UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Amendment
No. 3)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
þ
Filed by a party other than the Registrant
o
Check the appropriate box:
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Preliminary proxy statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
COHESANT TECHNOLOGIES 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):
o
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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(1)
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Title of each class of securities to which transaction applies:
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Common Stock, par value $0.001 per share, of Cohesant Technologies Inc. (Company
Common Stock)
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(2)
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Aggregate number of securities to which transaction applies:
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3,359,257 shares of Company Common Stock and 336,200 shares of Company Common Stock
issuable upon the exercise of options.
(1)
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(3)
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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):
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The filing fee was determined based on the sum of (A) 3,359,257 shares of Company
Common Stock multiplied by $9.55 per share and (B) 336,200 shares of Company Common
Stock issuable upon exercise of options, multiplied by $9.55 per share, with the
aggregate total transaction value not to exceed $35,000,000. In accordance with
Section
14(g)
of the Securities Exchange Act of 1934, as amended, the filing fee was
determined by multiplying 0.0000307 by the sum of the preceding
sentence.
(1)
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(4)
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Proposed maximum aggregate value of transaction:.
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$35,000,000
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(5)
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Total fee paid:
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$1,074.50
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Fee paid previously with preliminary materials:
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o
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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.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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(1)
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Pursuant to the Agreement and Plan of Merger, dated as of December 3, 2007, Graco
Indiana Inc., a wholly-owned subsidiary of Graco Inc. will merge into the Registrant and each
outstanding share of Company Common Stock will be converted into the right to receive a minimum of
$9.05 per share and a maximum of $9.55 per share (the Per Share Merger Consideration). Each
holder of options to acquire Company Common Stock will be entitled to receive, in consideration of
the cancellation of such stock options, an amount (net of applicable taxes) equal to the product of
(i) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of
common stock subject to such stock option, multiplied by (ii) the total number of shares subject to
such stock option. As of December 12, 2007, there were 3,359,257 shares of Company Common Stock
issued and outstanding, and there were 336,200 shares of common stock of the Registrant subject to
outstanding stock options with a weighted average exercise price of $8.41 per share. Due to a
spin-off of the Registrants CIPAR subsidiary via a dividend prior to the closing of the
transaction, the Registrant has considered that all options may be exercised prior to closing.
Therefore, the filing fee was determined by adding (x) the product of (i) the number of shares of
Company Common Stock that are proposed to be acquired in the merger and (ii) the Per Share Merger
Consideration, plus (y) the product of (1) the total number of shares of Company Common Stock
subject to outstanding stock options and (2) the Per Share Merger Consideration with the aggregate
transaction value not to exceed $35,000,000 ((x) and (y) together, the merger consideration). The
filing fee was calculated in accordance with Regulation 240.00-11 under the Exchange Act, by
multiplying the merger consideration by 0.0000307.
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Subject
to Completion, dated January 23, 2008
COHESANT TECHNOLOGIES INC.
5845 West 82
nd
Street, Suite 102
Indianapolis, Indiana 46278
Dear Stockholder:
Our Board of Directors has approved a merger that provides for our acquisition by Graco Inc.
If the merger is completed, each share of our common stock issued and outstanding at the effective
time of the merger (other than shares held by Graco or its wholly-owned merger subsidiary or a
stockholder who is entitled to and who properly demands and perfects statutory appraisal rights in
compliance with all of the required procedures of Delaware law) will be converted into the right to
receive a minimum of $9.05 and a maximum of $9.55 in cash, without interest. The exact value of
the per share merger consideration will depend, primarily, on the dollar amount of the
transactional expenses and borrowed indebtedness retained by the Company following its acquisition
by Graco.
Immediately prior to the closing of the merger, we will spin off our CIPAR, Inc. subsidiary to
our stockholders by means of a special taxable dividend of one share of CIPAR common stock for each
share of Cohesant Technologies Inc. common stock outstanding as of the record date for such
dividend.
We will hold a special meeting of stockholders of Cohesant Technologies Inc. (Cohesant or
the Company) at the offices of CIPAR, 23400 Commerce Park Road, Beachwood, Ohio, 44122 on [
], 2008 at 9:00 a.m., Eastern Standard Time. At the special meeting, we will ask you
to consider a proposal to approve and adopt the merger agreement and to approve a proposal to
adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in the
event there are not sufficient votes at the time of the special meeting to approve and adopt the
merger agreement. No stockholder approval is required for the spin-off; however, the spin-off
will not occur unless the merger agreement is approved and the merger occurs.
Your vote is important. We cannot complete the merger and the other transactions contemplated
by the merger agreement unless the merger agreement proposal is approved. The obligations of the
Company and Graco to complete the merger are also subject to the satisfaction or waiver of various
other conditions to the merger. More detailed information about the merger agreement and the
merger, as well as information about the spin-off, is contained in this proxy statement/information
statement. Whether or not you plan to attend the special meeting in person, please submit your
proxy without delay. We encourage you to read the accompanying proxy statement/information
statement carefully because it explains the proposed merger, the merger agreement, the spin-off and
the proposals which require your favorable vote.
Our Board of Directors has carefully reviewed and considered the terms of the merger agreement
and has unanimously determined that the merger agreement, the merger and the transactions
contemplated thereby, and the spin-off are advisable, fair and in the best interests of Cohesant
and our stockholders. Accordingly, the Board has unanimously approved the merger agreement, the
merger and the various transactions contemplated in such agreement and unanimously recommends that
you vote
FOR
the approval of the merger agreement, and
FOR
the proposal allowing us to adjourn
the special meeting, if necessary, to solicit additional proxies.
This proxy statement/information statement is dated [
], 2008 and is first being
mailed to stockholders on or about [
], 2008.
Sincerely,
Morton A. Cohen
Chairman of the Board
Neither the Securities and Exchange Commission nor any state securities regulatory agency has
approved or disapproved the merger or the spin-off, passed upon the merits or fairness of the
merger or the spin-off or passed upon the adequacy or accuracy of the disclosure in this document.
Any representation to the contrary is a criminal offense.
COHESANT TECHNOLOGIES INC.
5845 West 82
nd
Street, Suite 102
Indianapolis, Indiana 46278
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
[
]
, 2008
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders of Cohesant Technologies Inc.
(Cohesant or the Company) will be held at the offices of its subsidiary, CIPAR, Inc. (CIPAR),
23400 Commerce Park Road, Beachwood, Ohio, 44122 on [
], 2008 at 9:00 a.m., Eastern
Standard Time, for the following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement and Plan of Merger
(the Merger Agreement), dated December 3, 2007, among the Company, Graco Inc. (Graco), Graco
Indiana Inc., a wholly-owned subsidiary of Graco (Merger Sub), CIPAR, and GlasCraft Inc., a
wholly-owned subsidiary of the Company (GlasCraft or Company Sub), pursuant to which, upon the
merger becoming effective, Merger Sub would merge with and into the Company, wherein each issued
and outstanding share of the Companys common stock, $0.001 par value (the common stock) (other
than shares held by Graco or Merger Sub or a stockholder who is entitled to and who properly
demands and perfects statutory appraisal rights in compliance with all of the required procedures
of Delaware law), will be converted into the right to receive a minimum of $9.05 and a maximum of
$9.55 in cash, without interest.
2 To consider and vote on a proposal to allow the Board of Directors to adjourn the special
meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not
sufficient votes at the time of the special meeting to approve and adopt the Merger Agreement.
3. To transact any other business that may properly come before the special meeting or any
adjournment or postponement thereof.
Only stockholders who held shares of record as of the close of business on [
],
2008 are entitled to receive notice of and to vote at the special meeting or any adjournment or
postponement of the meeting. A complete list of Cohesant stockholders entitled to vote at the
special meeting will be available for inspection at the executive offices of Cohesant during
regular business hours for a period of no less than ten days before the special meeting.
The approval and adoption of the Merger Agreement requires the approval of the holders of a
majority of the outstanding shares of common stock entitled to vote thereon as of the record date
for the special meeting. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE REQUEST THAT
YOU COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AND THUS ENSURE
THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND. If you
sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be
voted in favor of the approval and adoption of the Merger Agreement, and the proposal to adjourn
the meeting, if necessary or appropriate, to solicit additional proxies. If you fail to return
your proxy card, 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 the adoption and approval of the Merger Agreement. If you
are a stockholder of record and you attend the special meeting and wish to vote in person, you may
withdraw your proxy and vote in person.
The Cohesant Board of Directors unanimously recommends that stockholders vote
FOR
the
approval and adoption of the Merger Agreement at the special meeting, and
FOR
the proposal to
adjourn the meeting, if necessary or appropriate, to solicit additional proxies.
By order of the Board of Directors
Morton A. Cohen
Chairman of the Board
Indianapolis, Indiana
[
], 2008
Table Of Contents
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F-1
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Appendix A Agreement and Plan of Merger, dated December 3, 2007, by and among Graco Inc., Graco Indiana Inc.,
Cohesant Technologies Inc., CIPAR Inc., and GlasCraft Inc.
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A-1
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Appendix B Opinion of Western Reserve Partners LLC, dated December 3, 2007, regarding minimum per share
consideration
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B-1
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Appendix C Opinion of Western Reserve Partners LLC, dated December 3, 2007, regarding fair market value of CIPAR
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C-1
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Appendix D Form of Voting and Support Agreement by and among Graco Inc. and each of Morton A. Cohen, Morris H.
Wheeler, and Robert W. Pawlak
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D-1
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Appendix E Section 262 of the Delaware General Corporation Law
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E-1
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QUESTIONS AND ANSWERS
The following questions and answers address briefly some of the questions you may have
regarding the special meeting, the proposed merger and the spin-off. These questions and answers
may not address all of your questions that may be important to you as a stockholder of Cohesant.
Please refer to more detailed information contained elsewhere in this proxy statement/information
statement, the appendices to this proxy statement/information statement and the documents
referenced in this proxy statement/information statement.
Questions
and Answers About the Special Meeting and Merger
Q. What am I being asked to vote on?
A. You are being asked to vote on two proposals:
1. To approve and adopt an Agreement and Plan of Merger whereby a wholly-owned subsidiary of Graco
would merge with and into Cohesant (the Merger), wherein each issued and outstanding share of
common stock of Cohesant, other than shares owned by Graco, Merger Sub or dissenting shares, will
be exchanged for a minimum of $9.05 and a maximum of $9.55 in cash, without interest.
2. To approve a proposal allowing our Board of Directors to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve and adopt the Merger Agreement.
You may submit a proxy to vote your shares at the meeting by completing, dating, signing and
returning the enclosed proxy card. You are also invited to attend the special meeting in person,
although you do not need to attend the special meeting in person to have your shares voted at the
meeting.
Q. What will I be entitled to receive as a result of the Merger?
A. Upon completion of the Merger, if you are a stockholder at the effective time of the Merger you
will be entitled to receive a minimum of $9.05 and a maximum of $9.55 (the Per Share Merger
Consideration) in cash, without interest, for each share of our common stock that you own. The
exact value of the Per Share Merger Consideration will be dependent primarily on the dollar amount
of the transactional expenses and borrowed indebtedness retained by the Company following its
acquisition by Graco. For example, if you own 1,000 shares of our common stock, and the minimum
Per Share Merger Consideration is payable, you will be entitled to receive $9,050 in cash in
exchange for your shares of our common stock, without interest.
If you hold options to acquire Company stock at the effective time of the Merger, your stock
options will be cancelled, and you will be entitled to receive an amount (net of applicable taxes)
equal to the product of (i) the excess, if any, of the Per Share Merger Consideration over the
exercise price per share of such stock options, multiplied by (ii) the total number of shares
subject to such stock options.
In addition, immediately prior to the closing of the Merger, we will spin off our CIPAR
subsidiary to our stockholders by means of a special dividend of one share of CIPAR common stock
for each share of Cohesant common stock. Thus, you will also receive one share of CIPAR common
stock for each share of Cohesant common stock that you own on the day prior to the closing date of
the Merger. Cohesant engaged Western Reserve Partners LLC (Western Reserve), an independent
investment banker, to perform a valuation for tax purposes on the fair market value of the CIPAR
businesses subject to the spin-off. Please refer to The Merger- Opinion of our Financial
Advisor-Valuation of the Spun-Off Business beginning on page [
] for a discussion regarding this
opinion and to The Merger Material United States Federal Income Tax ConsequencesSpecial
Dividend on page [
] for a discussion regarding the tax consequences of the spin-off.
Neither the Company nor Western Reserve expresses an opinion as to the price at which the
common stock of the spun-off business will trade at any future time. The prices at which the CIPAR
shares may trade will be determined by the public markets and will depend upon various factors,
including the liquidity of the market for such shares, the willingness of securities firms to make
a market in such shares and other factors, and such trading prices may bear no relationship to the
fair market value of the CIPAR spin-off as determined for tax purposes by Western Reserve.
1
If you properly demand and perfect your statutory appraisal rights, you may receive more, the
same or less than the value you would be entitled to receive under the terms of the Merger
Agreement, which is attached hereto as Appendix A. You do not have dissenters rights of appraisal
under Delaware law in connection with the spin-off.
Q. When and where is the special meeting?
A. The special meeting will take place at the offices of CIPAR, 23400 Commerce Park Road,
Beachwood, Ohio, 44122 on [
], 2008 at 9:00 a.m., Eastern Standard Time.
Q. What stockholder approvals are needed?
A. The affirmative vote of the holders of a majority of our outstanding shares of common stock is
required to approve and adopt the Merger Agreement, and a majority of the shares present and
entitled to vote at the special meeting is required, if necessary, to approve the proposal to allow
our directors to adjourn the special meeting to solicit additional proxies.
As of the record date, Morton A. Cohen, our Chairman, his affiliate Clarion Capital
Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert W. Pawlak, our Chief
Financial Officer, who, in the aggregate, own approximately 45% of our common stock, have each
entered into a Voting and Support Agreement under which they have each agreed to vote
FOR
the
adoption of the Merger Agreement.
Q. Who is eligible to vote?
A. All stockholders of record on the close of business on [
], 2008, the record date,
will be eligible to vote.
Q. Am I entitled to appraisal rights?
A. Yes. Under Delaware law, holders of our common stock who do not vote in favor of approving and
adopting the Merger Agreement will have the right to seek appraisal of the fair value of their
shares as determined by the Delaware Court of Chancery if the Merger is completed, but only if (a)
they submit a written demand for an appraisal prior to the vote on the approval and adoption of the
Merger Agreement, (b) they continuously hold their Company common stock from the date they make a
demand for appraisal through the effective date of the Merger, (c) they refrain from voting their
shares of Company common stock in person or by proxy in favor of the approval and adoption of the
Merger Agreement, and (d) they comply with the Delaware law procedures applicable to such appraisal
rights. This amount could be more, the same or less than the value you would be entitled to
receive under the terms of the Merger Agreement.
Q. What is the recommendation of the Cohesant Board of Directors as to the proposals described in
this proxy statement/information statement?
A. Our Board of Directors has considered all of the facts and circumstances important to
recommending whether to vote in favor of or against the two proposals, including whether the
approval of the two proposals is advisable, fair and in the best interests of the Company and its
stockholders. After careful consideration, our Board of Directors unanimously recommends that the
Cohesant stockholders vote
FOR
the proposals set forth in this proxy statement/information
statement.
Q. What is the opinion of the Companys financial advisor?
A. The Board of Directors received an opinion from its financial advisor, Western Reserve, that as
of December 3, 2007, the minimum Per Share Merger Consideration is fair, from a financial point of
view, to the common stockholders of Cohesant. Please read The Merger Opinion of Our Financial
Advisor for information about the opinion of Western Reserve and Appendix B for the complete
opinion.
Q. What are the tax consequences of the Merger?
A. If you are a U.S. holder of our common stock, the Merger will be a taxable transaction to you.
For U.S. federal income tax purposes, you will 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
our common stock. Note that your adjusted tax basis in your Cohesant shares could be reduced
because of a tax-free return of tax basis in connection with the special dividend.
2
We urge you to carefully review The Merger Material United States Federal Income Tax
Consequences beginning on page [
]. Tax matters are very complicated and the consequences of the
transactions to any particular stockholder will depend on that stockholders particular facts and
circumstances. Cohesant stockholders are urged to consult their own tax advisors to determine
their own tax consequences from the transactions.
Q. What do I need to do now?
A. After carefully reading and considering the information contained in this proxy
statement/information statement, please respond by completing, signing and dating your proxy card
and returning it in the enclosed postage paid envelope. You should return your proxy as soon as
possible, but in any event so that it is received no later than 9:00 a.m., Eastern Standard Time,
on [
], 2008 so that your shares may be represented at the special meeting. In order
to ensure that your shares are voted, please submit your proxy as instructed even if you currently
plan to attend the special meeting in person.
Q. What if I do not vote?
A. If you fail to respond, your shares will not count toward a quorum necessary to conduct the vote
at the special meeting, and will not be counted as either a vote for or against any of the two
proposals.
If you respond and do not indicate how you want to vote, your proxy will be counted as a vote
in favor of each of the two proposals.
Q. If my shares are held in street name by my broker, will my broker vote my shares for me?
A. Yes, but only if you provide instructions to your broker on how to vote. You should follow the
instructions provided by your broker regarding how to instruct your broker to vote your shares. If
you do not follow those instructions, your shares will not be voted, which will have the same
effect as voting against the Merger Agreement. If you hold your shares in street name and wish
to vote in person by appearing at the special meeting, you must request a legal proxy from your
broker.
Q. Can I change my vote after I have delivered my proxy?
A. Yes. You can change your vote at any time before your proxy is voted at the special meeting. You
can do this by revoking your proxy or submitting a new proxy. If you choose either of these two
methods and you are a stockholder of record, you must submit your notice of revocation or your new
proxy to the Secretary of Cohesant before the special meeting. If your shares are held in street
name in an account at a brokerage firm or bank, you should contact your brokerage firm or bank to
change your vote.
If you are a stockholder of record, you can also attend the special meeting and vote in
person, which will automatically revoke any previously submitted proxy.
Q. What is a quorum?
A. A quorum of the holders of the outstanding shares of our common stock must be present for the
special meeting to be held. A quorum is present if the holders of a majority of the outstanding
shares of our common stock entitled to vote are present at the special meeting, either in person or
represented by proxy. Abstentions and broker non-votes are counted as present for the purpose of
determining whether a quorum is present. A broker non-vote occurs on an item when a broker is not
permitted to vote on that item without instructions from the beneficial owner of the shares and no
instructions are given.
Q. How are votes counted?
A. For the proposal relating to the approval and adoption of the Merger Agreement, you may vote
FOR, AGAINST or ABSTAIN. Abstentions and broker non-votes will count for purposes of determining
whether a quorum is present, but, because stockholders holding at least a majority of Company
common stock outstanding on the record date must vote FOR the approval and adoption of the Merger
Agreement to be approved, an abstention or broker non-vote has the same effect as if you vote
AGAINST the proposal and adoption of the Merger Agreement.
For the proposal to adjourn the meeting, if necessary or appropriate, to solicit additional
proxies, you may vote FOR, AGAINST or ABSTAIN. Because only a majority of the votes actually cast
is required to approve the proposal to adjourn the meeting, if necessary or appropriate,
abstentions and broker non-votes will have no effect on such proposal.
3
Q. Who will bear the cost of this solicitation?
A. We will pay the cost of this solicitation, which will be primarily by mail. Proxies also may be
solicited in person by our directors, officers or employees without additional compensation. We
will, on request, reimburse stockholders who are brokers, banks or other nominees for their
reasonable expenses in sending out proxy materials to the beneficial owners of the shares they hold
of record.
Q. Should I send in my stock certificate now?
A. No. Shortly after the Merger is completed, each registered Cohesant stockholder as of the
effective time of the Merger (that is, each stockholder that holds stock in its own name rather
than that of its broker) will receive a letter of transmittal with instructions informing them how
to send in their stock certifications to the paying agent in order to receive the merger
consideration. Such stockholders should use the letter of transmittal to exchange stock
certificates for the merger consideration to which they are entitled as a result of the Merger. DO
NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
Q. What should I do if I receive more than one set of voting materials for the special meeting?
A. You may receive more than one set of voting materials for the special meeting, including
multiple copies of this proxy statement/information statement and multiple proxy cards and voting
instruction cards. For example, if you hold your shares in more than one brokerage account, you
will receive a separate voting instruction card for each brokerage account in which you hold
shares. If you are a holder of record and your shares are registered in more than one name, you
will receive more than one proxy card. Please complete, sign, date and return each proxy card and
voting instruction card that you receive.
Q. Who can help answer my questions?
A. If you have any questions about the transactions contemplated by the Merger Agreement or any of
the proposals, or how to submit your proxy, or if you need additional copies of the proxy
statement/information statement or the enclosed proxy card or voting instructions, you should
contact:
Cohesant Technologies Inc.
Attn: Robert W. Pawlak, Chief Financial Officer
5845 West 82nd Street, Suite 102
Indianapolis, Indiana 46278
(317) 871-7611
Questions and Answers About the Spin-Off
Q. What will Cohesant stockholders receive in the spin-off?
A. Immediately prior to the closing of the Merger, you will receive one share of CIPAR common stock
for each share of Cohesant common stock that you own on the day prior to the closing date of the
Merger.
Q. How can holders of options to purchase Cohesant stock participate in the spin-off?
A. Only holders of Cohesant common stock as of the record date for the spin-off will receive shares
of CIPAR. If you hold options to purchase Cohesant common stock, you must exercise your options
prior to the record date for the spin-off in order to receive CIPAR stock for the Cohesant common
stock represented by such options.
Q. Where will CIPAR common stock trade and how will it be regulated?
A. There is currently no public market for CIPAR common stock. We have not requested, and
therefore have not been approved, to list CIPAR common stock on any securities exchange following
the spin-off. We anticipate that shares of CIPAR common stock will be quoted in the
over-the-counter markets, but neither the Company nor CIPAR has any control over whether this will
occur. Following the spin-off, CIPAR will be subject to the reporting requirements of the
Securities Exchange Act of 1934, and as a result will be required to file periodic reports with the
Securities and Exchange Commission regarding CIPARs common stock and its business; however, the
Board of Directors of CIPAR may examine such registration, from time to time, and elect to deregister the CIPAR Common Stock if such
de-registration is permitted under the Securities Exchange Act of 1934, and the Board determines
such action is in the best interest of CIPAR and its stockholders.
Q. What is the fair market value of each CIPAR share that is spun off?
A. The value of the CIPAR shares will be determined by the public market following the spin-off.
Prices at which trading of CIPAR shares may occur may fluctuate significantly. These prices may be
influenced by many factors, including the small size of CIPAR, the small size of the public float
of CIPAR, and quarter-to-quarter variations in CIPAR actual or anticipated financial results. We
engaged Western Reserve, an independent investment banker, to perform a valuation for tax purposes
on the fair market value of the CIPAR business subject to the spin-off. Neither the Company nor
Western Reserve expresses an opinion as to the price at which the common stock of the spun-off
business will trade at any future time. Such trading prices may bear no relationship to the fair
market value of the CIPAR spin-off as determined by Western
4
Reserve. Please read The Merger Opinion of Our Financial AdvisorValuation of the Spun-off
Business beginning on page [
] for information about the opinion of Western Reserve on the fair
market value used for tax purposes and Appendix C for the complete opinion.
Q.
Why has the Company decided to spin off CIPAR?
A. Early in the merger negotiations between Graco and the Company, Graco came to the determination
that it would not pursue an acquisition of the business of CIPAR. We have determined that a
taxable special dividend of CIPAR common stock will allow the Company to engage in a merger
transaction with Graco and achieve a beneficial result for our stockholders relating to the
business of CIPAR.
Q.
What are the tax consequences of the spin-off?
A. The receipt of the CIPAR common stock under the special dividend will be a taxable transaction
to U.S. holders of our common stock for U.S. federal income tax purposes. To the extent that the
special dividend is paid out of our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles), the special dividend should generally be treated as
dividend income to the pre-merger Cohesant stockholders for U.S. federal income tax purposes. To
the extent, if any, that the amount of the special dividend exceeds our current and accumulated
earnings and profits, the excess should generally be treated as a tax-free return of our
stockholders tax basis in our shares until such basis is reduced to zero, and thereafter should be
treated as gain from the sale of such stock.
We urge you to carefully review The Merger Material Federal Income Tax ConsequencesSpecial
Dividend beginning on page [
]. Tax matters are very complicated and the consequences of the
transactions to any particular stockholder will depend on that stockholders particular facts and
circumstances. Cohesant stockholders are urged to consult their own tax advisors to determine
their own tax consequences from the transactions.
Q. Do Cohesant stockholders have the right to vote on the spin-off?
A. No. No vote of Cohesant stockholders is required or being sought with respect to the spin-off;
however, the spin-off is conditioned on the closing of the Merger, and we must obtain the approval
of our stockholders to approve the Merger.
Q. Do Cohesant stockholders have appraisal rights with respect to the spin-off?
A. No. Cohesant stockholders do not have dissenters rights under Delaware law in connection with
the spin-off.
Q. Is there anything Cohesant stockholders need to do with respect to the spin-off?
A. No. No action by is required or being sought by Cohesant stockholders with respect to the
spin-off; however, because the spin-off is conditioned upon the approval and closing of the Merger,
we urge you to return your proxy as soon as possible, so that your shares may be represented at the
special meeting. We do also urge you to carefully read and considering the information contained
in this proxy statement/information statement.
Q. Who can help answer my questions?
A. If you have any questions about the transactions contemplated by the spin-off, you should
contact:
Cohesant Technologies Inc.
Attn: Robert W. Pawlak, Chief Financial Officer
5845 West 82nd Street, Suite 102
Indianapolis, Indiana 46278
(317) 871-7611
5
SUMMARY OF THE MERGER
This summary highlights selected information from this proxy statement/information statement
about the proposals and the CIPAR spin-off and may not contain all of the information that is
important to you as a Cohesant stockholder. Accordingly, we encourage you to read carefully this
entire document, including the appendices, and the other documents to which we refer you, including
the Merger Agreement which is attached as Appendix A and incorporated by reference in this proxy
statement/information statement. Items in this summary include page references directing you to
more complete descriptions of such items. All information contained in this proxy
statement/information statement was prepared and supplied by Cohesant, except for descriptions of
the business of Graco Inc. (Graco) and Graco Indiana Inc. (Merger Sub) contained in the summary
below and under the heading Parties to the Merger, which descriptions were supplied by Graco.
In this proxy statement/information statement, the terms Cohesant, Company, we, our,
ours, and us refer to Cohesant. You may obtain the information incorporated by reference into
this proxy statement/information statement without charge from Cohesant by following the
instructions in the section entitled Where You Can Find More Information beginning on page
[
]
.
The Merger (page
)
The proposed transaction is the acquisition of Cohesant by a subsidiary of Graco, Inc.
(Graco) pursuant to an Agreement and Plan of Merger, dated as of December 3, 2007 (the Merger
Agreement), among Cohesant, Graco, Graco Indiana Inc., a wholly-owned subsidiary of Graco (the
Merger Sub), GlasCraft Inc., a wholly-owned subsidiary of Cohesant (GlasCraft or Company
Sub), and CIPAR, Inc., a wholly-owned subsidiary of Cohesant (CIPAR). Once the Merger Agreement
has been approved and adopted by our stockholders and the other closing conditions under the Merger
Agreement have been satisfied or waived, Merger Sub will merge with and into Cohesant (the
Merger). At that time, GlasCraft will be Cohesants only subsidiary. Cohesant will be the
surviving corporation in the Merger and will become a direct, wholly-owned subsidiary of Graco, and
GlasCraft will become an indirect, wholly-owned subsidiary of Graco.
Upon completion of the Merger, you will be entitled to receive a minimum of $9.05 and a
maximum of $9.55 in cash, without interest, for each share of our common stock that you own (unless
you properly demand and perfect statutory appraisal rights in compliance with all of the procedures
under Delaware law) (the Per Share Merger Consideration). The exact value of the Per Share
Merger Consideration will be primarily dependent on the dollar amount of the transactional expenses
and borrowed indebtedness retained by the Company following its acquisition by Graco. Such
transactional expenses and borrowed indebtedness retained by the Company is defined in the Merger
Agreement as Assumed Transaction Expenses and Debt and includes, among other things, all costs
and expenses of the Company relating to the spin-off and the merger, and certain items of Company
debt.
