussions or negotiations with the person making such proposal. In addition, our board of directors may terminate the merger agreement and enter into an acquisition agreement with respect to a superior business combination proposal, so long as CPAC complies with certain terms of the merger agreement, including paying a termination fee of $1.75 million to Buckingham.
Conditions to the Merger (Page 54)
Before we can complete the merger, a number of conditions must be satisfied or waived (to the extent permitted by law). These include:
Termination of the Merger Agreement (Page 56)
CPAC and Buckingham may agree in writing to terminate the merger agreement at any time without completing the merger, even after the shareholders of CPAC have approved the merger agreement. Under certain circumstances, either we or Buckingham may terminate the merger agreement prior to the closing of the merger without the consent of the other party. Subject to the payment to Buckingham of a termination fee of $1.75 million, we may terminate the merger agreement prior to shareholder approval to enter into an agreement for an alternative superior proposal. Buckingham may terminate the merger agreement if our board of directors changes its recommendation in favor of the merger, or recommends to our shareholders that they approve an alternative acquisition proposal, in which case the termination fee of $1.75 million will be payable at or prior to the time of, and as a pre-condition to the effectiveness of, such termination.
7
Fees and Expenses (Page 57)
The parties to the merger agreement are responsible for their own transaction expenses if either party terminates the merger agreement for any reason under the merger agreement.
We have agreed to pay to Buckingham a termination fee of $1.75 million if the merger agreement is terminated because our board of directors has changed its recommendation in favor of the merger agreement, we enter into an agreement for an alternative superior proposal or under other limited circumstances.
Procedure for Receiving Merger Consideration (Page 45)
As promptly as practicable after the effective time of the merger, Continental Stock Transfer and Trust Co., as paying agent, will mail a letter of transmittal and instructions to all CPAC shareholders. The letter of transmittal and instructions will tell you how to surrender your CPAC common stock certificates in exchange for the merger consideration, without interest. You should not return any stock certificates you hold with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.
Absence of Appraisal Rights (Page 43)
CPAC is incorporated in New York. Under New York law, because CPAC's shares are listed on the NASDAQ Global Market, CPAC shareholders do not have any right to a court determination of the fair value of their shares of common stock in connection with the merger.
Market Price of CPAC Common Stock (Page 58)
Our common stock is listed on the NASDAQ Global Market ("NASDAQ") under the trading symbol "CPAK." On December 22, 2006, which was the last trading day before the announcement of the execution of the merger agreement, our common stock closed at $7.85 per share. On February 23, 2007, which was the last trading day before the printing of this proxy statement, our common stock closed at $8.52 per share.
8
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers address briefly some questions you may have regarding the proposed merger. These questions and answers may not address all questions that may be important to you as a shareholder of CPAC, Inc. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement.
Q: |
What is the proposed transaction? |
A: |
The proposed transaction is the acquisition of CPAC by Buckingham pursuant to a merger agreement between Buckingham, MergerCo and CPAC. Once the merger agreement has been approved by our shareholders and the other closing conditions under the merger agreement have been satisfied or waived, the Buckingham subsidiary will merge with and into CPAC, with CPAC surviving as a wholly-owned subsidiary of Buckingham. |
Q: |
What will I receive in the merger? |
A: |
Upon completion of the merger, you will receive $8.65 in cash, without interest and less any required withholding taxes, for each share of our common stock you own at the effective time of the merger. If the merger is completed, you will have no ongoing ownership interest in the continuing business of CPAC. |
Q: |
Where and when is the special meeting? |
A: |
The special meeting will be held at our principal executive offices at 2364 Leicester Road, Leicester, New York 14481 on Friday, March 30, 2007 at 10:00 a.m., Eastern Time. |
Q: |
What matters will I vote on at the special meeting? |
A: |
You will vote on the following proposals: |
|
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to approve the merger agreement; and |
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to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement. |
Q: |
How does CPAC's board of directors recommend that I vote on the proposals? |
A: |
Our board of directors unanimously recommends that you vote: |
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"FOR" the proposal to approve the merger agreement; and |
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"FOR" the proposal to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion in accordance with our bylaws, if there are not sufficient votes at the special meeting to establish a quorum. |
9
Q: |
What vote of shareholders is required to approve the merger agreement? |
A: |
For us to complete the merger, shareholders holding at least two-thirds of the shares of our common stock outstanding at the close of business on the record date must vote "FOR" the approval of the merger agreement. |
Q: |
Can you change your vote? |
A: |
After you vote your shares by mail, you may change your vote at any time before voting is closed at the special meeting. If you hold shares in your name as the shareholder of record, you should write to our Corporate Secretary at our principal offices, 2364 Leicester Road, P.O. Box 175, Leicester, New York 14481, stating that you want to revoke your proxy and that you need another proxy card. If you hold your shares in street name through a broker, bank or other nominee, you should contact the nominee and ask for a new proxy card. If you attend the special meeting, you may vote by ballot as described above, which will cancel your previous vote. Your last vote before voting is closed at the special meeting is the vote that will be counted. |
Q: |
What happens if I do not return a proxy card? |
A: |
The failure to return your proxy card will have the same effect as voting against the merger but will have no effect on the adjournment proposal. PLEASE VOTE YOUR SHARES "FOR" THE APPROVAL OF THE MERGER AGREEMENT. |
Q: |
If my broker holds my shares in "street name," will my broker vote my shares for me? |
A: |
Your broker will not be able to vote your shares without instructions from you. YOU SHOULD INSTRUCT YOUR BROKER TO VOTE YOUR SHARES, FOLLOWING THE PROCEDURE PROVIDED BY YOUR BROKER. Without instructions, your shares will not be voted, which will have the effect of a vote against the merger (but will have no effect on the adjournment proposal). |
Q: |
When do you expect the merger to be completed? |
A: |
We are working toward completing the merger as quickly as possible, and we anticipate that it will be completed in the first quarter of 2007. In order to complete the merger, we must obtain shareholder approval and the other closing conditions under the merger agreement must be satisfied or waived. See "The Merger Agreement - Conditions to the Merger" and "The Merger Agreement - Effective Time." |
Q: |
Should I send in my stock certificates now? |
A: |
No. Shortly after the merger is completed, you will receive a letter of transmittal with instructions informing you how to send your stock certificates to the paying agent in order to receive the merger consideration, without interest. You should use the letter of transmittal to exchange CPAC stock certificates for the merger consideration to which you are entitled as a result of the merger. If your shares are held in "street name" by your broker, you will receive instructions from your broker as to how to effect the surrender of your "street name" shares and receive cash for those shares. |
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Q: |
Am I entitled to appraisal rights? |
A: |
No. CPAC is incorporated in New York. Under New York law, because CPAC's shares are listed on the NASDAQ Global Market, CPAC shareholders do not have any right to a court determination of the fair value of their shares of common stock in connection with the merger. |
Q: |
Who can help answer my other questions? |
A: |
If you have more questions about the merger, you should contact Thomas J. Weldgen, our Vice President, Finance and Chief Financial Officer, at (585) 382-2342. Georgeson Shareholder Communications, Inc.
|
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of our operations, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, among others, under the headings "Summary," "The Merger," "The Merger - Opinion of McDonald Investments, Inc." and in statements containing the words "believes," "plans," "expects," "anticipates," "intends," "estimates" or other similar expressions. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if re alized, that they will have the expected effects on our business or operations. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise.
In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:
Additional factors that may affect the future results of CPAC are set forth in our filings with the Securities and Exchange Commission, which are available at www.cpac.com.
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THE PARTIES TO THE MERGER
CPAC, Inc.
2364 Leicester Road
P.O. Box 175
Leicester, New York 14481-0175
(585) 382-3223
Established in 1969, CPAC, Inc. is a New York corporation that manages holdings in two industry segments: (i) the Fuller Brands segment, consisting of cleaning and personal care products, and (ii) the Imaging segment. The Fuller Brands segment develops, manufactures, and markets more than 2,700 branded and private label products for commercial cleaning, household cleaning, and personal care. Fuller Brands' three business units sell these chemicals and stick goods (mops, brushes, and brooms) across North America and internationally through distributors and service providers, direct selling representatives, catalogs, direct response television, private label arrangements, direct marketing partners, and the Internet. The Imaging segment manufactures, packages, and distributes branded and private label chemicals for color photographic, health care, and graphic arts markets, as well as associated imaging equipment and silver refining servi ces. This segment also distributes photographic film, paper, single-use and reusable cameras, and batteries through distribution agreements. Its global sales force serves clients in more than one hundred countries through a worldwide distribution network.
Buckingham CPAC, Inc.
c/o Buckingham Capital Partners II, L.P.
950 Third Avenue, 19th Floor
New York, NY 10022
Buckingham CPAC, Inc., which we refer to as "Buckingham," is a Delaware corporation that was formed for the purposes of entering into the merger agreement, completing the transactions contemplated by the merger agreement and serving as a holding company for the operations of CPAC after the merger. Buckingham CPAC, Inc. has not conducted any activities to date other than activities relating to its formation and in connection with the transactions contemplated by the merger agreement. Buckingham was formed by Buckingham Capital Partners II, L.P., a private investment firm specializing in leveraged buyouts of US-based, lower middle market industrial and manufacturing companies.
Buckingham CPAC Acquisition Corp.
c/o Buckingham Capital Partners II, L.P.
950 Third Avenue, 19th Floor
New York, NY 10022
Buckingham CPAC Acquisition Corp., which we refer to as MergerCo, is a New York corporation and a wholly-owned subsidiary of Buckingham formed for the sole purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement. It has not conducted any activities to date other than activities relating to its formation and in connection with the transactions contemplated by the merger agreement.
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THE SPECIAL MEETING
Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by our board of directors for use at a special meeting to be held on Friday, March 30, 2007, beginning at 10:00 a.m., Eastern Time, at our principal executive offices at 2364 Leicester Road, Leicester, New York 14481. The purpose of the special meeting is for our shareholders to consider and vote upon a proposal to approve the merger agreement and to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement. A copy of the merger agreement is attached to this proxy statement as Annex A. This proxy statement, the notice of the special meeting and the enclosed form of proxy are first being mailed to our shareholders on or about March 1, 2007.
Record Date, Quorum and Voting Power
The holders of record of CPAC's common stock at the close of business on February 26, 2007, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. As of the record date, there were 4,946,774 shares of our common stock issued and outstanding, all of which are entitled to be voted at the special meeting.
Each outstanding share of our common stock on the record date entitles the holder to one vote on each matter submitted to shareholders for a vote at the special meeting.
The holders of one-third of the shares of our common stock outstanding on the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting; however, if holders of less than one-third of the shares of our common stock outstanding on the record date are represented at the special meeting, the shareholders present may adjourn the meeting. A quorum is necessary to hold the special meeting. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment or postponement of the special meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established.
Required Vote; Abstentions; Broker Non-Votes
For us to complete the merger, shareholders holding at least two-thirds of the shares of our common stock entitled to vote thereon must vote "FOR" the approval of the merger agreement. The proposal to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement requires that more votes be cast in favor of the proposal than against it.
In order for your shares of our common stock to be included in the vote, if you are a shareholder of record, you must vote your shares by returning the enclosed proxy or by voting in person at the special meeting.
If your shares are held in "street name" by your broker, you should instruct your broker how to vote your shares using the instructions provided by your broker. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker and it
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can give you directions on how to vote your shares. A broker non-vote generally occurs when a broker, bank or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received your voting instructions and lacks discretionary power to vote the shares. Broker non-votes and abstentions will not count as votes cast on a proposal, but will count for the purpose of determining whether a quorum is present. As a result, broker non-votes and abstentions will have the same effect as a vote against the approval of the merger agreement. Broker non-votes and abstentions have no effect on the proposal to authorize the proxy holders to vote to adjourn the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement.
Voting by Directors and Executive Officers
As of February 26, 2007, the record date, the directors and executive officers of CPAC held and are entitled to vote, in the aggregate, 343,713 outstanding shares of our common stock, representing approximately 6.95% of the outstanding shares of our common stock. The directors and executive officers have informed CPAC that they intend to vote all of their shares of our common stock "FOR" the approval of the merger agreement and "FOR" authorizing the proxy holders to adjourn or postpone, in their sole discretion, the special meeting to solicit additional proxies.
If you vote your shares of our common stock by signing a proxy, your shares will be voted at the special meeting in accordance with the instructions given. If no instructions are indicated on your signed proxy card, your shares will be voted "FOR" the approval of the merger agreement and "FOR" the authorization of the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement. The proxies will also be voted FOR or AGAINST such other matters as may properly come before the meeting at the discretion of the proxy holders. The persons appointed in the proxies as proxy holder are officers or directors of CPAC. Our management is not aware that any other matters are to be presented for action at the meeting.
You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must either: (i) advise our Corporate Secretary in writing, (ii) deliver a new proxy, or (iii) attend the special meeting and vote your shares in person. Attendance at the special meeting will not by itself constitute revocation of a proxy. If you have instructed your broker to vote your shares, the above-described options for revoking your proxy do not apply and instead you must follow the directions provided by your broker to change these instructions.
Expenses of Proxy Solicitation
CPAC will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of CPAC may solicit proxies personally and by telephone, facsimile or other electronic means of communication. These persons will not receive additional or special compensation for such solicitation services. In addition, Georgeson Shareholder Communications, Inc. will provide solicitation services to us for a fee of approximately $7,500 plus out-of-pocket expenses. CPAC will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
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Adjournments and Postponements
Once the special meeting has been called to order, the presiding chairman for the meeting may adjourn or postpone the special meeting without notice by an announcement at the meeting. Alternatively, if persons named as proxies by you are asked to vote for one or more adjournments or postponements of the meeting for matters incidental to the conduct of the meeting, such persons will have the authority to vote in their discretion on such matters. However, if persons named as proxies by you are asked to vote for one or more adjournments or postponements of the meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement, such persons will only have the authority to vote on such matter as instructed by you or your proxy, or, if no instructions are provided on your signed proxy card, they will only be able to vote in favor of such adjournment or postponement. Any adjou rnment or postponement of the special meeting for the purpose of soliciting additional proxies will allow CPAC shareholders who have already sent in their proxies to revoke them at any time prior to their use. If another matter is presented at the adjournment or postponement which is properly presented at the special meeting or any such adjournment or postponement, the proxies will be voted FOR or AGAINST such other matters at the discretion of the proxy holders.
Prior to the special meeting, a complete list of our shareholders entitled to vote at the special meeting, or any adjournment thereof, will be available for inspection by any of our shareholders during normal business hours at our principal executive offices located at 2364 Leicester Road, Leicester, New York 14481. In addition, the same list will be available for examination by any of our shareholders at the special meeting.
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THE MERGER
During 2004, CPAC's board of directors and senior management team began engaging in specific discussions focused on strategies to enhance the Company's value to its shareholders in light of (1) the rapidly-changing disclosure environment for public companies, (2) CPAC's status as a small public company with scant research coverage and limited stock liquidity and (3) the challenges facing CPAC's business segments, particularly its Imaging segment. The board of directors recognized at this time that it would become increasingly difficult to justify the substantial costs associated with compliance with various provisions of the Sarbanes-Oxley Act and other rule-making initiatives affecting public companies. The board of directors acknowledged that, given CPAC's status as a small public company, the impact of those additional compliance and disclosure costs on CPAC would be particularly burdensome, and they would be amplified by the d iverse nature of CPAC's two business segments and its global operations. Because of these factors, and following various strategic planning discussions, the board of directors engaged KeyBanc in 2004 to act as the Company's investment banker in connection with a potential sale of the Company's Imaging segment.
In December 2004, the board of directors reviewed a presentation by KeyBanc regarding the sale of the Company's Imaging segment. At that time, KeyBanc had obtained signed confidentiality agreements with thirty potential buyers of the Imaging segment, and an offering memorandum regarding the proposed sale was in nearly final form.
However, the board of directors decided to delay distributing the offering memorandum for the sale of the Imaging segment because CPAC was in discussions with a potentially significant new Imaging segment customer whose business, if won, might improve the prospects of the segment significantly. During this time, the board of directors received and rejected as being too low an unsolicited indication of interest that had been received, regarding a proposal to acquire the entire Company at a price of $6.50 per share, which was below the then current tangible book value of the Company.
During early 2005, the board of directors continued its discussions regarding strategic alternatives and conferred with a consultant regarding various strategies that could be pursued in connection with an effort to continue its operations while eliminating the cost of being a public company. The board of directors continued to discuss the ongoing challenges faced by the Company, given its relatively small size, worldwide operations, and the unique circumstances faced by its two different segments. Negotiations with the potential new Imaging segment customer continued throughout the first half of 2005. At its meeting in April 2005, the board of directors talked about the continuing nature of those negotiations and the effect they were having on its efforts to market and sell the Imaging segment. The board of directors also began to discuss preliminary valuation ranges for the Company's Fuller Brands segment if it were to be sold in a separate transaction. In June 2005, the board of directors again met and discussed the status of the Company's continuing negotiations with the potential new Imaging segment customer, and the board of directors continued to consider other corporate developments in the context of its overall strategic decision-making regarding the Company and potential sale transactions. As a result, the board of directors decided to explore a sale of the entire company and created an ad hoc committee comprised of three board members to meet with investment bankers to gather more information about this strategic alternative.
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On August 12, 2005, Mr. Hendrickson, the Company's president and chief executive officer, reported that he and two of the Company's other directors, acting as an ad-hoc committee of the board of directors, had met with representatives of three different investment banking firms in an effort to select an investment banker that would provide strategic advice to the board of directors. The ad-hoc committee met again on August 22, 2005 and finalized a recommendation that the board of directors engage William Blair & Company, L.L.C. ("Blair"), to perform a strategic alternatives review. The board of directors also authorized the retention of a separate law firm to represent the independent directors and advise generally in matters related to potential conflicts of interests and fiduciary duties, in connection with the ongoing efforts to evaluate strategic alternatives on behalf of the Company and its shareholders.
Subsequently, management submitted to Blair various operational, strategic and financial information. Blair's representatives reviewed and discussed this information with management, performed certain analyses and toured certain facilities of the Company.
The board of directors met with representatives of Blair on October 18, 2005. At that meeting, Blair presented preliminary information that it had developed as part of its effort to assist the board of directors with its strategic planning. In particular, the board of directors discussed with representatives of Blair different potential strategic alternatives, the possibility of engaging in a transaction related to one or both of the Company's segments and the corresponding costs associated with operating as a public company, especially if only one segment remained.
Blair made a more detailed presentation of strategic alternatives to the board of directors on November 17, 2005. At that meeting, the analysis presented by Blair included a review and discussion of the following:
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The board of directors reviewed Blair's presentation, and discussed in detail its various recommendations and conclusions.
The board of directors decided at its November 17, 2005 meeting that it would take action at its next meeting to decide whether it would move ahead with a particular strategic alternative and, if so, whether it would formally retain Blair or KeyBanc (which had previously been engaged by the Company to pursue a sale of the Imaging segment) to serve as the Company's investment banker.
At its December 13, 2005 meeting, the board of directors continued its discussion of the strategic alternatives presented by Blair, and it adopted a recommendation that the Company set a deadline for finalizing its on-going negotiations with a new potential Imaging segment customer and, if those negotiations could not be finalized within a short period of time, pursue a strategy of selling the entire Company in a single transaction. The board of directors discussed specifically the possibility that one buyer of the entire company might not emerge, and that the Company might need to pursue secondary strategies of selling each of its two operating segments in separate transactions.
The board of directors decided at the December 13, 2005 meeting to engage Blair to act as its investment banker in connection with its efforts to pursue the aforementioned strategies. In addition, the board of directors approved arrangements with KeyBanc under which KeyBanc would agree to a fixed fee for the issuance of a fairness opinion regarding a future transaction, in exchange for a waiver of any fee to which it might become entitled under its prior engagement with the Company. In deciding to retain KeyBanc to issue the fairness opinion, the board of directors took particular note of the benefits of retaining an investment bank to issue the fairness opinion separate from Blair. Blair had been retained to represent the Company, first to review strategic alternatives, and then to advise the board of directors in pursuing a specific transaction.
In June 2006, with negotiations concerning the potential new Imaging segment customer still not finalized, Blair initiated a broad sales process on behalf of the Company. A total of 156 potential buyers were contacted by Blair. Of those, forty-four potential buyers (comprised of forty-one financial buyers and three strategic buyers) reviewed a confidential offering memorandum prepared by CPAC's management team and Blair and approved by the Company's board of directors. Between June and September 2006, Blair, acting on behalf of the board of directors, engaged in discussions with each of those forty-four parties. In September 2006, six of those parties submitted preliminary indications of interest. The parties comprised one potential strategic buyer and five potential financial buyers. The indications of interest represented enterprise values (i.e., combined equity and debt value) ranging from $27 million to $37 million. This range was well below the enterprise value of $46 million implied by the proposal ultimately submitted by Buckingham.
During September and October 2006, CPAC hosted detailed management presentations for each of the six parties submitting preliminary indications of interest, and CPAC provided each of those parties with access to an electronic data room containing information regarding the Company and its operations. At the management presentations, updated financial information was shared and the projections for the Imaging segment were significantly modified to reflect improvements against both the current year budgets and forward projections that were originally provided. Detailed explanations and discussions of operating results and of significant new business developments in both segments were presented to each of the six potential buyers along with presentations of business development strategies. Detailed discussions and analyses of actual results in excess of budgets for the first six months of the fiscal year
19
were also provided. At the direction of the board of directors, representatives of Blair also distributed a draft merger agreement to each party. For those of the six parties who expressed interest, CPAC management also conducted plant tours and responded to questions and other due diligence requests.