The Merger Agreement is attached as Appendix A to this proxy statement/information statement.
You are encouraged to carefully read the Merger Agreement in its entirety because it is the legal
document that governs the Merger.
The Parties to the Merger (page
)
Cohesant Technologies Inc.;
GlasCraft Inc.; and
CIPAR
5845 West 82nd Street, Suite 102
Indianapolis, Indiana 46278
The Company is a Delaware corporation that, through its GlasCraft and CIPAR subsidiaries, is
engaged in the business of the protection and renewal of drinking water distribution systems and
wastewater collection systems for municipal, industrial, commercial and residential infrastructure;
the design, development, manufacture and sale of specialized dispense equipment systems,
replacement parts and supplies used in the operation of the Composites, Polyurethane Foam,
Polyurea, and Specialty Coatings markets; and the design, development, manufacture and sale of
specialty coatings. Additional information about the Company, GlasCraft, and CIPAR is included in
documents incorporated by reference in this proxy statement/information statement. See Where You
Can Find More Information on page [
].
6
Graco Inc.
88 11
th
Avenue Northeast
Minneapolis, Minnesota 55413
Graco is a Minnesota corporation that supplies technology and expertise for the management of
fluids in both industrial and commercial applications. Graco designs, manufactures and markets
systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized
leader in its specialties, Minneapolis-based Graco serves customers around the world in the
manufacturing, processing, construction and maintenance industries. See Where You Can Find More
Information on page [
].
Graco Indiana Inc.
88 11
th
Avenue Northeast
Minneapolis, Minnesota 55413
Graco Indiana Inc., a Delaware corporation, is a wholly-owned subsidiary of Graco and was
organized solely for the purpose of entering into the Merger Agreement and consummating the Merger
and the other transactions contemplated by the Merger Agreement. It has not conducted any
activities to date other than activities incidental to its formation and in connection with the
Merger and the other transactions contemplated by the Merger Agreement.
The Special Meeting
Date, Time, Place and Purpose of Special Meeting (page
)
The special meeting will be held at the offices of CIPAR, 23400 Commerce Park Road, Beachwood,
Ohio, 44122 on [
], 2008 at 9:00 a.m., Eastern Standard Time.
You will be asked to approve and adopt the Merger Agreement. The Merger Agreement provides
that Merger Sub will be merged with and into Cohesant, and each outstanding share of our common
stock (other than shares held by Graco or Merger Sub or dissenting shares) will be exchanged for a
minimum of $9.05 and a maximum of $9.55 in cash, without interest. The exact value of the Per
Share Merger Consideration will depend primarily on the dollar amount of the transactional expenses
and borrowed indebtedness retained by the Company following its acquisition by Graco.
You will be also be asked to approve a proposal to adjourn the special meeting, if necessary
or appropriate, to solicit additional proxies in the event there are not sufficient votes at the
time of the special meeting to approve and adopt the Merger Agreement.
Record Date and Quorum (page
)
You are entitled to vote at the special meeting if you owned shares of our common stock at the
close of business on [
], 2008, the record date for the special meeting. You will
have one vote for each share of our common stock that you owned on the record date. As of the
record date, there were [3,xxx,xxx] shares of our common stock outstanding and entitled to vote.
A quorum of the holders of the outstanding shares of our common stock must be present for the
special meeting to be held. A quorum is present if the holders of a majority of the outstanding
shares of our common stock entitled to vote are present at the meeting, either in person or
represented by proxy. Abstentions and broker non-votes are counted as present for the purpose of
determining whether a quorum is present. A broker non-vote occurs on an item when a broker is not
permitted to vote on that item without instructions from the beneficial owner of the shares and no
instructions are given.
7
Required Vote (page
)
For us to complete the Merger, stockholders holding at least a majority of our common stock
outstanding at the close of business on the record date must vote
FOR
approval and adoption of
the Merger Agreement. As of the record date, Morton A. Cohen, our Chairman, his affiliate Clarion
Capital Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert W. Pawlak, our
Chief Financial Officer, who, in the aggregate, own approximately 45% of our common stock, have
each entered into a Voting and Support Agreement under which they have each agreed to vote
FOR
the adoption of the Merger Agreement. No vote of Gracos stockholders is required in connection
with the Merger Agreement or the consummation of the Merger.
A form of Voting and Support Agreement entered into by each of Messrs. Cohen, Wheeler, and
Pawlak and Clarion Capital Corporation is attached to this proxy statement/information statement as
Appendix D and is incorporated herein by reference. You are encouraged to read the form of Voting
and Support Agreement in its entirety for a more complete understanding.
Share Ownership of Directors and Executive Officers (page
)
As of the record date, the current directors and officers of Cohesant beneficially owned in
the aggregate [1,823,369] shares (excluding options), representing approximately [54.3%] of our
outstanding common stock.
Voting and Proxies (page
)
Any Cohesant registered stockholder (meaning a stockholder that holds stock in its own name)
entitled to vote may submit a proxy by returning the enclosed proxy card by mail or may vote in
person by appearing at the special meeting. If your shares are held in street name by your
broker, you should instruct your broker on how to vote your shares using the instructions provided
by your broker.
Revocability of Proxy (page
)
Any Cohesant registered stockholder who executes and returns a proxy card may revoke the proxy
at any time before it is voted in any of the following ways:
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by delivering a written revocation, dated after the date of the proxy that is being
revoked, to the Secretary of Cohesant;
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by delivering a later-dated proxy relating to the same shares to the Secretary of
Cohesant; or
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by attending the special meeting and voting in person by ballot.
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When the Merger Will be Completed (page
)
We are working to complete the Merger as soon as possible. In the event of the approval and
adoption of the Merger Agreement by our stockholders, and the satisfaction or waiver of the other
closing conditions provided for in the Merger Agreement, we anticipate completing the Merger
shortly following the special meeting and, in any case, no later than September 3, 2008, unless the
parties agree to extend the time for closing the Merger and the other transactions contemplated by
the Merger Agreement.
Effects of the Merger (page
)
If the Merger Agreement is approved and adopted by our stockholders and the other conditions
to closing are satisfied, Merger Sub will be merged with and into Cohesant, with Cohesant being the
surviving corporation. Upon completion of the Merger, Cohesant common stock will be converted into
the right to receive a minimum of $9.05 cash and a maximum of $9.55 cash per share (the Per Share
Merger Consideration). Following completion of the Merger, our common stock will no longer be
quoted on the NASDAQ Capital Market. It will be deregistered under the Securities Exchange Act of
1934, as amended (the Securities Exchange Act), and will no longer be publicly traded. Cohesant
will be a direct, wholly-owned subsidiary of Graco, and GlasCraft will be an indirect, wholly-owned
subsidiary of Graco. Our current stockholders will cease to have any ownership interest in
Cohesant, and they will have no rights as Graco stockholders by virtue of the Merger.
8
Prior to the spin-off, all of our subsidiaries, other than GlasCraft and CIPAR, will become
subsidiaries of CIPAR. Immediately prior to the closing of the Merger, we will spin off our CIPAR
subsidiary to our stockholders by means of a special taxable dividend of one share of CIPAR common
stock for each share of Cohesant common stock. We anticipate that the shares of CIPAR common stock
will be quoted on the over-the-counter markets. In connection with the spin-off, CIPAR is expected
to change its name to Cohesant Inc. Initially, the CIPAR common stock will be registered under the
Securities Exchange Act; however, the Board of Directors of CIPAR may examine such registration,
from time to time, and elect to deregister the CIPAR Common Stock if such de-registration is
permitted under federal law and the Board determines such action is in the best interest of CIPAR
and its stockholders.
Background of the Merger (page
)
Our Board of Directors has been in consideration of a possible merger transaction with Graco
since first being presented with Gracos interest on June 15, 2007. Since that time, various
representatives of the Company and Graco have met and discussed the terms of such a transaction and
have negotiated the range of legal and practical issues concomitant of a merger transaction
involving two publicly traded companies. In addition to reviewing due diligence materials provided
by Graco, we have relied on the opinions and counsel of our financial and legal advisors. On
December 3, 2007, we executed the Merger Agreement and related documents based on our belief in the
strength of the transaction and the resulting benefits for our stockholders.
Reasons for the Merger (page
)
Our Board of Directors reviewed and discussed the Graco proposal with our management and its
financial and legal advisor in determining that the Merger and the other transactions contemplated
by the Merger Agreement are fair to, and in the best interests of, our Company and our
stockholders. In reaching their conclusion to approve and adopt the Merger Agreement and to seek
the approval of the stockholders for the proposals described in this proxy statement/information
statement, our Board of Directors considered a number of factors, including but not limited to the
value of the consideration to be received, current financial market conditions, the advice of our
financial and legal advisors, and the terms of the Merger Agreement. Our Board of Directors also
considered potential risks relating to the transactions contemplated by the Merger Agreement or the
failure by us to consummate such transactions, including but not limited to the restrictions that
the Merger Agreement imposes on actively soliciting competing bids, the tax consequences of the
Merger, and the restrictions on the conduct of our business prior to the completion of the Merger.
Board Recommendation (page
)
After careful consideration, our Board of Directors has determined, by unanimous vote, that
the proposed Merger of Merger Sub, a wholly-owned subsidiary of Graco, with and into Cohesant,
wherein each outstanding share of our common stock, except for shares owned by Graco, Merger Sub or
dissenting shares, will be converted into the right to receive the Per Share Merger Consideration,
in cash, without interest, is advisable, fair and in the best interest of Cohesant and its
stockholders. Our Board of Directors unanimously recommends that you vote
FOR
the approval and
adoption of the Merger Agreement.
Permission to Adjourn the Special Meeting (page
)
In order to consummate the Merger and the other transactions contemplated by the Merger
Agreement, the proposal to approve and adopt the Merger Agreement must first be approved by our
stockholders. If there are insufficient votes at the time of the special meeting to approve such
proposal, our Board of Directors believes it is appropriate and in the best interest of Cohesant
and its stockholders to adjourn the meeting and solicit additional proxies.
Financial Advisor Opinion (page and Appendix B)
Western Reserve, our financial adviser, delivered its opinion to our Board of Directors to the
effect that, as of December 3, 2007, and based upon and subject to the various considerations
described in its written opinion, the minimum Per Share Merger Consideration of $9.05 payable in
connection with the consummation of the Merger pursuant to the Merger Agreement is fair, from a
financial point of view, to our common stockholders.
The full text of the written opinion of Western Reserve, which sets forth the assumptions
made, procedures followed, matters considered, and qualifications and limitations on the review
undertaken by Western Reserve in rendering its opinion, is attached as Appendix B to this proxy
statement/information statement. Holders of Cohesant common stock are urged to, and should, read
the opinion carefully and in its entirety. Western Reserve provided its opinion for the
9
information and assistance of Cohesants Board of Directors in connection with its consideration of
the Merger. The Western Reserve opinion addresses only the fairness, from a financial point of
view, to the holders of Cohesant common stock of the minimum Per Share Merger Consideration as of
the date of the Western Reserve opinion. The Western Reserve opinion does not address any other
aspect of the proposed Merger and does not constitute a recommendation as to how any holder of
Cohesant common stock should vote or act with respect to the Merger or any other matter.
Treatment of Stock Options (page
)
The Board of Directors of the Company has accelerated the vesting of all outstanding Company
stock options as of December 21, 2007. All outstanding Company stock options, as of the effective
time of the Merger, shall terminate and thereafter represent the right to receive an amount in
cash, without interest and less applicable tax withholding, equal to the product of:
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the number of shares of our common stock subject to each option as of the effective
time of the Merger, multiplied by,
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the excess, if any, of the Per Share Merger Consideration over the exercise price
per share of common stock subject to such option.
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No holder of an outstanding Company stock option that has an exercise price that is equal to
or greater than the Per Share Merger Consideration shall be entitled to any payment with respect to
the terminated stock option before or after the effective time of the Merger.
Interests of the Companys Directors and Executive Officers in the Merger (page
)
Our directors and executive officers may have interests in the Merger that are different from,
or in addition to, yours, including the following:
Our directors and officers will either (i) exercise their stock options prior to the effective
time of the Merger, or (ii) have their stock options fully cashed out in connection with the
Merger, as all stock options shall terminate as of the effective time of the Merger, and the
holders of stock options will receive cash payments for each share of common stock subject to such
options equal to the excess, if any, of the Per Share Merger Consideration over the exercise price
per share of their options, without interest and less applicable tax withholding. Certain of our
directors, who hold options with an exercise price above the Per Share Merger Consideration, may
elect to exercise their stock options in order to receive the special dividend of one share of
CIPAR common stock for each share of Cohesant common stock.
Certain of our current executive officers have employment agreements that provide for certain
severance payments and benefits in the event of their termination of employment under certain
circumstances, including termination following a change in control of the Company, which change in
control will occur as a result of the completion of the Merger.
In connection with our discussions with Graco, the Board of Directors formed a special
negotiating committee. Non-employee directors serving on the committee receive compensation for
their service on the committee commensurate with the compensation paid for service on the Boards
compensation and audit committees.
The Merger Agreement provides for indemnification of our current and former directors and
officers for six years following the effective time of the Merger, as well as the purchase of an
endorsement under the Companys current director and officer insurance coverage covering their
service to the Company as a director or officer with tail coverage for six years following the
effective time of the Merger.
Material United States Federal Income Tax Consequences (page
)
If you are a U.S. holder of our common stock, the Merger will be a taxable transaction to you.
For U.S. federal income tax purposes, you will 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 our common stock. Note that your adjusted tax basis in your Cohesant shares could be
reduced because of a tax-free return of tax basis in connection with the special dividend.
We urge you to carefully review The Merger Material Federal Income Tax Consequences
beginning on page [
]. Tax matters are very complicated and the consequences of the transactions
to any particular stockholder
10
will depend on that stockholders particular facts and circumstances. Cohesant stockholders are
urged to consult their own tax advisors to determine their own tax consequences from the
transactions.
Regulatory Approvals (page
)
Except for the filing of a certificate of merger in Delaware at or before 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.
Procedure for Receiving Merger Consideration (page
)
As soon as practicable after the effective time of the Merger, a paying agent will mail a
letter of transmittal and instructions to each registered Cohesant stockholder. The letter of
transmittal and instructions will tell such stockholders how to surrender their stock certificates
in exchange for the merger consideration. Such stockholders should not return their stock
certificates with the enclosed proxy card, and should not forward their stock certificates to the
paying agent without a letter of transmittal. If your shares are held in street name by your
broker, you will not receive a letter of transmittal and will automatically receive the merger
consideration in exchange for your shares of stock through your broker, unless you have properly
demanded and perfected your appraisal rights.
Payment of any amounts in respect of exercised Company stock options as of the effective time
of the Merger shall not be made through the paying agent described in the immediately-preceding
paragraph. Rather, payment of such amounts shall be made through our payroll agent.
No Solicitation of Transactions (page
)
The Merger Agreement restricts our ability to solicit or engage in discussions or negotiations
with third parties regarding specified transactions involving the Company. Notwithstanding these
restrictions, under certain limited circumstances required for our Board of Directors to comply
with its fiduciary duties, our Board of Directors may respond to an unsolicited written bona fide
proposal for a superior proposal, change its recommendation of the Merger and terminate the Merger
Agreement and enter into an agreement with respect to a superior proposal after paying a
termination fee as specified in the Merger Agreement.
Conditions to the Merger (page
)
The consummation of the Merger and the completion of the other transactions contemplated by
the Merger Agreement depends on a number of conditions being satisfied or waived, including
approval by our stockholders of the Merger Agreement, no governmental authority having issued or
promulgated any law, judgment or order that has the effect of making the Merger illegal or
otherwise restricting, preventing or prohibiting the consummation of the Merger, and the
satisfaction (or waiver) of certain obligations of each of the parties to the Merger Agreement.
We are working toward completing the Merger as quickly as possible. We cannot complete the
Merger until we satisfy a number of conditions, including adoption of the Merger Agreement by our
stockholders at the Special Meeting and the distribution of the special dividend to complete the
spin-off of CIPAR. Subject to satisfaction of these conditions, we expect to consummate the Merger
and the other transactions contemplated by the Merger Agreement on or about [
],
2008, but we cannot be certain when or if the conditions to closing will be satisfied or waived.
We may adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in
the event there are not sufficient votes at the time of the special meeting to approve and adopt
the proposals, or we may recirculate a new proxy statement/information statement and re-solicit the
vote if material conditions to the consummation of the Merger and the other transactions
contemplated by the Merger Agreement are waived.
Our stockholders must approve adoption of the Merger Agreement for the Merger and the other
transactions contemplated by the Merger Agreement to close.
Termination of the Merger Agreement (page
)
The Merger Agreement provides that Graco and Cohesant may terminate the Merger Agreement by
mutual consent in writing. In addition, we or Graco may terminate the Merger Agreement before the
closing of the Merger and the other transactions contemplated thereby in a number of circumstances.
11
Either we or Graco may terminate the Merger Agreement:
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upon written notice to the other, if the Companys stockholders do not approve the
merger; or
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if certain closing conditions have not been met by September 3, 2008 (the
Termination Date);
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In addition, we may terminate the Merger Agreement if:
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Graco or Merger Sub materially breach any representation, warranty, or covenant
contained in the Merger Agreement and such breach is not cured within 30 days following
notice to them of such breach or is not capable of being cured within 30 days following
notice to them of such breach;
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certain closing conditions have not been met or waived by the Termination Date; or
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we give notice to Graco of our intention to enter into a definitive agreement to
effect a Superior Proposal (as defined in the section entitled Agreements Related to
the Merger No Solicitation of Transactions beginning on page [
]).
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Finally, Graco may terminate the Merger Agreement if:
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the Company, Company Sub, or CIPAR materially breach any representation, warranty,
or covenant contained in the Merger Agreement and such breach is not cured within 30
days following notice to us of such breach or is not capable of being cured within 30
days following notice to us of such breach;
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certain closing conditions have not been met by the Termination Date;
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our Board of Directors shall withdraw, modify or qualify, or propose to withdraw,
modify or qualify, in a manner adverse to Graco or Merger Sub, its unanimous
recommendation to the stockholders to vote in favor of the approval of the Merger
Agreement;
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our Board of Directors fails to timely affirm (publicly if so requested) its
recommendation to the stockholders to vote in favor of the approval of the Merger
Agreement within five business days after Graco requests in writing that such
recommendation be affirmed (unless the notice is delivered to the Company less than
five business days prior to the Company stockholder meeting, in which case the Company
must reaffirm such recommendation at least one business day prior to the stockholder
meeting);
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our Board of Directors or any committee thereof approves, adopts or recommends any
Superior Proposal or Acquisition Proposal (as such terms are defined in the section
entitled Agreements Related to the Merger No Solicitation of Transactions beginning
on page [
]).
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our Board of Directors enters into any letter of intent, memorandum of understanding
or similar agreement relating to any Superior Proposal or Acquisition Proposal;
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we approve or recommend that our stockholders tender their shares in any tender or
exchange offer or we fail to send to our stockholders, within 10 business days after
the commencement of such tender or exchange offer, a statement that we recommend
rejection of such tender or exchange offer;
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we publicly announce an intent to take any of the immediately-preceding five
actions;
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with our Board of Directors consent, any person or group acquires beneficial
ownership of more than 25% of our outstanding common stock; or
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our Board of Directors fails to comply, or the Company, its subsidiaries or its
representatives fail to comply, with certain of the Companys obligations to duly call,
give notice of, convene and hold the special meeting.
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12
Termination
Fees and Expenses (page )
We will pay a termination fee of $1,330,000 to Graco, by wire transfer of immediately
available funds, at such time as is provided in the Merger Agreement, if:
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Graco terminates the Merger Agreement due to:
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a change of our recommendation to our stockholders to vote in favor of the
Merger Agreement;
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our failure to reaffirm, if properly requested, our recommendation to our
stockholders to vote in favor of the Merger Agreement;
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our recommendation of a Superior Proposal or Acquisition Proposal;
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our execution of any letter of intent, memorandum of understanding, or
similar agreement relating to any Superior Proposal or Acquisition Proposal;
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our approval or recommendation that our stockholders tender their shares in
any tender or exchange offer or our failure to send to our stockholders, within
10 business days after the commencement of such tender or exchange offer, a
statement that recommends rejection of such tender or exchange offer;
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our public announcement of an intent to take the foregoing actions;
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our consent to a third party acquiring more than 25% of our outstanding
common stock; or
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our breach of our obligation to duly call, give notice of, convene and hold
the special meeting; or
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certain closing conditions are not satisfied or waived prior to the
Termination Date;
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we terminate the Merger Agreement at any time prior to the vote of our stockholders
regarding the Merger Agreement, in accordance with, and subject to the provisions of
the Merger Agreement concerning a Superior Proposal or an Acquisition Proposal;
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either we or Graco terminates the Merger Agreement if our stockholders do not
approve the merger,
and
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at any time the after date of the Merger Agreement and prior to the special
meeting, an offer or proposal for an Acquisition Proposal was made directly to
the stockholders or to our Board of Directors, or became publicly known, or any
person (other than Graco and its affiliates) announced an intention to make an
offer or proposal for an Acquisition Proposal, and
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we enter into an agreement for, or consummate an Acquisition Proposal with,
any person within 12 months after termination of the Merger Agreement;
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Graco terminates the Merger Agreement upon the material breach by the Company,
Company Sub, or CIPAR of any representation, warranty, or covenant contained in the
Merger Agreement and such breach is not cured within 30 days following notice to us of
such breach or is not capable of being cured within 30 days following notice to us of
such breach,
and
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at any time after the date of the Merger Agreement and prior to such breach,
an offer or proposal for an Acquisition Proposal was made directly to the
stockholders or to our Board of Directors, or became publicly known, or any
person (other than Graco and its affiliates) announced an intention to make an
offer or proposal for an Acquisition Transaction, and
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we enter into an agreement for, or consummate an Acquisition Proposal with,
any person within 12 months after termination of the Merger Agreement; or
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13
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Graco terminates the Merger Agreement because certain closing conditions have not
been met by the Termination Date,
and
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at any time after the date of the Merger Agreement and prior to the
termination, an offer or proposal for an Acquisition Proposal was made directly
to the stockholders or to our Board of Directors, or became publicly known, or
any person (other than Graco and its affiliates) announced an intention to make
an offer or proposal for an Acquisition Proposal, and
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we enter into an agreement for, or consummate an Acquisition Proposal with,
any person within 12 months after termination of the Merger Agreement.
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Market Price of Cohesant Stock (page
)
Our common stock is quoted on the NASDAQ Capital Market under the symbol COHT. On November
30, 2007, which was the last trading day before we announced the Merger, the Companys common stock
closed at $5.98 per share, compared to which the minimum Per Share Merger Consideration of $9.05
represents a premium of 51.3%. The volume weighted average price for the 30-day period ending
November 30, 2007 was $6.36, compared to which the minimum Per Share Merger Consideration
represents a premium of 42.3%.
On [
], 2008, the last trading day
before the date of this proxy statement/information statement, the Companys common stock closed at
$[
] per share.
Dissenters Rights of Appraisal (page
and Appendix E)
Under Delaware law, if you do not wish to accept the cash payment for your shares of our
common stock provided for in the Merger Agreement, you have the right to seek appraisal of your
shares of our common stock. Stockholders who elect to exercise appraisal rights must comply with
the provisions of Section 262 of the Delaware General Corporation Law in order to perfect their
rights. Failure to follow precisely all of the various technical statutory procedures required by
Section 262 of the Delaware General Corporation Law may result in the loss of your appraisal rights
as a stockholder. Merely voting against the approval and adoption of the Merger Agreement will not
preserve your appraisal rights. You are entitled to have the value of your shares determined by
the Delaware Court of Chancery and to receive payment based on that valuation, together with a fair
rate of interest, if any, as determined by the court. The ultimate amount you receive as a
dissenting stockholder in an appraisal proceeding may be more or less than, or the same as, the
amount you would have received under the Merger Agreement. A copy of Section 262 of the Delaware
General Corporation Law is attached to this proxy statement/information statement as Appendix E.
SUMMARY OF THE SPIN-OFF
This summary highlights selected information from this proxy statement/information statement
about the CIPAR spin-off and may not contain all of the information that is important to you as a
Cohesant stockholder. Accordingly, we encourage you to read carefully this entire document,
including the appendices, and the other documents to which we refer you. Items in this summary
include page references directing you to more complete descriptions of such items. You may obtain
the information incorporated by reference into this proxy statement/information statement without
charge from Cohesant by following the instructions in the section entitled Where You Can Find More
Information beginning on page
[
_
_
]
.
The CIPAR Special Dividend (page
)
Prior to the spin-off, all of our subsidiaries, other than GlasCraft and CIPAR, will become
subsidiaries of CIPAR. Immediately prior to the closing of the Merger, we will spin off our CIPAR
subsidiary to our stockholders by means of a special taxable dividend of one share of CIPAR common
stock for each share of Cohesant common stock. The CIPAR special dividend will only be paid
immediately prior to the closing of the Merger to stockholders of record as of the date immediately
preceding the effective date of the Merger. If the Merger is not consummated for any reason, the
CIPAR special dividend will not be paid and CIPAR will continue to be a wholly-owned subsidiary of
Cohesant.
Relationship Between Cohesant and CIPAR (page
)
After the spin-off, CIPAR will be a stand-alone company with only those rights and obligations
with respect to the Company as are provided for in future and existing agreements between CIPAR and
the Company. The relationship
14
between the Company and CIPAR immediately before and after the Merger and special dividend will be
controlled by a Separation Agreement that has been entered into between the Company and CIPAR. The
Separation Agreement explains the rights and obligations of the Company and CIPAR in connection
with the separation, including with respect to the transfer of certain assets from the Company to
CIPAR, the assumption of certain liabilities by CIPAR, and the termination of certain pre-existing
contracts between CIPAR and the Company.
The Company and CIPAR will also enter into a Tax Matters Agreement that will reflect CIPARs
separation from the Company with respect to tax matters. Specifically, CIPAR and the Company will
agree as to their rights and obligations in connection with the preparation and filing of future
tax returns, shared liability for past and future taxes, and shared ownership of past and future
tax benefits.
We and CIPAR may enter into additional or modified agreements, arrangements, and transactions
after the spin-off, which will be negotiated at arms length.
Financial Advisor Opinion (page
and Appendix C)
Western Reserve has provided an opinion to our Board of Directors to the effect that, based
upon and subject to the various considerations described in its written opinion, the fair market
value of the CIPAR spin-off, for federal income tax purposes, is $6,632,000 as of the date of its
opinion. The full text of the written opinion of Western Reserve, which sets forth the assumptions
made, procedures followed, matters considered, and qualifications and limitations on the review
undertaken by Western Reserve in rendering its opinion, is attached as Appendix C to this proxy
statement/information statement. The Western Reserve opinion does not address any other aspect of
the proposed spin-off. The fair market value of each share of CIPAR issuable in the taxable
spin-off will depend on the number of shares of CIPAR stock that are spun off on the distribution
date, which in turn depends on the number of shares of our common stock outstanding. Neither the
Company nor Western Reserve expresses an opinion as to the price at which the common stock of the
spun-off business will trade at any future time. The prices at which the CIPAR shares may trade
will depend upon various factors, including the liquidity of the market for such shares, the
willingness of securities firms to make a market in such shares and other factors, and such trading
prices may bear no relationship to the fair market value of the CIPAR spin-off as determined by
Western Reserve.
Material United States Federal Income Tax Consequences (page
)
The receipt of the CIPAR common stock in the special dividend will be a taxable transaction
for U.S. federal income tax purposes. The special distribution should be treated as dividend
income to the pre-merger Cohesant stockholders, to the extent paid out of Cohesants current or
accumulated earnings and profits (as determined under U.S. federal income tax principles). To the
extent, if any, that the amount of the special distribution exceeds Cohesants current and
accumulated earnings and profits, the excess should be treated as a tax-free return of the
stockholders tax basis in its shares of Cohesant common stock until such basis is reduced to zero;
and thereafter treated as gain from the sale of such stock.