Negotiations with Buckingham
On November 14, 2006, in response to bidding procedures submitted to all interested parties, Buckingham submitted a draft letter of intent to Blair. The Buckingham draft letter of intent reflected a proposed purchase price of $8.75 per share, but the proposed purchase price was based upon an assumption that CPAC at closing would have debt and cash balances in offsetting amounts and also implied that CPAC's transaction costs would be a reduction to the per share price that CPAC shareholders would receive.
None of the other parties who submitted a preliminary indication of interest submitted a refined proposal to purchase CPAC as a whole business. During the diligence phase, one of the six parties who previously submitted an indication of interest expressed an interest in pursuing a potential purchase of the Imaging segment and another of those six parties had expressed an interest in pursuing a potential purchase of the Fuller Segment. After consulting with CPAC management, representatives of Blair sought to have these two parties submit a joint proposal. However, these parties indicated that their combined enterprise value would be well below the implied enterprise value of the Buckingham proposal and thus the joint proposal approach was abandoned.
On November 15, 2006, Buckingham sent a draft of a merger agreement, reflecting its proposed changes to the form of merger agreement prepared by CPAC. Later that day, Blair forwarded the letter of intent and the draft merger agreement to the CPAC senior management team and legal counsel.
On November 16, 2006, Blair held a telephone conference with the CPAC's senior management team to discuss the Buckingham bid, particularly the effect on the proposed per share purchase price of Buckingham's assumptions regarding debt and cash balances as well as transaction expenses.
On November 17, 2006, a meeting of the board of directors was held by telephone to discuss the Buckingham proposal. During that meeting, Blair described the provisions of the proposal to the board of directors, and Blair further described its various discussions with Buckingham and with other potential acquirors. In particular, Blair analyzed the per share price of $8.75, and the effect of Buckingham's assumptions regarding debt and cash balances as well as transaction expenses, and the effect of these assumptions on the ultimate price that would be paid to the CPAC's shareholders if a transaction were consummated on the terms contemplated by the Buckingham proposal. In addition, Blair and the Company's legal counsel advised the board of directors of the following additional significant aspects of the Buckingham proposal:
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The board of directors discussed the Buckingham proposal at length, including the consideration to be received by shareholders in the merger and concluded that it represented significant value for the common shareholders, particularly in view of the recent trading price for CPAC's common stock, as well as the historical volatility and limited liquidity of CPAC's common stock. The board also considered the high costs associated with CPAC remaining a public company, and the effect that those costs would have on its ability to generate strong financial results for the benefit of its shareholders. The board of directors weighed these costs against the purported benefits of being a public company, such as enhanced access to the capital markets, and concluded that for CPAC the costs of remaining as a public company outweighed the benefits. In its discussions, the board of directors thought it significant that the proposed Buckingham transac tion was not subject to any financing contingency and that Buckingham's strong interest in the merger made it likely that the transaction would be completed in a timely fashion. Finally, the board of directors considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including:
At the conclusion of its discussions, the board of directors authorized Blair to engage in further discussions with Buckingham regarding its proposal and in particular to seek: (1) additional clarification regarding the proposed per share purchase price and the effect on the purchase price payable to shareholders after giving effect to Buckingham's assumption regarding debt and cash balances; (2) an agreement by Buckingham to pay the Company's costs associated with the completion of the merger, estimated to be approximately $3.5 million; and (3) a reduction in the exclusivity term to thirty days. The board of directors further authorized the Company's senior management team to execute the letter of intent on behalf of the Company, assuming a satisfactory resolution of the aforementioned points.
Following the meeting of the board of directors on November 17, 2006, representatives of Blair and Buckingham engaged in several telephone discussions regarding the matters described above.
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Also on November 17, 2006, a seventh preliminary indication of interest was received. The purchase price in this new preliminary indication of interest was significantly less than Buckingham's proposed purchase price of $8.75 per share, and the new preliminary indication of interest also contained significant contingencies and a provision for a sixty-day exclusivity period. Because of the price disparity and other unfavorable characteristics, the board of directors chose not to pursue the new preliminary indication of interest.
On November 20, 2006, Buckingham submitted a revised letter of intent with a per share purchase price of $8.65, which reflected the "net" amount payable to shareholders and provided that such amount was not subject to the assumption regarding offsetting debt and cash balances. Buckingham also proposed to pay, with no reduction to the per share price payable to the Company's shareholders, the Company's transaction costs and expenses, which were estimated to be approximately $3.5 million. Buckingham's letter of intent also reflected a reduction in the term of the exclusivity period to thirty days.
On November 21 and 22, 2006, Buckingham and Blair discussed the revised letter of intent and Blair reported the results of these discussions to CPAC's senior management and legal counsel.
On November 21, 2006, the party who submitted the seventh indication of interest submitted a letter of intent at the same price as its indication of interest. That party also advised Blair that it would be unwilling to increase that price substantially.
On November 22, 2006, Buckingham, Buckingham's legal counsel, Blair and CPAC's legal counsel discussed and negotiated a number of provisions regarding the exclusivity provisions, and agreed to include provisions providing for a thirty-day exclusivity period and further references to the exclusivity provisions to be included in the eventual merger agreement, including a termination fee in the amount of $1.75 million to be included within the terms of the merger agreement and to be payable under certain circumstances. The parties executed the letter of intent on November 24, 2006.
During late November and early December 2006, CPAC and Buckingham negotiated specific provisions of the merger agreement, and Buckingham continued its due diligence review of CPAC's business and operations. During that time, Buckingham continued to work with its proposed lenders to obtain financing commitment letters in advance of entering into the merger agreement. On December 11, 2006, CPAC's board of directors met and reviewed the then-current draft of the merger agreement in detail. At that meeting, CPAC's legal counsel and Blair provided updates on the status of negotiations regarding the terms of the merger agreement, and regarding Buckingham's efforts to obtain financing for the transaction. The board of directors also reviewed and discussed a proposed timeline for the transaction. At that meeting, which representatives of Blair and KeyBanc attended by teleconference, the board of directors discussed the terms of the merger at length, and it specifically discussed the merger consideration and the historic volatility and limited liquidity of CPAC's common stock. The board of directors questioned the Company's legal counsel and its other advisors regarding the open matters in the merger agreement and received updates regarding the status of Buckingham's efforts to obtain financing. The board of directors discussed and reiterated its reasons for entering into the letter of intent and pursuing the transaction with Buckingham and, at the conclusion of the meeting, authorized the Company's senior management team to proceed to finalize the terms of the merger agreement with Buckingham, subject to final review and approval by the board of directors.
On December 15, 2006, Blair received from Buckingham an update on its efforts to obtain financing commitments for the transaction, which included an expectation that formal financing
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commitment letters would be issued by those lenders following internal review meetings to be held on December 20, 2006.
On December 21, 2006, CPAC entered into an amendment to its existing shareholder rights agreement, or "poison pill," which had the effect of removing the proposed transactions with Buckingham from the scope and coverage of the shareholder rights agreement. Later that day, Buckingham forwarded to CPAC executed copies of financing commitment letters from LaSalle Bank and Fifth Street Capital regarding financing for the transactions contemplated by the merger agreement.
CPAC's board of directors met by telephone conference on December 22, 2006. Prior to that meeting, each of the directors had received copies of the December 18, 2006 draft of the merger agreement, copies of a presentation to be made by KeyBanc regarding its delivery of a fairness opinion concerning the transaction, and copies of the executed financing commitment letters. At the outset of that meeting, CPAC's legal counsel discussed the merger agreement in detail with the board of directors, and the board of directors asked questions regarding its terms, in particular the terms related to exclusivity, conditions to closing and the Company's ability to terminate the merger agreement if the board of directors determined it was required to do so in the exercise of its fiduciary duty. Following that discussion, representatives of Blair discussed in detail the terms of Buckingham's financing commitment letters and highlighted for the board of directors the nature of the commitments, and the fact that formal loan agreements had not yet been executed. KeyBanc then presented its analysis regarding the issuance of a fairness opinion for the transaction. The board of directors engaged in an extended dialog regarding the sale process and the various levels of analysis conducted by KeyBanc. KeyBanc concluded its presentation by providing the board of directors its oral opinion that as of December 22, 2006, and based upon and subject to the assumptions, limitations and qualifications set forth therein and the other factors KeyBanc considers relevant, the merger consideration to be received by CPAC's shareholders pursuant to the merger agreement is fair, from a financial point of view, to CPAC's shareholders. The board of directors then proceeded to review, discuss and reaffirm its reasons for engaging in the transaction and entering into the merger agreement with Buckingham, as more fully described below. At the conclusion of that discussion, the boar d of directors unanimously adopted resolutions approving of the merger agreement, ratifying the amendment to CPAC's rights agreement to exclude the transactions contemplated by the merger agreement from its scope, and authorizing the Company's officers to execute and deliver the merger agreement. Later that afternoon, KeyBanc delivered its written fairness opinion to CPAC's board of directors and the merger agreement was signed by CPAC and by Buckingham.
On December 26, the first business day after the merger agreement was executed, a press release announcing the transaction was issued.
Recommendation of CPAC's Board of Directors; Reasons for the Merger
After careful consideration our board of directors has:
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In the course of reaching its decision to approve the merger agreement, our board of directors consulted with CPAC's financial and legal advisors and considered the following material factors.
The board believed that the consideration to be received by shareholders in the merger - $8.65 per share in cash - represented significant value for the common shareholders.
The historical volatility and limited liquidity in CPAC's stock price is an important factor in weighing the $8.65 per share cash offer against the expected future value of CPAC's common stock.
The board considered the high costs associated with CPAC remaining a public company, and the effect that those costs would have on its ability to generate strong financial results for the benefit of its shareholders.
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The board thought it significant that the transaction was not subject to any financing contingency and that Buckingham's strong interest in the merger made it likely that the merger would be completed.
While the board believes Buckingham's merger proposal to be in the best interests of CPAC and its shareholders, the merger agreement provides an appropriate mechanism to permit the board to consider a superior proposal that may be made by third parties.
The board's process in negotiating and approving the transaction took into account the opinion of its financial advisors as to the fairness, from a financial point of view, of the merger consideration, and the advice of its legal advisors on key contractual protections.
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Our board of directors also considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including the following:
The foregoing discussion of the factors considered by our board of directors is not intended to be exhaustive, but does set forth a summary of the material factors considered by our board of directors in its consideration of the merger. After considering these factors, the board of directors concluded that the positive factors relating to the merger agreement and the merger outweighed the negative factors. In view of the wide variety of factors considered by our board of directors, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition,
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individual members of our board of directors may have assigned different weights to various factors. Our board of directors unanimously adopted and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.
KeyBanc was asked by CPAC's board of directors to render an opinion to CPAC's board of directors as to the fairness, from a financial point of view, to CPAC's stockholders of the consideration to be received by the stockholders of CPAC in connection with the merger. On December 22, 2006, KeyBanc delivered to CPAC's board of directors its oral opinion, subsequently confirmed in writing on that date, that, as of the date of its opinion, based upon and subject to the assumptions, limitations and qualifications contained in its opinion, and other matters KeyBanc considers relevant, the consideration to be received by the stockholders of CPAC pursuant to the merger agreement is fair, from a financial point of view, to the stockholders of CPAC.
The full text of the written opinion of KeyBanc is attached to this Proxy Statement as Annex B and incorporated into this Proxy Statement by reference. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.
KeyBanc was retained to serve as an advisor to CPAC's board of directors and not as an advisor to or agent of any stockholder of CPAC. KeyBanc's opinion was prepared for confidential use by CPAC's board of directors and is directed only to the fairness, from a financial point of view, as of the date of the opinion, of the consideration to be received by CPAC's stockholders in the merger and does not address CPAC's underlying business decision to enter into the merger agreement or any other terms of the merger or the merger agreement. KeyBanc's opinion does not constitute a recommendation to any CPAC stockholder as to how such stockholder should vote at any stockholders' meeting held in connection with the merger.
The merger consideration was determined in negotiations between CPAC and Buckingham, in which KeyBanc did not advise CPAC's board of directors. KeyBanc did not recommend the merger consideration. No restrictions or limitations were imposed by CPAC's board of directors on KeyBanc with respect to the investigations made or the procedures followed by KeyBanc in rendering its opinion.
In rendering its opinion, KeyBanc reviewed, among other things:
27
KeyBanc also had conversations with certain officers and employees of CPAC to discuss the business and prospects of CPAC, as well as other matters KeyBanc believed were relevant, and considered such other data and information that KeyBanc judged necessary to render its opinion.
You should note that in rendering its opinion, KeyBanc assumed the accuracy of and relied upon the accuracy and completeness of all of the financial and other information provided to it or otherwise reviewed by or discussed with KeyBanc or publicly available. KeyBanc also assumed the accuracy of and relied upon the representations and warranties of CPAC, Buckingham and MergerCo contained in the merger agreement. KeyBanc was not engaged to, and did not independently attempt to, verify any of that information. KeyBanc also relied upon the management of CPAC as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases for those projections) provided to it, and assumed, with the consent of CPAC's board of directors, that those projections were reasonably prepared and reflect the best currently available estimates and judgments of CPAC. KeyBanc was not engaged to assess the reasonable ness or achievability of those projections or the assumptions on which they were based and expressed no view on those matters. KeyBanc did not conduct a physical inspection or appraisal of any of the assets, properties or facilities of CPAC, nor was it furnished with any evaluation or appraisal. KeyBanc also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger would be obtained without a material adverse effect on CPAC or the merger.
KeyBanc was not asked to, nor did it render, any opinion as to the material terms of the merger agreement or the form of the merger transaction. KeyBanc, with the consent of CPAC's board of directors, assumed that the final executed form of the merger agreement would not differ in any material respect from the draft that KeyBanc examined in rendering its opinion, and that the conditions to the merger as set forth in the merger agreement would be satisfied and that the merger would be completed on a timely basis in the manner contemplated by the merger agreement. KeyBanc did not solicit, nor was it asked to solicit, third party interest in a transaction involving CPAC.
KeyBanc's opinion is based on economic and market conditions and other circumstances existing on, and information made available, as of the date of its opinion and does not address any matters after such date. Although subsequent developments may affect its opinion, KeyBanc does not have the obligation to update, revise or reaffirm its opinion.
The following is a brief summary of the analyses performed by KeyBanc in connection with its opinion. This summary is not intended to be an exhaustive description of the analyses performed by KeyBanc but includes all material factors considered by KeyBanc in rendering its opinion. KeyBanc drew no specific conclusions from any individual analysis, but subjectively factored its observations from all of these analyses into its qualitative assessment of the merger consideration.
28
Each analysis performed by KeyBanc is a common methodology utilized in determining valuations. Although other valuation techniques may exist, KeyBanc believes that the analyses described below, when taken as a whole, provide the most appropriate analyses for KeyBanc to arrive at its opinion.
Historical Stock Trading Analysis
KeyBanc reviewed the performance of CPAC's shares based on a historical analysis of closing prices and trading volumes for the one year and three year periods ended December 19, 2006. KeyBanc noted that CPAC's shares never closed above the merger consideration of $8.65 per Share in either of those periods.
KeyBanc also noted that the merger consideration of $8.65 per Share represents premiums of 14.1%, 16.0%, 31.3%, 58.1% and 61.7%, respectively, to CPAC's 30 day, three month, six month, one year and three year weighted average share prices based on the December 19, 2006 closing price of CPAC's common stock.
Precedent Transaction Analysis
KeyBanc reviewed certain publicly available financial data and purchase prices paid in 13 other comparable merger and acquisition transactions. KeyBanc selected these transactions based on the recent period in which they were completed and the similarity between CPAC's and the involved companies' products, end markets and distribution channels. CPAC's business model is unique in the sense that it divides operations between a cleaning segment and an imaging segment, and the companies involved in the precedent transactions primarily conduct operations in only one of these industries. Consequently, KeyBanc selected seven comparable transactions in the cleaning industry and six comparable transactions in the imaging industry.
Comparable Transactions - Cleaning Segment
Month and Year of |
|
Target |
|
Acquiror |
April 2001 |
Global Household Brands |
WD-40 Co. |
||
May 2001 |
USA Detergents, Inc. |
Church & Dwight Co. Inc. |
||
June 2002 |
DiverseyLever |
Johnson Wax Professional |
||
June 2002 |
Heartland Corporation |
WD-40 Co. |
||
November 2004 |
Playtex Products - Woolite Rug |
Bissell Homecare Inc. |
||
July 2006 |
American Sanitary Incorporated |
Interline Brands Inc. |
||
August 2006 |
Orange Glo International |
Church & Dwight Co. Inc. |
Comparable Transactions - Imaging Segment
Month and Year of |
|
Target |
|
Acquiror |
January 2003 |
Air Product & Chem. - Graphic Arts |
UCB SA |
||
January 2003 |
Konica Corp. |
Minolta Co. Ltd. |
||
August 2004 |
AgfaPhoto GmbH |
NannO Beteiligungsholding |
||
January 2005 |
Polaroid Holding Co. |
Petters Consumer Brands, LLC |
||
January 2005 |
Polychrome Graphics |
Eastman Kodak Co. |
||
January 2005 |
Sericol International Limited |
Fuji Photo Film Co. Ltd. |
29
For each transaction in each segment, KeyBanc initially calculated the ratios of the total enterprise value of the transaction (based on the acquisition price) to (1), to the extent available, the target company's revenue for the latest twelve month period ("LTM") ended on the last day of the period covered by the target company's Form 10-K or Form 10-Q, as applicable, last filed prior to the announcement of the relevant transaction, and (2), to the extent available, the target company's earnings before interest, taxes, depreciation and amortization, or EBITDA, for the LTM ended on the last day of the period covered by the target company's Form 10-K or Form 10-Q, as applicable, last filed prior to the announcement of the relevant transaction.. In calculating such ratios, KeyBanc calculated the total enterprise value of the transaction as the market value of the relevant target company's equity securities plus its indebtedness and minority interests less its cash and cash equivalents.
KeyBanc then used these ratios to determine the average and median revenue and EBITDA multiples for the selected precedent transactions in the cleaning segment and, separately, in the imaging segment.
KeyBanc next allocated CPAC's estimated LTM EBITDA of $5.8 million to its cleaning segment ($2.6 million) and its imaging segment ($3.2 million) pro rata based on fiscal year 2006 segment estimated EBITDA and management's projected fiscal year 2007 segment EBITDA. KeyBanc then (1) multiplied such cleaning segment estimated LTM EBITDA by the median multiple of enterprise value to EBITDA observed in the precedent cleaning segment transactions (8.6x) to determine the implied enterprise value of the CPAC cleaning segment ($22.8 million) and (2) multiplied such imaging segment estimated LTM EBITDA by the median multiple of enterprise value to EBITDA observed in the precedent imaging segment transactions (6.3x) to determine the implied enterprise value of the CPAC imaging segment ($20.1 million). KeyBanc then summed such implied segment enterprise values to determine CPAC's aggregate enterprise value ($42.9 million) based on the precedent t ransactions and divided such enterprise value by CPAC's estimated aggregate LTM EBITDA ($5.8 million) to determine CPAC's implied EBITDA multiple based on the precedent transactions (7.4x).
Finally, KeyBanc estimated a range around CPAC's implied EBITDA multiple (6.9x - 7.9x), calculated a price per share range based on such estimate ($7.62 - $8.77), and compared such price range per share to the $8.65 merger price. The following table sets forth KeyBanc's analysis:
Precedent Transactions |
|
Comparable |
CPAC |
CPAC |
|||||
Cleaning Segment - LTM |
|
|
8.6x |
$2.6M |
$22.8M |
||||
Imaging Segment - LTM |
6.3x |
$3.2M |
$20.1M |
||||||
Aggregate - LTM |
$5.8M |
$42.9M |
|||||||
No transaction utilized in the precedent transaction analysis is identical to the Merger. In evaluating the transactions, KeyBanc made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of
30
which are beyond the control of either CPAC or Buckingham and MergerCo. Mathematical analysis of comparable transaction data (such as determining means and medians) in isolation from other analyses is not an effective method of evaluating transactions.
Comparable Public Company Analysis
KeyBanc reviewed and compared publicly available selected financial data and stock trading prices for nine publicly traded companies chosen by KeyBanc that were deemed to be comparable to CPAC, five of which are in the cleaning segment and four of which are in the imaging segment. KeyBanc selected these comparable companies based on their similarity to CPAC with respect to products, end markets and distribution channels. CPAC's business model divided into a cleaning segment and an imaging segment is unique and the selected companies only conduct operations in one of the two industries. The comparable companies chosen by KeyBanc included:
|
Cleaning Segment : |
|
|
|||
Clorox Co. |
Church & Dwight Co. Inc. |
|||||
Ecolab Inc. |
Reckitt Benckiser plc |
|||||
WD-40 Co. |
|
|||||
Imaging Segment : |
||||||
|
Eastman Kodak Co. |
Konica Minolta Holdings Inc. |
||||
|
Fuji Photo Film Co. Ltd. |
Agfa-Gevaert NV |
For each of these comparable companies, KeyBanc initially calculated the applicable company's ratios of the total enterprise value as of December 19, 2006 to (1) that company's revenue for the LTM ended on the last day of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable, (2) that company's EBITDA for the LTM ended on the last day of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable, (3) that company's estimated revenue for the current and next fiscal years and (4) that company's estimated EBITDA for the current and next fiscal years.
KeyBanc also calculated the ratios of the common stock share price of each comparable company as of December 19, 2006 to consensus analyst estimated earnings per share for the current and next fiscal years. Revenue, EBITDA and earnings per share projections for the comparable companies were based on publicly available median consensus research analyst estimates.
KeyBanc used these comparable company ratios to determine the average and median multiples of enterprise value in each of the two industry segments. KeyBanc applied risk adjusted multiples to each due to CPAC's unique product mix, the uncertain growth outlook for CPAC's imaging segment associated with the overall decline in the U.S. traditional film imaging industry, and CPAC's relatively small market capitalization, revenue and EBITDA in comparison to its publicly traded competitors, including comparable companies selected by KeyBanc.
KeyBanc allocated CPAC's estimated LTM EBITDA of $5.8 million to its cleaning segment ($2.6 million) and its imaging segment ($3.2 million) pro rata based on fiscal year 2006 segment EBITDA and management's projected fiscal year 2007 segment EBITDA. KeyBanc also utilized CPAC management's estimate for current year EBITDA for its cleaning segment of $3.0 million and for its imaging segment of $3.8 million.
31
KeyBanc determined the implied enterprise value of the CPAC cleaning segment by (a) multiplying its estimated LTM EBITDA ($2.6 million) by the median risk-adjusted multiple of enterprise value to EBITDA for comparable cleaning segment companies (9.6x) to determine the implied enterprise value based on LTM EBITDA ($25.3 million) and (b) multiplying its estimated current year EBITDA ($3.0 million) by the median risk-adjusted multiple of enterprise value to EBITDA for comparable cleaning segment companies (9.7x) to determine the implied enterprise value based on estimated current year EBITDA ($29.2 million). KeyBanc then averaged such implied enterprise values to determine the cleaning segment's average implied enterprise value of $27.2 million based on estimated LTM and estimated current year EBITDA.
KeyBanc determined the implied enterprise value of the CPAC imaging segment by (a) multiplying its estimated LTM EBITDA ($3.2 million) by the median risk-adjusted multiple for comparable imaging segment companies (5.2x) to determine the implied enterprise value of the CPAC imaging segment based on LTM EBITDA ($16.7 million) and (b) multiplying its estimated current year EBITDA ($3.8 million) by the median risk-adjusted multiple for comparable imaging segment companies (5.7x) to determine the implied enterprise value based on estimated current year EBITDA ($22.0 million). KeyBanc then averaged such implied enterprise values to determine the imaging segment's average implied enterprise value of $19.3 million.
KeyBanc then summed the two segments' average implied enterprise values to determine CPAC's aggregate implied enterprise value ($46.6 million) based on the comparable company multiples, and divided such aggregate implied enterprise value by CPAC's estimated aggregate LTM EBITDA ($5.8 million) to determine CPAC's implied EBITDA multiple (8.0x).
Finally, KeyBanc estimated a range around CPAC's implied EBITDA multiple (7.5x - 8.5x), calculated a price per share range based on such estimate ($8.35 - $9.50), and compared such price range per share to the $8.65 merger price. The following table sets forth KeyBanc's analysis:
Comparable |
|
Comparable |
CPAC |
CPAC |
|||||
Cleaning Segment - LTM |
|
|
9.6x |
$2.6M |
$25.3M |
||||
Cleaning Segment - Current FY |
9.7x |
$3.0M |
$29.2M |
||||||
Average |
$27.2M |
||||||||
Imaging Segment - LTM |
5.2x |
$3.2M |
$16.7M |
||||||
Imaging Segment - Current FY |
5.7x |
$3.8M |
$22.0M |
||||||
Average |
$19.3M |
||||||||
Aggregate of Averages |
$46.6M |
||||||||
No company utilized in the comparable public company analysis is identical to CPAC. KeyBanc made judgments and assumptions with regard to industry performance, general business, economic,
32
market and financial conditions and other matters, many of which are beyond the control of either CPAC or Buckingham and MergerCo. Mathematical analysis of comparable public companies (such as determining means and medians) in isolation from other analyses is not an effective method of evaluating transactions.
Premiums Paid Analysis
Using publicly available information, KeyBanc reviewed 25 public merger and acquisition transactions announced in 2006, with enterprise values from $25 million to $100 million. KeyBanc deemed these transactions to be comparable in whole or in part to the merger. These transactions were not limited to acquisitions of imaging and cleaning product companies, but excluded all banking and insurance transactions.
For each of the target companies involved in the 25 public merger and acquisition transactions, KeyBanc examined the closing stock price one day, five days and thirty days prior to announcement, and the highest closing price during the 52 weeks prior to announcement of the relevant transaction in order to calculate the premium paid by the acquiror over the target's closing stock price at those points in time. KeyBanc then determined the mean, median, minimum and maximum premiums observed for each of the examined time periods.
KeyBanc then compared those premiums to the price per share at those points in time relative to the announcement of the merger compared to the $8.65 merger consideration. The results of this transaction premium analysis are set forth in the table below.
Implied Premium |
|||||||||
|
|
52-Week |
|
1 Day |
|
5 Day |
|
30 Day |
|
Mean |
|
(10.1) |
% |
29.0 |
% |
29.7 |
% |
28.4 |
% |
Median |
|
(10.7) |
% |
26.7 |
% |
29.8 |
% |
25.9 |
% |
Merger at $8.65 per Share |
|
1.8 |
% |
8.1 |
% |
12.2 |
% |
1.8 |
% |
CPAC Prices as of 12/19/06 |
$8.50 |
$8.00 |
$7.71 |
$8.50 |
|||||
Implied Price Using Median |
$7.59 |
$10.13 |
$10.01 |
$10.70 |
Discounted Cash Flow and Leveraged Buyout Analysis
KeyBanc did not perform a discounted cash flow analysis or a leveraged buyout analysis for CPAC because CPAC's management informed KeyBanc that due to the uncertain growth prospects of its imaging segment associated with the overall decline in the U.S. traditional film imaging industry and the inherent unreliability of prospective results, they had not prepared projections beyond fiscal year 2008.
Conclusion
The summary set forth above describes the principal analyses performed by KeyBanc in connection with its opinion delivered to CPAC's board of directors on December 22, 2006. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant
33
methods of financial analysis and the application of these methods to the particular circumstances and, therefore, the analyses underlying the opinion are not readily susceptible to summary description. Each of the analyses conducted by KeyBanc was carried out in order to provide a different perspective on the merger and add to the total mix of information available. KeyBanc did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, KeyBanc considered the results of the analyses in light of each other and ultimately reached its opinion based upon the results of all analyses taken as a whole. Except as indicated above, KeyBanc did not place particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, support its determination. Accordingly, notwithstanding the separate factors summarized above, KeyBanc believes that its analyses must be considered as a whole and that selecting portions of its analysis and the factors considered by it, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinion. In performing its analyses, KeyBanc made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by KeyBanc are not necessarily indicative of actual value or future results, which may be significantly more or less favorable than suggested by the analyses.
Miscellaneous
Pursuant to the terms of an engagement letter dated January 20, 2006, CPAC's board of directors agreed to cause CPAC to pay KeyBanc a fee for rendering its opinion to CPAC's board of directors that is customary in transactions of this nature. The Board also agreed to cause CPAC to reimburse KeyBanc for its reasonable out-of-pocket expenses under certain circumstances, and to indemnify KeyBanc and related persons against liabilities in connection with its engagement. The terms of the fee arrangement with KeyBanc were negotiated at arm's-length between CPAC's board of directors and KeyBanc.
KeyBanc has, in the past, provided investment-banking services to CPAC. In particular, in 2004 and 2005 KeyBanc served as advisor for CPAC's proposed sale of its Imaging segment. In the ordinary course of business, KeyBanc may actively trade the securities of CPAC for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in those securities.
Operations of CPAC Following the Merger
If the merger agreement is approved by CPAC's shareholders and the other conditions to the closing of the merger are either satisfied or waived, MergerCo will be merged with and into CPAC, with CPAC being the surviving corporation. Following the merger, CPAC will be a wholly-owned subsidiary of Buckingham. If the merger is completed, CPAC's shareholders will have no ongoing ownership interest in the continuing business of CPAC.
Interests of CPAC's Directors and Executive Officers in the Merger
In considering the recommendation of CPAC's board of directors, CPAC's shareholders should be aware that CPAC's executive officers and members of its board of directors may have interests in the transaction that are different from, and/or may be in addition to, the interests of CPAC shareholders generally. These interests may present the directors and executive officers with actual or potential conflicts of interests, and these interests, to the extent material, are described below:
34
CPAC's board of directors was aware of these different and/or additional interests and considered them, among other matters, in the board's evaluation and negotiation of the merger agreement and concluded that, in light of the terms of the merger, the interests of CPAC shareholders and the fact that the arrangements giving rise to these interests were reasonable, the merger agreement and the merger are in the best interest of CPAC shareholders.
CPAC Stock Options
As of the record date, there were 403,000 shares of CPAC common stock subject to options granted to our directors and executive officers. The merger agreement provides for the execution of Option Cancellation Agreements prior to the closing of the merger. The Option Cancellation Agreements provide that all outstanding options for CPAC common stock (including those held by our executive officers and directors) will vest and that all options (including previously unvested options) will be
35
cancelled in consideration of a payment, on a per option share basis, equal to the excess, if any, of the $8.65 per share merger consideration over the exercise price payable in respect of the common stock issuable under such option.
The following table sets forth, as of February 26, 2007, the record date for the special meeting, stock option information for each person who is a director of CPAC and for each person who is an executive officer of CPAC.
|
Shares underlying |
|
Shares underlying |
|
Total of |
|
Total consideration payable |
|
Directors: |
||||||||
Thomas N. Hendrickson (2) |
75,000 |
0 |
75,000 |
$149,155 |
||||
Thomas J. Weldgen (3) |
55,500 |
5,000 |
60,500 |
$149,163 |
||||
Robert Oppenheimer (4) |
21,000 |
3,000 |
24,000 |
$55,515 |
||||
Jerold L. Zimmerman (5) |
33,000 |
3,000 |
36,000 |
$81,315 |
||||
Stephen J. Carl (6) |
24,000 |
3,000 |
27,000 |
$87,030 |
||||
José J. Coronas (7) |
21,000 |
3,000 |
24,000 |
$67,890 |
36
William M. Carpenter (8) |
18,000 |
3,000 |
21,000 |
|
$73,440 |
||||
Executive Officers: |
|
|
|||||||
Wendy F. Clay, (9) |
13,000 |
0 |
13,000 |
|
$23,373 |
||||
James W. Pembroke (10) |
28,000 |
0 |
28,000 |
|
$64,578 |
||||
All Directors and Executive Officers as a group (nine persons) |
288,500 |
20,000 |
308,500 |
|
$751,459 |
(1) |
Reflects the value of "in-the-money" options from Column C above. Column D does not reflect the deduction of applicable withholding taxes. |
(2) |
Includes 25,000 options granted on April 6, 1999, and 50,000 options granted on August 8, 2001, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan |
(3) |
Includes 8,000 options granted on August 10, 1999, 7,500 options granted on June 7, 2000, 25,000 options granted on June 6, 2001, and 15,000 options granted on June 4, 2003, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(4) |
Includes 3,000 options granted on August 13, 1999, 3,000 options granted on August 11, 2000, 3,000 options granted on August 10, 2001, 3,000 options granted on August 9, 2002, 3,000 options granted on August 15, 2003, and 3,000 options granted on August 13, 2004, 2,000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006 all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(5) |
Includes 15,000 options granted on April 4, 2000, 3,000 options granted on August 11, 2000, 3,000 options granted on August 10, 2001, 3,000 options granted on August 9, 2002, 3,000 options granted on August 15, 2003, 3,000 options granted on August 13, 2004, 2,000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(6) |
Includes 15,000 options granted on April 16, 2003, 3,000 options granted on August 15, 2003, 3,000 options granted on August 13, 2004, 2000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(7) |
Includes 15,000 options granted on September 29, 2003, 3,000 options granted on August 13, 2004, 2000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(8) |
Includes 15,000 options granted on April 16, 2005, 2,000 options granted on August 19, 2005 and 1,000 option granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(9) |
Includes 5,000 options granted on August 10, 1999 and 8,000 options granted on June 6, 2001, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(10) |
Includes 5,000 options granted on August 10, 1999, 3,000 options granted on June 7, 2000, 8,000 options granted on June 6, 2001, 5,000 options granted on June 4, 2003, and 7,000 options granted October 7, 2003, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
Sale Bonuses for Executive Officers
In January 2006, the compensation committee of the board of directors recommended that the board of directors adopt a cash bonus program for certain key employees of the Company to motivate such employees to strive to obtain as high a purchase price as possible in the event that the Company were to be sold. At that time, the board of directors was actively engaged in a process that could result in
37
the sale of the Company, as discussed in greater detail above under the heading "The Merger - Background of the Merger."
Under the sale bonus program adopted by the board of directors, ten employees were named as participants, including Mr. Hendrickson, Mr. Weldgen, Ms. Clay and Mr. Pembroke. Each named employee was eligible to receive a bonus in an amount equal to a certain percentage of that employee's base salary. The percentage ranged from a low of ten percent to a high of seventy-five percent, with the exact percentage depending on the amount of the aggregate purchase price, less investment banking fees.
If the merger is completed, pursuant to the sale bonus program Mr. Hendrickson will receive $326,063, Mr. Weldgen will receive $168,750, Ms. Clay will receive $127,095 and Mr. Pembroke will receive $120,239.
Severance Benefits for Executive Officers
Mr. Hendrickson. Mr. Hendrickson has a pre-existing employment agreement with the Company that contains severance arrangements. Pursuant to those severance arrangements, subject to certain limitations, if Mr. Hendrickson's employment with the Company is terminated for any reason, then the Company shall provide Mr. Hendrickson with the following benefits: (1) the continued payment of his salary for the then remaining term of his employment agreement, which could be a period of up to twelve months; (2) the payment of a bonus in an amount equal to the highest annual bonus that Mr. Hendrickson received during the three fiscal years of the Company immediately preceding the termination of his employment; and (3) non-qualified Company stock options at a price and for a term equal to the qualified Company options, if any, that Mr. Hendrickson holds on the date his employment is terminated.
At this time, it cannot be ascertained whether Mr. Hendrickson would receive the aforementioned severance benefits following the closing of the merger because Mr. Hendrickson has not received notice that his employment with the Company will be terminated following the merger.
Mr. Weldgen. Mr. Weldgen has a pre-existing severance arrangement with the Company. Pursuant to that arrangement, subject to certain limitations, if the Company experiences a change-in-control and Mr. Weldgen's employment with the Company is subsequently terminated, then the Company shall provide Mr. Weldgen with the following benefits: (1) a single lump-sum severance payment in an amount equal to (a) one-twelfth of the number of months that Mr. Weldgen has been employed by the Company multiplied by (b) one-twelfth of the sum of the amount of Mr. Weldgen's then current base salary and the amount of his then current target bonus; (2) the continuation, for a period equal to one-twelfth of the number of months that Mr. Weldgen has been employed by the Company, of the health insurance, life insurance and other similar benefits Mr. Weldgen received from the Company; (3) the acceleration of the vesting of Company stock options previo usly awarded to Mr. Weldgen; (4) the continuation for two years of any arrangements Mr. Weldgen had been receiving for financial counseling and the provision of a company-provided car; and (5) the payment of reasonable outplacement services.
The merger transaction would constitute a change-in-control for purposes of Mr. Weldgen's severance arrangement. However, at this time, it cannot be ascertained whether Mr. Weldgen would receive the aforementioned severance benefits following the closing of the merger because Mr. Weldgen has not received notice that his employment with the Company will be terminated following the merger.
Other Executive Officers. In January 2006, the compensation committee of the board of directors recommended that the board of directors adopt a severance benefit program for certain key employees of
38
the Company to encourage such employees to remain with the Company during the pendency of any sale of the Company and to offer an incentive for such employees to promote and endorse any such sale. At that time, the board of directors was actively engaged in a process that could result in the sale of the Company, as discussed in greater detail above under the heading "The Merger - Background of the Merger."
Fourteen employees were named by the board of directors as participants in the Company's severance benefit program, including, Ms. Clay and Mr. Pembroke. Mr. Hendrickson and Mr. Weldgen were not named as participants in this program because of the pre-existing severance arrangements in their agreements with the Company, as discussed above. Each named employee was eligible to receive a severance benefit in an amount equal to six months salary. The benefit would be paid in six equal monthly payments, commencing once their employment with the Company terminated. The severance benefit would be paid to an employee only if (1) the employee was not offered a comparable position and salary and (2) was not retained in such position for at least six months following the sale of the Company. No severance benefit would be paid if an employee resigned voluntarily or refused to accept a comparable position and salary with the Company following the sale.
The merger transaction would constitute a change-in-control for purposes of Company's severance benefit program. However, at this time, it cannot be ascertained whether any of the fourteen participants in the program would receive the aforementioned severance benefits following the closing of the merger because none of them has received notice that his or her employment with the Company will be terminated following the merger.
Acceleration of Non-Qualified Deferred Compensation for Mr. Hendrickson
On October 13, 1992, CPAC entered into a deferred compensation arrangement with Mr. Hendrickson and contributed $250,000 to a trust in order to provide itself with a source of funds to meet its obligations thereunder. Subsequently, Mr. Hendrickson has elected to make significant annual deferrals under this deferred compensation arrangement, and a portion of annual deferrals has been used to continue funding a $325,000 variable, universal life insurance policy on the life of Mr. Hendrickson with the trust as the beneficiary thereof. The arrangement calls for the payment of the principal amount contributed to the trust, plus earnings thereon, in ten annual payments of principal and earnings, to Mr. Hendrickson or his beneficiaries upon his retirement, his separation from service due to total disability or his death.
The arrangement provides that in the event of a change in control of the company, one lump-sum payment of the entire amount in trust is to be made within seven days of the change of control. The arrangement further provides that Mr. Hendrickson will receive a payment, in addition to his lump sum, so that the combined lump sum and additional payment after federal and applicable state income tax have a present value, using a discount rate of the prime rate of interest plus 2%, equal to the after-tax present value of a ten-year installment payout of the value of the arrangement.
If the merger is completed, it will constitute a "change in control" for purposes of the deferred compensation arrangement with Mr. Hendrickson. Accordingly, Mr. Hendrickson will be entitled to receive the entire amount in the trust in one lump-sum payment within seven days of the closing of the merger. In addition, Mr. Hendrickson will be entitled to receive the additional "tax gross-up" payment described above. CPAC estimates that the total amount of the payment to be made to Mr. Hendrickson under the deferred compensation arrangement as a result of the closing of the merger will be $2,218,808.
39
The total liability related to this deferred compensation arrangement is, and historically has been, recorded on CPAC's balance sheet, along with a corresponding asset. Except for the tax gross-up, the existence of the deferred compensation arrangement for Mr. Hendrickson has no effect on CPAC's net book value.
Acceleration of Non-Qualified Deferred Compensation for Executive Officers
Effective January 1, 2000, the Company adopted a non-qualified deferred compensation plan for certain key employees of the Company, including all of the Company's executive officers. The purpose of the plan is to provide eligible employees the opportunity to defer taxation of a portion of their compensation. Contributions to the plan are made by the participating employees and consist of "excess" 401(k) deferrals and selected percentages of salaries and bonuses with a maximum individual deferral of $100,000 per year. Eligible employees, including all of the Company's executive officers, have at one or more times elected to make annual deferrals under this non-qualified deferred compensation plan.
The non-qualified deferred compensation plan provides that in the event of a change in control of the company, each participating employee shall receive one lump-sum payment of equal to the entire amount of their deferred compensation under the plan.
If the merger is completed, it will constitute a "change in control" for purposes of the non-qualified deferred compensation plan. Accordingly, each of the Company's executive officers, in addition to the other eligible employees participating in the plan, will be entitled to receive the entire amount they have deferred under the plan in one lump-sum payment following the closing of the merger. CPAC estimates that the total amount of the payments to be made to executive officers under the non-qualified deferred compensation plan as a result of the closing of the merger will be approximately $482,000.
Payment of Legal Fees to Director's Law Firm
Robert Oppenheimer, a member of our board of directors, is a partner with the law firm of Chamberlain D'Amanda Oppenheimer & Greenfield. Chamberlain D'Amanda Oppenheimer & Greenfield serves as general counsel to CPAC, and is representing CPAC in connection with the merger. For its representation of CPAC in connection with the merger and related matters, the firm will receive legal fees of $175,000.
Buckingham Stock Option Plan
If the merger is completed, Buckingham has indicated that a new employee stock option plan may be adopted for the Company. If they continue to be employed by the Company after the merger, certain of our executive officers could receive stock options under such a plan.
Potential Opportunity to Invest in Buckingham
Certain of our executive officers have had preliminary discussions with Buckingham about the possibility of them investing in Buckingham, on the same terms as Buckingham's other investors, if the merger is completed. No final understanding has been reached between Buckingham and any of our executive officers at this time.
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Indemnification and Insurance
Buckingham has agreed to indemnify, to the same extent as provided in our certificate of incorporation and bylaws or under New York law, each of our present and former directors and officers against all expenses, losses and liabilities incurred in connection with any claim, proceeding or investigation arising out of any act or omission in their capacity as an officer or director occurring on or before the effective time of the merger.
In addition, the merger agreement requires that the surviving corporation maintain in effect, for a period of six (6) years after the effective time of the merger, our current directors' and officers' liability insurance policies with respect to matters occurring prior to the effective time or obtain policies of at least the same coverage, subject to a maximum annual premium of 200% of our current premium. If the annual premiums of insurance coverage exceed 200% of our current annual premium, the surviving corporation must obtain a policy with the greatest coverage available for a cost not exceeding 200% of the current annual premium paid by us.