We urge you to carefully review The Merger Material United States Federal Income Tax
ConsequencesSpecial Dividend beginning on page [___]. Tax matters are very complicated and the
consequences of the transactions to any particular stockholder will depend on that stockholders
particular facts and circumstances. Cohesant stockholders are urged to consult their own tax
advisors to determine their own tax consequences from the transactions.
Procedure for Receiving Special Dividend (page
)
Each Cohesant stockholder on the record date of the special dividend will receive shares of
CIPAR common stock through the transfer agents book-entry registration system. These shares will
not be in certificated form. As such, instead of a share certificate, CIPAR stockholders will
receive a statement from CIPARs transfer agent that details their ownership interest and the
method by which they may access their account. Continental Stock Transfer and Trust Company will
be the transfer agent for CIPAR shares of common stock.
15
RELATIONSHIP BETWEEN THE MERGER AND THE SPIN-OFF
While the Merger and the spin-off are related transactions that were contemporaneously
approved by our Board of Directors, the Merger and spin-off are distinct, independent transactions
that are each described in the proxy statement/information statement. For more information on the
Merger, please see PART I The Special Meeting and Merger beginning on page [___] below. For
more information on the spin-off, please see PART II Information Statement Regarding the
Spin-Off beginning on page [___] below.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement/information statement contains or incorporates by reference a number of
forward-looking statements within the safe harbor provisions of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to our financial
condition, results of operations and business, and the expected impact of the merger and spin-off
on our financial performance. Forward-looking statements often, although not always, include words
or phrases like will likely result, expect, will continue, anticipate, estimate,
intend, plan, project, outlook, or similar expressions. These forward-looking statements
are subject to various risks and uncertainties that could cause actual results to differ materially
from those statements and are not guarantees of future performance. Many of the important factors
that will determine these results and values are beyond our ability to control or predict. Our
stockholders are cautioned not to put undue reliance on any forward-looking statements. Except as
otherwise required by law, we do not assume any obligation to update any forward-looking
statements.
16
PART I THE SPECIAL MEETING AND MERGER
THE SPECIAL MEETING
Date, Time, Place and Purpose of the Special Meeting
This proxy statement/information statement is being furnished to our stockholders in
connection with the solicitation of proxies by our Board of Directors for use at a Special Meeting
of Stockholders to be held at the offices of CIPAR, 23400 Commerce Park Road, Beachwood, Ohio,
44122, on [
], 2008, at 9:00 a.m., Eastern Standard Time. The purpose of the special
meeting is for you to consider and vote upon the following proposals:
1. To consider and vote on a proposal to approve and adopt the Merger Agreement.
2. To consider and vote on a proposal to allow the Board of Directors to adjourn the special
meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not
sufficient votes at the time of the special meeting to approve and adopt the Merger Agreement.
3. To transact any other business that may properly come before the special meeting or any
adjournment or postponement thereof.
A copy of the Merger Agreement is attached as Appendix A to this proxy statement/information
statement. This proxy statement/information statement and the enclosed form of proxy are first
being mailed to our stockholders on or about [
], 2008.
Recommendation of the Cohesant Board of Directors
As discussed elsewhere in this proxy statement/information statement, Cohesant stockholders
are considering and voting on a proposal to approve and adopt the Merger Agreement. For the
reasons described in this proxy statement/information statement, the Cohesant Board of Directors
has unanimously approved the Merger Agreement, the Merger and the various transactions contemplated
in such agreement and unanimously recommends that you vote
FOR
the approval of the Merger
Agreement, and
FOR
the proposal allowing us to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies.
Record Date and Quorum
The holders of record of our common stock as of the close of business on the record date,
which was [ ·
], 2008, are entitled to receive notice of, and to vote at, the special
meeting. On the record date, there were [ 3.xxx,xxx
] shares of our common stock outstanding.
A complete list of Cohesant stockholders entitled to vote at the special meeting will be available
for inspection at the executive offices of Cohesant during regular business hours for a period of
no less than ten days before the special meeting.
The holders of a majority of our shares of common stock that were outstanding on the record
date, represented in person or by proxy, will constitute a quorum for purposes of the special
meeting. A quorum is necessary to hold the special meeting. Any shares of our common stock held
in treasury by us are not considered to be outstanding for purposes of determining a quorum. In
accordance with Delaware law, abstentions and properly executed broker non-votes will be counted as
shares present and entitled to vote for the purposes of determining a quorum. Broker non-votes
result when the beneficial owners of shares of common stock do not provide specific voting
instructions to their brokers. Under applicable rules, brokers are precluded from exercising their
voting discretion with respect to the approval of non-routine matters such as the proposals
described in this proxy statement/information statement, and, thus, absent specific instructions
from the beneficial owner of those shares, brokers are not empowered to vote the shares with
respect to the approval of these proposals.
Required Vote
Each share of our common stock that was outstanding on the record date entitles the holder to
one vote at the special meeting. Completion of the Merger and the other transactions contemplated
by the Merger Agreement requires the affirmative vote of the holders of a majority of our
outstanding shares of common stock. The proposal to permit the Board
of Directors to adjourn the special meeting requires the affirmative vote of a majority of the
shares present and entitled to vote at the special meeting. Record holders may vote their shares
of our common stock:
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by completing and returning the enclosed proxy card by mail; or
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by appearing and voting in person by ballot at the special meeting.
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Regardless of whether you plan to attend the special meeting, you should vote your shares by
proxy as described above as promptly as possible.
If you hold your shares through a bank, brokerage firm or nominee, you must vote in accordance
with the instructions on the voting instruction card that your bank, brokerage firm or nominee
provides to you. You should instruct your bank, brokerage firm or nominee as to how to vote your
shares, following the directions contained in such voting instruction card.
Voting by Executive Officers and Principal Stockholders
As of the record date for the our special meeting, Morton A. Cohen, our Chairman, his
affiliate Clarion Capital Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert
W. Pawlak, our Chief Financial Officer, who, in the aggregate, own approximately 45% of our common
stock, have each entered into a Voting and Support Agreement under which they have each agreed to
vote
FOR
the adoption of the Merger Agreement.
Appraisal Rights
Under Delaware law, holders of our common stock who do not vote in favor of approving and
adopting the Merger Agreement will have the right to seek appraisal of the fair value of their
shares as determined by the Delaware Court of Chancery if the Merger is completed, but only if they
(a) submit a written demand for an appraisal prior to the vote on the approval and adoption of the
Merger Agreement, (b) continuously hold their Company common stock from the date they make a demand
for appraisal through the effective time of the Merger, (c) refrain from voting their shares of
Company common stock in person or by proxy in favor of the approval and adoption of the Merger
Agreement, and (d) comply with Delaware law procedures applicable to such appraisal rights. This
amount could be more, the same or less than the value that our stockholders are entitled to receive
under the terms of the Merger Agreement. See the section entitled Dissenters Rights of
Appraisal beginning on page [
_
_
].
Proxies; Revocation
If you vote your shares of our common stock by signing a proxy, your shares will be voted at
the special meeting as you indicate on your proxy card. If no instructions are indicated on your
signed proxy card, your shares of our common stock will be voted
FOR
the approval and adoption of
the Merger Agreement and
FOR
the proposal to allow the Board of Directors to adjourn the special
meeting, if necessary, to solicit additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve the proposals before the special meeting.
You may revoke your proxy at any time before the proxy is voted at the special meeting. A
proxy may be revoked prior to the vote at the special meeting in any of the following ways:
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by delivering a written revocation, dated after the date of the proxy that is being
revoked, to the Secretary of Cohesant at 5845 West 82nd Street, Suite 102,
Indianapolis, Indiana 46278;
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by delivering a later-dated proxy relating to the same shares to the Secretary of
Cohesant; or
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by attending the special meeting and voting in person by ballot.
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Attendance at the special meeting will not, in itself, constitute revocation of a previously
granted proxy. If you do not hold your shares of our common stock in your own name, you may revoke
or change a previously given proxy by following the instructions provided by the bank, brokerage
firm, nominee or other party that is the registered owner of the shares.
You should vote your proxy even if you plan to attend the Cohesant special meeting. Unless
you hold your shares in street name, you can always change your vote at the Cohesant special
meeting.
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Adjournments
Although it is not currently expected, the special meeting may be adjourned for the purpose of
soliciting additional proxies. Any adjournment may be made without notice by announcement at the
special meeting of the new date, time and place of the special meeting. At the adjourned meeting,
the Company may transact any business that might have been transacted at the original special
meeting. If the adjournment is for more than 30 days, or if after adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each
registered stockholder entitled to vote at the special meeting. Whether or not a quorum exists,
holders of a majority of the shares of the Companys common stock present in person or represented
by proxy at the special meeting and entitled to vote thereat may adjourn the special meeting. Any
signed proxies received by the Company in which no voting instructions are provided on such matter
will be voted in favor of an adjournment in these circumstances. Abstentions and broker non-votes
will have no effect on a proposal to adjourn the meeting. Any adjournment of the special meeting
for the purpose of soliciting additional proxies will allow the Companys stockholders who have
already sent in their proxies to revoke them at any time prior to their use at the special meeting
as adjourned.
Solicitations of Proxies
This solicitation is made by Cohesant, and Cohesant will pay the cost of this proxy
solicitation. In addition to soliciting proxies by mail, directors, officers, and employees of the
Company 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. Cohesant 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.
Other Business
Cohesant does not expect that any matters other than the proposals presented in this proxy
statement/information statement will be brought before the Cohesant special meeting. However, if
other matters incident to the conduct of the special meeting are properly presented at the special
meeting or any adjournment or postponement of the special meeting, the persons named as proxies
will vote in accordance with their best judgment with respect to those matters.
THE PARTIES TO THE MERGER
Cohesant Technologies Inc.;
GlasCraft Inc.;
CIPAR
5845 West 82nd Street, Suite 102
Indianapolis, Indiana 46278
(317) 871-7611
The Company is a Delaware corporation that, through its GlasCraft and CIPAR subsidiaries, is
engaged in the business of the protection and renewal of drinking water distribution systems and
wastewater collection systems for municipal, industrial, commercial and residential infrastructure;
the design, development, manufacture and sale of specialized dispense equipment systems,
replacement parts and supplies used in the operation of the Composites, Polyurethane Foam,
Polyurea, and Specialty Coatings markets; and the design, development, manufacture and sale of
specialty coatings. Additional information about the Company, GlasCraft, and CIPAR is included in
documents incorporated by reference in this proxy statement/information statement. See Where You
Can Find More Information on page [
_
_
].
Graco Inc.
88 11
th
Avenue Northeast
Minneapolis, Minnesota 55413
Graco is a Minnesota corporation that supplies technology and expertise for the management of
fluids in both industrial and commercial applications. Graco designs, manufactures and markets
systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized
leader in its specialties, Minneapolis-based Graco serves
customers around the world in the manufacturing, processing, construction and maintenance
industries. See Where You Can Find More Information on page [
_
_
].
19
Graco Indiana Inc.
88 11
th
Avenue Northeast
Minneapolis, Minnesota 55413
Graco Indiana Inc., a Delaware corporation, is a wholly-owned subsidiary of Graco and was
organized solely for the purpose of entering into the Merger Agreement and consummating the Merger
and the other transactions contemplated by the Merger Agreement. It has not conducted any
activities to date other than activities incidental to its formation and in connection with the
Merger and the other transactions contemplated by the Merger Agreement. Under the terms of the
Merger Agreement, Merger Sub will merge with and into us. Cohesant will survive the Merger and
Merger Sub will cease to exist.
THE MERGER
The following is a description of the material aspects of the proposed Merger and related
transactions. The following description may not contain all of the information that is important
to you. You should read this entire proxy statement/information statement and the other documents
referred to herein for a more complete understanding of the Merger and the related transactions.
Background of the Merger
In late May 2007, Mark W. Sheahan, Gracos Chief Administrative Officer, contacted Morris H.
Wheeler, our Chief Executive Officer, and expressed Gracos interest in a possible acquisition of
our subsidiary, GlasCraft. Mr. Wheeler advised Mr. Sheahan that Cohesant had not considered
selling GlasCraft, but that the Board of Directors and he had a fiduciary responsibility to receive
any serious proposals that could maximize the stockholders value.
Mr. Wheeler noted that the Company had a Board meeting scheduled for mid-June, at which
meeting, he would convey Gracos interest. Assuming the Board authorized Mr. Wheeler to have
discussions, the parties agreed that Mr. Wheeler and Robert W. Pawlak, the Chief Financial Officer,
would visit Gracos facility in Minneapolis to meet Gracos personnel, get a tour of the facility
and hear Gracos thoughts regarding GlasCraft.
At the June 15, 2007 Board meeting, Mr. Wheeler advised the Board of Gracos unsolicited
overture. Mr. Wheeler described recent purchases by Graco, including Gusmer Machinery Group and
Liquid Controls, and the multiples paid by Graco in those transactions. The Board authorized Mr.
Wheeler to hold a preliminary meeting and to report to the Board at the next meeting in July.
Certain members of the Board advised the newer members that Graco had expressed interest in
GlasCraft on at least two prior occasions over the last several years, but that the discussions
ended at very early stages.
On June 19, 2007, Messrs. Wheeler and Pawlak met with Mr. Sheahan, Patrick McHale, the
President and Chief Executive Officer of Graco, and other officers of Graco and had a tour of
Gracos Minneapolis facility. At such meeting, Graco expressed its interest only in the GlasCraft
assets, and not the Companys other business units. Graco indicated that it might consider
acquiring all of Cohesant, if a buyer had been previously found for the non-GlasCraft assets and
such sale occurred simultaneously with the Graco acquisition or soon thereafter. Graco agreed to
send an information request to Mr. Wheeler that would allow it to develop a preliminary offer.
On June 22, 2007, Graco and our Company entered into a Non-disclosure Agreement (NDA).
Graco also furnished the Company with its preliminary information request.
On July 6, 2007, Messrs. Wheeler and Pawlak, after consultation with members of the Board of
Directors, determined to send Graco only GlasCrafts current balance sheet, income statement, cash
flow statements, and three-year historic financial information. The Company elected to defer
forwarding additional information until discussions were more developed and a preliminary price
identified.
On July 24, 2007, Mr. Sheahan and Mr. James Graner, Gracos Chief Financial Officer, called
Messrs. Wheeler and Pawlak. The Company responded to some financial inquiries raised by Messrs.
Graner and Sheahan. Messrs. Wheeler and Pawlak also commented on why certain information was
withheld from disclosure. Mr. Wheeler advised Mr. Sheahan that a regularly scheduled Board meeting
was to be held on July 30, 2007.
On the morning of July 30, 2007, Mr. Sheahan telephoned Mr. Wheeler and communicated Gracos
initial offer of $24 million for GlasCraft.
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At a meeting of the Board on July 30, 2007, Mr. Wheeler advised the Board about Gracos $24
million offer, as well as the results of Mr. Pawlaks and his visit to Gracos facility in June.
He discussed the signing of the NDA and described what information had been provided to Graco and
what had been withheld. Mr. Wheeler furnished the Board with preliminary internally prepared
materials as to what the sale price of GlasCraft might be at various EBITDA multiples, as well as a
study of the tax effect of a sale by Cohesant of its GlasCraft subsidiary. Due to the Companys
tax basis in GlasCraft, the illustrations indicated that a sale of GlasCraft would result in
corporate taxes of several million dollars. The tax consequences of a sale, as well as the
proffered $24 million amount, resulted in the Boards rejection of the offer. However, the Board
encouraged Mr. Wheeler to again speak to Graco, advise them of their need to acquire the entire
Company and the necessity to increase the purchase price. At the Board meeting, counsel for the
Company advised the Board members of their fiduciary duties when exploring a sale of the Company.
A memorandum of fiduciary and legal issues under Delaware law relating to a possible sale of the
Company was circulated to the Board the following day.
On August 14, 2007, Messrs. Pawlak and Wheeler conducted a Webex conference call with Messrs.
Sheahan and Graner. During the call, Mr. Wheeler advised the Graco personnel of GlasCrafts
performance during the third fiscal quarter to date, communicated the add-backs to GlasCraft
earnings that the Company felt was appropriate, and again emphasized the Companys preference that,
if a sale was to occur, it would have to be the entire Company. Mr. Wheeler advised Messrs.
Sheahan and Graner about the various change of control payments and transaction costs that would be
entailed were a sale to occur. He estimated such costs at between $2.25 and $2.5 million, prior to
calculating retention bonuses that may be necessary for other personnel. Mr. Wheeler noted that
the $24 million amount was less than 7.6 times the trailing 12-months EBITDA (earnings before
income taxes, depreciation, and amortization) as of the end of the second quarter. He noted that
earnings had improved for the third quarter and that the offer did not take into account improved
efficiencies that would benefit Graco. Mr. Wheeler reiterated the Boards opinion that Graco would
need to acquire all of the outstanding stock of Cohesant, not just the GlasCraft subsidiary and
that the $24 million offer was an insufficient number.
On August 14, 2007, Mr. Sheahan advised Mr. Wheeler that Graco was not prepared to proffer a
higher offer, but wanted to hear a number from the Company that it believed would be acceptable.
Mr. Sheahan also made it clear that Graco was only interested in GlasCraft and would not assign any
value to the non-GlasCraft assets in any bid.
At an August 21, 2007 special meeting of the Board of Directors, the Board reviewed the
financial results of GlasCraft, as well as its prospects. It reviewed industrial equipment company
multiples in recent transactions and reviewed Gracos earnings and stock price to determine what
price would not be dilutive to Gracos stockholders. Members also expressed their belief that
given that GlasCraft was not on the market any price would have to be above market premiums to be
of interest to compensate the Company for the risk of retaining the non-GlasCraft assets on a
stand-alone basis. The Board determined that it was not necessary to conduct an auction of
GlasCraft, since, as noted, GlasCraft was not being marketed for sale. The Board also indicated
that, prior to accepting any bid, the Board would need a fairness opinion from an investment banker
and that any contract would require a market check provision to allow other parties to bid, if
they were inclined. With the foregoing caveats, the Board authorized Mr. Wheeler to produce a
presentation that would provide Graco with insight into the Boards view regarding the appropriate
valuation of GlasCraft under Gracos ownership. It was determined that this presentation should be
made by Mr. Wheeler, with the assistance of Messrs. Ozan and Cohen, each of whom had experience in
the sale of public companies. The Board established an ad hoc negotiating committee consisting of
Messrs. Cohen, Ozan and Wheeler. The Board also instructed Mr. Wheeler to speak to investment
bankers about a possible engagement. The directors spent the balance of the August 21, 2007
meeting looking at financial models of the non-GlasCraft assets as a stand-alone business to
determine if such business was viable. The Board requested that management explore the
availability of debt financing for the non-GlasCraft operations on a stand alone basis, as well as
prepare pro forma projections for the next several years.
On August 30, 2007, Messrs. Wheeler, Cohen and Ozan conducted a Webex conference call with
Messrs. Sheahan, McHale, Sutter and Graner. The Company personnel reviewed several valuation
methodologies, including discounted cash flow and EBITDA multiples, after making adjustments for
certain add-backs and anticipated efficiencies, they concluded that the value of GlasCraft in
Gracos hands would be $38 million or more, substantially in excess of $24 million offer. Finally,
the presentation reviewed a method for spinning off the non-GlasCraft assets into a new entity to
allow Graco to acquire the GlasCraft operations through a purchase of all outstanding Cohesant
shares.
On September 7, 2007, Mr. Sheahan called Mr. Wheeler and advised him that Graco was prepared
to raise its offer to $30 million all-in. The foregoing $30 million bid included an estimated
$3.45 million in transaction expenses,
including the expense of completing the divestiture of the non-GlasCraft assets before the Graco
purchase, change of control payments and other deal related costs. Mr. Wheeler indicated he would
take the proposal to the Board.
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Mr. Wheeler reported on Gracos increased $30 million offer to the Board at a special meeting
held on September 21, 2007. The Board reviewed Gracos offer and again looked at financials of
GlasCraft. After an extensive discussion, the Board determined that while the Graco offer was
improved over its initial offer, it still believed the offer was inadequate. The Board authorized
Messrs. Wheeler, Ozan and Cohen to go to Minneapolis to conduct negotiations. The Board noted that
it felt $38 million to be an appropriate number to commence negotiations. The Board instructed the
committee to again remind Graco that the Company was not looking to sell GlasCraft and that such a
sale would create greater operational risk to the remaining entity. The Board then spent
additional time discussing a spin-off scenario involving the non-GlasCraft assets and how the
Company might effect such a spin-off.
On September 27, 2007, Messrs. Cohen, Ozan, and Wheeler flew to Minneapolis and met with
Messrs. McHale, Sheahan, Graner, and Sutter. The Company personnel again expressed their belief as
to GlasCrafts worth at $38 million, while Graco reiterated its valuation at $30 million.
Following a discussion of GlasCrafts strong FRP and Composites focus and its international
strength, as well as its current growth rate, Graco increased its offer to $34 million all-in. At
this point in the meeting, Mr. Cohen indicated that as a stockholder, and not a director, he would
not accept a price for GlasCraft less than $36 million all in. After further discussion, the
meeting adjourned and Mr. Sheahan advised the Company personnel that he would discuss the Companys
proposal with other GlasCraft personnel and would respond the following week to Mr. Wheeler.
On October 1, 2007, Mr. Sheahan called Mr. Wheeler and indicated that Graco was prepared to
raise its offer to $35 million all-in. Mr. Wheeler indicated that a Board meeting was scheduled
for October 3, 2007, and he would take Gracos proposal to the Board and advise Mr. Sheahan of the
results.
At the October 3, 2007 Board meeting, Mr. Wheeler summarized recent developments relating to
the Graco proposal, including its increase in its offer to $35 million. Mr. Wheeler noted that the
per share price would be dependent on the transaction expenses included in the $35 million offer,
as well as the number of actual shares outstanding. He noted that if the Company did spin off the
non-GlasCraft assets that he would anticipate many, if not most, option holders would elect to
exercise their options to receive the benefit of the spin-off. Depending on these factors, he
anticipated that the offer would translate to between $9.00 and $9.50 per share. Mr. Wheeler also
noted that Graco had raised at the October 1 meeting, its request for a break-up fee if the deal
did not occur, as well as non-competes from various members of management. After discussion and
consideration, the Board gave Mr. Wheeler the authority to enter into discussions to negotiate an
acceptable agreement that would implement the proposed $35 million sale price. In reaching its
preliminary conclusion, the Board estimated transactional costs and debt at closing at
approximately 10% of the purchase price. Mr. Wheeler proposed retention bonuses for key GlasCraft
executives as well as establishment of a bonus pool designed specifically to recognize the role
played by GlasCraft personnel. The Bonus Pool would also incentivize personnel to stay with the
Company through closing. The retention bonuses and the bonus pool were included in the estimated
transaction costs. The Board approved Mr. Wheelers proposals. Following the Board meeting, Mr.
Wheeler called Mr. Sheahan and communicated the Boards positive response to Gracos $35 million
offer.
During the month of October, the Company responded to the due diligence requests of Graco and
provided its materials relating to the Company. The Company staggered its delivery of due
diligence materials, with the more competitive and sensitive materials scheduled for delivery later
in the process as merger discussions proceeded.
At a special Board meeting of the Directors held on October 25, 2007, the Board (i) formalized
the appointment of Messrs. Cohen, Ozan and Wheeler as a special, negotiating committee, with Mr.
Ozan being the chairman and (ii) authorized the engagement of Western Reserve Partners LLC to
provide a fairness opinion on the merger consideration and a valuation opinion, to be used for tax
purposes, on the non-GlasCraft assets to be spun-off. Mr. Wheeler noted that under the timeline
provided by Graco, the initial draft of the Merger Agreement would be forwarded on or about
November 1, 2007. Graco had expressed an interest in completing the transaction in early 2008.
The initial draft of the Merger Agreement was delivered to the Company on Friday, November 2,
2007. A meeting of the special negotiating committee was held on November 6, 2007. At the
meeting, the committee determined, after receiving the advice and opinion of its financial and
legal advisors, that the initial draft contained numerous issues to be negotiated, but also
contained two terms that were unacceptable to the committee members. The first issue was Gracos
insistence that the spun-off entity containing the non-GlasCraft assets indemnify Graco for
breaches of representations and warranties relating to GlasCraft. The second issue was the failure
of the draft to provide a minimum per share merger consideration. The Board concluded that, as a
public company, GlasCrafts representations and warranties, as a general rule,
should not survive the closing and that there should be no indemnity obligations relating to the
GlasCraft business. Second, the absence of a minimum per share amount made it impossible for the
stockholders of the Company to vote on the proposal
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and know what they could receive. The Board instructed Mr. Wheeler to advise Graco that
unless these issues were resolved satisfactorily to the Company, discussions would cease. Mr.
Wheeler spoke to Mr. Sheahan later that afternoon.
The special negotiating committee met again on November 8, 2007. At such meeting, Mr. Wheeler
reported that Graco had removed the provision on indemnification. Mr. Wheeler also noted that
Company counsel had prepared, and he had forwarded to Graco, language that addressed the per share
merger consideration issue, and that Mr. Graner had given preliminary approval to the revised
language. The balance of the meeting was spent reviewing other terms contained in the initial
merger draft, particularly as they pertained to the dollar amount of the termination fee, the
circumstances under which the termination fee and expenses would be paid, conditions to closing,
and requested provisions on the conduct of the business during the period between the signing of
the agreement and closing.
The parties spent the balance of November exchanging drafts of the Merger Agreement and
negotiating definitive terms, including, among other items, (a) a termination fee of $1,330,000 if
the Company accepted an alternative offer or if the stockholders voted against the Merger
Agreement, (b) expenses to be included or excluded from the definition of Assumed Transaction
Expenses and Debt, (c) a maximum and minimum per share amount of $9.55 and $9.05, respectively, (d)
assets remaining with the Company and GlasCraft and assets that would be transferred or retained by
the spun-off entities, and (e) closing conditions and procedures. In addition, Messrs. Cohen,
Pawlak and Wheeler, as well as Clarion Capital Corporation, of which Mr. Cohen is a principal, must
each enter into a restrictive covenant agreement with a five-year non-competition clause, and
further agreed with Graco to vote in favor of the Merger agreement unless the Companys board
terminated the Merger Agreement.
Periodic meetings of the special committee and the Board were held on November 14, 19, and 21,
2007, at which meetings management gave an update on negotiations, gave updates on the open issues,
and received guidance on the special committees and Boards views on negotiation of the open
issues.
On the afternoon of November 29, 2007, the Company Board of Directors met with financial and
legal advisors to review the proposed merger. Mr. Wheeler provided an update on the status of
discussions. He noted that while certain terms of the agreement and related agreements, including
the transition services agreement, the tax matters agreement, and separation agreement were still
being negotiated, the material terms of each agreement had been resolved. Legal counsel reviewed
with the Board the material terms of the proposed Merger Agreement and the terms of the proposed
spin-off. Legal counsel concurred with managements assessment that the principal terms of each of
the agreements had been agreed to and that the open terms should be finalized shortly. Western
Reserve, the Companys financial advisor, gave its financial presentation and orally delivered its
opinion as to the fairness of the merger consideration, from a financial point of view, to Cohesant
stockholders, subject to the assumptions, qualifications and limitations, set forth in its opinion.
In issuing its opinion, Western Reserve assumed the minimum $9.05 per share merger consideration
as the merger consideration to be paid to stockholders. Western Reserve also gave a financial
presentation and orally delivered its opinion as to the tax valuation of the entity to be spun off.
After discussion and consideration of the factors described under The Merger Reasons for the
Merger beginning on page [___], the Companys board unanimously approved the Merger Agreement, the
Voting and Support Agreements, the spin-off and the transactions contemplated thereby.
On the evening of November 29, 2007, the Company released the final due diligence materials to
Graco.
The parties and their counsel spent Friday, November 30th through Sunday, December 2, 2007,
negotiating the final terms of the various agreements.
On December 3, 2007, the parties executed the Merger Agreement and related documents and
publicly announced that they had entered into a definitive Merger Agreement.