Material U.S. Federal Income Tax Consequences
The following discusses, subject to the limitations stated below, the material U.S. federal income tax consequences of the merger to U.S. holders of our common stock whose shares of our common stock are converted into the right to receive cash in the merger (whether upon the receipt of the merger consideration or pursuant to the proper exercise of appraisal rights). Non-U.S. holders of our common stock may have different tax consequences than those described below and are urged to consult their tax advisors regarding the tax treatment to them under U.S. and non-U.S. tax laws. We base this summary on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable current and proposed U.S. Treasury Regulations, judicial authority, and administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis.
For purposes of this discussion, we use the term "U.S. holder" to mean a beneficial owner of CPAC common stock that is:
The U.S. federal income taxes of a partner in a partnership holding our common stock will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding shares of our common stock should consult their own tax advisors.
41
This discussion assumes that you hold the shares of our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax that may be relevant to you in light of your particular circumstances, or that may apply to you if you are subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, dealers in securities or foreign currencies, tax-exempt organizations, financial institutions, mutual funds, partnerships or other pass through entities for U.S. federal income tax purposes, non-U.S. persons, shareholders who hold shares of our common stock as part of a hedge, straddle, constructive sale or conversion transaction, or shareholders who acquired their shares of our common stock through the exercise of employee stock options or other compensation arrangem ents). In addition, except as specifically provided below, the discussion does not address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to the U.S. federal income tax that may apply to you.
We urge you to consult your own tax advisor to determine the particular tax consequences to you, including the application and effect of any state, local or non-U.S. income and other tax laws, of the receipt of cash in exchange for our common stock pursuant to the merger.
The receipt of cash in the merger by U.S. holders of our common stock will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local and foreign tax laws). For U.S. federal income tax purposes, a U.S. holder of our common stock will recognize gain or loss equal to the difference between:
Such gain or loss will be capital gain or loss. If the holding period in our common stock surrendered in the merger is greater than one year as of the date of the merger, the gain or loss will be long-term capital gain or loss. The deductibility of a capital loss recognized on the exchange is subject to limitations under the Code. Certain U.S. holders, including individuals, are eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains (currently at a maximum rate of 15%). Short term capital gains rates are taxed at ordinary income rates. If you acquired different blocks of our common stock at different times and different prices, you must calculate your gain or loss and determine your adjusted tax basis and holding period separately with respect to each block of our common stock.
Under the Code, as a U.S. holder of our common stock, you may be subject to information reporting on the cash received in the merger unless an exemption applies. Backup withholding may also apply (currently at a rate of 28%) with respect to the amount of cash received in the merger, unless you provide proof of an applicable exemption or a correct taxpayer identification number, and otherwise comply with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability, if any, provided that you furnish the required information to the Internal Revenue Service in a timely manner. Each U.S. holder should consult its own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining such exemption.
Except for the filing of a certificate of merger with the Department of State of the State of New York upon the effective date of the merger, we are unaware of any material federal, state or foreign
42
regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.
Appraisal rights are statutory rights that enable shareholders who object to extraordinary transactions, such as mergers, to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding, instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Appraisal rights are not available in all circumstances, and exceptions to such rights are set forth in the laws of New York. These exceptions are applicable with respect to the rights of CPAC shareholders in the merger.
CPAC shareholders are not entitled to appraisal rights under New York law because CPAC's shares of common stock were listed on the NASDAQ Global Market on February 26, 2007, the record date.
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THE MERGER AGREEMENT
The summary of the material terms of the merger agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A, and the February 23, 2007 amendment to the merger agreement, a copy of which is attached to this proxy statement as Annex B, and both of which are incorporated by reference into this document. This summary may not contain all of the information about the merger agreement that is important to you. You are encouraged to read carefully the merger agreement in its entirety.
The effective time of the merger will occur at the time that a certificate of merger is filed with the Department of State of the State of New York (or at such later time as is specified in the certificate of merger) on the closing date of the merger. The closing date is expected to occur on the earliest business day following the satisfaction or waiver of all of the conditions set forth in the merger agreement (other than conditions which, by their terms, must be satisfied at the closing, subject to the fulfillment or waiver of those conditions) but in no event can it occur later than the 45th business day following such satisfaction or waiver.
At the effective time of the merger, MergerCo will merge with and into the Company. Upon completion of the merger, MergerCo will cease to exist as a separate entity and the Company will continue as the surviving corporation. All of the Company's and MergerCo's properties, assets, rights, privileges, immunities, powers and purposes, and all of their liabilities, obligations and penalties, will become those of the surviving corporation. Following the completion of the merger, the Company's common stock will be delisted from NASDAQ, deregistered under the Securities Exchange Act of 1934, as amended, and no longer publicly traded.
Merger Consideration; Treatment of Stock and Options
The Company's Common Stock
At the effective time of the merger, each share of the Company's common stock issued and outstanding immediately prior to the effective time of the merger will automatically be cancelled and converted into the right to receive $8.65 in cash, without interest and less applicable withholding taxes, except for the Company's common stock that is:
44
Company Stock Options
Prior to the effective time of the merger, the Company's board of directors shall take all actions necessary to cause each option holder to enter into an option cancellation agreement in which each option holder will agree to the cancellation of his, her or its options in exchange for the excess, if any, of the $8.65 per share merger consideration over the per share exercise price of his, her or its options, less any tax withholding, for each option share underlying each option that they hold, whether or not the option is currently vested. Option holders who hold any options with exercise prices above the $8.65 per share merger consideration will receive total payments of $100 per option holder as consideration for the cancellation of their options.
After the effective time of the merger, each of the Company's outstanding common stock certificates will represent only the right to receive the merger consideration. The merger consideration paid upon surrender of each certificate will be paid in full satisfaction of all rights pertaining to the shares of the Company's common stock represented by that certificate.
Procedure for Receiving Merger Consideration
At or prior to the effective time of the merger, Buckingham will deposit an amount of cash sufficient to pay the merger consideration promptly to each holder of shares of the Company's common stock with Continental Stock Transfer and Trust Co. (the "paying agent"). As soon as practicable after the effective time of the merger (but no more than five business days thereafter), the paying agent will mail a letter of transmittal and instructions to you and the Company's other shareholders. The letter of transmittal and instructions will tell you how to surrender your common stock certificates in exchange for the merger consideration.
You should NOT return your stock certificates with the enclosed proxy card, and you should NOT forward your stock certificates to the paying agent without a letter of transmittal.
You will not be entitled to receive the merger consideration until you surrender your common stock certificate or certificates to the paying agent, together with a duly completed and executed letter of transmittal and any other documents as the paying agent may require. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to the reasonable satisfaction of the surviving corporation that such stock transfer taxes have been paid or are not applicable.
No interest will be paid or will accrue on the cash payable upon surrender of the certificates. Each of the paying agent, Buckingham and the Company will be entitled to deduct and withhold any applicable taxes from the merger consideration and pay such withholding amount over to the appropriate taxing authority.
At the effective time of the merger, the share transfer books of the Company will be closed, and there will be no further registration of transfers of outstanding shares of the Company's common stock. If, after the effective time of the merger, certificates are presented to the surviving corporation or the paying agent for transfer or any other reason, they will be cancelled and exchanged for the merger consideration.
45
Any portion of the merger consideration deposited with the paying agent that remains undistributed to the holders of certificates evidencing shares of the Company's common stock for one year after the effective time of the merger, will be delivered to Buckingham. Holders of certificates who have not surrendered their certificates within one year after the effective time of the merger may only look to Buckingham for the payment of the merger consideration. If any certificates have not been surrendered prior to the third anniversary of the effective time any amounts payable in respect of such certificates shall become the property of the surviving corporation, free and clear of all claims or interest of any holder previously entitled thereto.
If you surrender a mutilated certificate to the paying agent or your certificate has been lost, destroyed or wrongfully taken, then you will be required to make an affidavit of that fact before you will be entitled to receive the merger consideration. In addition, if required by Buckingham, you will have to post a bond in customary amount and upon such terms as determined by Buckingham indemnifying Buckingham, MergerCo and the paying agent against any claims made with respect to the lost, stolen or destroyed certificate.
Certificate of Incorporation and Bylaws
The certificate of incorporation of the surviving corporation will be amended and restated in its entirety at the effective time of the merger to read in the form of the certificate of incorporation of MergerCo. The bylaws of MergerCo in effect immediately prior to the effective time of the merger will be the bylaws of the surviving corporation until thereafter amended.
The directors and officers of MergerCo immediately prior to the effective time shall be the only directors and officers of the surviving corporation immediately following the merger until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation or bylaws of the surviving corporation. Our directors and officers are required to tender their resignations as of the effective time of the merger except that Thomas Hendrickson, our Chief Executive Officer, and Thomas Weldgen, our Chief Financial Officer, are not required to resign.
Representations and Warranties
The merger agreement contains representations and warranties that the Company and Buckingham made to each other as of specific dates. The assertions embodied in those representations and warranties were made for purposes of the merger agreement between the Company and Buckingham, a copy of which is attached hereto as Annex A, and may be subject to important qualifications and limitations set forth in the merger agreement and the disclosure schedules to the merger agreement agreed to by such parties in connection with negotiating its terms. Moreover, certain representations and warranties are subject to standards of materiality different from those generally applicable to a shareholders' investment decision with respect to the Company or were used for the purpose of allocating risk between the Company and Buckingham rather than establishing matters as facts. The Company is not currently aware of any specific undisclosed material fa cts relating to the Company that it believes would be material to you as a shareholder voting on the merger that contradicts the representations and warranties contained in the merger agreement. The Company's representations and warranties relate to, among other things:
46
47
For the purposes of the merger agreement, "material adverse effect" means with respect to the Company, any fact, event, change, effect condition, factor or circumstance that, individually or in the aggregate:
Notwithstanding the foregoing, the merger agreement provides that none of the following will give rise to or constitute a "material adverse effect" on the Company:
48
The merger agreement also contains customary representations and warranties made by Buckingham and MergerCo. Those representations and warranties relate to, among other things:
For the purposes of the merger agreement, "material adverse effect" means with respect to Buckingham, any event, state of facts, circumstances, development, change or effect that, individually or in the aggregate, would prevent or materially impair or materially delay the ability of Buckingham or MergerCo to perform its obligations under the merger agreement or to complete the merger.
The representations and warranties of each of the parties to the merger agreement terminate upon the closing time of the merger, and do not survive beyond the effective time of the merger.
Conduct of the Company's Business Pending the Merger
Under the merger agreement, the Company has agreed that, subject to certain exceptions, between the date the merger agreement is signed and the effective time of the merger the Company and its subsidiaries will:
49
The Company has also agreed that during the same time period, and subject to certain exceptions or unless Buckingham gives its prior written consent, the Company and its subsidiaries will not:
50
No Solicitation of Transactions
The Company has agreed that:
51
52
favorable, the parties thereto, and shall be accompanied by a copy of the proposed acquisition agreement for such superior proposal and any ancillary agreements each in substantially the form to be entered into;
Nothing contained in this section shall prohibit the Company or its board of directors from taking and disclosing to the Company's shareholders its position with respect to any tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities Exchange Act of 1934.
For purposes of the merger agreement, "acquisition proposal" means any proposal or offer from any person or group relating to:
For purposes of the merger agreement, "superior proposal" means a bona fide written acquisition proposal to acquire all of the issued and outstanding shares of the Company pursuant to a tender offer or a merger or to acquire all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis, that is reasonably capable of being consummated and would, if consummated, result in a transaction more favorable to the Company's shareholders, from a financial point of view, than the transactions contemplated by the merger agreement (taking into account the nature of the consideration payable and all legal, financial, regulatory, and similar aspects of, and conditions to, the proposal and the person making the proposal, and after giving effect to any adjustments to the terms and provisions of the merger agreement committed to in writing by Buckingham in response to such a acquisition proposal).
53
At any time prior to the effective time the merger agreement may be terminated and the merger may be abandoned, whether prior to or after approval of matters presented in connection with the merger by the shareholders of the Company, in connection with approving or recommending, or entering into, a definitive agreement with respect to a superior proposal. In such situation, the Company will be required to pay Buckingham a fee of $1.75 million upon such termination. See "Agreement and Plan of Merger - Fees and Expenses."
Agreement to Take Further Action and to Use Reasonable Efforts
Upon the terms and subject to the conditions of this agreement, each of the parties to this agreement shall use its commercially reasonable efforts to obtain in a timely manner all necessary waivers, governmental or other consents and approvals and to effect all necessary registrations and filings, and to use its commercially reasonable efforts to take, or cause to be taken, all other reasonable actions and to do, or cause to be done, all other things reasonably necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions, including:
Notwithstanding anything herein to the contrary, the Company shall not, without the prior written consent of Buckingham, commit to any divestiture transaction, and Buckingham shall not be required to take any action that limits its freedom of action with respect to the Company or any of the Company's affiliates or Buckingham or any of Buckingham's subsidiaries or any material portion of assets or businesses of the Company, its subsidiaries, Buckingham or any of Buckingham's subsidiaries.
The obligations of the parties to complete the merger are subject to the satisfaction or waiver on or prior to the closing date of each of the following conditions:
54
cases has the effect of making illegal or directly or indirectly restraining, prohibiting or restricting the consummation of the merger;
The obligations of Buckingham and MergerCo to complete the merger are subject to the satisfaction or waiver on or prior to the closing date of each of the following conditions:
The Company's obligation to complete the merger is subject to the following additional conditions:
55
Termination of the Merger Agreement
The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time, whether prior to or after approval of the Company's shareholders as follows:
56
or changed the Company's board recommendation in any manner adverse to the transactions, to Buckingham or to MergerCo, or shall have approved or recommended to the shareholders of Buckingham any acquisition proposal other than the transactions contemplated by the merger agreement.
Generally, the parties to the merger agreement are responsible for their own transaction expenses whether or not the merger is consummated. However, if the merger agreement is terminated by the Company in connection with a superior proposal or by Buckingham as a result of the Company's board of directors altering its recommendation regarding the merger, then the Company shall pay $1.75 million to Buckingham. Buckingham, however, shall not be entitled to be paid if it is then in material breach of its obligations pursuant to the merger agreement. The payment is payable as liquidated damages and not as a penalty, is in lieu of any other claims for breach or damages upon a termination of this agreement by the Company or Buckingham and is agreed by the parties to be reasonable in light of the costs and expenses borne and to be borne by Buckingham.
The merger agreement may be amended by an instrument in writing signed by all the parties to this agreement at any time prior to the effective time of the merger; provided, however, that, after any approval by the shareholders no amendment may be made which requires further approval by such shareholders without such further approval.
The parties amended the merger agreement on February 23, 2007. The amendment modified the merger agreement in two respects. First, the amendment provided that the closing date must occur within 45 business days of the satisfaction or waiver of the closing conditions set forth in the merger agreement. Previously, the merger agreement provided that the closing date must be within two business days of such satisfaction or waiver. Second, the amendment extended the outside date for the closing date from April 30, 2007 to May 15, 2007. The summary of the merger agreement in this proxy statement reflects the modifications to the merger agreement made by the February 23, 2007 amendment. A copy of the February 23, 2007 amendment is attached to this proxy statement as Annex B.
The merger agreement also provides that, at any time prior to the effective time of the merger, either party may extend the time for the performance of any obligations or other acts of the other party,
57
waive any inaccuracies in the representations and warranties of the other party or waive compliance with any agreement of the other party or any condition to its own obligations contained in the merger agreement. Any extension or waiver must be in writing and signed by the party to be bound thereby.
MARKET PRICES OF THE COMPANY'S STOCK
Our common stock has been listed with NASDAQ since June 1, 1988 and is currently traded on the NASDAQ Global Market under the symbol "CPAK". The following table sets forth the intraday high and low sales prices per share of our common stock on NASDAQ Global Market for the periods indicated.
|
|
Common Stock |
|||||||
|
|
High |
|
Low |
|||||
Fiscal Year Ended March 31, 2005 |
|
|
|||||||
1st Quarter (4/1/04-6/30/04) |
|
$6.15 |
$5.42 |
||||||
2nd Quarter (7/1/04-9/30/04) |
|
$5.90 |
$5.06 |
||||||
3rd Quarter (10/1/04 -12/31/04) |
|
$5.59 |
$4.96 |
||||||
4th Quarter (1/1/05-3/31/05) |
|
$5.43 |
$4.45 |
||||||
Fiscal Year Ended March 31, 2006 |
|
||||||||
1st Quarter (4/1/05-6/30/05) |
|
$5.34 |
$4.83 |
||||||
2nd Quarter (7/1/05-9/30/05) |
|
$5.35 |
$4.51 |
||||||
3rd Quarter (10/1/05 -12/31/05) |
|
$5.18 |
$3.33 |
||||||
4th Quarter (1/1/06-3/31/06) |
|
$4.50 |
$3.52 |
||||||
Fiscal Year Ended March, 2007 |
|
||||||||
1st Quarter (4/1/05-6/30/06) |
|
$6.97 |
$3.95 |
||||||
2nd Quarter (7/1/06-9/30/06) |
|
$7.00 |
$4.86 |
||||||
3rd Quarter (10/1/06 -12/31/06) |
|
$8.88 |
$6.17 |
||||||
4th Quarter (through February 22, 2007) |
|
$8.61 |
$7.85 |
On December 22, 2006, the last trading day before the announcement of the execution of the merger agreement, the closing price for our common stock was $7.85 per share. On February 23, 2007, the last trading day before this proxy statement was printed, the closing price for our common stock on the NASDAQ was $8.52 per share. You are encouraged to obtain current market quotations for CPAC common stock in connection with voting your shares.
We have paid a quarterly cash dividend of $0.07 per share of common stock since June 7, 2000. We are restricted by the terms of the merger agreement from declaring or paying any cash dividends. As such, the quarterly cash dividend will not be paid in the event the merger has not been completed prior to the time such dividend would otherwise be declared and paid in the ordinary course.
As of February 23, 2007, the last trading day before this proxy statement was printed, there were approximately 2,100 beneficial holders and 270 registered holders of record of our common stock.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of February 26, 2007, the record date for the special meeting, the amount and percentage of our outstanding common stock beneficially owned by:
Unless otherwise noted in the table, the address for each shareholder is in care of CPAC, Inc. at 2364 Leicester Road, P.O. Box 175, Leicester, New York, 14481.
Name of Beneficial Owners |
|
Amount and Nature of |
|
Percentage of |
|
FMR Corporation |
|
577,200 shares outright ownership |
|
11.67% |
|
Aegis Financial Corp. |
|
406,574 shares outright ownership |
|
8.22% |
|
Advisory Research, Inc. |
|
417,824 shares outright ownership |
|
8.45% |
|
Dimensional Fund Advisors, Inc. |
|
347,633 shares outright ownership |
|
7.03% |
|
|
|
||||
Thomas N. Hendrickson |
|
394,615 shares (2) |
|
7.76% |
|
Thomas J. Weldgen |
|
91,520 shares (3) |
|
1.82% |
|
Robert Oppenheimer |
|
90,825 shares (4) |
|
1.83% |
|
Jerold L. Zimmerman |
38,000 shares (5) |
0.76% |
|||
Stephen J. Carl |
|
24,000 shares (6) |
|
0.48% |
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José J. Coronas |
|
21,000 shares (7) |
|
0.42% |
|
William M. Carpenter |
|
18,000 shares (8) |
|
0.36% |
|
Wendy F. Clay |
|
29,363 shares (9) |
|
0.59% |
|
James W. Pembroke |
|
39,390 shares (10) |
|
0.79% |
|
|
|
||||
All directors and executive officers as a group (9 persons) |
|
746,713 shares (11) |
|
13.96% |
(1) |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes shares of common stock to which the person has sole or shared voting or investment power with respect to shares of common stock including those shares that the person has the right to acquire within 60 days after February 26, 2007, through the exercise of any stock option or other right. Shares of common stock subject to options or rights currently exercisable or exercisable within 60 days of February 26, 2007 are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or right but are not deemed outstanding for purposes of computing the percentage ownership of any other person. Except where indicated otherwise, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. |
(2) |
Includes 64,091 shares owned by the Estate of Mr. Hendrickson's spouse. Includes 34,500 options granted on August 6, 1997, 30,000 options granted on June 26, 1998, 25,000 options granted on April 6, 1999, 37,500 shares granted August 8, 2001, and 50,000 options granted on August 8, 2001, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(3) |
Includes 8,000 options granted on June 24, 1997, 10,000 options granted on April 15, 1998, 7,000 options granted on June 26, 1998, 8,000 options granted on August 10, 1999, 7,500 options granted on June 7, 2000, 25,000 options granted on June 6, 2001, and 15,000 options granted on June 4, 2003, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(4) |
Includes 3,000 options granted on August 8, 1997, 3,000 options granted on August 7, 1998, 3,000 options granted on August 13, 1999, 3,000 options granted on August 11, 2000, 3,000 options granted on August 10, 2001, 3,000 options granted on August 9, 2002, 3,000 options granted on August 15, 2003, 3,000 options granted on August 13, 2004, 2,000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(5) |
Includes 5,000 shares owned by Mrs. Jerold L. Zimmerman. Includes 15,000 options granted on April 4, 2000, 3,000 options granted on August 11, 2000, 3,000 options granted August 10, 2001, 3,000 options granted on August 9, 2002, 3,000 options granted on August 15, 2003, 3,000 options granted on August 13, 2004, 2,000 options granted on August 19, 2005, and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(6) |
Includes 15,000 options granted on April 16, 2003, 3,000 options granted on August 15, 2003, 3,000 options granted on August 13, 2004, and 2,000 options granted on August 19, 2005, and 1,000 |
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options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(7) |
Includes 15,000 options granted September 29, 2003, 3,000 options granted on August 13, 2004, 2000 options granted on August 19, 2005 and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(8) |
Includes 15,000 options granted on April 16, 2005, 2,000 options granted on August 19, 2005, and 1,000 options granted on August 18, 2006, all pursuant to the Company's Non-Employee Directors Stock Option Plan. |
(9) |
Includes 3,000 options granted June 24, 1997, 5,000 options granted on April 15, 1998, 5,000 options granted on August 10, 1999 and 8,000 options granted June 6, 2001, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(10) |
Includes 4,000 options granted on June 24, 1997, 7,000 options granted on June 26, 1998, 5,000 options granted on August 10, 1999, 3,000 options granted on June 7, 2000, 8,000 options granted on June 6, 2001, 5,000 options granted on June 4, 2003, and 7,000 options granted October 7, 2003, all pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. |
(11) |
Includes 280,000 shares which may be purchased through exercise of options granted pursuant to the Company's 1994 Executive Long Term Stock Investment Plan. Includes 123,000 shares which may be purchased through exercise of options granted pursuant to the Company's Non-Employee Directors Stock Option Plan. |
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ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING
CPAC is asking its shareholders to vote on a proposal to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement.