Reasons for the Merger
Our Board of Directors reviewed and discussed the Graco proposal with our management and its
financial and legal advisor in determining that the Merger and the other transactions contemplated
by the Merger Agreement are advisable, fair and in the best interests of our Company and our
stockholders. In reaching their conclusion to approve and adopt the Merger Agreement and to seek
the approval of the stockholders for the proposals described in this proxy statement/information
statement, our Board of Directors considered a number of factors, including the following positive
factors that supported the decision to approve and adopt the Merger Agreement:
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the value of the consideration to be received by the Companys stockholders in the
Merger, as well as the fact that stockholders will receive the consideration in cash,
which provides certainty of value to the stockholders;
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the belief that the Merger and the related spin-off of CIPAR to the Companys
stockholders is, in the aggregate, more favorable to the Companys stockholders than
any other alternative reasonably available to us and the stockholders, including the
alternatives of remaining a stand-alone, independent company as well as the risks of
uncertainty associated with these alternatives;
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the financial presentation (including the assumptions and methodologies underlying
the analyses in connection therewith) and the fairness opinion orally given on November
29, 2007 that the minimum Per Share Merger Consideration of $9.05 in cash to be
received in the Merger is fair to the stockholders, from a financial point of view;
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the minimum Per Share Merger Consideration of $9.05 in cash to be received in the
Merger represents a premium of approximately 46.0% to the closing price on November 29,
2007, and a premium of 41.8% to the volume weighted average price for the 30 trading
days ended November 29, 2007;
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the current financial market conditions, and historical market prices, volatility
and trading information with respect to our common stock, including the possibility
that if we remain a publicly owned corporation, in the event of a decline in the market
price of our common stock or the stock market in general, the price that might be
received by holders of our common stock in the open market or in a future transaction
might be less than the per share cash price to be paid in the Merger;
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historical and current information concerning our business, financial performance
and condition, operations, technology, management and competitive position, and current
industry, economic and market conditions, including our prospects if we were to remain
an independent company having limited scale and resources;
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the increased regulation and costs associated with being a public company, including
the burdens imposed by the Sarbanes-Oxley Act of 2002 and the Securities Exchange Act,
and the fact that those burdens would be eliminated following consummation of the
Merger;
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the financial and other terms of the Merger Agreement, including without limitation
the fact that they were the product of arms-length negotiations between the parties;
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the Board of Directors received advice from Western Reserve, as financial advisor,
and Porter Wright Morris & Arthur LLP, as legal advisor, each of which has extensive
experience in transactions similar to the Merger; and
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the terms of the Merger Agreement, including without limitation:
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the limited number and nature of the conditions to Graco and Merger Subs
obligation to consummate the Merger and the limited risk of non-satisfaction of such
conditions (including, in particular, the absence of any financing condition);
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the provisions of the Merger Agreement that allow the Board of Directors, under
certain limited circumstances if required to comply with its fiduciary duties under
applicable law, to change its recommendation that our stockholders vote in favor of
the approval and adoption of the Merger Agreement;
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the provisions of the Merger Agreement that allow the Company, under certain
limited circumstances, if required by the Board of Directors to comply with its
fiduciary duties under applicable law, to furnish information to and enter into
discussions with third parties;
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the provisions of the Merger Agreement that provide the Board of Directors the
ability to terminate the Merger Agreement in order to accept a financially superior
proposal (subject to certain conditions contained in the Merger Agreement, including
the payment to Graco of a $1,330,000 termination fee);
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the conclusion of the Board of Directors that the $1,330,000 termination fee due
Graco (and the circumstances when such fee is payable), in the event the Merger
Agreement is terminated under certain circumstances, were reasonable in light of the
benefits of the Merger;
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the fact that the completion of the Merger requires the approval and adoption of
the holders of a majority of our common stock outstanding on the record date; and
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the availability of appraisal rights to the Companys stockholders who comply
with all of the required procedures under Delaware law, which allows such holders to
seek appraisal of the fair value of their shares as determined by the Delaware Court
of Chancery.
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Our Board of Directors also considered potential risks relating to the transactions
contemplated by the Merger Agreement or the failure by us to consummate such transactions,
including the following:
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the risk that the Merger might not be completed in a timely manner or at all;
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the fact that upon completion of the Merger, with the exception of the business of
CIPAR that will have been spun-off to the Companys stockholders immediately prior to
closing of the Merger, the Company will no longer exist as an independent, publicly
traded company and our stockholders will no longer participate in any of GlasCrafts
future earnings or growth and will not benefit from any appreciation in the value of
GlasCraft;
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the fact that gains from an all-cash transaction will be taxable to our stockholders
for U.S. federal income tax purposes;
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the fact that the special dividend will be a taxable dividend to our stockholders
for U.S. federal income tax purposes;
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the restrictions on the conduct of our business prior to the completion of the
Merger, requiring us to conduct our business only in the ordinary course, subject to
specific limitations, which may delay or prevent us from undertaking business
opportunities that may arise pending completion of the Merger;
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the interests of our officers and directors in the Merger;
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the restrictions on the Companys ability to solicit or engage in discussions or
negotiations with a third party regarding specified transactions and the requirement
that the Company pay Graco a $1,330,000 termination fee in order for the Board of
Directors to accept a superior proposal;
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the risk of diverting the Companys management focus and resources from other
strategic opportunities and from operational matters while working to implement the
Merger; and
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the possibility of customer, supplier, management and employee disruption associated
with the Merger.
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The discussion of the information and factors considered by our Board of Directors is not
exhaustive, but includes all material factors considered by our Board. In view of the wide variety
of factors considered by our Board in connection with its evaluation of the transactions
contemplated by the Merger Agreement and the complexity of these matters, our Board of Directors
did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign
relative weights to the specific factors that it considered in reaching its decision. Our Board
evaluated each of the factors described above, asked questions of our management and our legal
advisor, and reached the unanimous decision that the transactions contemplated by the Merger
Agreement are advisable, fair and in the best interests of our Company and our stockholders. In
considering the factors described above, individual members of our Board of Directors may have
given different weights to different factors. Our Board of Directors considered these factors as a
whole, and overall considered them to be favorable to, and to support, its determination. It
should be noted that this explanation of our Boards reasoning and all other information presented
in this section is forward-looking in nature and, therefore, should be read in light of the factors
discussed under the section entitled Cautionary Statement Concerning Forward-Looking Information
on page [___].
Recommendation of the Companys Board of Directors
After careful consideration, our Board of Directors has unanimously:
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determined that the proposed approval and adoption of the Merger Agreement, and the
proposal to allow our Board of Directors to adjourn the special meeting to solicit
additional proxies if there are not sufficient votes at
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the time of the special meeting to approve the proposal, are advisable, fair to and in the
best interests of Cohesant and its stockholders;
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approved and adopted the Merger Agreement; and
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recommended that Cohesants stockholders vote FOR the approval and adoption of the
Merger Agreement and the proposal to allow our Board of Directors to adjourn the
special meeting to solicit additional proxies if there are not sufficient votes at the
time of the special meeting to approve the proposal.
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In considering the recommendation of Cohesants Board of Directors with respect to the
approval and adoption of the Merger Agreement, you should be aware that certain directors and
executive officers of Cohesant have interests in the Merger that are different from, or are in
addition to, the interests of Cohesant stockholders generally. See the section entitled Interests
of the Companys Directors and Executive Officers in the Merger beginning on page
[
_
_
].
Opinion of Our Financial Advisor
Our Board of Directors retained Western Reserve to render an opinion as to the fairness from a
financial point of view of the consideration to be received in the merger. Western Reserve was
retained by us on the basis of, among other things, its experience and expertise in merger and
acquisition transactions and the background and experience of its investment banking professionals
in rendering fairness opinions and business valuations.
As part of its investment banking business, Western Reserve is customarily engaged in the
valuation of businesses and securities in connection with mergers and acquisitions, private
placements of securities, and valuations for corporate and estate planning purposes. On November
29, 2007, Western Reserve delivered its oral opinion to our Board of Directors, and on December 3,
2007, Western Reserve delivered its written opinion to the board, to the effect that, as of such
date, and based upon the assumptions and other matters set forth therein, the consideration to be
received in the merger was fair, from a financial point of view, to our stockholders. No
restrictions were imposed by us upon Western Reserve as to investigations made or procedures
followed by Western Reserve in rendering its fairness opinion.
Western Reserves opinion is directed to our Board of Directors and addresses only the
fairness, from a financial point of view, to our stockholders, of the consideration to be received
in the Merger. Western Reserves opinion is not a recommendation to any stockholder to vote shares
in favor of the Merger, nor does it address our underlying business decision to pursue the Merger.
We urge you to read the full text of the Western Reserve fairness opinion, which is attached
hereto as Appendix B in its entirety, for assumptions made and matters considered in and the limits
of Western Reserves review of the Merger and related matters. Western Reserve has consented to
the inclusion of its opinion in this proxy statement/information statement with respect to the
fairness of the consideration to be received by the holders of the Companys common stock in the
proposed Merger.
Although Western Reserve evaluated the financial terms of the Merger, Western Reserve did not
recommend the price to be paid in the transaction. The consideration to be received by our
stockholders in the Merger was determined by negotiations between Graco and us. Western Reserve
did not participate in those negotiations. Western Reserve was not authorized by us to solicit,
nor did it solicit, third party indications of interest for the acquisition of all or any part of
the Company.
In rendering its opinion, Western Reserve, among other things, reviewed:
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the Merger Agreement, including the exhibits and schedules thereto;
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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 five-year period ended
November 30, 2006 and the Quarterly Reports on Form 10-Q of the Company for the first
three quarters of the current fiscal year;
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certain other internal information, primarily financial in nature, including
projections, concerning the business and operations of the Company furnished to Western
Reserve by the Company for purposes of its analysis;
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certain publicly available information with respect to certain other companies that
it believes to be comparable to the Company and the trading markets for certain of such
other companies securities; and
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certain publicly available information concerning the nature and terms of certain
other transactions that Western Reserve considers relevant to its inquiry.
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Western Reserve also visited our GlasCraft facilities in Indianapolis, Indiana and met with
certain officers and employees of the Company to discuss its business and prospects as well as
other matters Western Reserve believed relevant to its inquiry.
In rendering its fairness opinion, Western Reserve assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to it or publicly available and
assumed and relied upon the accuracy and completeness of representations and warranties of us
contained in the Agreement. Western Reserve was not engaged to, and did not independently attempt
to, verify any of such information. Western Reserve 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 therefore) provided to it and, with the Board of Directors consent, assumed
that such projections, reflect the best currently available estimates and judgments of our
management. Western Reserve was not engaged to assess the reasonableness or achievability of such
projections or the assumptions on which they were based and expresses no view as to such
projections or assumptions. Western Reserve also assumed that the conditions to the Merger as set
forth in the Merger Agreement would be satisfied and that the Merger would be consummated on a
timely basis in the manner contemplated by the Merger Agreement. Finally, Western Reserve assumed
that the minimum Per Share Merger Consideration of $9.05 will be the merger consideration paid to
stockholders, which, multiplied by the 3,695,457 shares outstanding at the close (assuming exercise
of all outstanding options), yields a total Equity Value of the Company of $33,443,886 (hereafter
rounded to $33.4 million). Furthermore, for purposes of calculating per share Equity Values based
on the valuation methodologies employed, Western Reserve assumed a cash-free and debt-free balance
sheet of GlasCraft at closing such that its calculated Enterprise Values would be equal to Equity
Values. As used in Western Reserves analyses, the term Enterprise Value means the total market
value of the common stock outstanding plus the principal amount of total debt, preferred stock and
minority interests, less cash and investments. The term Equity Value means the total market
value of each companys outstanding common stock (as applied to the comparable public companies) or
the calculated Enterprise Value plus total cash and less total debt (as applied to GlasCraft or the
spun-off business).
The following discussion summarizes the financial analyses that Western Reserve performed in
order to render its opinion. Western Reserve derived implied prices for our shares of common stock
based upon its judgment about what these analyses suggested about our value. In reading this
summary, please note that Western Reserves opinion was based on its consideration of the
collective results of all of these analyses, together with other factors referred to in its opinion
letter. Western Reserve did not give any individual analysis greater or lesser weight in
rendering its opinion.
Comparable Public Company Analysis
Western Reserve compared historical and projected operating and financial performance for the
Company to corresponding publicly available information for seven publicly traded companies in the
industrial machinery and materials dispensing industries. The companies used in Western Reserves
comparable public company analysis were:
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Gardner Denver, Inc.
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Graco Inc.
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LS Starrett Co.
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Nordson Corp.
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P&F Industries
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QEP Co. Inc.
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Thermadyne Holdings Corp.
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Western Reserve selected these companies because, based on publicly available data, it
believed that they possessed general business, operating and financial characteristics generally
representative of companies in the industry in which we operate. However, you should note that
each of the comparable companies is distinguishable from us in certain respects.
For each of the comparable companies, Western Reserve examined certain publicly available
financial data, including revenues; earnings before interest, taxes, depreciation and amortization,
or EBITDA; earnings before interest
and taxes, or EBIT; net income for the latest 12-month period (LTM); and projected net
income for 2007 and 2008 based upon consensus FirstCall estimates. Western Reserve also examined
balance sheet items and the recent trading prices
27
of the common stock of each of the comparable companies. Western Reserve then calculated the
ratio of each comparable companys Enterprise Value to that companys net sales, EBITDA and EBIT
for the latest twelve months.
Western Reserve then derived the mean and median multiples of Enterprise Value to LTM
revenues, EBITDA and EBIT for the comparable companies. These are set forth in the table below.
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Comparable Company Median
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Comparable Company Mean
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Enterprise Value to LTM:
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Revenues
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0.83x
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1.22x
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EBITDA
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6.5x
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7.8x
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EBIT
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8.5x
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10.3x
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Western Reserve then applied the mean and median multiples to our estimated 2007 EBITDA in
order to determine a range of Enterprise Values for us. This analysis suggested Enterprise Values
for us ranging from approximately $23.0 million to $27.9 million, as compared to the $33.4 million
Equity Value at the minimum Per Share Merger Consideration implied by the terms of the Merger
Agreement. This analysis suggested per share Equity Values for us ranging from $6.22 to $7.54,
assuming a cash-free and debt-free balance sheet upon closing, compared to the minimum Per Share
Merger Consideration of $9.05 implied by the terms of the Merger Agreement.
Comparable Transactions Analysis
Western Reserve reviewed information on three acquisition transactions in the industrial
machinery and materials dispensing industries completed since 2005 in order to determine relevant
valuation multiples for transactions that it deemed similar to the Merger. Western Reserve
selected these transactions because, based on publicly available data, it believed that the
acquisition targets possessed general business, operating and financial characteristics generally
representative of companies in the industry in which we operate. However, you should note that
each of the acquisition targets in the comparable transactions is distinguishable from us in
certain respects.
Western Reserve determined the multiples of Enterprise Value to LTM revenue, EBITDA and EBIT
represented by the purchase price paid in the comparable transactions and compared those to the
multiples represented by the proposed Merger based on our estimated 2007 revenues, EBITDA and EBIT.
The transactions analyzed by Western Reserve that were deemed comparable to the proposed Merger
were:
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Nordson Corp.s acquisition of Tah Industries (August 2007);
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Gardner Denver Inc.s acquisition of Thomas Industries, Inc. (March 2005); and
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Thomas Equipment, Inc.s acquisition of Pneutech Ltd. (February 2005).
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Based on the comparable transactions outlined above, Western Reserve calculated a range of
multiples of Enterprise Value to EBITDA of 7.1x to 8.2x. Western Reserve applied this range to our
estimated 2007 EBITDA, which implied Enterprise Values for the Company ranging from approximately
$25.3 million to $29.1 million, as compared to the $33.4 million Equity Value at the minimum Per
Share Merger Consideration implied by the terms of the Merger Agreement. This analysis suggested
per share Equity Values for us ranging from $6.85 to $7.87, assuming a cash-free and debt-free
balance sheet upon closing, compared to the minimum Per Share Merger Consideration of $9.05 implied
by the terms of the Merger Agreement.
Discounted Cash Flow Analysis
.
Western Reserve analyzed various financial projections prepared by the management of the
Company for the years 2008 through 2012 and performed a discounted cash flow analysis of the
Company based on these projections. A discounted cash flow analysis is a methodology used to
derive a valuation of a corporate entity by discounting to the present value of its future expected
cash flows. Western Reserves discounted cash flow analysis was conducted by estimating our
weighted average cost of capital at 14.0%. Western Reserve estimated our weighted average cost of
capital by performing analyses consistent with the Capital Asset Pricing Model.
Western Reserve calculated the present value of free cash flows for each of the 2008 through
2012 years and the present value of the terminal value of the Company (the calculated value of the
Company at the end of the projection
28
period). Western Reserve calculated the terminal value in year 2012 by applying an exit multiple of
7.5x to our projected 2012 EBITDA, and using the 14% cost of capital to discount that amount to its
present value.
In addition, Western Reserve conducted a sensitivity analysis as part of its discounted cash
flow analysis, using a range of estimated costs of capital (13.0% 15.0%), and a range of EBITDA
exit multiples (7.0x 8.0x). By adding together the present values of free cash flows for each
of 2008 through 2012 and the present value of the terminal value of the Company within the range of
this sensitivity analysis, Western Reserve calculated implied Enterprise Values for the Company
ranging from approximately $26.9 million to $31.8 million, as compared to the $33.4 million Equity
Value at the minimum Per Share Merger Consideration implied by the terms of the Merger Agreement.
This analysis suggested per share Equity Values for us ranging from $7.28 to $8.61, assuming a
cash-free and debt-free balance sheet upon closing, compared to the minimum Per Share Merger
Consideration of $9.05 implied by the terms of the Merger Agreement.
Leveraged Buyout Analysis
.
Western Reserve performed a leveraged acquisition analysis in order to ascertain the price at
which an acquisition of the Company would be attractive to a potential financial buyer. Western
Reserve performed the leveraged acquisition analysis using our projections. Western Reserve
assumed the following in its analyses:
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a capital structure comprised of a total credit facility (including senior and
subordinated debt) of approximately $14.2 million;
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an equity investment that would achieve a rate of return ranging from 24.5% to
32.4%; and
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a range of exit multiples of 7.5x to 8.5x our projected 2012 EBITDA, which range
is based around the median EBITDA purchase multiple calculated by Western Reserves
comparable transactions analysis.
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Based on these assumptions, Western Reserve calculated implied Enterprise Values for the
Company ranging from approximately $24.0 million to $26.0 million, as compared to the $33.4 million
Equity Value at the minimum Per Share Merger Consideration as implied by the terms of the Merger
Agreement. This analysis suggested per share Equity Values for us ranging from $6.49 to $7.04,
assuming a cash-free and debt-free balance sheet upon closing, compared to the minimum Per Share
Merger Consideration of $9.05 implied by the terms of the Merger Agreement.
Although the material aspects of Western Reserves analyses are described above, this summary
does not purport to be a complete description of Western Reserves analyses. Preparing a fairness
opinion is a complex process not necessarily susceptible to summary description. Western Reserve
believes that its analysis must be considered as a whole and that selecting portions of analyses
and of the factors considered by it, without considering all of those factors and analyses, could
create a misleading view of the process underlying its analyses. Western Reserve considered the
results of all of these analyses in rendering its opinion. The analyses were prepared solely for
the purpose of providing its opinion as to the fairness, from a financial point of view, of the
consideration to be received in the merger by our stockholders and do not purport to be appraisals
or necessarily reflect the prices at which businesses or securities may actually be sold.
None of the companies used in Western Reserves comparable public company analysis is
identical to us, and none of the transactions in the comparable transactions analysis is identical
to the proposed Merger. That means that an analysis of comparable publicly traded companies and
comparable acquisition transactions is not a mathematical exercise. Instead, that analysis
involves complex considerations and judgments concerning differences in financial and operating
characteristics of the companies and transactions to which the Company and the Merger,
respectively, are compared. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less favorable than
suggested by such analyses.
As described above, Western Reserves opinion and presentation to our Board of Directors was
one of many factors considered by the Board of Directors in making its determination to approve the
Merger. The term fair from a financial point of view is a standard phrase contained in
investment banking fairness opinions and refers to the fact that Western Reserves opinion is
addressed solely to the financial attributes of the consideration to be paid in connection with the
merger.
Western Reserves opinion is not a recommendation to any stockholder to vote shares in favor
of the Merger, nor does it address our underlying business decision to pursue the Merger.
Valuation of the Spun-Off Business
29
In addition to rendering the fairness opinion described above, Western Reserve was retained by
our Board of Directors to render an opinion, for federal tax purposes, with respect to the fair
market value of the various subsidiaries of the Company included in the spin-off. Our management
advised Western Reserve that the entities comprising the spun-off business consist of CIPAR and its
wholly-owned direct and indirect subsidiaries: CuraFlo Services, Inc., CuraFlo Spincast Services,
Inc., CuraFlo of British Columbia Ltd., and CuraFlo Franchising, Inc.; Raven Lining Systems, Inc.;
and Cohesant Materials, Inc.
Western Reserves opinion is directed to our Board of Directors and addresses only the fair
market value of the spun-off business. Neither the Company nor Western Reserve expresses an
opinion as to the price at which the common stock of the spun-off business will trade at any future
time.
We urge you to read the full text of the Western Reserve fair market value opinion, which is
attached hereto as Appendix C in its entirety for assumptions made and matters considered in and
the limits of Western Reserves review of the spun-off business
and related matters. Western Reserve has consented to the inclusion
of its fair market value opinion in this proxy statement/information
statement.
For purposes of this valuation, the term fair market value means the price at which the
property in question would change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
In rendering its valuation opinion, Western Reserve reviewed, among other things, the
materials that it reviewed in connection with the rendering of its fairness opinion, together with
the following:
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certain internal information, primarily financial in nature, including projections,
concerning the business and operations of the spun-off business furnished to it by us
for purposes of its analysis;
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certain publicly available information with respect to certain other companies that
Western Reserve believed to be comparable to the spun-off business and the trading
markets for certain of such other companies securities; and
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certain publicly available information concerning the nature and terms of certain
other transactions that Western Reserve considered relevant to its inquiry.
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Western Reserve also visited the spun-off businesss facilities in Tulsa, Oklahoma and
Beachwood, Ohio and met with certain officers and employees of the Company and the spun-off
business to discuss its business and prospects as well as other matters Western Reserve believed
relevant to its inquiry.
Western Reserves valuation opinion with respect to the spun-off business is subject to the
same qualifications and assumptions to which its fairness opinion is subject. In addition, Western
Reserve has relied upon the management of the Company and the spun-off business as to the
reasonableness and achievability of the financial and operating projections (and the assumptions
and bases therefore) provided to it and, with the Board of Directors consent, it has assumed that
such projections reflect the best currently available estimates and judgments of such respective
managements of the Company and the spun-off business.
In rendering its opinion, Western Reserve reviewed information concerning the operating
metrics and trading multiples of a group of publicly traded companies deemed similar to the
spun-off business. Western Reserve also reviewed information concerning valuation metrics for M&A
transactions involving acquisition targets which it believed to be comparable to the spun-off
business. However, Western Reserve determined that it was inappropriate to rely on its analysis of
comparable public companies or comparable transactions in rendering its valuation opinion. Western
Reserve concluded that the differences in size, liquidity and profitability between the spun-off
business and the comparable companies and the acquisition targets of the comparable transactions
that it identified were too significant to make such analyses useful in reaching a conclusion
concerning the fair market value of the spun-off business. Western Reserve also considered a
leveraged buyout analysis, but concluded that in light of the fact that the spun-off business
generates little cash flow and does not have significant assets, this valuation analysis would also
be of little utility in reaching a conclusion with respect to the fair market value of the spun-off
business.
In light of the foregoing, and because managements projections with respect to the spun-off
business indicated stable growth and positive cash flow over the next five years, Western Reserve
determined that the most suitable approach to determining the fair market value of the spun-off
business was a discounted cash flow analysis.
Accordingly, Western Reserve analyzed various financial projections prepared by management of
the spun-off business for the years 2008 through 2012 and performed a discounted cash flow analysis
of the spun-off business based on
30
these projections. As discussed above, a discounted cash flow analysis is a methodology used to
derive a valuation of a corporate entity by discounting to the present the value of its future
expected cash flows. The discounted cash flow analysis was conducted by estimating the spun-off
businesss weighted average cost of capital at 20.0%. Western Reserve estimated the spun-off
businesss weighted average cost of capital by performing analyses consistent with the Capital
Asset Pricing Model.
Western Reserve calculated the present value of free cash flows for each of the 2008 through
2012 years and the present value of the terminal value of spun-off business. Western Reserve
calculated the terminal value in year 2012 by applying an exit multiple of 10.0x to our projected
2012 EBITDA, which was based on the purchase multiples calculated from Western Reserves analysis
of comparable M&A transactions, and using the 20% cost of capital to discount that amount to its
present value. By adding together the present values of free cash flows for each of 2008 through
2012 and the present value of the terminal value of the spun-off business, Western Reserve
calculated the enterprise value of the spun-off business to be $6.632 million. Furthermore, for
purposes of calculating the Equity Value of the spun-off business, based on the valuation
methodology employed, Western Reserve assumed a cash-free and debt-free balance sheet of the
spun-off business at closing such that Enterprise Value would be equal to Equity Value.
In addition, Western Reserve conducted a sensitivity analysis as part of its discounted cash
flow analysis. Using a range of estimated costs of capital (18.5% 21.5%), and a range of EBITDA
exit multiples (9.75x 10.25x), Western Reserve determined the implied Enterprise Value of the
spun-off business to range from $6.036 million to $7.284 million. Assuming a cash-free and
debt-free balance sheet of the spun-off business at Closing, this would equate to an Equity Value
range of $6.036 million to $7.284 million for the spun-off business. In light of the foregoing
analysis, Western Reserve concluded that in its opinion, the fair market value of the spun-off
business, for federal income tax purposes, was $6.632 million, the midpoint of Western Reserves
calculated range.
Although the material aspects of Western Reserves analyses are described above, this summary
does not purport to be a complete description of Western Reserves analyses. Preparing a valuation
is a complex process not necessarily susceptible to summary description. Western Reserve believes
that its analysis must be considered as a whole and that selecting portions of analyses and of the
factors considered by it, without considering all of those factors and analyses, could create a
misleading view of the process underlying its analyses. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition, Western Reserves analysis was
prepared solely for the purpose of providing its opinion as to the fair market value of the
spun-off business for federal income tax purposes only and does not necessarily reflect the prices
at which businesses or securities may actually be sold. As previously noted, Neither the Company
nor Western Reserve expresses an opinion concerning the price at which the common stock of the
spun-off business will trade at any future date.
Western Reserve did not conduct an appraisal of any of the assets of the spun-off business in
connection with rendering its opinion, nor was it provided with any such appraisal.
Fees Paid to Financial Advisor
We agreed to pay Western Reserve an aggregate fee of $125,000 for its services in rendering
the fairness opinion and the valuation opinion, none of which is contingent upon the closing of the
Merger. We have also agreed to reimburse Western Reserve for its out-of-pocket expenses, not to
exceed $30,000, and have agreed to indemnify Western Reserve under certain circumstances.
Effects on the Company if the Merger is not Completed
In the event the Merger Agreement is not approved and adopted by the Companys stockholders or
if the Merger is not completed for any other reason, stockholders will not receive any payment for
their shares in connection with the Merger. Instead, the Company will remain an independent public
company and its common stock will continue to be listed and traded on NASDAQ. Moreover, the
special dividend of one share of CIPAR common stock for each share of Cohesant common stock will
not be made. In addition, if the Merger is not completed, we expect that our management will
continue to operate the business, and that the Companys stockholders will continue to be subject
to risks and opportunities that are similar to those to which they are currently subject.
Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these
risks and opportunities on the future value of your shares. From time to time, the Companys Board
of Directors will evaluate and review the business operations, properties, and capitalization of
the Company, among other things, make such changes as are deemed appropriate, and continue to
identify strategic alternatives to maximize stockholder value. If the Merger Agreement is not
consummated for any other reason, there can be no assurance that any other transaction acceptable
to the Company will be offered or that the business, prospects or results of
31
operations of the Company will not be adversely impacted. If the Merger Agreement is terminated
under certain circumstances, the Company will be obligated to pay a termination fee of $1,330,000.
See the section entitled The Merger Agreement Effect of Termination and Termination Fee on
page [
_
_
].
Interests of the Companys Directors and Executive Officers in the Merger
In considering the recommendation of the Companys Board of Directors with respect to the
Merger, you should be aware that the Companys directors, executive officers and certain employees
have interests in the Merger that are different from, or in addition to, the interests of our
stockholders generally. These interests may present them with actual or potential conflicts of
interest, and these interests, to the extent material, are described below. The Companys Board of
Directors was aware of these interests and considered them, among other matters, in approving the
Merger and approving and adopting the Merger Agreement.
Treatment of Stock Options
As of December 7, 2007, there were 336,200 shares of our common stock subject to outstanding
stock options, which options were granted under our 2005 Long Term Incentive Plan (or its
predecessor) to our current executive officers, directors and employees. Each outstanding stock
option that remains outstanding at the effective time of the Merger will terminate and thereafter
represent the right to receive a cash payment, without interest and less applicable tax
withholding, equal to the product of:
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the number of shares of our common stock subject to the option as of the effective
time of the Merger, multiplied by
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the excess, if any, of the Per Share Merger Consideration over the exercise price
per share of common stock subject to such option.
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No holder of an outstanding Company stock option that has an exercise price per share that is
equal to or greater than the Per Share Merger Consideration, shall be entitled to any payment with
respect to the terminated stock option before or after the effective time of the Merger. However,
the Company anticipates that some of its directors who hold stock options with an exercise price
per share greater than the Per Share Merger Consideration may elect to exercise such options so
that they may receive the special dividend of one share of CIPAR common stock for each share of
Company common stock owned on the record date of the dividend. At the November 29, 2007 Board of
Directors meeting at which the Merger was approved, the Board also accelerated all investor stock
options to purchase Company common stock as of December 21, 2007.
The following table shows the number of shares underlying options to purchase our common stock
held by our directors and officers as of [
], 2008.
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Number of Shares
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Value of All Options if
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Value of All Options if
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Name
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Grant Price
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Underlying Options (1)
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Exercised at $9.05
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Exercised at $9.55
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Michael L. Boeckman
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$
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10.02
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15,000
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Morton A. Cohen
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$
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10.02
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15,000
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Richard L. Immerman
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$
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10.02
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15,000
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|
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Stuart C. McNeill
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Terrence R. Ozan
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$
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10.02
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25,000
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Morris H. Wheeler
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$
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8.80
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17,500
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$
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4,375
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$
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13,125
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Robert W. Pawlak
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$
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7.50
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5,200
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$
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8,060
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$
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10,660
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$
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8.80
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11,500
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$
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2,875
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$
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8,625
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Total
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104,200
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$
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15,310
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$
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32,410
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(1)
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As noted above, the vesting of each outstanding option to purchase Company common stock has
been accelerated so that each such Company stock option is fully vested and exercisable.
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32
Severance Arrangements
Two of our current executive officers, Morris H. Wheeler and Robert W. Pawlak, have employment
agreements with us. In general, these employment agreements contain specific change in control
severance payment provisions. If the officers employment is terminated under certain
circumstances following a change in control (such as the Merger), or if the officer resigns for
good reason (including any downward adjustment in the officers base salary), the officer will be
entitled to receive a severance payment set forth in the officers employment agreement. Our
President and Chief Executive Officer, Morris H. Wheeler, is entitled to a lump sum severance
payment equal to 2.99 times Total Compensation, which includes salary and bonus, if he is
terminated without Cause within two years following a change in control. Mr. Wheeler is also
entitled to receive continued medical, hospitalization, and dental insurance for 36 months
following his termination unless he elects to receive the equivalent of such payments in a lump
sum.
Our Chief Financial Officer and Secretary, Mr. Pawlak, is entitled to a lump-sum severance
payment equal to two-years salary and bonus if he is terminated without Cause within two years
following a change in control, less compensation already received following the change in control,
but not to decrease below a minimum payment of one years salary and bonus. Mr. Pawlak is also
entitled to receive payment for a portion of his medical and life insurance premiums for 18 months
following termination. Graco has indicated to us that the services of Messrs. Wheeler and Pawlak
will not be required after the effective date of the Merger, with the exception of a possible short
transition period. Accordingly, Messrs. Wheeler and Pawlak will be entitled to {a maximum of
$1,131,000 and $350,000} respectively, as a result of their terminations following the Merger.
Additionally, certain key personnel of GlasCraft were provided retention bonuses, payable upon
the effective date of the Merger, to ensure that the business and operations of GlasCraft
continued, without material disruption, during the period from the date the Merger was announced
until the effective date. The aggregate amount of such bonuses is $177,000. Finally, the Company
has established a retention bonus pool of $250,000 payable, in the aggregate, to all other
GlasCraft employees who remain with GlasCraft through the effective date of the Merger. The amount
of each persons bonus is dependent on their seniority with the Company, their job description, and
current salary.
Indemnification and Insurance
The Merger Agreement provides that for a period of six years after the effective time of the
Merger, the indemnification and exculpation provisions in Merger Subs certificate of incorporation
and bylaws will continue in full force and effect. Consequently, the Company, and after the
effective time of the Merger, the surviving corporation, will indemnify and hold harmless each
person who is (as of the execution of the Merger Agreement) or has been at any time prior to the
execution of the Merger Agreement, or who becomes prior to the effective time of the Merger, a
director, officer or employee of the Company or any of its subsidiaries or who acts as a fiduciary
or agent of the Company or its subsidiaries against all losses, claims, damages, costs and expenses
(including reasonable attorneys fees and expenses), liabilities, amounts paid in settlement or
judgments incurred in connection with any claim arising out of or pertaining to the fact that he or
she is or was an officer, employee, fiduciary or agent of the Company or any of our subsidiaries
(or was serving at the request of the Company or any subsidiary in such position of another entity
or a joint venture, trust or other enterprise) or any actions arising out of or pertaining to the
negotiation, execution or performance of the Merger Agreement or any of the transactions or
agreements contemplated by or delivered in connection therewith. The foregoing indemnification
obligations are subject to the obligations of CIPAR under the Separation Agreement.
In addition, the Merger Agreement provides that prior to the effective time of the Merger, the
Company will obtain and fully pay for an endorsement to our existing directors and officers
liability insurance policy providing tail coverage with a period of six years from the effective
time of the Merger.
Compensation to Non-employee Directors serving on the Special Negotiating Committee
Terrence Ozan and Morton A Cohen, each of whom is a non-employee director, currently receive
$750 and reimbursement for expenses for each meeting of the Special Negotiating Committee attended.
Additionally, Mr. Ozan receives an additional $5,000 for services performed as Chairman of the
Committee. The foregoing amounts are at the same level as payments made to directors who serve on
the Audit and Compensation Committees.
Voting and Support Agreements
In connection with the Merger Agreement, Morton A. Cohen, our Chairman, his affiliate Clarion
Capital Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert W. Pawlak, our
Chief Financial Officer, who, in
33
the aggregate, own approximately 45% of our common stock, have each entered into a Voting and
Support Agreement under which they have each agreed to vote FOR the adoption of the Merger
Agreement. A form of the Voting and Support Agreement is attached hereto as Appendix D.
Material United States Federal Income Tax Consequences
The following is a general discussion of the material U.S. federal income tax consequences of
the Merger and special dividend. We base this discussion on the provisions of the Internal Revenue
Code of 1986, as amended (the Code), applicable current and proposed U.S. Treasury Regulations
promulgated thereunder, judicial authority, and administrative rulings and practice, all of which
are subject to change, possibly on a retroactive basis, and subject to differing interpretations.
For purposes of this discussion, we use the term U.S. holder to mean:
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a citizen or individual resident of the United States for U.S. federal income tax
purposes;
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a corporation, or other entity taxable as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the United States or any state
or the District of Columbia;
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a trust if it (1) is subject to the primary supervision of a court within the United
States and one or more United States persons have the authority to control all
substantial decisions of the trust or (2) has a valid election in effect under
applicable U.S. Treasury Regulations to be treated as a United States person; or
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an estate the income of which is subject to U.S. federal income tax regardless of
its source.
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This discussion assumes that a holder holds 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 law that may be
relevant to a holder in light of its particular circumstances, or that may apply to a holder that
is subject to special treatment under the U.S. federal income tax laws (including but not limited
to, stockholders who are not United States persons as defined in Code Section 7701(a)(30),
insurance companies, dealers in securities or foreign currency, stockholders subject to the
alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar,
tax-exempt organizations, regulated investment companies, real estate investment trusts, personal
holding companies, financial institutions, banks, thrifts, mutual funds, common trusts, entities
treated as partnerships for U.S. federal income tax purposes and other pass-through entities for
U.S. federal income tax purposes, controlled foreign corporations, passive foreign investment
companies, foreign persons and certain expatriates, corporations that accumulate earnings to avoid
U.S. federal income tax, corporations subject to anti-inversion rules, stockholders who hold shares
of our common stock as part of a hedge, straddle, constructive sale or conversion transaction,
holders of options or other derivative securities, or stockholders who acquired our shares of
common stock through the exercise of employee stock options or other compensation arrangements).
In addition, the discussion does not address any tax considerations of the Merger or special
dividend under state, local, or foreign laws or U.S. federal laws other than those pertaining to
the U.S. federal income tax that may apply to holders. This discussion does not address any
alternative minimum tax consequences of the Merger or special dividend.
If a holder of our common stock is an entity treated as a partnership for U.S. federal income
tax purposes, the tax treatment of a partner will generally depend on the status of the partners
and the activities of the partnership, and such partner should consult its own tax advisor.
We have not sought, and will not seek, an opinion of counsel or a ruling from the Internal
Revenue Service regarding the U.S. federal income tax consequences of the Merger or special
dividend, and there is no guarantee that the analysis provided herein would be sustained by a court
of competent jurisdiction if contested by the Internal Revenue Service. In addition, this
discussion does not address U.S. federal income tax law with respect to non-U.S. holders.
Accordingly, each holder of Cohesant common stock should consult its tax advisor with respect to
the particular tax consequences of the Merger and the special dividend to such holder.
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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. In general, 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:
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the amount of cash received in exchange for such common stock pursuant to the
Merger; and
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the U.S. holders adjusted tax basis in such common stock.
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Note that your adjusted tax basis in your Cohesant shares could be reduced because of a
tax-free return of tax basis referenced below describing the special dividend.
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. If an
individual stockholders holding period in our common stock surrendered in the Merger is one year
or less as of the effective time of the Merger, any gain will be subject to U.S. federal income tax
at the same rate as for ordinary income. The deductibility of a capital loss recognized in the
Merger will be subject to limitations under the Code. Generally, for corporations, capital gain is
taxed at the same rate as ordinary income, and capital loss in excess of capital gain is not
deductible. Corporations generally may carry back capital losses up to three taxable years and
carry forward capital losses up to five taxable years.
Under the Code, a U.S. holder of our common stock may be subject, under certain circumstances,
to information reporting on the cash received in the Merger unless such U.S. holder is a
corporation or other exempt recipient. Backup withholding will also apply (currently at a rate of
28%) with respect to the amount of cash received, unless a U.S. holder provides proof of an
applicable exemption or a correct tax identification number, and otherwise complies with the
applicable requirements of the backup withholding rules. Backup withholding is not an additional
tax and any amounts withheld under applicable withholding rules may be refunded or credited against
a U.S. holders U.S. federal income tax liability, if any, provided that such U.S. holder furnishes
the required information to the Internal Revenue Service in a timely manner.
Special Dividend
Each holder that receives CIPAR common stock from Cohesant will be treated as receiving a
taxable distribution of property for U.S. federal income tax purposes equal to the fair market
value of the CIPAR common stock on the date of distribution. In general, for U.S. federal income
tax purposes:
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the special dividend should be treated as dividend income to the extent of
Cohesants current or accumulated earnings and profits (as determined under U.S.
federal income tax principles); and
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to the extent, if any, that the amount of the special dividend exceeds Cohesants
current and accumulated earnings and profits, the excess should be treated as a
tax-free return of the stockholders tax basis in its shares of Cohesant common stock
until such basis is reduced to zero; and thereafter should be treated as gain from the
sale of such stock.
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If the special dividend exceeds Cohesants current or accumulated earnings and profits, the
special dividend will reduce the stockholders tax basis in its Cohesant common stock for purposes
of computing the stockholders gain or loss from the receipt of cash pursuant to the Merger.
For individual U.S. holders, dividends that are qualifying dividends are generally subject
to federal income taxation at lower capital gain rates. For the special dividend to be a
qualifying dividend to you, you must hold our stock at least 60 days immediately prior to the
ex-dividend date and on the ex-dividend date, which we anticipate will be the day immediately
preceding the closing of the Merger. Non-qualifying dividends received by individual U.S. holders
generally will be subject to federal income taxation at ordinary income rates.
The basis of the CIPAR common stock received as a special dividend will be equal to the fair
market value of such stock on the distribution date, and the stockholders holding period with
respect to such stock will begin on the day following the distribution.
Corporate holders may be entitled to a dividend-received deduction with respect to the
distribution for U.S. federal income tax purposes, subject to numerous limitations and
requirements. Corporate holders should be aware that under
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certain circumstances, a corporation that receives an extraordinary dividend (as defined in
Section 1059 of the Code) is required to (i) reduce its tax basis (but not below zero) by the
portion of such dividend that is not taxed because of the dividend received deduction and (ii)
treat the non-taxed portion of such dividend as gain from the sale or exchange of Cohesant common
stock for the taxable year in which the dividend is received (to the extent the non-taxed portion
of such dividend exceeds such holders tax basis). Under Section 1059 of the Code, a dividend paid
on common stock is generally deemed to be extraordinary if the amount of such dividend equals or
exceeds ten percent of the holders adjusted basis in such share of stock.
Non-corporate holders who receive extraordinary dividends would be required to treat any
losses from the sale of Cohesant common stock as long-term capital losses to the extent such
dividends are qualifying dividends that qualify for taxation at capital gains rates. Holders
should consult their tax advisors with respect to the potential application of the extraordinary
dividend rules to the distribution of CIPAR common stock.
Although Cohesant intends to use the value of CIPAR common stock determined by Western Reserve
to report the tax consequences of the special dividend, the Internal Revenue Service is not bound
by such valuation, and no assurances exist that the Internal Revenue Service will concur with the
determination of Western Reserve regarding the value of CIPAR common stock or other matters
discussed herein. Specifically, it is possible that the Internal Revenue Service may assert that a
higher fair market value existed for the CIPAR common stock on the date of distribution.
If the Internal Revenue Service were to successfully assert that a higher value should be
placed on the CIPAR common stock, the taxation of the distribution of CIPAR common stock to the
Cohesant stockholders would be based on such higher value. In such event, the amount of taxes that
are owned by the stockholder with respect to the special dividend of CIPAR common stock would
increase, possibly significantly.
Following the spin-off and Merger, information with respect to the fair market value of the
special dividend on a per share basis, as well as information regarding that portion of the special
dividend that is treated as a taxable dividend, will be made available to the holders of Cohesant
common stock.
All stockholders, including U.S. holders and non-U.S. holders, are urged to consult their own
tax advisors to determine the particular tax consequences, including the application and effect of
any state, local, or foreign income and other tax laws, of (i) the receipt of cash in exchange for
our common stock pursuant to the Merger and (ii) the receipt of the special dividend.
Tax
Consequences to the Company
Cohesant will not recognize any gain or loss as a result of the Merger. In addition, Cohesant
does not expect to recognize any gain or loss as a result of the distribution of CIPAR common stock
to the holders of Cohesant common stock. In general, a corporation that distributes property to
its stockholders recognizes gain (but not loss) to the extent the propertys fair market value at
the time of the distribution exceeds the corporations tax basis in the property. Cohesant
believes that its tax basis in its CIPAR common stock will exceed the fair market value of such
stock, as determined by Western Reserve, at the time of the special dividend. Thus, Cohesant
believes that there will be no taxable gain recognized as a result of the special dividend.
As discussed above, the Internal Revenue Service is not bound by the valuation of CIPAR common
stock determined by Western Reserve and no assurances exist that the Internal Revenue Service will
concur with Western Reserves determination of the fair market value of CIPAR common stock. If the
Internal Revenue Service were to successfully assert that a higher value should be placed on the
CIPAR common stock and such value was in excess of Cohesants tax basis in such stock, Cohesant
would recognize taxable gain in an amount equal to the difference between such higher value and
Cohesants tax basis in its CIPAR common stock. Under the Tax Matters Agreement, CIPAR would be
required to indemnify Cohesant for any taxes arising from the distribution of CIPAR common stock to
the Cohesant stockholders. See RELATIONSHIP BETWEEN COHESANT AND CIPARTax Matters Agreement
beginning on page [___].
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Regulatory Approvals
Except for the filing of a certificate of merger in Delaware at or before 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.
Accounting Treatment
We expect that the Merger will be accounted for by Graco using the purchase method of
accounting, in accordance with generally accepted accounting principles.
Delisting and Deregistration of Cohesant Common Stock After the Merger
When the Merger is completed, Cohesant common stock will be delisted from NASDAQ and
deregistered under the Securities Exchange Act.
Appraisal Rights
Under Delaware law, holders of our common stock who do not vote in favor of approving and
adopting the Merger Agreement will have the right to seek appraisal of the fair value of their
shares as determined by the Delaware Court of Chancery if the Merger is completed, but only if they
submit a written demand for an appraisal prior to the vote on the approval and adoption of the
Merger Agreement, if they continuously hold their Company common stock from the date they make a
demand for appraisal through the effective time of the Merger, and if they comply with the Delaware
law procedures applicable to such appraisal. This amount could be more, the same or less than the
value that our stockholders are entitled to receive under the terms of the Merger Agreement. See
the section entitled Dissenters Rights of Appraisal beginning on page [___].
AGREEMENTS RELATED TO THE MERGER
I. The Merger Agreement
The following is a summary description of the material terms of the Merger Agreement, not
summarized elsewhere herein. Certain capitalized terms used and not defined herein have the
meanings ascribed to them in the Merger Agreement. This summary does not purport to be complete and
is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to
this proxy statement/information statement as Appendix A and is incorporated herein by reference.
Stockholders are advised to read such document in its entirety prior to voting in person or by
proxy on the proposals.
The description of the Merger Agreement in this proxy statement/information statement has been
included to provide you with information regarding its terms. The Merger Agreement contains
representations and warranties made by and to the Company, Company Sub, CIPAR, Graco and Merger Sub
as of specific dates. The statements embodied in those representations and warranties were made
for purposes of that contract between the parties and are subject to qualifications and limitations
agreed by the parties in connection with negotiating the terms of that contract, including
qualifications set forth on the Company, CIPARs, and Company Subs disclosure schedule to the
Merger Agreement. In addition, certain representations and warranties were made as of a specified
date, may be subject to contractual standards of materiality different from those generally
applicable to stockholders, or may have been used for the purpose of allocating risk between the
parties rather than establishing matters of fact. Accordingly, you should not rely on the
representations and warranties contained in the Merger Agreement as characterizations of the actual
state of facts. Moreover, information concerning the subject matter of the representations and
warranties may change after the date of the Merger Agreement, which subsequent information may or
may not be fully reflected in the Companys public disclosures.
Effective Time
Following the satisfaction or waiver of the conditions to completion of the Merger contained
in the Merger Agreement, the effective time of the Merger will occur at the time we file a
certificate of merger with the Secretary of State of Delaware (or such later time as provided in
the certificate of merger).
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Structure
At the effective time of the Merger, Merger Sub will merge with and into the Company. The
Company will be the surviving corporation following the Merger and will continue to exist after the
Merger as a direct, wholly-owned subsidiary of Graco. GlasCraft will continue to exist as an
indirect, wholly-owned subsidiary of Graco. All of the Companys and Merger Subs properties,
rights, privileges, powers, franchises, and all of their debts, liabilities, obligations,
restrictions, disabilities and duties, will become those of the surviving corporation.
Treatment of Stock and Options
Company Common Stock
At the effective time of the Merger, each share of our common stock issued and outstanding
immediately prior to the effective time of the Merger will automatically be canceled and will cease
to exist and will be converted into the right to receive the Per Share Merger Consideration in
cash, without interest. The minimum Per Share Merger Consideration is $9.05 and the maximum is
$9.55. The exact value of the Per Share Merger Consideration will be primarily dependent on the
dollar amount of the transactional expenses and borrowed indebtedness retained by the Company
following its acquisition by Graco. Such indebtedness retained by the Company is defined in the
Merger Agreement as Assumed Transaction Expenses and Debt and includes, among other things, the
following expenses not paid before the effective time (to the extent not satisfied or paid on or
before the effective time of the Merger and for which the Company, GlasCraft, Graco or the
surviving corporation is liable following the effective time of the Merger):
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all costs and expenses (including legal, accounting, investment banking, advisory
and other fees and expenses) incurred by the Company, GlasCraft and the Spun-Off
Entities (as defined in the Merger Agreement) relating to the spin-off;
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all costs and expenses (including legal, accounting, investment banking, advisory
and other fees and expenses) incurred by the Company, GlasCraft of the Spun-Off
Entities in connection with the preparation, negotiation and execution of the Merger
Agreement and the consummation of the transactions contemplated thereby, including, but
not limited to:
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certain bonuses;
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the employer portion of all employment tax, including FICA, Medicare and any
other taxes due with respect to certain Company stock options and bonuses;
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any payments made to, or associated with, the termination of any employees of the
Company or its subsidiaries at or prior to the closing;
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the broker, fairness and other fees payable to Western Reserve Partners, LLC;
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all costs, expenses and premiums associated with the purchase of the tail
endorsement to our director and officer insurance policy; and
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the amount of any lost tax benefit to the extent resulting from the inability to
deduct any excess parachute payment under Section 280G of the Code; and
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all Company Debt (as defined in the Merger Agreement).
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The following shares of our common stock will not be converted into the right to receive the
Per Share Merger Consideration:
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shares of Company common stock owned by Graco or Merger Sub, if any, which shares
will be canceled without conversion or consideration; and
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shares of Company common stock held by a stockholder who properly demands statutory
appraisal rights.
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After the effective time of the Merger, each outstanding stock certificate representing shares
of our common stock converted in the Merger will represent only the right to receive the Per Share
Merger Consideration without interest. The
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Per Share Merger Consideration paid upon surrender of each certificate will be paid in full
satisfaction of all rights pertaining to the shares of our common stock represented by that
certificate.
Company Stock Options
The Companys Board of Directors has taken the action necessary to accelerate the vesting of
each outstanding Company stock option so that each such Company stock option is fully vested and
exercisable. All outstanding Company stock options will terminate as of the effective time of the
Merger, and will represent the right to receive an amount in cash, without interest and less
applicable tax withholding, equal to the product of:
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the number of shares of our common stock subject to each option as of the effective
time of the Merger, multiplied by
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the excess, if any, of the Per Share Merger Consideration over the exercise price
per share of common stock subject to such option.
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No holder of an outstanding Company stock option that has an exercise price per share that is
equal to or greater than the Per Share Merger Consideration will be entitled to any payment with
respect to the terminated stock option before or after the effective time of the Merger.
Exchange and Payment Procedures
Prior to the effective time of the Merger, Merger Sub will deposit in trust with a paying
agent an amount of cash sufficient to pay the merger consideration to each holder of shares of our
common stock. Promptly after the effective time of the Merger, the paying agent will mail a letter
of transmittal and instructions to each of our registered stockholders (each stockholder that holds
stock in its own name as of the effective time of the Merger). The letter of transmittal and
instructions will tell such stockholders how to surrender their common stock certificates in
exchange for the merger consideration. If your shares are held in street name by your broker,
you will not receive a letter of transmittal and will automatically receive the merger
consideration in exchange for your shares of stock through your broker, unless you have properly
demanded and perfected your statutory appraisal rights.
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.
Registered stockholders will not be entitled to receive the merger consideration until they
surrender their stock certificate or certificates to the paying agent, together with a duly
completed and executed letter of transmittal and any other documents as may be required by the
letter of transmittal. 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 of transfer. In addition, the person who surrenders such
certificate must either pay any transfer or other applicable taxes or establish to the satisfaction
of the surviving corporation that such 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. The paying agent will be entitled to deduct and withhold, and pay to the appropriate
taxing authority, any applicable taxes from the merger consideration. Any sum that is withheld and
paid to a taxing authority by the paying agent will be deemed to have been paid to the person with
regard to whom it is withheld.
At the effective time of the Merger, our stock transfer books will be closed, and there will
be no further registration of transfers of outstanding shares of our common stock. If, after the
effective time of the Merger, certificates are presented to the surviving corporation for transfer,
they will be canceled and exchanged for the merger consideration.
None of the paying agent, Graco, or the surviving corporation will be liable to any person for
any cash delivered to a public official pursuant to any applicable abandoned property, escheat or
similar law. Any portion of the merger consideration deposited with the paying agent that remains
undistributed to the holders of our common stock for one year after the effective time of the
Merger, will be delivered, upon demand, to the surviving corporation. Stockholders who have not
received the merger consideration prior to delivery of such funds to the surviving corporation may
look only to the surviving corporation for the payment of the merger consideration. Any portion of
the merger consideration that remains unclaimed as of a date that is immediately prior to such time
as such amounts would otherwise escheat to or become
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property of any governmental authority will, to the extent permitted by applicable law, become the
property of Graco free and clear of any claims or interest of any person previously entitled to the
merger consideration.
If you have lost a certificate, or if it has been stolen or destroyed, then before you will be
entitled to receive the merger consideration, you will have to comply with the replacement
requirements established by the surviving corporation, including, if necessary, the posting of a
bond in a customary amount sufficient to protect the surviving corporation against any claim that
may be made against it with respect to that certificate.
Payment of any amounts in respect of unexercised Company stock options as of the effective
time of the Merger shall not be made through the paying agent and procedures described above.
Rather, payment of such amounts shall be made through Cohesants payroll agent.
Representations and Warranties
The Merger Agreement contains customary representations and warranties made by the Company and
Company Sub. The assertions embodied in the representations and warranties contained in the Merger
Agreement are qualified by information in confidential disclosure schedules provided by us to Graco
in connection with the signing of the Merger Agreement. These disclosure schedules contain
information that modifies, qualifies and creates exceptions to the representations and warranties
set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger
Agreement were used for the purpose of allocating risk between us and Graco rather than
establishing matters as facts. Accordingly, you should not rely on the representations and
warranties in the Merger Agreement as characterizations of the actual state of facts about the
Company and Company Sub. In addition, certain representations and warranties are qualified by the
likelihood of a Material Adverse Effect as defined below.
In the Merger Agreement, we have made representations and warranties with respect to, among
other things:
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incorporation, standing and power;
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capitalization;
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subsidiaries of Cohesant;
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financial statements;
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Cohesants reports and filings with the SEC;
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authority to execute and deliver the Merger Agreement and consummate the Merger;
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enforceability and binding effect of the Merger Agreement;
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absence of any breach or conflict with material agreements, governmental
authorizations, applicable law, or charter documents;
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insurance;
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tangible assets;
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real estate;
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litigation;
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taxes;
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compliance with charter provisions, laws and regulations, including environmental
regulations;
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employees;
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brokers and finders;
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contracts;
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performance of obligations;
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absence of certain material changes or events;
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licenses and permits;
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undisclosed liabilities;
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employee benefit plans;
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corporate records;
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accounting records;
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vote required;
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disclosure documents and applications;
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intellectual property;
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state takeover laws;
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receipt of a fairness opinion;
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customers, suppliers and inventory; and
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the absence of certain affiliate transactions.
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As used in the Merger Agreement, Material Adverse Effect means an event, change, effect,
development, condition or occurrence (1) that is, or would reasonably be expected to be, materially
adverse to the condition (financial or otherwise), business, properties, assets, liabilities, or
results of operations of the Company or the surviving corporation, taken as a whole, or (2) that
materially impairs or materially delays the ability of the Company to consummate the transactions
contemplated by the Merger Agreement;
provided, however
, that, with respect to clause (1) of this
definition, in determining whether there is a Material Adverse Effect, there shall be excluded
effects to the extent arising or resulting from:
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any change in GAAP or regulatory accounting requirements applicable to the Company
generally;
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any general social, political, economic, environmental or natural condition, change,
effect, event or occurrence, including changes in prevailing interest rates, currency
exchange rates or general economic or market conditions, the effects of which on the
Company or the surviving corporation are not materially disproportionate, compared with
other companies operating in the same industry segments in which the Company operates;
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any action or omission by the Company taken at the written request or with the prior
written consent of Graco or Merger Sub; and
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the undertaking and performance of the obligations contemplated by the Merger
Agreement and the Separation Agreement or consummation of the transactions contemplated
by Merger Agreement and the Separation Agreement, including the public announcement of
the transactions contemplated by the Merger Agreement, with certain exceptions.