Our board of directors unanimously recommends that shareholders vote "FOR" the proposal to authorize the proxy holders to vote to adjourn or postpone the special meeting, in their sole discretion, for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger agreement.
Submission of Shareholder Proposals
If the merger is completed, we will no longer be a publicly held company and there will be no public participation in any future meetings of our shareholders. However, if the merger is not completed, our shareholders will continue to be entitled to attend and participate in our shareholders' meetings.
If the merger is not completed and you intend to present a proposal at our 2007 annual meeting, it must be received by us for inclusion in our proxy statement and proxy relating to that meeting no later than March 7, 2007, and must otherwise be in compliance with applicable SEC regulations. If the date of the 2007 annual meeting, if any, is changed by more than 30 days from August 15, 2007, then in order to be considered for inclusion in CPAC's proxy materials, proposals of shareholders intended to be presented at the 2007 annual meeting must be received by us a reasonable time before we begin to print and mail our proxy materials for the 2007 annual meeting. To have your proposal included in our proxy statement and listed on our proxy card for the 2007 annual meeting, you must submit your proposal in writing to CPAC, Inc., P.O. Box 175, Leicester, New York 14481, Attention: Thomas J. Weldgen, Vice President, Finance. You may submit a proposal only if you have continuously owned at least $2,000 worth or 1% in market value of the company's common stock for at least 1 year before you submit your proposal to the company, and you must continue to hold this level of security ownership in our company through the annual meeting of shareholders to be held in 2007.
The SEC rules also establish a different deadline for submission of shareholder proposals that are not intended to be included in our proxy statement with respect to discretionary voting. The discretionary voting deadline for our 2007 annual meeting is June 5, 2007, or if the date of the 2007 annual meeting, if any, is changed by more than 30 days from August 15, 2007, a reasonable time before we mail our proxy materials for the 2007 annual meeting. If a shareholder gives notice of such a proposal after the discretionary voting deadline, CPAC's proxy holders will be allowed to use their discretionary voting authority to vote against the shareholder proposal when and if the proposal is raised at our 2007 annual meeting.
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Delivery of this Proxy Statement
The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (such as brokers) to satisfy delivery requirements for proxy statements with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, known as "householding," potentially means extra convenience for shareholders and cost savings for companies. We will promptly deliver, upon oral or written request, a separate copy of the proxy statement to any shareholder sharing an address to which only one copy was mailed. Requests for additional copies should be directed to our Corporate Secretary at 2364 Leicester Road, P.O. Box 175, Leicester, New York 14481-0175, or by telephone at 585-382-3223.
Any shareholder who currently receives multiple copies of the proxy statement and annual report at his or her address and would like to request "householding" of communications should contact his or her broker or, if shares are registered in the shareholder's name, our Corporate Secretary at the address or telephone number provided above.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
CPAC files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC:
Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. CPAC's public filings are also available to the public from document retrieval services and the Internet website maintained by the SEC at www.sec.gov.
Any person, including any beneficial owner, to whom this proxy statement is delivered, may request copies of reports, proxy statements or other information concerning us, without charge, by written or telephonic request directed to us at CPAC, Inc., 2364 Leicester Road, P.O. Box 175, Leicester, New York 14481-0175, Attention: Corporate Secretary. No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. This proxy statement is dated March 1, 2007. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to shareholders shall not create any implication to the contrary.
/s/ Thomas N. Hendrickson |
Thomas N. Hendrickson |
President & Chief Executive Officer |
March 1, 2007 |
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ANNEX A
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 22, 2006 (the "Agreement"), by and among CPAC, Inc., a New York corporation ("Company"), Buckingham CPAC, Inc., a Delaware corporation ("Parent"), and Buckingham CPAC Acquisition Corp., a New York corporation and a wholly-owned subsidiary of Parent ("Acquisition Sub").
R E C I T A L S:
WHEREAS, the respective boards of directors of Parent, Acquisition Sub and Company have each approved this Agreement and the merger of Acquisition Sub with and into Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, Parent, Acquisition Sub and Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and intending to be legally bound by this Agreement, Parent, Acquisition Sub and Company agree as follows:
ARTICLE I.
THE MERGER
Section 1.02 Closing; Effective Time.
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Certificate of Merger (the time of such filing (or such later time as is specified in such Certificate of Merger as agreed between Parent and Company) being the "Effective Time").
Section 1.03 Effect of the Merger. At the Effective Time, and without the necessity of any action by or on behalf of the Constituent Corporations or either of them, the effect of the Merger shall be as provided in the applicable provisions of the BCL. Without limiting the generality of the applicable provisions of the BCL, at the Effective Time all the property, rights, privileges, powers and franchises of the Constituent Corporations shall vest in the Surviving Corporation, and all Liabilities and duties of the Constituent Corporations shall become the Liabilities and duties of the Surviving Corporation.
Section 1.04 Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of the Constituent Corporations acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out 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 Company or Acquisition Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such 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 or assets in the Surviving Corporation or otherwise to carry out this Agreement.
Section 1.05 Certificate of Incorporation; By-Laws; Directors and Officers.
(a) At the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read in the form of the Certificate of Incorporation of the Acquisition Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with their terms and as provided by applicable Laws and this Agreement, except that, as of the Effective Time, Article I of such Certificate of Incorporation shall be amended to reflect the name of the Surviving Corporation designated by Parent.
(b) At the Effective Time, the By-Laws of Acquisition Sub, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended as provided by Law, the Certificate of Incorporation of the Surviving Corporation and the By-Laws of the Surviving Corporation provided that the By-Laws of the Surviving Corporation shall be consistent with the provisions of Section 4.09 of this Agreement.
(c) The directors and officers of Acquisition Sub immediately prior to the Effective Time shall be the only directors and officers of the Surviving Corporation as of the Effective Time.
Section 1.06 Conversion of Shares. At the Effective Time, automatically by virtue of the Merger and without any action on the part of the Constituent Corporations or the holder of any of the following securities:
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(c) Each share of common stock, $0.01 par value, of Acquisition Sub issued and outstanding immediately prior to the Effective Time shall be converted into and thereafter represent one validly issued, fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation.
Section 1.07 Dissenting Shares.
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be withheld unreasonably), make any payment with respect to any demands for appraisal or negotiate.
Section 1.08 Surrender of Shares; Stock Transfer Books.
(c) If payment of the Merger Consideration in respect of canceled Shares is to be made to a Person other than the Person in whose name a surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other taxes required by reason of such payment in a name other than that of the registered holder of the Certificate surrendered or shall have established to the satisfaction of Parent or the Paying Agent that such tax either has been paid or is not payable. If a mutilated Certificate is surrendered to the Paying Agent or if the holder of a Certificate submits an affidavit to the Paying Agent stating that the Certificate has been lost, destroyed or wrongfully taken, such holder shall, if required by Parent, furnish an indemnity bond sufficient in the reasonable judgment of Parent to protect Parent, the Surviving Corporation and the Paying Agent from any loss that any of them may suffer. Until surrendered as contemplated by this Section 1.08, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration as contemplated by this Section 1.08, without interest thereon.
(d) Promptly following the date which is one year after the Effective Time, the Paying Agent shall deliver to Parent all cash, certificates and other documents in its possession relating to the transactions contemplated by this Agreement, and the Paying Agent's duties shall
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terminate. Thereafter, each holder of a Certificate (other than Certificates representing Dissenting Shares and Certificates representing Shares to be canceled pursuant to Section 1.06(b)) shall look only to the Parent (subject to abandoned property, escheat or other similar Laws), and only as general creditors thereof, with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by such holder, without any interest thereon. Notwithstanding the foregoing, none of Parent, Acquisition Sub, 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. If any Certificates have not been surrendered prior to the third anniversary of the Effective Time (or immediately prior to such earlier date on which any Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Govern mental Entity), any amounts payable in respect of such Certificate shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto.
(f) All Merger Consideration paid upon the surrender of Certificates 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 previously represented by such Certificates. At the Effective Time, the stock transfer books of Company shall be closed and thereafter there shall not be any further registration of transfers of Shares that were outstanding immediately prior to the Effective Time on the records of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation for transfer, they shall be canceled and exchanged for the Merger Consideration as provided in Section 1.06(a) and this Section 1.08.
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withheld with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. To the extent that any amounts are so deducted and withheld, those amounts shall be treated as having been paid to the holder of that Option for all purposes under this Agreement. Company shall take all action to ensure that all Stock Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of Company or any Subsidiary, shall automatically terminate as of the Effective Time, and that any holder of issued and outstanding awards thereunder will have no rights other than the right to receive the payment in cancellation and settlement thereof as provided in the Option Cancellation Agreement. Prior to the Effective Time, the Board of Directors, or the Stock Option Committee thereof, shall adopt a resolution consistent with the interpretive guidance of the SEC to approve the disposition by any officer or director of Company who is a covered person of Company for purposes of Section 16 under the Exchange Act of Shares or Options pursuant to this Agreement and the Merger for purposes of qualifying the disposition as an exempt transaction under Section 16 under the Exchange Act.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION SUB
Except as set forth in the corresponding sections or subsections of the disclosure schedules to this Agreement, Acquisition Sub and Parent jointly and severally represent and warrant to Company as set forth below.
Section 2.02 Authority. The execution and delivery of this Agreement and the consummation of the Transactions contemplated hereby have been duly authorized and approved by the respective boards of directors of Parent and Acquisition Sub and Parent's Investment Committee. No other or further corporate act or proceeding on the part of Parent or Acquisition Sub or their respective shareholders is necessary to authorize or approve this Agreement or the consummation of the Transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and Sub and, assuming due authorization, execution and delivery by Company, constitutes the legal, valid and binding obligation of Parent and Sub, enforceable against each in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors' rights gene rally, and by general equitable principles.
Section 2.03 No Violation. Neither the execution and delivery of this Agreement nor the consummation by Parent and Acquisition Sub of the Transactions contemplated hereby, assuming all notices, reports or other filings specifically described in this Section 2.02 have been given or made, will violate any Laws or Orders of any Governmental Entity applicable
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to Parent or Acquisition Sub. Neither Parent nor Acquisition Sub is required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions contemplated hereby except for (i) the filing of the Proxy Statement with the SEC and applicable requirements, if any, of the Exchange Act, (ii) if applicable, the pre-merger notification requirements of the HSR Act, (iii) the filing of the Certificate of Merger as required by the BCL, (iv) filings as may be required by any applicable state takeover or "blue sky" Laws and (v) filings the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect. No waiver, consent, approval, authorization, exemption of, or any other action by, any Governmental Entity is required to be obtained or made by Parent or Acquisition Sub in connection wi th its execution, delivery or performance of this Agreement or the consummation of the Transactions contemplated hereby, except (A) where the failure to obtain such waivers, consents, approvals or authorizations would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect or (B) in connection with any submission required above.
Section 2.04 Brokers. No broker, finder, financial advisor or investment banker is entitled to any brokerage, finder's, financial advisor's or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent or Acquisition Sub.
Section 2.06 Financing. At the Effective Time, Parent will have, and will make available to Acquisition Sub, the funds necessary to consummate the Merger and the other Transactions contemplated by this Agreement, and to pay related fees and expenses. Parent has made available to Company copies of all commitment letters, letters of intent, term sheets and similar documents with respect to pending or proposed commitments of any third parties to lend or otherwise commit funds with respect to the Merger and the Transactions contemplated hereby. Parent is capable of fulfilling, and knows of no conditions affecting it, Buckingham) or their respective affiliates that would make it unable or unlikely to fulfill any condition reflected in any such commitment letters, letters of intent, term sheets and similar documents.
Section 2.07 No Ownership of Shares. As of the date hereof, neither Parent, Buckingham nor any of their respective Subsidiaries or Affiliates owns any Shares or other securities convertible into Shares.
Section 2.08 No Litigation. There is no Litigation pending or, to Parent's or Acquisition Sub's Knowledge, threatened against Parent, Acquisition Sub, Buckingham, the directors or officers of Parent, Acquisition Sub, Buckingham or their respective Affiliates (in such capacity) that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth in the corresponding sections or subsections of the disclosure schedules to this Agreement, Company represents and warrants to Parent and Acquisition Sub as set forth below.
(b) A true and complete list of all the Subsidiaries, together with the jurisdiction of incorporation or organization of each Subsidiary and the percentage of each Subsidiary's outstanding capital stock owned by Company or another Subsidiary, is set forth in Schedule 3.01(b). Other than the Subsidiaries and as set forth in Schedule 3.01(b) Company does not own, directly or indirectly, any equity or other ownership interests of any Person. Except as set forth in Schedule 3.01(b), all of the outstanding capital stock of each Subsidiary is owned directly or indirectly by Company free and clear of all Liens, except Permitted Liens, and is validly issued, fully paid and nonassessable and except as set forth in Schedule 3.01(b), there are no outstanding subscriptions, options, warrants, puts, calls, rights or agreements of any kind relating to the issuance, sale, transfer or voting of any capital stock or other equity interests of any such Subsidiary.
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any capital stock or other securities of Company or (y) options, warrants, calls, pre-emptive rights, subscriptions, commitments, "phantom" stock rights, stock appreciation rights, stock-based performance units, Contracts, arrangements or other rights of any kind to which Company or any Subsidiary is a party or by which Company or any Subsidiary is bound obligating Company or any Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of, or other equity or voting interests in, or any security convertible or exercisable for or exchangeable into any capital stock of, or other equity or voting interests in, Company or any Subsidiary or obligating Company or any Subsidiary to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, Contract, arrangement or undertaking, or that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing t o holders of the Common Stock. Schedule 3.01(c) sets forth a listing of all outstanding vested and unvested Options as of the date hereof (indicating which Options will vest upon consummation of the Merger) and the exercise prices thereof. Except as set forth on Schedule 3.01(c), there are no voting trusts or other agreements or understandings to which Company or any Subsidiary is a party with respect to the voting, issuance or transfer of the capital stock of Company or any of the Subsidiaries, and there are no outstanding contractual obligations of Company or any Subsidiary to (A) repurchase, redeem or otherwise acquire any shares of capital stock or other equity or voting interests in, Company or any Subsidiary or (B) vote or dispose of any shares of the capital stock of, or other equity or voting interests in, any of the Subsidiaries, including puts, calls, rights of first refusal or similar rights. Company has made available to Parent a complete and correct copy of the Rights Agreement, as amended to the date of this Agreement.
Section 3.03 No Violation.
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applicable to Company or any Subsidiary or by which any of its property is bound or affected, (ii) violate or conflict with either the Certificate of Incorporation or By-Laws of Company or comparable organizational documents of any Subsidiary or, (iii) except as set forth in Schedule 3.03(a), result in any violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default), or impair Company's rights or alter the rights or obligations of any third party under, or result in any increased, additional or guaranteed rights or entitlements of any Person under, or create any obligation to make a payment to any other Person under, or give to others any rights of termination, amendment or cancellation of, or accelerate the performance required by, or result in the creation of a Lien or encumbrance on any of the property or assets of Company or any Subsidiary pursuant to, any note, bond, mortgage, indenture, agreement, Contract, instrument , Permit, license, franchise or other obligation to which Company or any Subsidiary is a party or by which it or its property is bound or affected, except, with respect to clauses (i) and (iii) of this Section 3.03(a), for conflicts, violations, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect.
(b) Except for (i) the filing of the Proxy Statement with the SEC and applicable requirements, if any, of the Exchange Act, (ii) if applicable, the pre-merger notification requirements of the HSR Act, (iii) the filing of the Certificate of Merger as required by the BCL, (iv) filings as may be required by any applicable state takeover or "blue sky" Laws and (v) filings, the failure of which to be obtained or made, would not individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, Company is not required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions. No waiver, consent, approval, authorization, exemption of, or any other action by, any Governmental Entity is required to be obtained or made by Company in connection with its execution, delivery or performance of this Agreement or the consummation of the Transactions, except (A) where the failure to obtain such waivers, consents, approvals or authorizations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or (B) in connection with any submission required above.
Section 3.04 SEC Filings; Financial Statements; Sarbanes-Oxley Act.
(a) Company has made available to Parent a true, correct and complete copy of Company's Annual Report on Form 10-K for the year ended March 31, 2006 (the "Company Form 10-K"), quarterly reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006, current reports on Form 8-K filed at any time between March 31, 2006 and the date of this Agreement, and the definitive proxy statement for the annual meeting of stockholders of Company held on August 15, 2006, in each case including all amendments thereof and all as filed by Company with the SEC (collectively, the "Company SEC Documents"). As of their respective dates, the Company SEC Documents complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, and none of the Company's SEC Documents contained any untrue statement of a material fact or omitted to state a mat erial fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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(b) The financial statements of Company included in the Company's SEC Documents (collectively, the "Company Financials") comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments that are not material), in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.
(c) Each required form, report and document containing financial statements that has been filed with or submitted to the SEC by Company was accompanied by the certifications required to be filed or submitted by Company's principal executive officer and principal financial officer pursuant to the Sarbanes-Oxley Act and, at the time of filing or submission of each such certification, such certification was true and accurate and complied with the Sarbanes-Oxley Act.
(d) There are no outstanding loans made by Company or any of its Subsidiaries to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or director of Company. The Company has not since the enactment of the Sarbanes-Oxley Act taken any action prohibited by Section 402 of the Sarbanes-Oxley Act.
Section 3.05 Financial Controls. The management of Company has (a) established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act and to the extent applicable to Company as of the date of this Agreement) to ensure that material information relating to Company, including its consolidated Subsidiaries, is made known to the management of Company (including its principal executive officer and principal financial officer) by others within those entities, particularly during periods in which the periodic reports required under the Exchange Act are being prepared, (b) established and maintains a system of internal control over financial reporting (as defined in Rule 13a-15 under the Exchange Act and to the extent applicable to Company as of the date of this Agreement) sufficient to provide reasonable assurance regarding the reliability of Company's financial r eporting and the preparation of Company financial statements for external purposes in accordance with GAAP and (c) has disclosed, based on its most recent evaluation of internal controls over financial reporting, to Company's auditors and the audit committee of Company's Board of Directors (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect Company's ability to record, process, summarize and report financial information and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in Company's internal controls over financial reporting. Company has disclosed to Parent prior to the date hereof all disclosures described in clause (c) of the immediately preceding sentence.
Section 3.06 Tax Matters.
(a) Except as set forth on Schedule 3.06, All Tax Returns required to be filed with respect to Company and its Subsidiaries for all Taxable Periods ending prior to the date hereof have been duly and timely (within any applicable extension periods) filed with the appropriate
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Governmental Entities in all jurisdictions in which such Tax Returns are required to be filed, all such Tax Returns are true, correct and complete, and all Taxes (whether or not shown to be due and payable on such Returns) required to be paid have been paid. Company and its Subsidiaries have set up reserves for the payment of all material Taxes not yet due and payable, and any penalties or fines related to all Tax Returns, that adequately cover all Taxable Periods ending prior to the date hereof, except that Company has not established a reserve for taxes which may become due if in the future funds are repatriated from foreign subsidiaries.
(b) Company and each Subsidiary has duly withheld and paid all Taxes that it is required to withhold and pay in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(c) Except as set forth on Schedule 3.06(c), none of the Tax Returns of Company and its Subsidiaries filed with respect to Tax years beginning on or after March 31, 2005 or, to the Knowledge of Company, any prior Tax year, has been or is currently being examined by the IRS or relevant state, local or foreign taxing Authorities or Governmental Entities. Except as set forth on Schedule 3.06(c), there are no examinations or other administrative or court proceedings relating to Taxes or Tax Returns in progress or pending with respect to which Company or any of its Subsidiaries has received written notice.
(d) Except as set forth on Schedule 3.06(d), no payment made or to be made to any current or former employee or director of Company or any of its Subsidiaries as a result of the Transactions contemplated by this Agreement (either alone or in conjunction with any other events such as a termination of employment) and no trustee under any rabbi trust "or similar arrangement in connection with any Employee Benefit Plan will constitute an excess parachute payment" within the meaning of Section 280G of the Code or will be nondeductible under Section 162(m) of the Code.
(e) There are no Liens for Taxes, other than for current Taxes not yet due and payable, on the assets of Company or any of its Subsidiaries.
(f) During the five year period ending on the date hereof, neither Company nor any of its Subsidiaries was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.