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In the Merger Agreement, Graco has also made representations and warranties, customary for a
transaction such as the Merger, with respect to, among other things:
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incorporation, standing and power;
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authority to execute and deliver the Merger Agreement and consummate the Merger;
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enforceability and binding effect of the Merger Agreement;
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required consents, approvals and filings;
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absence of any breach or conflict with material agreements, governmental
authorizations, applicable law, or charter documents;
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Gracos formation and ownership of Merger Sub and Merger Subs conduct;
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accuracy of information provided for this proxy statement/information statement; and
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sufficient financing to pay the merger consideration to Cohesants stockholders and
to consummate the Merger.
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Conduct of Our Business Pending the Closing
In the Merger Agreement, we and Company Sub have covenanted and agreed that, at all times up
to and including the closing date, unless Graco otherwise consents in writing, which consent shall
not be unreasonably withheld, delayed or conditioned, or as otherwise required or contemplated by
the Merger Agreement, we and Company Sub will (and to the extent a failure by any entity that will
be spun-off would adversely affect the Company or Company Sub or the transactions contemplated by
the Merger Agreement, the Company and CIPAR shall cause the spun-off entities to) do the following:
subsidiaries:
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conduct Company Subs business (the Business) only in the ordinary course of
business, consistent with past practice;
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use reasonable commercial efforts to preserve intact the present business
organizations (other than by virtue of the restructuring and spin off) and to maintain
and preserve our and Company Subs relationships and goodwill with customers, employees
and others having business relationships with the Business;
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use commercially reasonable efforts to keep in full force and effect all of the
existing material permits and licenses of Company and Company Sub and to timely pay all
filing, examination, issuance, post registration and maintenance fees, annuities and
the like associated with or required with respect to any of Company or Company Subs
registered intellectual property with respect to the Business;
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use commercially reasonable efforts to maintain insurance coverage at least equal to
that now in effect on all properties which we own or lease and on our and Company Subs
business operations;
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perform the Companys and Company Subs material contractual obligations and not
become in material default on any such obligations;
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pay all accounts payable and trade payable consistent with past practice and, in any
event, as the same are due and payable, and maintain inventory consistent with past
practice;
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duly observe and conform in all material respects to all lawful requirements
applicable to the Company and Company Subs business;
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maintain our and Company Subs assets and properties in good condition and repair,
normal wear and tear excepted;
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file all tax returns and all extensions, where applicable, that are required to be
filed with any tax authority in accordance with all applicable laws, timely pay all
taxes due and payable and ensure that the tax returns will, as of the time of filing,
be based on tax positions that have substantial support under all applicable laws; and
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promptly notify Graco regarding receipt from any tax authority of any notification
of the commencement of an audit, any request to extend the statute of limitations, any
statutory notice of deficiency, any revenue agents report, any notice of proposed
assessment, or any other similar notification of potential adjustments to the tax
liabilities or attributes of Company or Company Sub, or any actual or threatened
collection enforcement activity by any tax authority with respect to tax liabilities of
Company or Company Sub.
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We and Company Sub have agreed, among other things, that we and Company Sub will not (and to
the extent an action by any entity that will be spun-off would adversely affect the Company or
Company Sub or the transactions contemplated by the Merger Agreement, Company and CIPAR shall cause
the spun-off entities not to), except as otherwise contemplated by the Merger Agreement or unless
Graco gives its prior written consent,
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issue, sell, encumber or grant:
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any Company stock or Company Sub stock (except pursuant to the exercise of
Company stock options outstanding as of the date of the Merger Agreement),
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any other securities (including long-term debt) of Company or Company Sub, or
any rights, stock appreciation rights, options or securities to acquire any
Company stock or Company Sub stock, or
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enter into any agreements to take any of the foregoing actions;
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declare, set aside or pay any dividend (except for the semi-annual cash dividend
declared prior to the date of the Merger Agreement) or make any other distribution upon
any of the capital stock of Company or Company Sub;
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split, combine or reclassify any shares of capital stock or other securities of
Company or Company Sub;
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purchase, redeem or otherwise acquire any capital stock or other securities of
Company or Company Sub or any rights, options, or securities to acquire any capital
stock or other securities of Company or Company Sub (other than the issuance of Company
stock upon the exercise of Company stock options that are outstanding as of the date of
this Merger Agreement in accordance with their present terms and except as expressly
provided in the Merger Agreement);
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except as may be required to effect the transactions contemplated in the Merger
Agreement, amend our Certificate of Incorporation or Bylaws;
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grant to any employee or employees of the Business any general or uniform increase
in the rate of pay or employee benefits other than in the ordinary course of business
consistent with past practice;
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except as required by law or by the terms of any employee plan or benefit
arrangements in effect on the date hereof and disclosed by the Company, grant to any
employee of the Business any increase in salary, incentive compensation or employee
benefits or pay any bonus to any such Person or voluntarily accelerate the vesting of
any employee benefits, other than:
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payments of bonuses consistent with past practice pursuant to plans in effect
on the date hereof and disclosed by the Company, and
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increases in salary consistent with past practice to persons eligible for such
salary increases on the regularly scheduled review dates of their employment
(provided that the percentage increase in salaries for all such persons shall not
exceed 3.5% on average from the salaries in effect on the date of the Merger
Agreement);
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make any capital expenditure or commitments in excess of $25,000 individually or
$100,000 in the aggregate, except for capital expenditures described in the capital
expenditure budget as disclosed by the Company;
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materially increase the level of shipments to the distributors of the Business
except in the ordinary course of business and consistent with the organic growth of the
Business;
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compromise or otherwise settle or adjust any assertion or claim of a deficiency in
respect of taxes (or related interest or penalties), extend the statute of limitations
with any tax authority or file any pleading in court in any tax litigation or any
appeal from an asserted deficiency, or amend any federal, foreign, state or local tax
return, or make any tax election;
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change or make any tax elections or tax or accounting policies and procedures or any
method or period of accounting unless required by GAAP or a governmental entity;
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except as may be required as a result of a change in law or GAAP, change in any
material respect any accounting, financial reporting, or inventory principle, practice,
method or policy used by Company;
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grant any extension of credit or amend the terms of any such credit outstanding on
the date of the Merger Agreement to any executive officer, director or beneficial owner
of 5% or more of the outstanding Company stock, or any Affiliate or associate (as
defined in Rule 12b-2 promulgated under the Exchange Act) of such person;
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close or relocate any principal offices at which the Business is conducted or open
any new principal offices;
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adopt or enter into any new employment agreement with any executive-level employee
of the Business or adopt or enter into any new employee benefit plan or arrangement or
amend, modify or terminate any employment agreement for an employee of the Business or
employee benefit plan or arrangement except as required by law;
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grant any person a power of attorney or similar authority;
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make any investment by purchase of stock or securities, contributions to capital,
property transfers or otherwise in any other entity, except for federal funds,
obligations of the United States Treasury or an agency of the United States Government,
the obligations of which are entitled to or implied to have the full faith and credit
of the United States government and which have an original maturity not in excess of
one year, in any case, in the ordinary course of business consistent with past
practices;
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acquire on behalf of Company Sub or at the Company level (whether by merger,
consolidation, acquisition of securities or assets, or otherwise) any entity or other
business organization or division;
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create any subsidiary other than a subsidiary of CIPAR or of its subsidiaries, in
connection with the restructuring and spin-off;
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terminate, amend or modify, or waive or assign any material rights or claims under,
certain contracts or enter into any agreement or contract that would be required to be
disclosed under the Merger Agreement; provided, that Company may renew an existing
contract in the ordinary course of business on terms permitting Company to terminate
upon no more than 60 days notice without any liability, penalty or premium and
otherwise on substantially equivalent terms;
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sell, transfer, mortgage, encumber, lease or otherwise dispose of any assets or
release or waive any claim, except (i) assets and claims having an aggregate value not
exceeding $100,000 and (ii) sale of inventory in the ordinary course of business and
consistent with past practices; provided, however, that this restriction shall not
apply to the business of the spun-off entity, but only to the extent that, by virtue of
engaging in any of the foregoing conduct, the actions of the spun-off entity would not
in any manner impact the Company or Company Sub;
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take any action which would or could reasonably be expected to:
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adversely affect the ability of Graco, Company or Company Sub to obtain any
necessary approval of any governmental entity required for the transactions
contemplated by the Merger Agreement;
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adversely affect Companys or Company Subs ability to perform its covenants
and agreements under the Merger Agreement; or
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result in any of the conditions to the performance of Gracos, Companys or
Company Subs obligations under the Merger Agreement not being satisfied;
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settle, on behalf of the Company or Company Sub, any claim, action or proceeding
involving any liability for monetary damages in excess of $25,000 or enter into any
settlement agreement containing material obligations;
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incur or modify in any respect the terms of any indebtedness for borrowed money or
assume, guaranty, endorse or otherwise as an accommodation become responsible for the
obligations of any other party, except for short-term borrowings made in the ordinary
course at prevailing market rates and terms consistent with prior practice;
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enter into any hedging, swap or off-balance sheet transaction for its own account,
or enter into any arrangement having the economic effect of any of the foregoing;
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enter into any new line of business;
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engage in any material transaction or incur or sustain any material obligation not
in the ordinary course of business consistent with past practice; or
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agree or make any commitment to take any actions prohibited by the Merger Agreement.
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No Solicitation of Transactions
The Merger Agreement provides that we will not, and will not permit or cause any of our
subsidiaries or any of our officers, directors or representatives or those of our subsidiaries to,
and shall direct our subsidiaries and our subsidiaries representatives not to, directly or
indirectly:
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initiate, or solicit or knowingly facilitate or encourage (including by way of
providing information) the making, submission or announcement of any inquiries,
proposals or offers that constitute or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below) by a third party or engage in any discussions
or negotiations or otherwise knowingly cooperate with or knowingly assist or
participate in, or knowingly facilitate or knowingly encourage any such inquiries,
proposals, discussions or negotiations; or
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approve, endorse or recommend, or publicly propose to approve or recommend, an
Acquisition Proposal or enter into any agreement relating to an Acquisition Proposal or
enter into any agreement requiring the Company to fail to consummate the transactions
contemplated by the Merger Agreement or breach its obligations.
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However, the Merger Agreement also provides that if at any time following the date of the
Merger Agreement and prior to obtaining the required stockholder vote for approval of the Merger:
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the Company has received a written Acquisition Proposal from a third party that the
Board of Directors of the Company believes in good faith to be bona fide;
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such Acquisition Proposal did not occur as a result of a breach of the Merger
Agreement;
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the Board of Directors of the Company determines in good faith, after consultation
with its financial advisors and outside counsel, that such Acquisition Proposal
constitutes or may reasonably be expected to result in a Superior Proposal (as defined
below); and
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after consultation with its outside counsel, the Board of Directors of the Company
determines in good faith that the failure to take such actions or any of the actions
described in the following clauses would be inconsistent with its fiduciary duties to
the stockholders of the Company under applicable law, then the Company may:
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furnish information (including non-public information) with respect to the
Company and Company Sub to the party making such Acquisition Proposal; and
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participate in discussions or negotiations with the party making such
Acquisition Proposal regarding such Acquisition Proposal.
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However, if the Company chooses to furnish information to, and participate in discussions or
negotiations with, a third party in connection with an Acquisition Proposal, the Company:
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must comply with all of the terms and conditions of the confidentiality agreement
entered in connection with the Merger Agreement;
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must give Graco written notice of the existence of the party and of the Companys
intention to furnish information to, or enter into discussions with, the party at least
one business day prior to furnishing any such information or entering into discussions;
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will not, and will not allow its subsidiaries or representatives to disclose any
non-public information to such party without first entering or having entered into an
acceptable confidentiality agreement; and
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must contemporaneously with making available any such information to such party,
provide to Graco any information concerning the Company or Company Sub provided to such
other party which was not previously provided to or made available to Graco.
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The term Acquisition Proposal is defined in the Merger Agreement and means any inquiry,
offer or proposal made by a person or group at any time relating to any direct or indirect
acquisition of (i) more than 25% of the assets of Company Sub, (ii) beneficial ownership of more
than 25% of the outstanding equity securities of the Company or Company Sub, (iii) a tender offer
or exchange offer that, if consummated, would result in any person beneficially owning more than
25% of any class of outstanding equity securities of the Company, or (iv) any merger, consolidation
or other business combination, recapitalization, or similar transaction, including any single or
multi-step transaction or series of related transactions, in each case other than the Graco merger,
and the restructuring and the spin-off of CIPAR under the Separation Agreement.
The term Superior Proposal is defined in the Merger Agreement and means any bona fide
Acquisition Proposal (with all percentage included in the definition of Acquisition Proposal
increased to 60% for purposes of this definition) that:
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is on terms that the Board of Directors of the Company has determined in good faith
(after consultation with the Companys outside counsel and financial advisor) are more
favorable to the Companys stockholders from a financial point of view than the Merger
Agreement and the spin-off of CIPAR, taken as a whole, after giving effect to any
modifications (if any) proposed to be made to the Merger Agreement or any other offer
by Graco after Gracos receipt of notice of the Superior Proposal; and
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the Board of Directors of the Company has determined in good faith (after
consultation with the Companys outside counsel and financial advisor) is reasonably
likely to be consummated (if accepted).
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Access to Information
From the date of the Merger Agreement until the effective time of the Merger, we will (and we
will cause Company Sub to) provide to Graco and its representatives access, during normal business
hours and upon reasonable notice by Graco, to our officers, employees, agents, properties, offices
and other facilities and those of Company Sub and to our and its respective books and records; and
we will furnish promptly to Graco such information concerning our and Company Subs business,
properties, contracts, assets, liabilities, personnel and other aspects as Graco or its
representatives may reasonably request.
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Each party to the Merger Agreement has agreed to (and to cause its affiliates and
representatives to) comply with the confidentiality agreement between us and Graco as if a party to
that agreement and to hold in strict confidence all nonpublic documents and information furnished
or made available by one party to the other(s) and their respective affiliates and representatives.
Special Meeting
Under the Merger Agreement, the Company has agreed:
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to take action necessary in accordance with applicable law and its certificate of
incorporation and bylaws to duly call, give notice of, and convene and hold a meeting
of its stockholders to consider and vote upon the Merger Agreement and related
transactions. Except in the event the Company changes its recommendation to its
stockholders to approve the Merger Agreement, the Board of Directors of the Company
will take all reasonable lawful action to solicit stockholder votes in favor of the
Merger Agreement; and
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to prepare and file with the SEC this proxy statement/information statement in
preliminary form and to respond to any comments received from the SEC on those
documents, and to provide any information requested by Graco for the preparation of any
applications necessary to consummate the transactions contemplated by the Merger
Agreement.
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Employee Matters
Graco has agreed to cause the surviving corporation to assume and perform all of the
obligations of the Company under the terms of certain executive employment agreements and to pay
certain employees within three business days of the effective time of the Merger the change of
control payments due under their executive employment agreements to the extent not paid prior to
the effective time of the Merger. Graco has also agreed, at the option of the applicable employees
to continue the employee benefits payable under applicable employment agreements for the term
specified in the agreements.
Graco and the surviving corporation are entitled to deduct, withhold and transmit to the
proper tax authorities from the consideration otherwise payable to any such employee such amounts
as are required to be withheld under the internal revenue code, or any applicable provision of
state, local or foreign tax law. To the extent that amounts are so withheld and transmitted, such
withheld and transmitted amounts shall be treated as having been paid to the employees in respect
of which such deduction and withholding was made. In the event Section 409A(a)(1)(B) of the
Internal Revenue Code requires a deferral of any payment to an employee who is a key employee as
that term is defined in Section 409A, such payment shall be accumulated and paid in a single lump
sum on the earliest date permitted by Section 409A.
Notwithstanding the surviving corporations assumption of certain executive employment
agreements, the non-competition provisions of such agreements will be void and of no effect and the
applicable executives will be bound solely by the provisions in the restrictive covenant
agreements.
Company and Company Sub will cease to have any rights or obligations as participating
employers, fiduciaries or any other capacity with respect to certain employee plans and benefit
arrangements. All active employees and all employees on an approved leave of absence with a right
of rehire by contract or statute of Company and Company Sub (the Acquired Employees), and their
respective dependants, must terminate participation in each such employee plans or benefit
arrangements as to any benefits that may otherwise accrue after the effective time of the Merger,
but will remain as participants in such employee plans to the extent all such benefits that accrued
prior to the effective time of the Merger have been paid and provided in full.
CIPAR will retain and be solely responsible for:
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certain liabilities related to its employee plans and benefit arrangements;
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coverage and any benefits related thereto for each and any COBRA beneficiaries and
certain other beneficiaries;
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medical, dental and vision plan claims incurred but not paid as of the effective
time of the Merger; and
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any expense related to the full vesting of participant accounts.
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From and after the effective time of the Merger, Company and Company Sub will be solely
responsible for:
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any contributions due from the active employees of Company and Company Sub (who
continue in the employ of the surviving corporation or Company Sub following the
Merger) at the effective time of the Merger out of the payroll period in which the
effective time of the Merger occurs;
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amounts accrued on Companys and Company Subs financial statements for unpaid wages
representing vacation, sick leave or other personal time off; and
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amounts withheld from payroll of active employees of Company and Company Sub at the
effective time of the Merger representing credits under Companys and Company Subs
flexible benefit plan for amounts withheld from employee wages but not paid for
benefits, less amounts paid for benefits under the flexible benefit plans in excess of
amounts withheld from employee wages.
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With respect to Cohesants qualified Employee 401(k) Profit Sharing Plan, the account of each
Acquired Employee will be fully (100%) vested as of the effective time of the Merger. Each
Acquired Employee will be treated as incurring a severance from employment, and may elect
distribution upon severance from employment in accordance with plan provisions. Each Acquired
Employee may, subsequent to severance from employment, elect a direct rollover of any participant
loan outstanding that has not defaulted, provided that the election must be timely made and the
rollover must be timely completed prior to default, and provided further that the rollover is
otherwise in accordance with the terms of the plan and federal law.
Each Acquired Employee will be eligible for and will become a participant in each employee
retirement and welfare benefit plan and benefit arrangement sponsored by Graco to its similarly
situated active employees (the Graco Benefit Plans and Arrangements), subject to the respective
terms and conditions of each such plan or arrangement. Graco will cause each time off benefit and
length of service award to provide each such Acquired Employee and their dependents with credit for
service with Company and Company Sub prior to the effective time of the Merger. Graco is not
required to continue to offer any Parent Benefit Plan and Arrangement after the effective time of
the Merger; however, Graco must maintain a group health plan that allows for immediate
participation by Acquired Employees, subject to certain limitations.
Restructuring and Spin-Off
Prior to the closing of the Merger, the Company will:
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effect a restructuring of its current subsidiaries such that immediately following
such restructuring, the following direct or indirect subsidiaries of the Company will
be direct subsidiaries of the Companys wholly-owned subsidiary, CIPAR: CuraFlo
Services, Inc., a Delaware corporation, CuraFlo Spincast Services, Inc., a Delaware
corporation, CuraFlo Franchising, Inc., a Delaware corporation, and CuraFlo of British
Columbia Ltd., a British Columbia corporation;
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immediately following the restructuring and prior to the closing of the Merger, the
Company will spin off CIPAR, pursuant to a special dividend of CIPAR common stock,
pursuant to the terms of the Separation Agreement. For more information on the
spin-off, see The CIPAR Special Dividend beginning on page [___] below.
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Directors and Officers Indemnification and Insurance
Graco and Merger Sub have agreed that the indemnification provisions contained in the
certificate of incorporation and bylaws of the surviving corporation shall not be amended,
modified, or otherwise repealed for a period of six years from the effective time of the Merger in
any manner that would adversely affect the rights thereunder of any individual who at the effective
time of the Merger is covered by such provisions.
Prior to the effective time of the Merger, we shall obtain and fund an extension of (i) our
and Company Subs existing directors and officers insurance policies, and (ii) our and Company
Subs existing fiduciary liability insurance policies, in each case for a claims reporting or
discovery period of at least six years form and after the effective time of the Merger to cover the
Companys existing officers and directors (each, an Indemnified Party).
The rights of each Indemnified Party are in addition to any rights such individual may have
under the amended and restated certificate of incorporation and bylaws (or other governing
documents) of the Company or any of its subsidiaries,
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under Delaware Law or any other applicable Laws or under any agreement of any Indemnified Party
with the Company or any of its subsidiaries. These rights will survive consummation of the Merger
and are intended to benefit, and will be enforceable by, each Indemnified Party.
Other Covenants and Agreements
The Merger Agreement contains additional agreements among the Company and Company Sub and
Graco and Merger Sub relating to, among other things:
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the timely filing and compliance of the Companys reports, proxy statements,
registrations, statements and other filings with governmental entities through the
effective time of the merger;
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notices of certain events and reports;
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Assumed Transaction Expenses and Debt pay-off letters;
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completion of audited financial statements for the period ended November 30, 2007;
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commercially reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate the transactions contemplated by the Merger
Agreement; and
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press releases and other public announcements.
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Conditions to the Closing of the Merger
The Merger Agreement provides that the respective obligations of Graco, Merger Sub and our
Company to effect the Merger and the other transactions contemplated by the Merger Agreement are
subject to the satisfaction or waiver on or prior to the effective time of the Merger of each of
the following conditions, among others:
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The required vote of the stockholders of the Company will have been obtained;
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No judgment, decree, injunction, investigation, order or proceeding will be
outstanding by any governmental entity which prohibits or restricts the effectuation
of, or threatens to invalidate or set aside, the Merger substantially in the form
contemplated by the Merger Agreement;
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All the covenants, terms and conditions of the Merger Agreement to be complied with
and performed by each party on or before the closing date of the Merger will have been
complied with and performed in all material respects;
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Each of the representations and warranties of each party will have been true and
correct in all respects on and as of the date of the Merger Agreement and (except to
the extent such representations and warranties expressly speak as of an earlier date)
on and as of the closing date of the Merger, subject to certain exceptions;
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Each of the Company, Graco and Merger Sub will have executed and delivered officers
certificate certifying compliance with respect to the accuracy of the representations
and warranties and performance of covenants;
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All actions necessary to authorize the execution, delivery and performance of the
Merger Agreement by the Company and Company Sub and the consummation of the
transactions contemplated will have been duly and validly taken by the Boards of
Directors and stockholders of Company and Company Sub;
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The number of shares of Company stock that constitute Company dissenting shares will
not exceed 10% of the Company stock issued and outstanding as of the closing date of
the Merger;
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Graco will have received executed restrictive covenant agreements from each of
Morris H. Wheeler, Robert W. Pawlak, Morton A. Cohen, and Clarion Capital Corporation;
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As of the closing date, the Company and Company Sub will have made all payments due
and owing to any of CIPAR or its subsidiaries for any obligations whatsoever and CIPAR
and its subsidiaries will have made all payments due and owing to either of the Company
or Company Sub for any obligations whatsoever;
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None of the parties to the Separation Agreement will have amended, supplemented or
otherwise altered the terms of the Separation Agreement; none of the parties to the
Separation Agreement will have waived compliance with any term or condition of the
Separation Agreement; the parties to the Tax Matters Agreement and the Reciprocal
Transition Services Agreement will have entered into such agreements; the parties to
the Tax Matters Agreement and the Reciprocal Transition Services Agreement will not
have amended, supplemented or otherwise altered the terms of the Tax Matters Agreement
or the Reciprocal Transition Services Agreement; none of the parties to the Tax Matters
Agreement or the Reciprocal Transition Services Agreement will have waived compliance
with any term or condition of the Tax Matters Agreement or the Reciprocal Transition
Services Agreement; and the restructuring and spin-off will have occurred in accordance
with the terms and conditions of the Separation Agreement;
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Ernst & Young LLP will have completed the 2007 audited financial statements of the
Company and have delivered a copy of such statements to Graco;
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The Company shall have delivered to Graco assumed transaction expenses and debt
pay-off letters in respect to at least 90% of the aggregate amount of all assumed
transaction expenses and debt; and
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The total merger consideration payable to stockholders and holders of unexercised
options, plus the Assumed Transaction Expenses and Debt, minus the amount paid by
option holders upon exercise of their options between the date of the Merger Agreement
and the closing of the Merger will not exceed $35,000,000.
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Termination
The Merger Agreement provides that it may be terminated and the contemplated transactions
abandoned at any time prior to the effective time of the Merger, whether before or after
stockholder approval of the Merger Agreement upon the occurrence of certain events or by the
parties mutual agreement in writing to terminate.
Either we or Graco may terminate the Merger Agreement:
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upon written notice to the other, if the Companys stockholders do not approve the
merger, provided the right to terminate is not available to the Company where the
failure to obtain stockholder approval will have been caused by the action or failure
to act of the Company and such action or failure to act constitutes a breach by the
Company of the Merger Agreement; or
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if certain closing conditions have not been met by September 3, 2008 (the
Termination Date), provided that the Merger Agreement may not be terminated by a
party if the relevant condition has failed due to the failure of such party to comply
in all material respects with the Merger Agreement;
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In addition, we may terminate the Merger Agreement if:
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Graco or Merger Sub materially breach any representation, warranty, or covenant
contained in the Merger Agreement and such breach is not cured within 30 days following
notice to them of such breach or is not capable of being cured within 30 days following
notice to them of such breach, provided that the Company or Company Sub is not then in
material breach of any of its covenants or agreements in the Merger Agreement;
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certain closing conditions have not been met or waived by the Termination Date,
provided the relevant condition has not failed due to the failure of Company or Company
Sub to comply in all material respects with the Merger Agreement; or
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we give notice to Graco of our intention to enter into a definitive agreement to
effect a Superior Proposal (as defined in the section entitled No Solicitation of
Transactions beginning on page [___]).
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Finally, Graco may terminate the Merger Agreement if:
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the Company, Company Sub, or CIPAR materially breaches any representation, warranty,
or covenant contained in the Merger Agreement and such breach is not cured within 30
days following notice to them of such breach or is not capable of being cured within 30
days following notice to us of such breach, provided that Graco is not then in material
breach of any of its covenants or agreements in the Merger Agreement;
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the Company or Company Sub has materially breached any of its obligations with
respect to Acquisition Proposals, the Companys stockholders meeting or the Companys
proxy statement/information statement under the Merger Agreement, provided that Graco
is not then in material breach of any of its covenants or agreements in the Merger
Agreement;
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certain closing conditions have not been met by the Termination Date, provided the
relevant condition shall not have failed due to the failure of Graco or Merger Sub to
comply in all material respects with the Merger Agreement;
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our Board of Directors shall have for any reason withdrawn or shall have amended or
modified in a manner adverse to Graco or Merger Sub, its unanimous recommendation to
the stockholders to vote in favor of the approval of the Merger Agreement;
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our Board of Directors fails to timely affirm (publicly if so requested) its
recommendation to the stockholders to vote in favor of the approval of the Merger
Agreement within five business days after Graco requests in writing that such
recommendation be affirmed (unless the notice is delivered to the Company less than
five business days prior to the Company stockholder meeting, in which case the company
must reaffirm such recommendation at least one business day prior to the stockholder
meeting);
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our Board of Directors or any committee thereof approves, adopts or recommends any
Superior Proposal or Acquisition Proposal (as such terms are defined in the section
entitled No Solicitation of Transactions beginning on page [___]).
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our Board of Directors enters into any letter of intent, memorandum of understanding
or similar agreement relating to any Superior Proposal or Acquisition Proposal;
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we approve or recommend that our stockholders tender their shares in any tender or
exchange offer or we fail to send to our stockholders, within 10 business days after
the commencement of such tender or exchange offer, a statement that we recommend
rejection of such tender or exchange offer;
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we publicly announce our intention to take any of the actions listed in the previous
five bullet points;
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with our Board of Directors consent, any person or group acquires beneficial
ownership of more than 25% of our outstanding common stock; or
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our Board of Directors fails to comply, or the Company, its subsidiaries or its
representatives fail to comply, with certain of the Companys obligations to duly call,
give notice of, convene and hold the special meeting.