Section 3.07 Absence of Certain Changes. Except as expressly provided in this Agreement or as set forth in Schedule 3.07 or in the Available Company SEC Documents, since September 30, 2006: (a) the business of Company and the Subsidiaries has been conducted in the ordinary course consistent with past practice; (b) there has not been any event, condition, change or development, or worsening of any existing event, condition, change or development that, individually or in combination with any other event, condition, change, development or worsening thereof, has had or could reasonably be expected to have a Material Adverse Effect; (c) there has not been any damage, destruction or loss (whether or not covered by insurance) with respect to any of the assets of Company or any of its Subsidiaries, except for damage, destruction or loss as would not, individually or in the aggregate, have a Mater ial Adverse Effect; (d) neither Company nor any of its Subsidiaries has engaged in any material transaction or entered into any material agreement or commitments outside the ordinary course of business or, except as and to
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the extent disclosed in the Available Company SEC Documents, revalued any material assets of Company or any Subsidiary resulting in an impairment charge; (e) there has not been any change in any material method of accounting, except insofar as may have been required by a change in GAAP; (f) there has not been any material strike or material work slowdown instituted by or involving the employees of Company or any of its Subsidiaries; (g) there have not been any issuances of capital stock or other ownership interests or securities convertible into or exchangeable for shares of capital stock or other ownership interest of Company or any of its Subsidiaries thereof, or any changes in the certificate of incorporation or bylaws (or equivalent creation or organizational document) of Company or any of its Subsidiaries; (h) there have not been any dividends or distributions of the capital stock of Company or any non-wholly-owned Subsidiary thereof, or any redemption, return of capital or similar transactions with respect to the capital stock of Company or any non-wholly-owned Subsidiary thereof; or (i) there have not been any Contracts, agreements, commitments or understandings entered into by Company or any Subsidiary thereof to do any of the foregoing.
Section 3.09 Environmental Matters
(a) Except as set forth in the Environmental Reports, Company and each Subsidiary are in material compliance with all applicable Environmental Laws, and any present or former noncompliance with applicable Environmental Laws would not, individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in the Environmental Reports, Company and each Subsidiary have all Environmental Permits necessary for the conduct of its business and the operation of its facilities except where the failure to have any such Environmental Permit would not individually or in the aggregate have a Material Adverse Effect.
(c) Except as set forth in the Environmental Reports, Company and each Subsidiary are and have been in compliance with all Environmental Permits, and any noncompliance with such Environmental Permits would not, individually or in the aggregate, result in a Material Adverse Effect.
(d) Neither Company nor any Subsidiary has received written communications from any Governmental Entity or other Person alleging that Company or any Subsidiary has in any material way violated or is in material violation of any Environmental Law or Environmental Permit.
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(e) Except as set forth on Schedule 3.09(e) or in the Environmental Reports, there are no Environmental Claims pending or, to the Knowledge of Company, threatened (i) against Company or any Subsidiary or (ii) against any Person whose liability for any such Environmental Claim Company or any Subsidiary has retained or assumed, either contractually or by operation of law.
(f) Except as set forth on Schedule 3.09(f) or in the Environmental Reports, there have been no Releases of any Hazardous Substances at any Owned Real Property or Leased Real Property or any property used by Company or any Subsidiary that could reasonably be expected to result in any Environmental Claim against Company or any Subsidiary.
(g) Complete and accurate copies of all environmental site assessment reports, investigation, remediation or compliance studies, audits, assessments or similar documents which are in the possession, custody or control of Company or any of its Subsidiaries have been made available to Parent.
Section 3.10 Compliance with Laws and Orders.
(a) Company and each Subsidiary are in compliance with all applicable Laws and Orders, except for such instances of noncompliance that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither Company nor any Subsidiary has received any notice of any violation or alleged violation of any Laws or Orders. All reports, filings and returns required to be filed by or on behalf of Company or any Subsidiary with any Governmental Entity have been filed, except where the failure to so file would not reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth on Schedule 3.10(b), Company and each Subsidiary has all necessary Permits and/or all necessary exemptions from Permits required for the current conduct of its business and the operation of its facilities, except for instances where the failure to have such Permits and/or exemptions would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Company and each Subsidiary (including its respective business and assets) is in compliance with all Permits except for such instances of noncompliance that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither Company nor any Subsidiary has received notice of any violation or alleged violation of any Permit.
Section 3.11 Properties.
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have previously been made available to Parent to the extent that such reports and policies are in Company's possession and control, as applicable.
(d) Each Real Property Lease is a valid and binding obligation of Company or a Subsidiary and is in full force and effect. There is no default under any Real Property Lease either by Company or the Subsidiaries party thereto or, to Company's Knowledge, by any other party thereto, and no event has occurred that, with the lapse of time or the giving of notice or both, would constitute a default by Company or any Subsidiary thereunder, except for such defaults as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. All rent and other sums and charges payable by Company or any of its Subsidiaries, as applicable, as tenant thereunder, are paid or reserved for and no termination event or condition (other than expiration of such Real Property Lease by its terms on its scheduled termination date, rather than an accelerated termination date) exists u nder any Real Property Lease.
(e) There does not exist any pending or, to Company's Knowledge, threatened condemnation or eminent domain proceedings that affect any Owned Real Property or Real Property Lease, and neither Company nor any Subsidiary has received any written notice of the intention of any Governmental Entity or other Person to take or use any Owned Real Property or Real Property Lease. Except as set forth on Schedule 3.11(e), Company has not received any written notice of any material violations of building codes and/or zoning ordinances or other governmental or regulatory laws affecting the Real Property. Company has obtained all material permits necessary for the present operation and use of each parcel of Owned Real Property and Leased Real Property.
(f) Except as set forth on Schedule 3.11(f), none of the Owned Real Property or the Leased Real Property is subject to any lease, sublease, license or other agreement granting to any other Person any right to the use, occupancy or enjoyment of such real property or any part thereof.
Section 3.12 Insurance. Schedule 3.12 sets forth a true and complete list of all insurance policies carried by or covering Company and the Subsidiaries with respect to their businesses, assets and properties, together with, in respect of each such policy, the name of the insurer, the policy number, the type of policy, and the amount of coverage and the deductible. True and complete copies of each such policy have previously been made available to Parent. All such policies are in full force and effect, all premiums due and payable thereon have been paid, and no notice of cancellation has been received by Company or any Subsidiary with respect to any such policy. Each of Company and the Subsidiaries has complied with the provisions of each such policy under which it is an insured party, except for instances of noncompliance that
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individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.
Section 3.13 Material Contracts.
(b) All the Material Contracts are valid and in full force and effect, except to the extent they have previously expired or terminated in accordance with their terms and except for any invalidity or failure to be in full force and effect that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. None of Company or any Subsidiary is in violation of or default (with or without notice or lapse of time or both) under, or has waived or failed to enforce any rights or benefits under, any Material Contract, except for violations, defaults, waivers or failures to enforce rights or benefits that individually or in the aggregate would not reasonable be expected to have a Material Adverse Effect. To the Knowledge of Company, no other party to any Material Contract is in breach thereof or default thereunder, except for breaches or defaults that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. Company has made available to Parent true and complete copies of each Material Contract, including all material amendments thereto.
Section 3.14 Labor Matters. Except as set forth on Schedule 3.14, (i) there is no unfair labor practice charge or complaint pending or, to Company's Knowledge, threatened, against Company or any Subsidiary; (ii) there is no labor dispute, slowdown, strike, work stoppage or other collective labor action actually pending or, to Company's Knowledge, threatened, against
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or affecting Company or any Subsidiary; (iii) except as set forth on Schedule 3.14, neither Company nor Subsidiary is a party to or otherwise bound by any collective bargaining agreement or any other agreement with any labor organization applicable to employees or to Persons providing services to either Company or any Subsidiary; (iv) there has been no mass layoff, plant closure, employment loss or other event covered by the Worker Adjustment and Retraining Notification Act or any applicable state or local law concerning mass layoffs and/or plant closures within the last year; and (v) there are no administrative charges or court complaints or Litigation against Company or any Subsidiary concerning alleged employment discrimination or other employment-related matters pending or threatened before the U.S. Equal Employment Opportunity Commission.
Section 3.15 Employee Benefit Plans.
(c) Except as disclosed on Schedule 3.15(c) or as expressly provided in this Agreement, neither Company nor any Subsidiary, or any of their officers or directors, has taken any action directly or indirectly during the three year period ending on the closing date which obligates Company or any Subsidiary to institute, modify or change any Employee Benefit Plan, any actuarial or other assumption used to calculate funding obligations with respect to any of the Employee Benefit Plans, the manner in which contributions to any of the Employee Benefit Plans are made, or the basis on which such contributions are determined. Except as disclosed on
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Schedule 3.15(c), with respect to the Employee Benefit Plans, and the employee plans of any entity while an ERISA Affiliate, no event has occurred and, to Company's Knowledge, there exists no condition or set of circumstances, in connection with which Company or any Subsidiary could be subject to any Liability (except for routine payment of benefits and funding) under ERISA, the Code, or any other applicable Law except for events, conditions and circumstances that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.
(d) Each Employee Benefit Plan has been administered in accordance with its terms, and all Employee Benefit Plans have been operated, and are in compliance with the applicable provisions of ERISA, the Code and all other applicable Laws, Orders, and governmental rules and regulations except for instances of noncompliance that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. To Company's Knowledge, all required reports and description of the Employee Benefit Plans (including but not limited to Form 5500 or 5500C Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions, as applicable) have been timely filed and distributed.
(e) There is not pending or, to the Knowledge of Company, threatened any Litigation, claim, investigation or audit relating to any Employee Benefit Plan or the assets thereof that individually or in the aggregate would reasonably be expected to be material, and to the Knowledge of Company there is no basis therefor.
(f) Except as set forth in Schedule 3.15(f), no current or former director, officer, or employee of Company or any Subsidiary will be entitled to any payment (including severance, unemployment compensation, golden parachute, or otherwise), additional benefits or any acceleration of the time of payment or vesting of any benefits under any Employee Benefit Plan as a result of the Transactions contemplated by this Agreement (either alone or in conjunction with any other event such as a termination of employment) and no trustee under any "rabbi trust" or similar arrangement in connection with any Employee Benefit Plan will be entitled to any payment as a result of the Transactions.
(g) Neither Company, nor any of its Subsidiaries or any entities while ERISA Affiliates, has, within the preceding six years established, maintained, contributed to or has any Liability with respect to, any Employee Benefit Plan that has ever been a multiemployer plan within the meaning of ERISA Section 3(37) or 4001(a)(3) or Code Section 414(f) or that has ever been subject to Code Section 412 or ERISA Section 302.
Section 3.16 Intellectual Property.
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Person. To Company's Knowledge, neither the Company Intellectual Property nor the conduct of the business of Company and its Subsidiaries infringes, conflicts with, or misappropriates any Intellectual Property or other proprietary right of any Person. There is no pending or, to Company's Knowledge, threatened claim or litigation contesting the validity, enforceability or Company's or its Subsidiaries' ownership of the Company Intellectual Property nor, to Company's Knowledge, is there any legitimate basis for any such claim.
(c) To Company's Knowledge, no material trade secret or other confidential information of Company and its Subsidiaries has been used, disclosed or appropriated to the detriment of Company and its Subsidiaries for the benefit of any other person. To Company's Knowledge, no employee, former employee, independent contractor or agent of Company or any of its Subsidiaries has misappropriated any trade secrets or other confidential information of any other Person in the course of the performance of his, her or its duties as an employee, independent contractor or agent of Company or such Subsidiary.
Section 3.17 Undisclosed Liabilities. Except as set forth on Schedule 3.17, as of the date hereof, neither Company nor any of its Subsidiaries has any liabilities or obligations (absolute or accrued, contingent or otherwise, and whether due or to become due and whether the amount thereof is readily ascertainable or not) that are material to the business or operations of Company and its Subsidiaries taken as a whole, other than: (a) liabilities or obligations disclosed in the Company Financials included in the Company SEC Documents filed with the SEC prior to the date hereof; (b) liabilities or obligations under contracts to which Company or any of its Subsidiaries is a party; or (c) liabilities or obligations incurred in the ordinary course of business consistent with past practices since September 30, 2006.
Section 3.18 Sufficiency of Assets. Except as set forth on Schedule 3.18, Company and its Subsidiaries hold good and valid title (free and clear of any Lien other than Permitted Liens) to, or licenses or lease, all such tangible real and personal properties and assets as are necessary for them to conduct their businesses in all material respects as currently conducted. Except as set forth on Schedule 3.18, all of the material tangible personal property of Company and its Subsidiaries is, in the aggregate, in good operating condition and repair, normal wear and tear excepted, and is, in the aggregate, usable in the regular and ordinary course of business consistent with past practices.
Section 3.19 Suppliers. Except as set forth on Schedule 3.19, since January 1, 2006, none of the suppliers whose products (i) are material to the operations of the business of Company and its Subsidiaries and (ii) cannot be replaced within a reasonable period of time with alternative products which are available at comparable or otherwise reasonable prices, has terminated other than in accordance with the terms of, or given a notice of early termination at
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the supplier's option under, its supply Contract with Company or any of its Subsidiaries relating to such products, or, to Company's Knowledge, stated in writing its affirmative intention (which statement has not been withdrawn) to terminate such supply Contract.
Section 3.20 Rights Agreement. Company has taken or will take prior to the Closing all action necessary to render the rights issued pursuant to the terms of the Rights Agreement inapplicable to the Merger, this Agreement and the Transactions.
Section 3.21 Proxy Statement. Any proxy statement to be sent to the shareholders of Company in connection with a meeting of Company's shareholders to consider the Merger (the "Company Shareholders' Meeting") (such proxy statement, as amended or supplemented, is herein referred to as the "Proxy Statement") will comply in all material respects with the applicable requirements of the Exchange Act (including the rules and regulations thereunder) and the BCL, except that no representation or warranty is being made by Company with respect to Parent Information.
Section 3.23 Board Approval; Required Vote. The Board of Directors, at a meeting duly called and held, has (i) duly and validly approved and taken all corporate action required to be taken by the Board of Directors to authorize the consummation of the Merger and the Transactions, and (ii) resolved to recommend that the shareholders of Company approve and adopt this Agreement and the Merger (the "Company Board Recommendation").
ARTICLE IV.
COVENANTS
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customers, and other Persons with which it has significant business relations; and (c) comply in all material respects with all Laws applicable to it or any of its properties, assets or business. Without limiting the generality of the foregoing, Company shall not, and it shall cause Subsidiaries not to, between the date of this Agreement and the Effective Time, except as expressly required or permitted by this Agreement, directly or indirectly, do, or commit to do, any of the following without the prior written consent of Parent, which shall not be unreasonably withheld:
(i) Amend or otherwise change its Certificate of Incorporation or By-Laws or the equivalent organizational documents, or amend or grant any waiver under the Rights Agreement;
(ii) Sell, dispose of, transfer, further pledge or further encumber any stock owned by Company in any of its Subsidiaries;
(iii) Issue, reissue, sell, transfer, deliver, pledge, or authorize the issuance, reissuance, transfer, delivery, pledge or sale of any shares of capital stock of any class, any Voting Debt or other voting securities, or any options, warrants, convertible or exchangeable securities or other rights of any kind to acquire any shares of capital stock, Voting Debt, voting securities, convertible or exchangeable securities or any other ownership interest (including, but not limited to, stock appreciation rights, phantom stock, phantom stock rights, or stock-based performance units) of Company or any Subsidiary (except for the issuance of Shares required to be issued pursuant to the terms of the Options outstanding as of the date hereof) or make any other changes in its capital structure;
(iv) Declare, set aside, make or pay any dividend or other distribution, whether payable in cash, stock, property or otherwise, with respect to any of its capital stock (other than dividends or distributions by any wholly owned Subsidiary to its parent);
(v) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any shares of capital stock of Company or any Subsidiary or any securities convertible into or exercisable for any such shares of its capital stock or securities, except for payments in respect of the cancellation of outstanding Options to the extent and subject to the terms and conditions set forth on Schedule 4.01;
(vi) Acquire any shares or equity interests in any corporation, partnership, Person or other business organization or division thereof, or a substantial portion of the assets thereof;
(vii) Incur, create or assume any Indebtedness (including by issuance of debt securities) other than borrowings in the ordinary course of business consistent with past practices under Company's existing credit facilities or issue any debt securities or warrants or other rights to acquire any debt securities of Company or any Subsidiary, or assume, guarantee or endorse (other than for collection or deposit in the ordinary course of business consistent with past practices or for guarantees of Subsidiary obligations to the extent permitted under Company's applicable credit agreements), or otherwise as an accommodation become responsible for, the
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obligations or Indebtedness of any Person, or make any loans or advances or make any capital contributions to, or investments in, any other Person;
(viii) Enter into, or modify, amend or terminate any Material Contract;
(ix) (A) Increase the compensation or fringe benefits of, or pay any benefit not required by any contract, plan or arrangement in effect as of the date hereof to, any of its directors, officers or employees (including any bonus), except (1) as required by contractual obligations existing as of the date of this Agreement and disclosed in writing to Parent prior to the date hereof and (2) for increases in salary or wages in connection with (i) a promotion or change in position, or (ii) annual increases not in excess of 5%, granted to employees (other than executive officers) of Company or a Subsidiary in the ordinary course of business consistent with past practices, or (B) except as set forth on Schedule 4.13 or as is required by Law, establish, adopt, enter into or amend or terminate, or take any action to accelerate or increase any rights or benefits under, or grant any awards under, or make any material determination not in the ordinary course of business consistent with past practices under, any Employee Benefit Plan;
(x) Hire or agree to hire a significant number of new or additional employees not in the ordinary course of business consistent with past practices;
(xi) Terminate or lay off any significant number of employees;
(xii) Disclose any of its material trade secrets;
(xiii) Except as may be required as a result of a change in Law or in GAAP or audit practices, make any material change to any of the financial or tax accounting methods, practices or principles used by it;
(xiv) Adopt or authorize a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Company or any Subsidiary (other than the Merger);
(xv) Sell, lease or sublease (as lessor or sublessor), license, assign or otherwise dispose of or subject to any Lien any material properties or assets, except (a) sales of inventory or obsolete assets in the ordinary course of business consistent with past practices, (b) pursuant to existing Contracts disclosed in writing to Parent prior to the date of this Agreement, and (c) Permitted Liens;
(xvi) Enter into any transaction, agreement, arrangement or understanding between (i) Company or any Subsidiary, on the one hand, and (ii) any Affiliate of Company (other than the Subsidiaries), on the other hand, of the type that would be required to be disclosed under Item 404 of Regulation S-K;
(xvii) Settle or dismiss any Litigation threatened against, relating to or involving Company and any Subsidiary in connection with any business, asset or property of Company and any Subsidiary, other than in the ordinary course of business consistent with past practices but not, in any individual case, in excess of $100,000 or in a manner that would prohibit or
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materially restrict Company from operating as it has historically (including as of the date of this Agreement);
(xviii) (A) Make any material Tax election, (B) enter into any settlement or compromise of any material Tax liability, (C) file any amended Tax Return with respect to any material Tax, (D) change any annual Tax accounting period, (E) enter into any closing agreement relating to any material Tax or (F) surrender any right to claim a material Tax refund; or
(xix) Make or agree to make any new capital expenditure or expenditures (other than expenditures related to routine maintenance of existing operations in the ordinary course of business consistent with past practices) that, individually, is in excess of $25,000 or, in the aggregate during any calendar month, are in excess of $50,000.
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information or data with respect to Company or any of its Subsidiaries or Affiliates if and only if (A) the Board of Directors determines in good faith, after consultation with its outside legal counsel and a nationally recognized financial advisor (which may be Company's Financial Advisor), (x) that such Person is reasonably capable of consummating such Acquisition Proposal taking into account the legal, financial, regulatory and other aspects of such Acquisition Proposal and (y) that such Acquisition Proposal will result in, or could reasonably be expected to constitute or result in, a Superior Proposal from the party that made the applicable Acquisition Proposal (or such party's Affiliates), and (B) the Board of Directors determines in good faith, after consultation with its outside legal counsel and a nationally recognized financial advisor (which may be Company's Financial Advisor), that the taking of such action may be reasonably necessary in order for the Board of Directors to c omply with its fiduciary duties to Company's shareholders under applicable Law, and (C) within one Business Day following the determinations by the Board of Directors referred to in clauses (A) and (B) above Company gives Parent written notice of such determinations, and (D) in each such case, the Board of Directors has received from the Person being furnished or disclosed any nonpublic information, an executed confidentiality agreement on terms substantially similar and not less restrictive than the Confidentiality Agreement; or
(ii) approving or recommending, or entering into, a definitive agreement with respect to an unsolicited, bona fide and written Acquisition Proposal that is submitted to Company after the date of this Agreement if and only if the Board of Directors determines in good faith, after consultation with its outside legal counsel and a nationally recognized financial advisor (which may be Company's Financial Advisor), that such proposal is a Superior Proposal and that the termination of this Agreement to accept such Superior Proposal or the recommendation of such Superior Proposal to the shareholders of Company is reasonably necessary in order for the Board of Directors to comply with its fiduciary duties to Company's shareholders under applicable Law; provided, however, that Company shall not have the right to take any such action or to terminate this Agreement pursuant to Section 6.01(d)(ii) of this Agreement and the Board of Directors shall not recommend a Superior Proposal to Company's shareholders pursuant to this Section 4.02, unless prior to any such termination: (1) Company has provided Parent with written notice that it intends to terminate this Agreement pursuant to Section 6.01(d)(ii) of this Agreement and take such action with respect to a Superior Proposal, such notice to specify in reasonable detail the material terms and conditions of the Superior Proposal then determined to be more favorable, the parties thereto, and shall be accompanied by a copy of the proposed acquisition agreement for such Superior Proposal and any ancillary agreements each in substantially the form to be entered into, such notice and documents to be delivered not less than two full Business Days prior to the time the action is to be taken; (2) during the two full Business Days period following the delivery of th e notice referred to in clause (1) above (the "Negotiation Period"), Parent shall have the right to propose adjustments in the terms and conditions of this Agreement and Company and its advisors shall negotiate in good faith with Parent concerning adjustments in the terms and conditions of this Agreement such that such Acquisition Proposal would no longer constitute a Superior Proposal; (3) following the Negotiation Period, the Board of Directors determines in good faith, after consultation with its outside legal counsel and a nationally recognized financial advisor (which may be Company's Financial Advisor), that such third party proposal is a Superior Proposal and that the termination of this Agreement to accept such Superior Proposal and/or the recommendation of such Superior Proposal to the shareholders of Company is reasonably necessary in order for the Board of
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Directors to comply with its fiduciary duties to Company's shareholders under applicable Law; and (4) after the Negotiation Period, Company delivers to Parent written notice of termination of this Agreement pursuant to Section 6.01(d)(ii).