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Effect of Termination and Termination Fee
If the Merger Agreement is validly terminated, it will become void and neither Company nor
Company Sub nor Graco nor Merger Sub will have any further obligation or liability to the other
party except under the terms of the Merger Agreement that survive termination.
We will pay a Termination Fee of $1,330,000 to Graco, by wire transfer of immediately
available funds, at such time as is provided in the Merger Agreement, if:
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Graco terminates the Merger Agreement due to:
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a change of the Companys recommendation to its stockholders to vote in favor
of the Merger Agreement;
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51
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the Companys failure to reaffirm, if properly requested, the Companys
recommendation to its stockholders to vote in favor of the Merger Agreement;
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the Companys recommendation of a Superior Proposal or Acquisition Proposal;
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the Companys execution of any letter of intent, memorandum of understanding,
or similar agreement relating to any Superior Proposal or Acquisition Proposal;
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the Companys approval or recommendation that its
stockholders tender their shares in any tender or exchange offer or the Companys failure to send to its
stockholders, within 10 business days after the commencement of such tender or
exchange offer, a statement that the Company recommends rejection of such tender
or exchange offer;
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the Companys public announcement of an intent to take the foregoing actions;
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the Companys consent to a third party acquiring more than 25% of the
Companys outstanding common stock; or
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the Companys breach of its obligation to duly call, give notice of, convene
and hold the special meeting;
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the Company terminates the Merger Agreement at any time prior to the vote of the
Companys stockholders regarding the Merger Agreement, in accordance with, and subject
to the provisions of the Merger Agreement concerning a Superior Proposal or an
Acquisition Proposal;
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either the Company or Graco terminates the Merger Agreement if the Companys
stockholders do not approve the merger,
and
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at any time after date of the Merger Agreement and prior to the special
meeting, an offer or proposal for an Acquisition Proposal was made directly to
the stockholders or to the Companys Board of Directors, or became publicly
known, or any person (other than Graco and its affiliates) announced an
intention to make an offer or proposal for an Acquisition Proposal, and
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the Company enters into an agreement for, or consummates an Acquisition
Proposal with, any person within 12 months after termination of the Merger
Agreement;
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Graco terminates the Merger Agreement upon the material breach by Company, Company
Sub, or CIPAR of any representation, warranty, or covenant contained in the Merger
Agreement and such breach is not capable of being cured within 30 days following notice
to us of such breach,
and
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at any time after date of the Merger Agreement and prior to such breach, an
offer or proposal for an Acquisition Proposal was made directly to the
stockholders or to the Companys Board of Directors, or became publicly known,
or any person (other than Graco and its affiliates) announced an intention to
make an offer or proposal for an Acquisition Transaction, and
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the Company enters into an agreement for, or consummates an Acquisition
Proposal with, any person within 12 months after termination of the Merger
Agreement;
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Graco terminates the Merger Agreement because certain closing conditions have not
been met by the Termination Date,
and
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at any time after date of the Merger Agreement and prior to the termination,
an offer or proposal for an Acquisition Proposal was made directly to the
stockholders or to the Companys Board of Directors, or became publicly known,
or any person (other than Graco and its affiliates) announced an intention to
make an offer or proposal for an Acquisition Proposal, and
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the Company enters into an agreement for, or consummates an Acquisition
Proposal with, any person within 12 months after termination of the Merger
Agreement;
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52
Expenses
Except as otherwise provided in the Merger Agreement, Graco will pay all Expenses (as defined
below) incurred by Graco or Merger Sub in connection with or related to the authorization,
preparation and execution of the Merger Agreement and all other matters related to the closing of
the transactions contemplated by the Merger Agreement, including, without limitation of the
generality of the foregoing, all fees and expenses of agents, representatives, counsel and
accountants employed by Graco, Merger Sub or their affiliates, including the exchange agent.
CIPAR will pay all Expenses (as defined below) incurred by Company and Company Sub in
connection with or related to the authorization, preparation and execution of the Merger Agreement,
the solicitation of stockholder approvals and all other matters related to the closing of the
transactions contemplated, including, all fees and expenses of agents, representatives, counsel and
accountants employed by Company, Company Sub or their affiliates.
Expenses includes all reasonable out-of-pocket expenses (including all fees and expenses of
attorneys, accountants, investment bankers, experts and consultants to the party and its
affiliates) incurred by the party or on its behalf in connection with the consummation of the
transactions contemplated by the Merger Agreement.
Amendment
The Merger Agreement may be amended by the parties prior to the effective time of the Merger
by action of the boards of directors of Graco, Merger Sub, Company, CIPAR and Company Sub without
action by their respective stockholders.
II. Voting and Support Agreements
In connection with the Merger Agreement, Morton A. Cohen, our Chairman, his affiliate Clarion
Capital Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert W. Pawlak, our
Chief Financial Officer have each entered into a Voting and Support Agreement, dated December 3,
2007, with Graco in their capacities as stockholders of Cohesant. The following summary describes
the material provisions of the Voting and Support Agreement. This summary is qualified in its
entirety by reference to the form of Voting and Support Agreement attached to this proxy
statement/information statement as Appendix D and is incorporated in this proxy
statement/information statement by reference. Provisions of the Voting and Support Agreements are
complicated and are not easily summarized. You are encouraged to read the forms of voting
agreements in their entirety for a more complete understanding.
Pursuant to these Voting and Support Agreements, each stockholder agreed:
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subject to certain limited exceptions, not to cause or permit the transfer of any of
the shares of Cohesant common stock or options to purchase shares of Cohesant common
stock that they beneficially own or enter into any agreements relating to their shares
or options to purchase shares of Cohesant common stock, subject to a two percent
exception for certain gifts to family and charity;
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not to deposit, or permit the deposit of, any of their shares of Cohesant common
stock in a voting trust or grant any proxy or enter into any Voting and Support
Agreement or similar agreement in contravention of their obligations under the voting
agreement;
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at every meeting of the stockholders of Cohesant or every adjournment or
postponement thereof, and on every action or approval by written consent of the
stockholders of Cohesant, to vote their shares as follows:
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in favor of the adoption of the Merger Agreement and each of the other
transactions contemplated therein;
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in favor of the restructuring and spin-off (to the extent to be voted upon by the
Companys stockholders);
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against approval of any proposal made in opposition to, or in competition with,
consummation of the Merger or any other transaction contemplated by the Merger
Agreement; and
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against any action that is intended to, or could reasonably be expected to
materially impede or delay the consummation of the transactions contemplated by the
Merger Agreement or by the Voting and Support Agreement or to deprive Graco of any
material portion of the benefits anticipated by Graco to be received
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53
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from the consummation of the transactions contemplated by the Merger Agreement or the
Voting and Support Agreement, or change in any manner the voting rights of the
Companys stock.
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not to enter into any inconsistent voting agreement or understanding;
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not to solicit proxies or become a participant in a solicitation with respect to a
competing transaction or a frustrating transaction or otherwise encourage or assist any
person in taking or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the Merger in accordance
with the terms of the Merger Agreement;
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not to directly or indirectly solicit, initiate, participate in, knowingly encourage
or otherwise facilitate, directly or indirectly, any inquiries relating to, or the
making of, any offer or proposal for a competing transaction; or engage in any
negotiations concerning, or provide any information or data to, or have any discussions
with, any person relating to any offer or proposal for a competing transaction that may
reasonably be expected to lead to an offer or proposal for a competing transaction; and
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not to exercise their dissenters rights or to demand appraisal of any of their
shares of Cohesant.
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Notwithstanding any provision of the Voting and Support Agreements, nothing therein will limit
or restrict a stockholder who is a director or officer of Cohesant from acting in such capacity or
voting in his or her capacity as a director or officer of Cohesant.
The Voting and Support Agreements terminate on the earlier to occur of (i) such date and time
as the Merger Agreement has been terminated according to its terms, (ii) such date and time as the
Merger shall become effective, or (iii) the mutual agreement of the parties.
III. Restrictive Covenant Agreements
As a closing condition to the Merger Agreement, Morton A. Cohen, our Chairman, Clarion Capital
Corporation, Morris H. Wheeler, our Chief Executive Officer, and Robert W. Pawlak, our Chief
Financial Officer must each enter into a Restrictive Covenant Agreement with Graco, Cohesant, and
GlasCraft in their capacities as stockholders of Cohesant. The following summary describes the
material provisions of the Restrictive Covenant Agreements that will be executed.
Pursuant to the Restrictive Covenant Agreements, each stockholder will agree not to:
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divulge any confidential or proprietary information of Cohesant or GlasCraft, with
the exception of such knowledge or information that is publicly known;
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compete in any manner with the business of GlasCraft for five years following the
date of the Restrictive Covenant Agreement;
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solicit employees of Cohesant or GlasCraft for other employment for five years
following the date of the Restrictive Covenant Agreement;
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solicit customers of Cohesant or GlasCraft for the purposes of engaging in any
competitive business or changing its relationship with Cohesant or GlasCraft;
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disparage Cohesant or GlasCraft; or
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use the name GlasCraft or any other trade name used by GlasCraft or any
confusingly similar name in any business of which the stockholder is associated.
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IV. Reciprocal Transition Services Agreement
In connection with the Merger Agreement and the Separation Agreement, Cohesant and CIPAR have
agreed to enter into a Reciprocal Transition Services Agreement upon consummation of the
transaction contemplated by the Separation Agreement. The Reciprocal Transition Services Agreement
sets forth the terms and conditions under which
54
CIPAR and its subsidiaries (the CIPAR Group) and the Cohesant and its wholly owned subsidiary,
GlasCraft (the Cohesant Group), will provide services to each other during the 12-month period
following the separation.
Among the services that the CIPAR Group will provide to the Cohesant Group are the following:
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information technology services, including computer and telephone applications
support, for a monthly fee of $4,986 subject to adjustment;
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the physical move of information technology equipment to a new data center;
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the migration of various networks such that the CIPAR Group will no longer be within
the network of the Cohesant Group;
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access to Internet and fax services;
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the migration of e-mail databases to a server of the Cohesant Group;
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website links;
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payroll processing services; and
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employee benefits information regarding employees of the Cohesant Group.
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Among the services that the Cohesant Group will provide to the CIPAR Group are the following:
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information technology services for a monthly fee of $1,934 subject to adjustment;
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network access to computer applications, data sources, e-mails, and other
applications;
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the physical move of information technology equipment to a new data center;
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the migration of various networks such that the CIPAR Group will no longer be within
the network of the Cohesant Group;
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accounting support services for a monthly fee of $1,964 subject to adjustment; and
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use of office space for certain employees for a monthly fee of $154 subject to
adjustment;
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The Reciprocal Transition Services Agreement may be terminated by the mutual written consent
of CIPAR and Cohesant or by either party if the other party ceases to function as a going concern
or commences bankruptcy proceedings. If either party no longer desires to receive a specific
service, notice may be provided to the other party and it will no longer be required to provide the
specific service.
MARKET PRICE OF THE COMPANYS STOCK
Our common stock is quoted on NASDAQ under the symbol COHT. The following table sets forth
the high and low closing sales prices per share of our common stock on NASDAQ for the periods
indicated.
Market Information
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High
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Low
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Fiscal Year Ended November 30, 2006
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Quarter ended February 28, 2006
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$
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10.00
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$
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7.04
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Quarter ended May 31, 2006
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$
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12.50
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$
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9.75
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Quarter ended August 31, 2006
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$
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12.03
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$
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9.13
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Quarter ended November 30, 2006
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$
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10.45
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$
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8.14
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Fiscal Year Ended November 30, 2007
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Quarter ended February 28, 2007
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$
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10.50
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$
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8.29
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Quarter ended May 31, 2007
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$
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9.00
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$
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6.74
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High
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Low
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Quarter ended August 31, 2007
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$
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8.49
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$
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6.75
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Quarter ended November 30, 2007
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$
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8.37
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$
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5.97
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Fiscal Year Ended November 30, 2008
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First
Quarter Through [
] 2008
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$
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9.87
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$
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7.50
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Our common stock is quoted on the NASDAQ Capital Market under the symbol COHT. On November
30, 2007, which was the last trading day before we announced the Merger, the Companys common stock
closed at $5.98 per share, compared to which the minimum Per Share Merger Consideration of $9.05
represents a premium of 51.3%. The volume weighted average price for the 30-day period ending
November 30, 2007 was $6.36, compared to which the minimum Per Share Merger Consideration
represents a premium of 42.3%.
On [
], 2008, the last trading day before the date of this proxy
statement/information statement, the closing price for the Companys common stock on NASDAQ was $[
] per share. You are encouraged to obtain current market quotations for the
Companys common stock in connection with voting your shares.
As of November 30, 2007, there were 64 registered holders of the Companys common stock,
although we believe that the number of beneficial owners of our common stock is in excess of 1,000.
DISSENTERS RIGHTS OF APPRAISAL
All of the shares of our common stock outstanding immediately prior to the effective time of
the Merger and that are held by our stockholders who have neither voted in favor of the Merger
Agreement nor consented thereto in writing and who shall have demanded properly in writing
appraisal for such shares of our common stock in accordance with Section 262 of the Delaware
General Corporation Law will not be converted into, or represent the right to receive, the merger
consideration. Strict compliance with the various technical requirements will be required.
Failure to follow precisely any of the statutory requirements may result in the loss of a
stockholders appraisal rights. A copy of Section 262 is attached hereto as Appendix E and is
incorporated herein by reference.
This description is only a brief summary of the material provisions of the Delaware statutory
procedures a stockholder must follow in order to seek and perfect appraisal rights. If you wish to
consider exercising your appraisal rights, you should carefully review the accompanying text of
Section 262, because failure to comply timely and properly with the requirements of Section 262
will result in the loss of your appraisal rights under Delaware law.
Section 262 requires each stockholder electing to demand the appraisal of such stockholders
shares of our common stock to deliver to the Company, before the special meeting, a written demand
for appraisal of such shares. Such demand must reasonably inform us of the identity of the holder
of record of our common stock who intends to demand appraisal of his, her or its shares of common
stock. A proxy or vote against the proposal to adopt and approve the Merger Agreement and the
Merger will not constitute such a demand. A stockholder electing to take such action must do so by
a separate written demand.
If a stockholder fails to properly and timely demand appraisal and the Merger is consummated,
then such stockholder will be entitled to receive payment for such stockholders shares of our
common stock as provided in the Merger Agreement, and such stockholder will have no appraisal
rights with respect to such stockholders shares of our common stock.
All demands for appraisal should be delivered in writing by the Secretary of the Company at
5845 West 82nd Street, Suite 102, Indianapolis, Indiana 46278, before the taking of the vote on the
Merger Agreement and the Merger at the special meeting. To be effective, a demand for appraisal by
a stockholder must be made and executed by and on behalf of, and in the name of, the registered
stockholder, fully and correctly, as the stockholders name appears on the stockholders stock
certificate(s). The demand cannot be made by the beneficial owner if he or she does not also hold
the shares of record. The beneficial owner must, in some cases, have the registered owner submit
the required demand in respect of those shares.
If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of a demand for appraisal should be made in that capacity; and if the shares
are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or for all joint owners. An authorized agent, including an authorized agent
for two or more joint owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the
record owner. A record owner, such as a broker, who holds shares as a nominee
56
of others, may exercise his or her right of appraisal with respect to the shares held for one or
more beneficial owners while not exercising the right for other beneficial owners. In that case,
the written demand should state the number of shares as to which appraisal is sought. Where no
number of shares is expressly mentioned, the demand will be presumed to cover all shares held in
the name of the record owner.
If a stockholder holds shares of our common stock in a brokerage account or in other nominee
form and the stockholder wishes to exercise appraisal rights, the stockholder should consult with
his or her broker or the other nominee to determine the appropriate procedures for the making of a
demand for appraisal by the nominee.
Within 10 days after the effective time of the Merger, the surviving corporation will send a
notice to each stockholder who has demanded appraisal of such holders shares of our common stock
(so long as such holder is entitled to appraisal rights) informing such holder of the effective
time of the Merger. At any time within 60 days after the effective time of the Merger, any
stockholder who has demanded an appraisal has the right to withdraw the demand and to accept the
merger consideration set forth in the Merger Agreement for that stockholders shares of our common
stock. Within 120 days after the effective time of the Merger, either the surviving corporation or
any stockholder who has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the shares held by all
stockholders entitled to appraisal. The Surviving Corporation has no obligation to file such a
petition if there are dissenting stockholders. Accordingly, the failure of a stockholder to file
such a petition within the period specified could nullify the stockholders previous written demand
for appraisal.
If a petition for appraisal is duly filed by a stockholder and a copy of the petition is
delivered to us as the surviving corporation, we will be obligated, within 20 days after receiving
service of a copy of the petition, to provide the Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded an appraisal of their
shares. After notice to stockholders who have demanded appraisal, the Court of Chancery is
empowered to conduct a hearing upon the petition and to determine those stockholders who have
complied with Section 262 and have therefore become entitled to appraisal under Section 262. The
Court of Chancery may require stockholders who have demanded payment for their shares to submit
their stock certificates to the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with that direction, the Court of
Chancery may dismiss the proceedings as to that stockholder.
After determination of the stockholders entitled to appraisal of their shares of our common
stock, the Court of Chancery will appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the fair value. When
that fair value is determined, the Court of Chancery will direct the payment of such value upon
surrender by those stockholders of the certificates representing their shares. The Court of
Chancery may determine to direct the surviving corporation to pay interest on the fair value
accrued while the appraisal proceeding was pending to stockholders who exercised their appraisal
rights.
In determining fair value, the Court of Chancery is required to take into account all relevant
factors. A stockholder should be aware that the fair value of such stockholders shares as
determined under Section 262 could be more or less than, or the same as, the value that the
stockholder is entitled to receive under the Merger Agreement (without appraisal).
Costs of the appraisal proceeding may be imposed on the surviving corporation and the
stockholders participating in the appraisal proceeding by the Court of Chancery as the Court of
Chancery deems equitable in the circumstances. Upon the application of a stockholder, the Court of
Chancery may order all or a portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable attorneys fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to appraisal.
Any stockholder who has demanded appraisal rights will not, after the effective time of the
Merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of
dividends or any other distributions with respect to such shares, other than with respect to
payment as of a record date prior to the effective time of the Merger. If the stockholder delivers
a written withdrawal of that stockholders demand for appraisal within 60 days after the effective
time of the Merger, then the right of that stockholder to appraisal will cease and that stockholder
will be entitled to receive the merger consideration for shares of our common stock pursuant to the
Merger Agreement (without interest), subject to the terms and conditions of the Merger Agreement.
Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the
Merger may only be made with the written approval of the surviving corporation and must, to be
effective, be made within 120 days after the effective time of the Merger.
57
In view of the complexity of Section 262, stockholders who may wish to pursue appraisal rights
should consult their legal advisors.
STOCKHOLDER PROPOSALS
We intend to hold an annual meeting in 2008 only if the Merger is not completed. Any
stockholder proposal to be considered by us for inclusion in the proxy statement/information
statement and form of proxy for the 2008 Annual Meeting of Stockholders, if such meeting is held,
must have been received by our Secretary at our corporate headquarters, 5845 West 82nd Street,
Suite 102, Indianapolis, Indiana 46278, no later than February 4, 2008.
OTHER BUSINESS
We do not expect other business to be transacted at the special meeting.
58
PART II INFORMATION STATEMENT REGARDING THE SPIN-OFF
THE CIPAR SPECIAL DIVIDEND
Overview
Immediately prior to the closing of the Merger, we will spin off our CIPAR subsidiary to our
stockholders by means of a special taxable dividend of one share of CIPAR common stock for each
share of Cohesant common stock. The CIPAR special dividend will only be paid immediately prior to
the closing of the Merger to stockholders of record as of date immediately preceding the effective
date of the Merger. If the Merger is not consummated for any reason, the CIPAR special dividend
will not be paid and CIPAR will continue to be a wholly-owned subsidiary of Cohesant.
Background to, and Reasons for, the Spin-Off
As discussed earlier in this proxy statement/information statement, during the early
discussions between Graco and Cohesant, Graco made it clear, despite repeated attempts by Cohesant
to convince it otherwise, that Graco was not interested in acquiring the business of CIPAR and
would not provide any additional value to the Cohesant stockholders if CIPAR remained as part of
Cohesant at the time of the Merger. Accordingly, the Board of Directors began an examination of
the options available to the Company that would permit the Company to (1) engage in a merger
transaction with Graco and (2) achieve a result beneficial to the Companys stockholders relating
to the business of CIPAR. The Company and its advisors explored the viability of a tax-free
spin-off of CIPAR from Cohesant, but it was subsequently determined that the combination of the
spin-off occurring at the same time as the Merger would make a tax-free spin-off impossible. The
Board of Directors also considered exploring a sale of CIPAR, but believed that such option:
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could delay any possible transaction with Graco, as the Company searched for
potential purchasers;
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would complicate a sale to Graco, since such a sale of CIPAR would have to occur
immediately after the sale to Graco in order to achieve the maximum tax efficiencies to
the Cohesant stockholders; and
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may not result in a fair valuation for CIPAR, since the Board believed that, given
the current business operations of CIPAR, including the restructuring and refocus of
its operations, the long-term value of CIPAR to its stockholders would exceed the value
of the Company in the short-term.
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While certain members of management of CIPAR discussed the potential of a management buy-out
occurring simultaneously with the Merger, the Board determined that, in the exercise of its
fiduciary duties, a sale to management could only occur if the Company explored a sale to other
bidders. Such an exploration could delay the sale to Graco, as noted above, as well as deprive the
existing stockholders of Cohesant with the potential long-term value of CIPAR.
As a result of its analysis, including obtaining the advice and opinion of its legal,
accounting, and other advisors, the Board determined that a taxable special dividend of CIPAR
common stock was in the best interest of the Cohesant stockholders. Based on a valuation performed
by an independent investment banker, the fair market value of the CIPAR spin-off, for federal
income tax purposes, is $6,632,000. Thus, the fair market value of each share of CIPAR common
stock issuable in the taxable spin-off will depend on the number of shares of CIPAR common stock
that are spun off on the distribution date, which in turn depends on the number of shares of our
common stock outstanding on the distribution date. As of the date of this proxy
statement/information statement, there are 3,359,257 shares of our common stock outstanding and
exercisable options to purchase 336,200 shares of our common stock. Neither the Company nor
Western Reserve expresses an opinion as to the price at which the common stock of the spun-off
business will trade at any future time. The prices at which the CIPAR shares may trade will depend
upon various factors, including the liquidity of the market for such shares, the willingness of
securities firms to make a market in such shares and other factors, and such trading prices may
bear no relationship to the fair market value of the CIPAR spin-off as determined by Western
Reserve.
The value of the CIPAR shares will be determined by the public market following the spin-off.
Prices at which trading of CIPAR shares may occur may fluctuate significantly. These prices may be
influenced by many factors, including the small size of CIPAR, the small size of the public float
of CIPAR, and quarter-to-quarter variations in CIPAR actual or anticipated financial results.
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Description of the Spin-Off
The Separation Agreement between Cohesant Technologies and CIPAR provides the general terms
and conditions relating to the spin-off. See Relationship Between Cohesant and CIPAR
Separation Agreement beginning on page [
].
We will effect the spin-off immediately prior to the effective time of the Merger, by
providing for the distribution of the shares of CIPAR common stock to Continental Stock Transfer
and Trust Company, CIPARs transfer agent. Continental Stock Transfer and Trust Company will then
distribute these shares to each holder of record of our common stock. The shares of CIPAR common
stock will be validly granted, fully paid and non-assessable, and the holders of these shares will
not be entitled to preemptive rights. See Description of Capital Stock of CIPAR beginning on
page [
].
In the spin-off, we will distribute 100% of the outstanding shares of CIPAR common stock to
our stockholders. Each eligible recipient of CIPAR shares will receive one share of CIPAR common
stock for every share of Cohesant common stock that the recipient holds at the close of business on
the record date for the spin-off. The actual total number of shares of CIPAR common stock to be
distributed will depend on the number of shares of our common stock that are outstanding on the
record date, which in turn depends on the number of options to purchase our common stock that are
exercised in anticipation of the CIPAR dividend. As of the date of this proxy
statement/information statement, there are [3,359,257] shares of our common stock outstanding and
exercisable options to purchase [336,200] shares of our common stock. Based on these totals, we
estimate that we will distribute between [3,359,082] and [3,695,509] shares of CIPAR common stock
to our stockholders, depending on the number of our options that are exercised prior the
distribution. Outside of shares issued upon the exercise of these outstanding options, we do not
anticipate issuing any new shares of Cohesant common stock prior to the spin-off. Assuming that
CIPAR will have the same number of stockholders of record as Cohesant, we estimate that there will
be approximately 65 stockholders of record who will hold shares of CIPAR common stock, although
some of the shares may be registered in the name of a single stockholder who represents a number of
stockholders.
As part of the spin-off, CIPAR will be adopting a book-entry share transfer and registration
system for its common stock. For registered holders of our common stock, instead of sending
physical share certificates, Continental Stock and Transfer and Trust Company will credit the
shares of CIPAR common stock distributed on the date of the spin-off to book-entry accounts
established for all registered holders of CIPAR common stock. Continental Stock and Transfer and
Trust Company will then mail an account statement to each of those registered holders stating the
maximum number of whole shares of CIPAR common stock to which that holder is entitled in connection
with the spin-off.
For those holders of our common stock who hold their shares through a broker, bank or other
nominee, Continental Stock and Transfer and Trust Company will transfer the shares of CIPAR common
stock to the registered holders of record who will make arrangements to credit their customers
accounts with CIPAR common stock. CIPAR and Cohesant anticipate that brokers, banks and other
nominees will generally credit their customers accounts with CIPAR common stock on or about the
same time as such customers accounts are credited with their respective portion of the merger
consideration.
Opinion of our Financial Advisor
For a complete discussion of Western Reserves opinion see The Merger Opinion of our
Financial Advisor beginning on page [
].
Material United States Federal Income Tax Consequences
For a complete discussion of the material United Stated federal income tax consequences of the
special dividend see The Merger Material United States Federal Income Tax Consequences
beginning on page [
].
No Stockholder Approval Required
No vote of Cohesant stockholders is required or being sought with respect to the spin-off;
however, the spin-off is conditioned on the closing of the Merger, and we must obtain the approval
of our stockholders to approve the Merger.
No Appraisal Rights
Cohesant stockholders do not have dissenters rights under Delaware law in connection with the
spin-off.
RELATIONSHIP BETWEEN COHESANT AND CIPAR
The following agreements control the relationship between us and CIPAR before and after the
spin-off.
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I. Separation Agreement
The following is a summary of the material provisions of the Separation Agreement. The rights
and obligations of the Company and CIPAR are governed by the express terms and conditions of the
Separation Agreement and not by this summary or any other information included in this proxy
statement/information statement.
Overview of the Separation
Prior to the Merger of the Company with and into Graco Indiana Inc., pursuant to the terms of
the Merger Agreement, the Company will undergo an internal restructuring to separate and
consolidate the GlasCraft business under GlasCraft and the CIPAR Business under CIPAR, pursuant to
the terms of the Separation Agreement. Specifically, we will effect a restructuring of our current
subsidiaries such that immediately following such restructuring, the following direct or indirect
subsidiaries of the Company will be direct subsidiaries of the Companys wholly-owned subsidiary,
CIPAR: CuraFlo Services, Inc., a Delaware corporation, CuraFlo Spincast Services, Inc., a Delaware
corporation, CuraFlo Franchising, Inc., a Delaware corporation, and CuraFlo of British Columbia
Ltd., a British Columbia corporation. After the internal restructuring, the Company will
spin-off CIPAR by distributing pro rata to the Companys stockholders all of the issued and
outstanding shares of CIPARs common stock. Following the spin-off and at the effective time of
the Merger, GlasCraft will be Cohesants sole subsidiary. See The CIPAR DividendOverview on
page [
] and The CIPAR DividendDescription of the Spin-Off beginning on page [
] above.
Timing of the Transactions Contemplated by the Separation
The internal restructuring will occur before the spin-off, which will occur immediately before
the closing of the Merger on the distribution date. See Agreements Related to the Merger The
Merger Agreement Effective Time on page [
].