(d) Nothing contained in this Section 4.02 shall prohibit Company or its Board of Directors from taking and disclosing to Company's shareholders its position with respect to any tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Section 4.03 Access to Information.
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Company or any of its Subsidiaries to disclose any information that would cause a violation of Law or any confidentiality agreement in effect as of the date of this Agreement or waive any attorney-client privilege (in which case the parties will make appropriate substitute disclosure arrangements, if such arrangements can be made by the parties using their reasonable efforts and, if material to Company, without such violation or waiver); provided further, that all requests for such access, inspection or information pursuant to this Section 4.03(a) shall be made through Company's Chief Financial Officer or such other person as he shall designate in writing to Parent. All nonpublic information provided to, or obtained by, Parent in connection with the transactions contemplated hereby shall be confidential (the "Confidential Information") for purposes of the Confidentiality Agreement.
(c) Subject to applicable Law, during the period commencing on the date hereof and ending on the earlier of (i) the Closing Date and (ii) the date on which this Agreement is terminated pursuant to Section 6.01, Parent shall cause its Representatives to furnish such information and respond to such inquiries as Company shall from time to time reasonably request regarding post-closing integration and operational issues.
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such action is reasonably necessary in order for the Board of Directors to comply with its fiduciary duties to Company's shareholders under applicable Law.
Section 4.05 Proxy Statement.
(a) As soon as practicable after the date of this Agreement, Company shall prepare and file the Proxy Statement with the SEC. Parent will reasonably cooperate with Company in the preparation of the Proxy Statement. Without limiting the generality of the foregoing, Parent will furnish to Company the information relating to it and Acquisition Sub required by the Exchange Act to be set forth in the Proxy Statement. The Proxy Statement shall contain the Company Board Recommendation, unless the Board of Directors shall have determined in good faith and in accordance with the terms of this Agreement (including Section 4.04, Section 6.01(c)(ii) and Section 6.03(a) hereof), after consultation with its outside legal counsel and a nationally recognized financial advisor (which may be Company's Financial Advisor), that inclusion of such recommendation would cause the Bo ard of Directors to not comply with its fiduciary duties to Company's shareholders under applicable Law.
(b) Company shall provide Parent a reasonable opportunity to review the Proxy Statement prior to its filing with the SEC and as soon as reasonably practicable notify Parent of the receipt of any comments from or other correspondence with the SEC staff with respect to the Proxy Statement and any request by the SEC for any amendment to the Proxy Statement or for additional information with respect to the Proxy Statement or the Merger. Company shall use its commercially reasonable efforts to resolve all SEC comments with respect to the Proxy Statement as promptly as practicable after receipt thereof. Company shall use its reasonable efforts to cause the Proxy Statement to be mailed to Company's shareholders as promptly as practicable after the Proxy Statement is cleared by the SEC.
(c) Company agrees, as to information with respect to Company, its officers, directors, shareholders, Subsidiaries and Business contained in the Proxy Statement, and Parent agrees, as to information with respect to Parent, Acquisition Sub and their respective officers, directors and shareholders furnished by Parent for inclusion in the Proxy Statement, that such information, at the date the Proxy Statement is mailed and (as then amended or supplemented) at the time of the Company Shareholders' Meeting, will not be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. If at any time prior to the Company Shareholders' Meeting any event or circumstances relating to Company or any Subsidiary, or their respective off icers or directors, should be discovered by Company that is required to be set forth in an amendment or a supplement to the Proxy Statement in order to make the statements therein, in light of the circumstances under which they were made, not misleading, Company shall promptly inform Parent and file such amendment or supplement with the SEC. If at any time prior to the Company Shareholders' Meeting, Parent determines that any information with respect to Parent, Acquisition Sub and their respective officers, directors and shareholders furnished by Parent for inclusion in the Proxy Statement is false or misleading with respect to any material fact, or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading, it shall promptly so notify Company, and cooperate with
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Company in the preparation of any amendment or supplement determined by Company to be required to be filed with the SEC.
Section 4.07 Public Announcements. Company's initial press release concerning the execution of this Agreement shall be reasonably acceptable to Parent. Thereafter, so long as this Agreement is in effect, Parent and Company shall consult with each other before issuing, and provide each other a reasonable opportunity to review and comment upon, any press release or other public statements with respect to the Merger and shall not issue, or permit their Affiliates to issue, any such press release or make any such public statement prior to such consultation, except as may be required by Law or in accordance with any listing agreement with, or the rules, requirements or requests of, any securities exchange on which such party's securities are listed or quoted (and, in such event, only if time does not reasonably permit).
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limits its freedom of action with respect to, or its ability to retain, Company or any of Company's Affiliates or Parent or any of Parent's subsidiaries or any material portion of assets or businesses of Company, its Subsidiaries, Parent or any of the Parent's subsidiaries.
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premium to equal the Premium Cap. If the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger and the continuing or surviving entity does not assume the obligations of the Surviving Corporation set forth in this Section 4.09, or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 4.09. Parent shall cause the Surviving Corporation to reimburse all expenses, including reasonable attorney's fees, incurred by any Person to enforce the obligations of Parent and Surviving Corporation under this Section 4.09. Company shall cooperate with Parent and its insurance broker in connection with the provision of information rela ting to the analysis of, and application for, insurance responsive to the requirements of this Section. The obligations of Parent under this Section 4.09 will not be terminated or modified in such a manner as to adversely affect any Indemnified Party to whom this Section 4.09 applies, without the consent of such affected Indemnified Party (it being expressly agreed that the Indemnified Parties and the Insured Parties are each intended third party beneficiaries of this Section 4.09).
Section 4.10 Director and Officer Resignations. On the Closing Date, Company shall deliver to Parent duly executed resignations, effective as of the Effective Time, of each officer, each member of the Board of Directors of Company, and each member of the Board of Directors of each Subsidiary identified by Parent in writing to Company, provided that neither Mr. Hendrickson nor Mr. Weldgen shall be requested to resign.
Section 4.11 Rights Agreement. As of the Effective Time, the Board of Directors of Company will have either provided for the redemption of all rights issued or outstanding pursuant to the Rights Agreement or amended the Rights Agreement, in either case such that (a) neither the execution, delivery or performance of this Agreement nor the consummation of the Transactions contemplated hereby will (i) cause the Rights to become exercisable, (ii) cause Parent or any of its Affiliates (as each such term is defined in the Rights Agreement) to become an Acquiring Person (as such term is defined in the Rights Agreement) or (iii) give rise to a Stock Acquisition Date or a Distribution Date (as each such term is defined in the Rights Agreement), and (b) the Rights will expire or be redeemed and cancelled immediately prior to the Effective Time (but conditioned upon completion of the Merger).
Section 4.12 Real Property Matters. In the event that Parent elects (at its own discretion and expense) to obtain an ALTA owner's or lessee's policy of title insurance or ALTA survey with respect to any Owned Real Property or Leased Real Property (or any update of Company's existing polices or surveys), Company agrees that it shall reasonably and customarily cooperate with Parent's efforts to obtain any such policies or surveys (or updates thereof), including, without limitation, by providing affidavits and other similar instruments reasonably required by the applicable title company for the deletion of any standard or printed exceptions in such title policies that are customarily deleted by virtue of a seller delivering such instruments in commercial real estate transactions in the state in which the applicable Owned Real Property or Leased Real Property is located.
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Section 4.13 Payment of Transaction Costs by Parent or Acquisition Sub. At the Closing and immediately following the Effective Time, Parent or the Surviving Corporation will, without limitation, make the payments set forth on Schedule 4.13.
ARTICLE V.
CONDITIONS TO THE MERGER
Section 5.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction or waiver (in writing) on or prior to the Effective Time of the following conditions:
(a) This Agreement shall have been approved and adopted by the Requisite Shareholder Vote;
(b) No Law or Order shall have been promulgated, enacted, entered or enforced, and no other action shall have been taken, by any Governmental Entity that in any of the foregoing cases has the effect of making illegal or directly or indirectly restraining, prohibiting or restricting the consummation of the Merger;
(c) Neither party shall be subject to an injunction or other Order prohibiting or otherwise restraining the Merger (and in the event that either party is subject to such an injunction or other Order, it shall use its commercially reasonable efforts to cause dissolution or other termination of such injunction or other Order, including the exercise of rights of appeal afforded by law); and
(d) The waiting period (and any extension thereof) under the HSR Act applicable to the Merger, if any, shall have expired or been terminated.
(a) Representations and Warranties. The representations and warranties of Company that are qualified as to materiality or by the term "Material Adverse Effect" shall be true and correct in all material respects, and those that are not so qualified will be true and correct in all material respects, as of the Closing Date as though made on and as of such date (unless any such representation or warranty is made only as of a specific date, in which event such representation and warranty shall be true and correct as of such specified date); provided, however, that the foregoing condition shall be deemed to have been satisfied unless the effect of any failures of the representations and warranties of Company to be true and correct (subject to the provisions above) give rise, or would reasonably be expected to give rise, to a Material Adverse Effect;
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(c) Certificate. Parent shall have received a certificate signed on behalf of Company by its chief operating officer and chief financial officer certifying that the conditions set forth in Sections 5.02(a) and 5.02(b) have been satisfied; and
(d) No Material Adverse Effect. During the period from the date this Agreement to the Closing Date, there shall not have been a Material Adverse Effect.
(a) Representations and Warranties. The representations and warranties of Parent and Acquisition Sub that are qualified as to materiality or by the term "Parent Material Adverse Effect" shall be true and correct in all material respects, and those that are not so qualified will be true and correct in all material respects, as of the Closing Date as though made on and as of such date (unless any such representation or warranty is made only as of a specific date, in which event such representation and warranty shall be true and correct as of such specified date); provided, however, that the foregoing condition shall be deemed to have been satisfied unless the effect of any failures of the representations and warranties of Parent and Acquisition Sub to be true and correct (subject to the provisions above) would reasonably be expected to gi ve rise to a Parent Material Adverse Effect;
(b) Performance of Obligations of Parent and Acquisition Sub. Parent and Acquisition Sub shall have performed in all material respects all obligations, and complied in all material respects with all agreements and covenants, required to be performed by them under this Agreement at or prior to the Closing Date; and
(c) Certificate. Company shall have received a certificate signed on behalf of Parent by its chief executive officer and chief financial officer certifying that the conditions set forth in Section 5.03(a) and 5.03(b) have been satisfied.
ARTICLE VI.
TERMINATION, AMENDMENT AND WAIVER
(a) Termination by Mutual Consent. By the mutual written consent of Parent and Company, by action of their respective Boards of Directors;
(b) Termination by either Parent or Company. By either of Parent or Company:
(i) if any Law shall have been promulgated that prohibits the consummation of the Merger or if any Governmental Entity of competent jurisdiction shall have issued an Order or taken any other action (which Order or other action each party hereto shall use its
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commercially reasonable efforts to have vacated or reversed in accordance with Section 4.08), in each case permanently restraining, enjoining or otherwise prohibiting any of the Transactions and such Order or other action shall have become final and non-appealable; or
(c) Termination by Parent. By Parent:
(ii) if the Board of Directors of Company (A) shall have failed to include the Company Board Recommendation in the Proxy Statement or shall have withdrawn, modified or changed (it being understood and agreed that any "stop-look-and-listen" communication by the Board of Directors of Company to the shareholders of Company pursuant to Rule 14d-9(f) of the Exchange Act, or any similar communication to the shareholders of Company in connection with the commencement of a tender offer or exchange offer containing the substance of a "stop-look-and-listen" communication pursuant to Rule 14d-9(f), shall not be deemed to constitute a withdrawal, modification or change of its recommendation of this Agreement) the Company Board Recommendation in any manner adverse to the Transactions, to P arent or to Acquisition Sub, or (B) shall have approved or recommended to the shareholders of Company any Acquisition Proposal other than the Transactions contemplated hereby.
(d) Termination by Company. By Company:
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have the right to terminate this Agreement pursuant to this Section 6.01(d)(i) if Company is then in material breach of any of representation, warranty, covenant or agreement contained in this Agreement; or
(ii) in connection with approving or recommending, or entering into, a definitive agreement with respect to a Superior Proposal in accordance with Section 4.02(b)(i).
Section 6.03 Fees and Expenses.
(a) Except as otherwise provided in this Section 6.03, whether or not the Merger is consummated, all fees, costs and expenses incurred in connection with this Agreement and the Transactions contemplated by this Agreement shall be paid by the party incurring such fees, costs and expenses.
(b) If this Agreement is terminated by Company pursuant to Section 6.01(d)(ii) or by Parent pursuant to Section 6.01(c)(ii), then Company shall pay $1,750,000.00 (the "Termination Fee") to Parent, at or prior to the time of, and as a pre-condition to the effectiveness of, such termination, which amount shall be payable by wire transfer of same day funds; provided, however, that Parent shall not be entitled to be paid the Termination Fee if it is then in material breach of its obligations pursuant to this Agreement. The Termination Fee is payable as liquidated damages and not as a penalty, is in lieu of any other claims for breach or damages upon a termination of this Agreement by Company or Parent pursuant to Section 6.01(d)(ii) or Section 6.01(c)(ii), respectively, and is agreed by the parties to be reasonable in light of the costs and expenses borne and to be borne by Parent in furtherance of consummation of the Transactions and the losses and competitive disadvantage Parent would suffer as a result of devoting significant attention to consummation of the Transactions to the exclusion of pursuing other business opportunities.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.01 Non-Survival of Representations and Warranties; Limitation on Warranties.
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shall not limit any covenant or agreement contained in this Agreement that, by its terms, contemplates performance after the Effective Time.
(b) Except for the representations and warranties contained in this Agreement, the schedules to this Agreement and any agreements or certificates delivered pursuant to this Agreement, Company makes no other express or implied representation or warranty to Parent or Acquisition Sub. Parent and Acquisition Sub each acknowledge that, in entering into this Agreement, it has not relied on any representations or warranties of Company other than the representations and warranties of Company set forth in this Agreement, the schedules to this Agreement or any agreements or certificates delivered pursuant to this Agreement.
(c) Except for the representations and warranties contained in this Agreement, the schedules to this Agreement and any agreements or certificates delivered pursuant to this Agreement, Parent and Acquisition Sub make no other express or implied representation or warranty to Company. Company acknowledges that, in entering into this Agreement, it has not relied on any representations or warranties of Parent and Acquisition Sub other than the representations and warranties of Parent and Acquisition Sub set forth in this Agreement, the schedules to this Agreement or any agreements or certificates delivered pursuant to this Agreement.
(d) In connection with Parent and Acquisition Sub's investigation of Company, Parent and Acquisition Sub received certain projections, including projected statements of operating revenues and income from operations of Company's business and certain business plan information. Parent and Acquisition Sub acknowledge that there are uncertainties inherent in attempting to make such estimates, projections and other forecasts and plans, that Parent and Acquisition Sub are familiar with such uncertainties and that Parent and Acquisition Sub are taking full responsibility for making their own evaluation of the adequacy and accuracy of all estimates, projections and other forecasts and plans so furnished to it, including reasonableness of the assumptions underlying such estimates, projections and forecasts and that, absent fraud or willful misrepresentation, Parent and Acquisition Sub shall have no claim against anyone with respect thereto. Accordingly, Parent and Acquisition Sub acknowledge that Company is making no representation or warranty with respect to such estimates, projections and other forecasts and plans, including the reasonableness of the assumptions underlying such estimates, projections and forecasts, except to the extent expressly included herein.
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any other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement.
Section 7.04 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned by any of the parties to this Agreement (whether by operation of Law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
Section 7.06 Validity. 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 so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that Transactions are fulfilled to the maximum extent possible.
(a) If to Parent or Acquisition Sub:
c/o Buckingham Capital Partners II, L.P. 950 Third Avenue, 19th Floor New York, NY 10022 Fax: 212-752-0505Attn: Shail Sheth
With a copy to:
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Fax: 212-728-8111
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Attn: Jeffrey R. Poss, Esq.
(b) If to Company:
CPAC, Inc.
2364 Leicester Rd
P.O. Box 175
Leicester, New York 14481-0175
Fax: 585-382-3736
Attn: Thomas N. Hendrickson
With a copy to:
Chamberlain, D'Amanda, Oppenheimer, and Greenfield
1600 Crossroads Bldg
2 State Street
Rochester, New York, 14614
Fax: 585-232-3882
Attn: Robert Oppenheimer
Section 7.10 Counterparts. This Agreement may be executed in one or more counterparts (including via facsimile), and by the different parties to this Agreement in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.
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AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.11.
Section 7.14 Waiver. At any time prior to the Effective Time and to the extent legally permitted, any party to this Agreement may, with respect to the other parties to this Agreement, (a) extend the time for the performance of any of the obligations or other acts (except to the extent prohibited by Law), (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement and (c) waive compliance with any of the agreements or conditions contained in this Agreement. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.
Section 7.16 Definitions. For purposes of this Agreement, the term:
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"Acquisition Proposal" shall have the meaning set forth in Section 4.02(c).
"Acquisition Sub" shall have the meaning set forth in the preamble of this Agreement.
"Affiliate" of a Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned Person.
"Agreement" shall have the meaning set forth in the preamble of this Agreement.
"Available Company SEC Documents" shall mean all reports, schedules, forms, statements and other documents filed by Company with the SEC during the three year period prior to the date of this Agreement, and publicly available prior to the date of this Agreement.
"BCL" shall mean the New York Business Corporation Law.
"Board of Directors" shall mean the Board of Directors of Company.
"Buckingham"means Buckingham Capital Partners II, LP, a Delaware Limited Partnership,
"Business Day" means a day other than Saturday, Sunday or any day on which banks located in the state of New York are authorized or obligated to close.
"Certificate of Merger" shall have the meaning set forth in Section 1.02(b).
"Certificates" shall have the meaning set forth in Section 1.08(b).
"Closing" shall have the meaning set forth in Section 1.02(a).
"Closing Date" shall have the meaning set forth in Section 1.02(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended, and all regulatory guidance thereunder.
"Common Stock" shall mean the common stock, par value $0.01 per share, of Company.
"Company" shall have the meaning set forth in the preamble of this Agreement.
"Company Board Recommendation" shall have the meaning set forth in Section 3.23.
"Company Financials" shall have the meaning set forth in Section 3.03(b).
"Company Form 10-K" shall have the meaning set forth in Section 3.03(b).
"Company Intellectual Property" shall have the meaning set forth in Section 3.16(a).
"Company SEC Documents shall have the meaning set forth in Section 3.03(b).
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"Company Shareholders' Meeting" shall have the meaning set forth in Section 3.21.
"Company's Financial Advisor" shall have the meaning set forth in Section 3.22.
"Confidentiality Agreement" means that certain confidentiality agreement, dated July 6, 2006, between Buckingham Capital Partners, L.P. and the Company's Financial Advisor.
"Confidential Information" shall have the meaning set forth in Section 4.03(a).
"Constituent Corporations" means Company and Acquisition Sub, as the constituent corporations of the Merger.
"Contract" shall mean all written contracts, purchase orders, sales orders, licenses, leases and other agreements, commitments, arrangements and understandings.
"Dissenting Shares" shall have the meaning set forth in Section 1.07(b).
"Effective Time" shall have the meaning set forth in Section 1.02(b).
"Employee Benefit Plans" shall have the meaning set forth in Section 3.15(a).
"Environmental Claims" shall mean any administrative, regulatory or judicial actions, Orders, decrees, suits, Litigation, demands, demand letters, directives, threats, claims, Liens, investigations, proceedings or notices of noncompliance or violation by any Governmental Entity or other Person alleging liability or potential liability arising out of, based on or related to (i) the presence, Release or threatened Release of, or exposure to, any Hazardous Substances at any location, whether or not owned, operated, leased or managed by Company or any Subsidiary, or (ii) any other circumstances forming the basis of any violation or alleged violation of any Environmental Law or Environmental Permit.
"Environmental Law" shall mean any federal, state, municipal, local, foreign or other statutes, Laws, ordinances, rules or regulations, Orders, decrees, common law principles, judgments or binding agreements issued, promulgated or entered into by or with any Governmental Entity relating to regulation of pollution or the protection of human health and safety, natural resources or the environment (including ambient air, surface water, groundwater, soils, subsurface strata and natural resources) including Laws concerning Hazardous Substances, including Laws and regulations relating to the presence of, exposure to, Release of or threatened Release of Hazardous Substances or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, recycling, transport, handling of, or the arrangement for such activities with respect to, Hazardous Substances, including the following federal statutes and th eir state counterparts, as each may be amended from time to time, and any regulations promulgated thereunder: the Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Safe Drinking Water Act.
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"Environmental Permits" shall mean any Permit issued specifically pursuant to, or required under, an Environmental Law expressly applicable to Company or its Subsidiaries.
"Environmental Reports" means those certain environmental site assessment reports and similar documents obtained by Parent or Acquisition Sub (or their lenders or Affiliates) in connection with the due diligence review of Company and its operations, which have been previously provided by Parent to Company and which are described on Schedule 7.16(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all regulatory guidance thereunder.
"ERISA Affiliate" shall have the meaning set forth in Section 3.15(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended (including the rules and regulations promulgated thereunder).
"Existing Credit Documents" shall mean (i) Revolving Credit Agreement between Company and HSBC Bank (USA) Inc, dated September 28, 2006 and (ii) loan agreements of Company's foreign Subsidiaries listed on Schedule 7.16(b).
"Filed Contracts" shall have the meaning set forth in Section 3.13(a).
"GAAP" shall mean, at any time, generally accepted accounting principles, methods and practices then set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board.
"Governmental Entity" shall mean any court, arbitrator, department, commission, board, bureau, agency, authority, instrumentality or other governmental or regulatory body, whether federal, state, municipal, county, local, foreign or other.
"Hazardous Substance" shall mean any substance which is regulated by (or would require remediation, removal or reporting under) Environmental Laws, and includes (i) any materials or substances which are defined as hazardous waste, extremely hazardous waste or a hazardous substance (or any other similar term) pursuant to state, federal or local governmental Law; (ii) asbestos and asbestos containing materials; (iii) polychlorinated biphenyls; (iv) petroleum products, including crude oil, constituents of petroleum products, and substances derived from petroleum; (v) urea formaldehyde and related substances; (vi) radon and other radioactive substances; (vii) substances which are toxic, ignitable, reactive; (viii) medical, biological, and biohazardous materials, including infectious substances, biological products, cultures and stocks, diagnostic specimen or regulated medical waste as defined in 4 9 CFR sec. 173.134(a) and any other infectious materials, bodily fluids, excrement or similar such wastes and (ix) mold, fungi, and other allergens.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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"Indebtedness" of any Person at any date shall include (i) all indebtedness (including interest payments or prepayments required prior to satisfaction) of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities for trade payables incurred and payable in the ordinary course of business consistent with past practice), including earn-out or similar contingent purchase amounts, (ii) any other indebtedness of such Person which is evidenced by a note, mortgage, bond, debenture or similar instrument, (iii) all obligations of such Person under capitalized leases (other than the current portion of capitalized leases to the extent reflected in current liabilities), (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (v) all obligations of the type referred to in clauses (i) thr ough (v) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including guarantees of such obligations and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Liens on any property or asset of such Person (whether or not such obligation is assumed by such Person).
"Indemnified Party" shall have the meaning set forth in Section 4.09.
"Insured Party" shall have the meaning set forth in Section 4.09.
"Intellectual Property" shall mean all: (i) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof; (ii) trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith; (iii) copyrightable works, all copyrights, and all applications, registrations and renewals in connection therewith; (iv) mask works and all applications, registrations and renewals in connection therewith; (v) trade secrets; (vi) computer software (including object code, source code, data and related documen tation); (vii) Internet Web sites, including domain name registrations and content and software included therein; (viii) rights to recover for past infringements of any of the foregoing owned by Company and its Subsidiaries; and (ix) all copies and tangible embodiments thereof (in whatever form or medium).
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge", when used with respect to Company, shall mean the actual knowledge of the Chief Executive Officer or Chief Financial Officer of Company following a reasonable investigation or inquiry of the subject matter thereof. "Knowledge", when used with respect to Parent or Acquisition Sub, shall mean the actual knowledge of Shail Sheth and Thomas Mistler following a reasonable investigation or inquiry of the subject matter thereof.
"Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation.
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"Liability" means any direct or indirect Indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, liquidated or unliquidated, secured or unsecured.
"Liens" means any mortgages, title defects or objections, liens (statutory or otherwise), security interests, claims, pledges, licenses, equities, options, conditional sales contracts, assessments, levies, easements, covenants, conditions, reservations, encroachments, hypothecations, equities, restrictions, rights-of-way, exceptions, limitations, charges, possibilities of reversion, rights of refusal or encumbrances of any nature whatsoever.
"Listed Intellectual Property" shall have the meaning set forth in Section 3.16(b).
"Litigation" means any complaint, action, suit, proceeding, arbitration or other alternate dispute resolution procedure, demand, investigation or inquiry, whether civil, criminal or administrative.
"Material Adverse Effect" shall mean any fact, event, change, effect, condition, factor or circumstance that individually or in the aggregate with all other facts, changes, events, effects, conditions, factors and circumstances (i) is or is reasonably likely to be materially adverse to the business, results of operations, properties, financial condition, assets or Liabilities of Company and its Subsidiaries, taken as a whole, or (ii) impairs or adversely affects in any material respect Company's ability to perform its obligations under this Agreement or consummate the Merger or the other Transactions contemplated hereby; provided, however, that, the following shall not be taken into account in determining whether there has occurred (or whether there is reasonably likely to be) a Material Adverse Effect: (a) any event, change, effect, condition, factor or circumstance arising out of or attributable to general economic or politic al conditions in the United States or in worldwide capital markets or any outbreak of hostilities or war (or the material worsening of hostilities or war) or terrorist activities (except for any changes which disproportionately affect Company, its Subsidiaries or their respective results of operations, properties, condition, assets or Liabilities, taken as a whole, as compared to other Persons engaged in the industries in which Company and its Subsidiaries compete); (b) any event, change, effect, condition, factor or circumstance arising out of or attributable to the industries in which Company and its Subsidiaries conduct their businesses (except for any changes which disproportionately affect Company, its Subsidiaries or their respective results of operations, properties, condition, assets or Liabilities, taken as a whole, as compared to other Persons engaged in the industries in which Company and its Subsidiaries compete); (c) any change or effect resulting from the announcement of this Agreement, the Mer ger or the other Transactions contemplated hereby; or (d) changes, after the date hereof, in Laws of general applicability or changes, after the date hereof, in GAAP (except in each such case for any changes which disproportionately affect Company or its Subsidiaries or their respective results of operations, properties, condition, assets or Liabilities, taken as a whole, as compared to other Persons engaged in the industries in which Company and its Subsidiaries compete).
"Material Contracts" shall have the meaning set forth in Section 3.13(a).
"Merger" shall have the meaning set forth in the recitals of this Agreement.
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"Merger Consideration" shall have the meaning set forth in Section 1.06(a).
"Negotiation Period" shall have the meaning set forth in Section 4.02(b)(i).
"Options" shall have the meaning set forth in Section 1.09.
"Option Cancellation Agreement" has the meaning specified in Section 1.09.
"Orders" shall mean any order, writ, injunction, judgment, plan or decree.
"Outside Date" shall have the meaning set forth in Section 6.01(b)(ii).
"Owned Real Property" shall have the meaning set forth in Section 3.11(b).
"Parent" shall have the meaning set forth in the preamble of this Agreement.
"Parent Information" shall have the meaning set forth in Section 2.05.
"Parent Material Adverse Effect" shall mean a material adverse effect on the ability of Parent or Acquisition Sub to perform its obligations under this Agreement or consummate the Transactions.
"Permit" shall mean any permit, license, variance, exemption, authorization, certificate, franchise, Order or approval of any Governmental Entity.
"Permitted Lien" means any (i) Lien which constitutes or arises out of current state or local Taxes or assessments not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (ii) materialmen's, mechanics', workmen's or repairmen's Lien in each case created in the ordinary course of business and in each case securing obligations (A) not more than 30 days past due and (B) in any amount less than $10,000, individually, and $100,000, in the aggregate, (iii) Lien under the Existing Credit Documents, (iv) Lien securing Indebtedness (including purchase money Indebtedness) on assets other than real property, incurred in the ordinary course of business and consistent with past practice after the date thereof, (v) Zoning and building ordinances and land use and environmental regulations, to the extent the foregoing have not been v iolated, (vi) Lien in favor of landlords with respect to any Real Property Leases, and (vii) Lien, easement, right of way, or other imperfection of title agreements, conditions and restrictions that would be shown by a current survey, title report or physical inspections, and zoning building and other similar restrictions, in each case the existence of which does not, and would not reasonably be expected to, materially impair the value of, or use and enjoyment of, any Owned Real Property or any Leased Real Property, or materially adversely affect the operation by Company of its business (as conducted as of the date hereof) thereon.
"Person" shall mean an individual, corporation, partnership, association, trust, any unincorporated organization or group (within the meaning of Section 13(d)(3) of the Exchange Act).
"Premium Cap" shall have the meaning set forth in Section 4.09.
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"Proxy Statement" shall have the meaning set forth in Section 3.21.
"Real Property Lease" means each Agreement under which Company or any Subsidiary is landlord, sublandlord, tenant, subtenant or occupant with respect to real property.
"Release" shall mean any active or passive release, spilling, emitting, pumping, emptying, escaping, leaking, dumping, injecting, pouring, deposit, disposing, discharging, dispersal, leaching or migration into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.
"Representatives" shall have the meaning set forth in Section 4.02(a).
"Requisite Shareholder Vote" means the adoption of this Agreement by the shareholders of Company in accordance with the Certificate of Incorporation or By-Laws of Company and the BCL.
"Rights" shall have the meaning set forth in Section 3.01(c).
"Rights Agreement" shall mean that certain Rights Agreement, dated as of March 19, 1999 between Company and Continental Stock Transfer and Trust Company as Rights Agent thereunder.
"Sarbanes-Oxley Act" shall mean the Sarbanes-Oxley Act of 2002.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended (including the rules and regulations promulgated thereunder).
"Share" shall have the meaning set forth in Section 1.06(a).
"Stock Plans" shall have the meaning set forth in Section 1.09.
"Subsidiary" shall mean any corporation, partnership, joint venture or other organization or entity, whether incorporated or unincorporated, of which (i) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by Company or by any one or more of its Subsidiaries, or by Company and one or more of its Subsidiaries or (ii) Company or any of its Subsidiaries is a general partner or managing member or otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.
"Superior Proposal" shall have the meaning set forth in Section 4.02(c).
"Surviving Corporation" shall have the meaning set forth in Section 1.01.
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"Taxes or Tax" means all federal, state, local and foreign taxes (including income or profits taxes, alternative or add-on minimum taxes, profits or excess profits taxes, premium taxes, occupation taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes, severance taxes, capital levy taxes, prohibited transaction taxes, transfer taxes, value added taxes, employment and payroll-related taxes (including employee withholding or employer payroll tax, FICA or FUTA), real or personal property taxes, business license taxes, occupation taxes, stamp taxes or duties, withholding or back up withholding taxes, import duties and other governmental charges and assessments), of any kind whatsoever, including charges, interest, additions to tax and penalties with respect thereto, it being agreed that the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being or ceasing to be a member of any affiliated group or being included or required to be included in any Tax Return.
"Taxable Period" means any taxable year or any other period that is treated as a taxable year (or other period, or portion thereof, in the case of a Tax imposed with respect to such other period, e.g., a quarter) with respect to which any Tax may be imposed under any applicable Law.
"Tax Returns" shall mean any return, declaration, report, statement, estimate, claim for refund, or information return or statement relating to, or required to be filed in connection with, any Taxes or Employee Benefit Plan, including any schedule, form, attachment or amendment.
"Termination Fee" shall have the meaning set forth in Section 6.03(a).
"Transactions" shall have the meaning set forth in Section 2.01.
"Voting Debt" shall have the meaning set forth in Section 3.01(c).
[Signatures Appear On Next Page]
A46
IN WITNESS WHEREOF, Parent, Acquisition Sub and Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
BUCKINGHAM CPAC, INC. |
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By: |
/s/ Shail Sheth |
Name: |
Shail Sheth |
Title: |
President |
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BUCKINGHAM CPAC ACQUISITION CORP. |
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By: |
/s/ Shail Sheth |
Name: |
Shail Sheth |
Title: |
President |
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CPAC, INC. |
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By: |
/s/ Thomas N. Hendrickson |
Name: |
Thomas N. Hendrickson |
Title: |
President and Chief Executive Officer |
A47
Index of Schedules and Exhibits*
Schedules
Schedule 1.09(b) Option Cancellation Consideration
Schedule 3.01(b) List of Subsidiaries
Schedule 3.01(c) Options
Schedule 3.03(a) Defaults
Schedule 3.06 Tax Returns
Schedule 3.06(c) Tax Return Examinations
Schedule 3.06(d) Tax Matters
Schedule 3.07 Absence of Changes
Schedule 3.09(e) Environmental Claims
Schedule 3.09(f) Hazardous Substances
Schedule 3.10(b) Compliance with Laws
Schedule 3.11(a) Title to Properties
Schedule 3.11(b) Owned Real Property
Schedule 3.11(c) Leased Real Property
Schedule 3.11(e) Zoning Violations
Schedule 3.11(f) Real Property Leased to Third Parties
Schedule 3.12 Insurance
Schedule 3.13(a) Material Contracts
Schedule 3.14 Labor Matters
Schedule 3.15(a) Employee Benefit Plans
Schedule 3.15(c) Changes to Employee Benefit Plans
Schedule 3.15(f) Employee Benefit Plan Payments
Schedule 3.16(b) Listed Intellectual Property
Schedule 3.17 Undisclosed Liabilities
Schedule 3.18 Sufficiency of Assets
Schedule 3.19 Suppliers
Schedule 4.01 Conduct of Business Pending Closing
Schedule 4.13 Transaction Costs
Schedule 7.16(a) Environmental Reports
Schedule 7.16(b) Foreign Subsidiary Loan Agreements
Exhibits
Exhibit A Form of Option Cancellation Agreement
Copies of the foregoing schedules and exhibits will be furnished to the Securities and Exchange Commission upon request
A48
ANNEX B
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT (the "Amendment") to the Agreement and Plan of Merger (as hereinafter defined) is entered into by and among CPAC, Inc., a New York corporation ("Company"), Buckingham CPAC, Inc., a Delaware corporation ("Parent"), and Buckingham CPAC Acquisition Corp., a New York corporation and a wholly-owned subsidiary of Parent ("Acquisition Sub").
WHEREAS, Parent, Acquisition Sub and Company executed an Agreement and Plan of Merger, dated as of December 22, 2006 (the "Agreement and Plan of Merger" or "Merger Agreement"); and
WHEREAS, the parties have determined that it is in their mutual best interest to amend the Merger Agreement as set forth herein.
WHEREFORE, based on good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereby agree as follows:
1. |
All capitalized terms used herein that are not otherwise defined herein shall have the meaning assigned to them in the Merger Agreement. |
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2. |
Section 1.02(a) of the Merger Agreement is hereby amended by revising such section to read in its entirety as follows: |
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(a) The closing of the Merger (the "Closing") will take place at 10:00 a.m. on the earliest Business Day after satisfaction or waiver of the conditions set forth in Article V (but no later than the forty-fifth (45th) Business Day after satisfaction or waiver of the conditions set forth in Article V), at the offices of Chamberlain, D'Amanda, Oppenheimer, & Greenfield, LLP, unless another date, time or place is agreed to in writing between Parent and Company. The date on which the Closing occurs is referred to in this Agreement as the "Closing Date." |
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3. |
Section 6.01(b)(ii) of the Merger Agreement is hereby amended by revising such section to read in its entirety as follows: |
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(ii) if the Merger is not consummated on or before May 15, 2007 (the "Outside Date"); provided, however (A) that the right to terminate this Agreement pursuant to this Section 6.01(b)(ii) shall not be available to any party seeking to terminate if any action of such party or the failure of such party to perform any of its obligations under this Agreement or required to be performed at or prior to the Closing Date has been the cause of, or resulted in, the failure of the Closing Date to occur on or before the Outside Date and such action or failure to perform constitutes a material breach of this Agreement; and (B) that neither Parent nor Company may terminate pursuant to this clause (b)(ii) if on such date all conditions in Article V shall have been satisfied; or |
B1
4. |
Except as specifically amended pursuant to this Amendment, the Merger Agreement remains in full force and effect in accordance with its terms. No reference to this Amendment need be made in any instrument or document making reference to the Merger Agreement, and reference to the Merger Agreement in any such instrument or document shall be deemed to be a reference to the Merger Agreement as amended hereby. |
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This Amendment may be executed in one or more counterparts (including via facsimile), and by the different parties to this Amendment in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. |
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B2
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of February 23, 2007.
BUCKINGHAM CPAC, INC. |
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By: |
/s/ Shail Sheth |
Name: |
Shail Sheth |
Title: |
President |
BUCKINGHAM CPAC ACQUISITION CORP. |
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By: |
/s/ Shail Sheth |
Name: |
Shail Sheth |
Title: |
President |
CPAC, INC. |
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By: |
/s/ Thomas N. Hendrickson |
Name: |
Thomas N. Hendrickson |
Title: |
President and Chief Executive Officer |
B3
December 22, 2006
Board of Directors |
ANNEX C Key Banc Capital Markets (company logo graphic) Mergers & Acquisitions |
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of view, to the holders of the issued and outstanding shares of common stock, $0.01 par value per share (the "Common Stock") of CPAC, Inc. (the "Company") of the consideration to be received by these holders pursuant to the Agreement and Plan of Merger (the "Merger Agreement") to be entered into by and among the Company, Buckingham CPAC, Inc. ("Buckingham"), and Buckingham CPAC Acquisition Corp. ( "Purchaser").
You have advised us that under the terms of the Merger Agreement, all of the issued and outstanding shares of Common Stock will be converted into the right to receive, and become exchangeable for, $8.65 in cash. The terms and conditions of the Transaction are more fully set forth in the Merger Agreement.
KeyBanc Capital Markets, a division of McDonald Investments Inc. ("Key"), as part of its investment banking business, is customarily engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed, among other things, the following: (i) a draft of the Merger Agreement, dated December 18, 2006, which we understand to be in substantially final form; (ii) certain publicly available information concerning the Company, including the Annual Reports on Form 10-K of the Company for each of the years in the three year period ended March 31, 2006, and the Quarterly Reports on Form 10-Q of the Company for the quarters ended September 30, 2006 and June 30, 2006; (iii) certain other internal information, primarily financial in nature, including projections for the fiscal years ending March 31, 2007 and 2008, concerning the business and operations of the Company furnished to us by the Company for purposes of our analysis; (iv) certain publicly available information concerning the trading of, and the trading market for, the Common Stock; (v) certain publicly ava ilable information concerning Buckingham and its financing sources; (vi) certain publicly available information with respect to certain other publicly traded companies that we believe to be comparable to the Company and the trading markets for certain of such other companies' securities; and (viii) certain publicly available information concerning the nature and terms of certain other transactions that we consider relevant to our inquiry. We have also had conversations with certain officers and employees of the Company to discuss the business and prospects of the Company, as well as other matters we believe relevant to our inquiry, and considered such other data and information we judged necessary to render our opinion.
In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all of the financial and other information provided to or otherwise reviewed by or discussed with us or publicly available and have assumed and relied upon the representations and warranties of the Company, Buckingham, and Purchaser contained in the Merger Agreement. We have not been engaged to, and have not independently attempted to, verify any of such information. We have also relied upon the management of the Company as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases therefor) provided to us and, with your consent, we have assumed that such projections were reasonably prepared and reflect the best currently available estimates and judgments of the Company. We have not been engaged to assess the reasonableness or achievability of such projections or the assumptions on which they were based and express no view as to such projections or assumptions. In addition, we have not conducted a physical inspection or appraisal of any of the assets, properties or facilities of the Company nor have we been furnished with any such evaluation or appraisal. We have also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without material adverse effect on the Company or the transaction.
Securities products offered by McDonald Investments Inc |
C1
Board of Directors
CPAC, Inc.
December 22, 2006
Page 2
We have not been asked to, nor do we, offer any opinion as to the material terms of the Merger Agreement or the form of the transaction. In rendering our opinion, we have assumed, with your consent, that the final executed form of the Merger Agreement does not differ in any material respect from the draft that we have examined, and that the conditions to the transaction as set forth in the Merger Agreement would be satisfied and that the transaction would be consummated on a timely basis in the manner contemplated by the Merger Agreement. We have not formally solicited, nor were we asked to solicit, third party interest in a transaction involving the Company.
It should be noted that this opinion is based on economic and market conditions and other circumstances existing on, and information made available as of, the date hereof and does not address any matters subsequent to such date. In addition, our opinion is, in any event, limited to the fairness, as of the date hereof, from a financial point of view, of the consideration to be received by the holders of the Company's Common Stock pursuant to the Merger Agreement and does not address the Company's underlying business decision to effect the transaction or any other terms of the transaction. It should be noted that although subsequent developments may affect this opinion, we do not have any obligation to update, revise or reaffirm our opinion.
We will receive a fee in connection with the delivery of this opinion as well as the Company's agreement to indemnify us under certain circumstances. We have in the past provided investment banking services to the Company. In particular, in 2004 and 2005, we have served as adviser for the Company's proposed sale of its Imaging Division. In the ordinary course of our business, we may actively trade securities of the Company for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
It is understood that this opinion was prepared solely for the confidential use of the Board of Directors of the Company in its evaluation of the proposed transaction. Our opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote at any stockholders' meeting held in connection with the transaction. This opinion is not to be used for any other purpose, or to be reproduced, disseminated, quoted from or referred to at any time, in whole or in part, without our prior written consent; provided, however, that this opinion may be included in its entirety in any document delivered to the holders of Common Stock in connection with the transaction or in any document filed with the SEC.
Based upon and subject to the foregoing and such other matters as we consider relevant, it is our opinion that as of the date hereof, the consideration to be received pursuant to the Merger Agreement is fair, from a financial point of view, to the stockholders of the Company.
Very truly yours, |
/s/Raj Trikha |
Raj Trikha |
KEYBANC CAPITAL MARKETS, |
a Division of McDonald Investments Inc. |
C2
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