The Separation
Transfer of Assets
Under the terms of the Separation Agreement, on or before the closing date of the Merger, but
before the spin-off and before the filing of the certificate of merger, with certain exceptions,
the Company and its subsidiaries (the Cohesant Group) will convey, assign, transfer and deliver
to CIPAR and its subsidiaries (the CIPAR Group) all of Cohesant Groups right, title and interest
in the assets of the CIPAR business, including with certain exceptions:
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assets reflected on the CIPAR balance sheet, as of August 31, 2007, unless disposed
of to third parties after the date thereof in the ordinary course of business (and, in
the case of any such assets disposed of after the date hereof, the proceeds from such
disposal);
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any assets acquired after the date of the CIPAR balance sheet;
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any CIPAR contracts any benefits thereunder;
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any capital stock or other ownership interest in all of the subsidiaries of
Cohesant, except for GlasCraft;
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any real property primarily used in CIPARs business;
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any licenses or governmental approvals held in the name of Cohesant or any of its
subsidiaries (to the extent they would be required to be transferred pursuant to the
Separation Agreement);
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any rights and liabilities under any benefit plan and any funding arrangement in
connection therewith; and
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any cash, other than cash comprising the Option Shares Exercise Cash Amount (as
defined in the Merger Agreement) that Cohesant is entitled to retain in accordance with
the terms of the Merger Agreement.
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The Separation Agreement also identifies specific assets that will not be transferred by
Cohesant to CIPAR as part of the separation, including:
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assets listed on certain schedules to the Separation Agreement, consisting, in
principle, of the assets of GlasCraft and certain assets of Cohesant;
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any cash comprising the Option Shares Exercise Cash Amount that Cohesant is entitled
to retain in accordance with the terms of the Merger Agreement; and
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all assets, other than certain scheduled assets, that are located at GlasCrafts
Indianapolis, Indiana facility.
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Assumption of Liabilities
At the same time as the transfer of assets to CIPAR, with certain exceptions, CIPAR will
assume certain liabilities of the CIPAR business described below and certain other liabilities
described in the schedules to the Separation Agreement. The CIPAR business liabilities that CIPAR
will assume include, without limitation:
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liabilities reflected on the CIPAR balance sheet, as of August 31, 2007, subject to
discharge of such liabilities subsequent to the date of the CIPAR balance sheet;
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liabilities that are expressly set forth in the Separation Agreement or any other
transaction agreement as liabilities to be assumed or retained by the CIPAR Group,
subject to discharge of such liabilities subsequent to the date of the CIPAR balance
sheet, and all agreements, obligations and liabilities of the CIPAR Group under the
Separation Agreement or any other transaction agreement;
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liabilities relating to, arising out of, or resulting from any CIPAR contract;
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liabilities incurred after the date of the CIPAR balance sheet by the CIPAR Group;
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liabilities relating to, arising our of, or resulting from any actions (excluding
any actions related to taxes) related to, arising out of or resulting from the CIPAR
business;
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liabilities relating to, arising out of or resulting from:
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the operation of the CIPAR business, as conducted at any time prior to, on or
after the distribution date;
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the operation of any business conducted by CIPAR Group entity at any time after
the distribution date;
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assets of the CIPAR business; and
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the restructuring and distribution of CIPAR and CIPAR shares;
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liabilities relating to, arising out of or arising from any benefit plan or contract
with any CIPAR business employee;
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liabilities relating to arising out of or resulting from the operation of any of the
Companys former or current subsidiaries (other than GlasCraft) on or prior to the
distribution date; and
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liabilities relating to the indemnification claims by officers, directors or
employees of Cohesant or its subsidiaries (other than claims by officers, director or
employees of GlasCraft, except as set forth in schedules to the Separation Agreement)
under any contract, bylaw or other governing document or statutory provision.
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Delayed Transfer Assets and Liabilities; Subsequent Transfers
Cohesant will not be obligated to transfer any assets, and CIPAR will not be obligated to
assume any liabilities, that at the time of the separation are not capable of being transferred or
assumed because a consent or government approval has not been obtained or some other legal
impediment to the transfer or assumption has not been removed. Cohesant will hold any asset or
liability, the transfer of which is delayed for these reasons, for the use and benefit, insofar as
reasonably practicable, of CIPAR, at the expense of CIPAR. The transfer of each of these assets or
assumption of each of these
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liabilities will occur promptly after the respective consent or government approval causing the
delay is obtained or the legal impediment is removed.
If at any time after the spin-off, either Cohesant or CIPAR becomes aware that it possesses an
asset or liability that is allocated to the other party pursuant to the separation agreement or any
other transfer document, such party will transfer the asset or liability to the party who was
supposed to receive such asset or assume such liability.
Termination of Intercompany Agreements
Before the spin-off, Cohesant and CIPAR will terminate all contracts between the Cohesant
Group, on the one hand, and the CIPAR Group, on the other hand (except as contemplated by the other
agreements executed in connection with the Merger Agreement and Separation Agreement). All loans
between the Cohesant Group, on the one hand, and the CIPAR Group, on the other hand, likewise will
be paid in full and settled before the spin-off.
Novation and Liabilities
Cohesant and CIPAR agreed to use their reasonable efforts to obtain any release, consent,
substitution, approval or amendment required to novate the other party from all obligations or
liabilities under any contracts, licenses or other agreements that such party retains or assumes in
connection with the separation.
The Spin-Off
After the separation, and immediately prior to the Merger, Cohesant will spin off CIPAR by
distributing all of the outstanding shares of CIPAR pro rata to all Cohesant stockholders as of the
record date, which is expected to be the date immediately preceding the Merger closing date.
Distribution Ratio
As a result of the spin-off, Cohesant stockholders will receive one share of CIPAR common
stock for each share of Cohesant common stock that they own. No fractional shares of CIPAR common
stock shall be issued.
Distribution Process
Prior to the distribution date, we will deliver to Continental Stock and Transfer and Trust
Company, CIPARs transfer agent, who will act as distribution agent, for the benefit of holders of
record of Cohesant common stock on the record date, book entry transfer authorizations for such
number of shares of CIPAR common stock equal to the number of shares to be distributed to Cohesant
stockholders on the distribution date. As part of the spin-off, CIPAR will be adopting a
book-entry share transfer and registration system for its common stock. See The CIPAR
DividendDescription of the Spin-Off beginning on page [
] above.
Conditions to the Spin-Off
The Separation Agreement provides that the following conditions must be satisfied or waived
before or as of the date of the spin-off for the spin-off to occur:
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the SEC must have declared effective the Form 10-SB filed with it under the
Securities Exchange Act of 1934;
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Cohesants Board of Directors must have approved the spin-off and must not have
abandoned, deferred or modified the spin-off at any time before the spin-off occurs;
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each of the Tax Matters Agreement and the Reciprocal Transition Services Agreement
must have been duly executed and delivered by the parties thereto;
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all of the closing conditions of the Merger Agreement shall have been met or waived
and the transactions contemplated by the Merger Agreement are set to close immediately
following the distribution of the CIPAR common stock;
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Cohesant shall have established the record date and shall have given FINRA not less
than 10 days advance notice of the record date in compliance with the Securities and
Exchange Act of 1934;
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all consents or governmental approvals required in connection with the transactions
shall have been received and be in full force and effect;
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the restructuring shall have been consummated in accordance with the terms of the
Separation Agreement;
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the inter-company indebtedness shall have been paid in full and allocations in
respect of liability novation contemplated shall have occurred; and
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each of the Separation Agreement, the Tax Matters Agreement and the Reciprocal
Transition Services Agreement shall be in full force an effect and the parties thereto
shall have performed or complied with all of their respective covenants, obligations
and agreements contained therein and as required to be performed or complied with prior
to the effective time of the spin-off.
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Additional Covenants
Each of Cohesant and CIPAR have undertaken certain covenants in the Separation Agreement
restricting the conduct of their respective businesses and committing them to take certain actions.
Some of these covenants are not easily summarized. You are urged to read carefully the section of
the Separation Agreement entitled Covenants. The more significant of these covenants include,
but are not limited to, covenants regarding:
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confidentiality with respect to and access by each party to certain information in
the possession or control of the other party;
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record retention;
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production of witnesses;
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employee matters and employee benefits plans;
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non-competition and non-solicitation agreements by the CIPAR Group for a period of
five years following the distribution date; and
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intellectual property.
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Cross Indemnification
CIPAR and Cohesant have agreed to release one another against specified liabilities. The
Cohesant Group and the CIPAR Group have agreed to release and forever discharge one another from
any and all liabilities owing to the other, whether at law or in equity (including any right of
contribution), whether arising under any contract, by operation of law or otherwise, existing or
arising from any acts or events occurring or failing to occur or alleged to have occurred or to
have failed to occur or any conditions existing or alleged to have existed on or before the date
that CIPAR stock is distributed, whether or not known as of such date, including in connection with
the transactions and all other activities to implement the distribution.
However, neither the Cohesant Group nor the CIPAR Group releases the other from, among other
things, the following:
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any liability provided in or resulting from any contract between any party of the
Cohesant Group, on the one hand, and any party of the CIPAR Group, on the other hand,
that does not terminate as of the date CIPAR stock is distributed; and
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any liability, contingent or otherwise, assumed, transferred, assigned or allocated
to the CIPAR Group or the Cohesant Group, as the case may be, in accordance with, or
any other liability of the CIPAR Group or of the Cohesant Group under the Separation
Agreement or any other agreement contemplated in connection with the distribution of
CIPAR stock.
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The Cohesant Group and the CIPAR Group agree not to make any claim or demand, or commence any
action asserting any claim or demand, including any claim of contribution or any indemnification,
against the other with respect to any liabilities released pursuant to the Separation Agreement.
CIPAR and Cohesant have also agreed to indemnify one another against specified liabilities.
The CIPAR Group and the Cohesant Group agree to indemnify, defend (or, where applicable, pay the
defense costs for) and hold harmless the other party and its directors, officers, and affiliates
(collectively, the Cohesant Indemnitees and the CIPAR Indemnities, respectively) from, against
and in respect of losses, claims, liabilities, damages, costs and expenses relating to (a) certain
liabilities associated with each parties businesses and (b) certain liabilities (including certain
third-party claims) imposed on, sustained, incurred or suffered by any of Cohesant Indemnitees or
CIPAR Indemnitees that relate to, arise out of or result from the business or business assets of
the CIPAR Group or the Cohesant Group or the failure of either party to pay, perform or otherwise
promptly discharge certain liabilities in accordance with their terms, whether occurring, arising,
existing or asserted before, on or after the date CIPAR stock is distributed.
In addition, CIPAR and Cohesant have generally agreed to indemnify each other and the others
affiliates and controlling persons from specified liabilities under the securities laws relating to
the Form 10-SB and this proxy statement/information statement or to contribute under specified
circumstances to the amount paid or payable by the other in respect of the liabilities.
The Separation Agreement also includes procedures for notice and payment of indemnification
claims and generally provides that the indemnifying party may assume the defense of a claim or suit
brought by a third party. Any indemnification amount paid under the indemnities will be paid net
of the amount of any insurance or other amounts that would be payable by any third party to the
indemnified party in the absence of the indemnity and net of any tax benefit to the indemnified
party that is attributable to the relevant payment or liability. The indemnification amount will
be increased so that the indemnified party receives 100% of the after-tax amount of any payment or
liability and decreased so that the indemnified party does not receive a tax benefit from paying or
incurring any loss.
Insurance
Following the separation, CIPAR will be responsible for obtaining and maintaining its own
insurance coverage and will no longer be an insured party under Cohesant insurance policies.
CIPAR, however, will have the right to assert claims for any liability arising out of certain
insured incidents to the extent they relate to the CIPAR Business and occurred from the date of
coverage until the completion of the separation. CIPAR also will have the right to acquire all
rights, privileges and proceeds of such insurance policies related to the claims described in the
previous sentence.
Transaction Expenses
Except as expressly set forth in the Separation Agreement, all costs and expenses incurred in
connection with the distribution of CIPAR stock shall be paid by the party incurring such cost and
expenses.
Termination
The Separation Agreement may be terminated by Cohesant and the separation of CIPAR from
Cohesant may be abandoned prior to the date CIPAR stock is distributed at any time following
termination of the Merger Agreement in accordance with its terms. In the event of any termination
of the Separation Agreement prior to the date CIPAR stock is to be distributed, neither the
Cohesant Group nor the CIPAR Group shall have any liability or further obligation to any other
party or third party with respect to the separation agreement.
II. Tax Matters Agreement
The following is a summary of the material provisions of the Tax Matters Agreement.
Overview
After the spin-off, CIPAR will no longer be included in Cohesants consolidated group for
United States federal income tax purposes. CIPAR and Cohesant will enter into a Tax Matters
Agreement to reflect CIPARs separation from us with respect to tax matters. The primary purpose
of the Tax Matters Agreement is to reflect each partys rights and
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obligations relating to payments and refunds of taxes that are attributable to periods beginning
before and including the date of the spin-off and any taxes resulting from transactions effected in
connection with the spin-off.
Preparation and Filing of Tax Returns
We are responsible for the preparation and filing of all consolidated returns and combined
returns for any taxable period not filed before the spin-off for Cohesant, CIPAR or any affiliate.
After the spin-off, CIPAR is responsible for the preparation and filing of all tax returns (other
than consolidated returns and combined returns) with respect to CIPAR or any affiliate of CIPAR.
During the period before the spin-off, we will continue to be the sole and exclusive agent and
attorney-in-fact for CIPAR in all matters relating to the returns that we are responsible for
filing before the spin-off. All returns will be filed and prepared consistent with past practices,
and we and CIPAR agree to exchange drafts of returns and cooperate in the drafting and filing of
such returns.
Liability for Taxes
With respect to the period before the spin-off, we will allocate any taxes imposed on a
consolidated or a combined return as appropriate to Cohesant and GlasCraft as separate from any
portion that should be allocated to CIPAR. Certain taxes for which GlasCraft has primary liability
to the relevant taxing authority will be borne by Cohesant. All other taxes other than those
imposed on a consolidated return or a combined return will be allocable solely to CIPAR. We will
provide CIPAR with a written calculation of such liabilities.
After the spin-off, Cohesant and its affiliates and CIPAR and its affiliates will be liable
for their respective taxes, except as otherwise provided in the Tax Matters Agreement. If one
party is liable for taxes on a return which another party is responsible for preparing, the liable
party will pay the taxes to the preparing party.
Distribution Taxes
CIPAR is solely liable for, and will indemnify Cohesant from, any and all Distribution Taxes,
which is defined in the Tax Matters Agreement to include certain taxes attributable to the
transactions contemplated by the Separation Agreement. Tax items incurred by CIPAR after the
spin-off that have been recognized for tax purposes but not yet realized during the taxable period,
such as a net operating loss or foreign tax credit (each an example of a Tax Asset), may not be
carried back to a pre-spin-off period. In addition, we and CIPAR agree:
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not to take any action reasonably expected to result in an increased tax liability
to the other party, a reduction in certain tax benefits of the other party, or an
increased liability to the other under the Tax Matters Agreement;
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to take any action reasonably requested by the other party that would reasonably be
expected to result in a tax benefit or avoid a tax detriment, assuming no additional
cost or adverse effect;
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to cooperate fully in the execution of any necessary or reasonably helpful documents
in connection with the transactions contemplated by the Tax Matters Agreement; and
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to cooperate fully in determining the allocation of any Tax Assets in accordance
with applicable tax laws, except that where there is no controlling legal authority,
tax assets will be allocated to the legal entity by which they were created.
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Indemnification
We and CIPAR each agree to indemnify the other and their directors, officers, and employees
against all taxes for which the other is liable under the Tax Matters Agreement and any loss
attributable to the failure of the other or its directors, officers, or employees to make any
required payment or provide complete and accurate information in connection with the preparation of
any tax return.
If we or CIPAR are aware of a tax issue that is reasonably expected to give rise to an
indemnification obligation, we or CIPAR as appropriate must notify the other party. If a failure
to notify results in a material economic detriment to the other party, the non-notifying party will
be responsible for the amount of such detriment.
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Payments
After determining the net obligations of Cohesant and CIPAR for all pre-spin-off periods, the
appropriate party will pay any amounts owing for such obligations to the other party prior to the
spin-off. Within 30 days of filing a consolidated or combined tax return, the appropriate party
will pay any amounts still owing to the other party. Should any refund or credit result from taxes
paid, we and CIPAR will determine any appropriate settlement or compromise with any taxing
authority. If one party receives a refund or credit to which the other is entitle, the party
receiving the refund or credit will pay the appropriate amount to the other party. All payments
owed under the Tax Matters Agreement must be paid according to the instructions included in the Tax
Matters Agreement. Payments not made within the prescribed period will bear interest at a annual
rate equal to the prime rate plus two percent or the maximum legal rate, whichever is lower.
Tax Proceedings
Except as otherwise provided in the Tax Matters Agreement, the party responsible for preparing
and filing a tax return has the exclusive right to represent itself in any tax proceeding,
including an audit, and will pay any costs incurred. The non-filing party may request to be
reasonably informed on the status of the tax proceeding. No party will settle any contested tax
item in excess of $25,000 where the non-filing party has the entire economic liability under the
Tax Matters Agreement without the prior written consent of the non-filing party, which will not be
unreasonably withheld.
Retention of Records
We and CIPAR each agree to retain certain tax records of the other for seven years following
the spin-off or until the expiration of any applicable statute of limitations, whichever is longer.
Notice of any destruction of documents thereafter must be given to the other party 60 days in
advance. The parties agree to cooperate fully with all reasonable requests for materials in
connection with the preparation and filing of tax returns.
Disputes
If we and CIPAR cannot agree on any calculation of liability or interpretation under the Tax
Matters Agreement, we and CIPAR will retain a big four accounting firm to resolve the dispute.
The decision of the independent firm is binding, except where the disagreement relates to an amount
at issue greater than $250,000.
Termination
The Tax Matters Agreement may be terminated and abandoned at any time before the spin-off at
the sole discretion of Cohesant without the approval CIPAR or our stockholders. In the event of
such termination, no party will have any liability to any other party. After the spin-off, the Tax
Matters Agreement may not be terminated except by the written agreement of us and CIPAR.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 3, 2007, we announced that we had entered into definitive documentation pursuant
to which Graco would acquire GlasCraft. This disposition will be accomplished through a merger of
Cohesant with Merger Sub, and a spin off of CIPAR effective by declaring a taxable dividend of one
share of CIPAR for each share of Cohesant common stock. Also as part of the disposition and
pursuant to the Separation Agreement entered into as part of the acquisition, and simultaneously
with the spin off, certain Corporate personnel, assets and
liabilities and other assets and liabilities of the Companys non-GlasCraft
businesses will be transferred from the Company to the spin-off entity.
The unaudited pro forma condensed combined financial information presented below has been
derived from Cohesants audited statement of operations for the year ended November 30, 2006 and
the unaudited balance sheet and statement of operations as of and for the nine months ended August
31, 2007. The unaudited pro forma condensed combined balance sheet as of August 31, 2007,
assumes the disposition occurred on August 31, 2007, and the unaudited pro forma condensed combined
statements of operations for the year ended November 30, 2006 and the nine months ended
August 31, 2007, assumes the disposition occurred at December 1, 2005. This pro forma financial
information is presented for informational purposes only and does not necessarily reflect what our
financial position and results of operations would have been if CIPAR had operated as a separate
stand-alone entity during the period shown.
The pro forma adjustments give effect to the following transactions:
|
|
|
Corporate expenses including personnel that will become CIPAR employees and costs
related to being a public company, which are currently part of Cohesant. The costs
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine
|
|
|
For the
|
|
|
|
months ended
|
|
|
twelve months ended
|
|
|
|
August 31, 2007
|
|
|
November 30, 2006
|
|
Personnel
|
|
$
|
859,548
|
|
|
$
|
710,687
|
|
Accounting, legal and
other professional fees
and expenses associated
with being a public
reporting company
|
|
|
394,017
|
|
|
|
455,655
|
|
Office
|
|
|
131,814
|
|
|
|
123,863
|
|
Other
|
|
|
118,312
|
|
|
|
127,621
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,503,691
|
|
|
$
|
1,417,826
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effects of the pro forma adjustments at the applicable statutory
income tax rates.
|
The disposition consists of GlasCraft and Corporate and excludes certain
Corporate assets that are transferred to CIPAR per the separation agreement. These assets are as
follows:
|
|
|
|
|
|
|
As of August 31, 2007
|
|
Cash
|
|
$
|
266,261
|
|
Pre-paids and other
|
|
|
32,322
|
|
Computer other property and equipment, net
|
|
|
1,066,049
|
|
|
|
|
|
Total
|
|
$
|
1,364,632
|
|
|
|
|
|
The unaudited pro forma combined financial information should be read in conjunction with the
financial statements and related notes.
The acquisition by Graco, which is expected to be completed in the first quarter of 2008, is
conditioned upon customary closing conditions for a transaction of this nature, including the
approval of Cohesants shareholders. If the Merger is not consummated for any reason, the spin-off
will not occur.
68
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AS OF AUGUST 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Disposition
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Cohesant
|
|
|
(1)
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
465,658
|
|
|
$
|
|
|
|
|
|
|
|
$
|
465,658
|
|
Trade and note receivable, net
|
|
|
6,325,530
|
|
|
|
3,339,763
|
|
|
|
|
|
|
|
2,985,767
|
|
Inventories
|
|
|
4,331,225
|
|
|
|
3,351,884
|
|
|
|
|
|
|
|
979,341
|
|
Prepaid expenses and other
|
|
|
476,273
|
|
|
|
265,821
|
|
|
|
|
|
|
|
210,452
|
|
Deferred tax assets
|
|
|
397,748
|
|
|
|
298,311
|
|
|
|
|
|
|
|
99,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
11,996,434
|
|
|
|
7,255,779
|
|
|
|
|
|
|
|
4,740,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,821,832
|
|
|
|
698,440
|
|
|
|
|
|
|
|
2,123,392
|
|
Goodwill and other intangibles
|
|
|
9,833,520
|
|
|
|
147,331
|
|
|
|
|
|
|
|
9,686,189
|
|
Other noncurrent assets
|
|
|
7,965
|
|
|
|
571
|
|
|
|
|
|
|
|
7,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
24,659,751
|
|
|
$
|
8,102,121
|
|
|
|
|
|
|
$
|
16,557,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,498,225
|
|
|
$
|
1,667,580
|
|
|
|
|
|
|
$
|
830,645
|
|
Revolving credit facility
|
|
|
867,276
|
|
|
|
867,276
|
|
|
|
|
|
|
|
|
|
Current portion of long-term note payable
|
|
|
127,410
|
|
|
|
|
|
|
|
|
|
|
|
127,410
|
|
Accrued liabilities
|
|
|
1,061,370
|
|
|
|
569,824
|
|
|
|
|
|
|
|
491,546
|
|
Other current liabilities
|
|
|
670,176
|
|
|
|
251,757
|
|
|
|
|
|
|
|
418,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
5,224,457
|
|
|
|
3,356,437
|
|
|
|
|
|
|
|
1,868,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term note payable, net of current portion
|
|
|
168,729
|
|
|
|
|
|
|
|
|
|
|
|
168,729
|
|
Deferred tax liabilities
|
|
|
735,556
|
|
|
|
147,111
|
|
|
|
|
|
|
|
588,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
6,128,742
|
|
|
|
3,503,548
|
|
|
|
|
|
|
|
2,625,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
18,531,009
|
|
|
|
4,598,573
|
|
|
|
|
|
|
|
13,932,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
24,659,751
|
|
|
$
|
8,102,121
|
|
|
|
|
|
|
$
|
16,557,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Cohesant
|
|
|
Disposition
|
|
|
Adjustments
|
|
|
|
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
21,881,265
|
|
|
$
|
13,530,491
|
|
|
|
|
|
|
|
|
|
|
$
|
8,350,774
|
|
COST OF SALES
|
|
|
12,232,419
|
|
|
|
7,802,425
|
|
|
|
|
|
|
|
|
|
|
|
4,429,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,648,846
|
|
|
|
5,728,066
|
|
|
|
|
|
|
|
|
|
|
|
3,920,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT
|
|
|
1,005,664
|
|
|
|
819,280
|
|
|
|
|
|
|
|
|
|
|
|
186,384
|
|
EXPENSES
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
|
|
|
7,839,640
|
|
|
|
4,025,714
|
|
|
|
1,503,691
|
|
|
|
(2
|
)
|
|
|
5,317,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
8,845,304
|
|
|
|
4,844,994
|
|
|
|
1,503,691
|
|
|
|
|
|
|
|
5,504,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
803,542
|
|
|
|
883,072
|
|
|
|
(1,503,691
|
)
|
|
|
|
|
|
|
(1,583,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(40,153
|
)
|
|
|
(27,504
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(12,649
|
)
|
Interest income
|
|
|
756
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
8,969
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
9,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE TAXES
|
|
|
773,114
|
|
|
|
855,324
|
|
|
|
(1,503,691
|
)
|
|
|
|
|
|
|
(1,585,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION (BENEFIT)
|
|
|
316,977
|
|
|
|
337,820
|
|
|
|
(662,681
|
)
|
|
|
(4
|
)
|
|
|
(683,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
456,137
|
|
|
$
|
517,504
|
|
|
|
($841,010
|
)
|
|
|
|
|
|
|
($902,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE BASIC AND
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES OF COMMON
STOCK OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,285,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER SHARE
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR END NOVEMBER 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Cohesant
|
|
|
Disposition
|
|
|
Adjustments
|
|
|
|
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
26,543,175
|
|
|
$
|
14,872,684
|
|
|
|
|
|
|
|
|
|
|
$
|
11,670,491
|
|
COST OF SALES
|
|
|
14,342,050
|
|
|
|
8,137,515
|
|
|
|
|
|
|
|
|
|
|
|
6,204,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,201,125
|
|
|
|
6,735,169
|
|
|
|
|
|
|
|
|
|
|
|
5,465,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT
|
|
|
1,164,229
|
|
|
|
1,002,134
|
|
|
|
|
|
|
|
|
|
|
|
162,095
|
|
EXPENSES
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
|
|
|
8,523,554
|
|
|
|
4,828,065
|
|
|
|
1,417,826
|
|
|
|
(2
|
)
|
|
|
5,113,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
9,687,783
|
|
|
|
5,830,199
|
|
|
|
1,417,826
|
|
|
|
|
|
|
|
5,275,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
2,513,342
|
|
|
|
904,970
|
|
|
|
(1,417,826
|
)
|
|
|
|
|
|
|
190,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,999
|
)
|
Interest income
|
|
|
16,301
|
|
|
|
16,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
20,892
|
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
21,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE TAXES
|
|
|
2,545,536
|
|
|
|
921,044
|
|
|
|
(1,417,826
|
)
|
|
|
|
|
|
|
206,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX PROVISION (BENEFIT)
|
|
|
968,379
|
|
|
|
350,212
|
|
|
|
(529,094
|
)
|
|
|
(4
|
)
|
|
|
89,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
1,577,157
|
|
|
$
|
570,832
|
|
|
|
($888,732
|
)
|
|
|
|
|
|
$
|
117,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE BASIC AND
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,148,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,268,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS PER SHARE
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(1)
|
|
The disposition consists of GlasCraft and Corporate and excludes certain
Corporate assets that are transferred to CIPAR per the separation agreement. These assets are
as follows:
|
|
|
|
|
|
|
|
As of August 31, 2007
|
|
Cash
|
|
$
|
266,261
|
|
Pre-paids and other
|
|
|
32,322
|
|
Computer other property and equipment, net
|
|
|
1,066,049
|
|
|
|
|
|
Total
|
|
$
|
1,364,632
|
|
|
|
|
|
(2)
|
|
This adjustment reflects certain Cohesant expenses including personnel that will become CIPAR
employees and costs related to being a public company. The costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine
|
|
|
For the
|
|
|
|
months ended
|
|
|
twelve months ended
|
|
|
|
August 31, 2007
|
|
|
November 30, 2006
|
|
Personnel
|
|
$
|
859,548
|
|
|
$
|
710,687
|
|
Accounting, legal and
other professional fees
and expenses associated
with being a public
reporting company
|
|
|
394,017
|
|
|
|
455,655
|
|
Office
|
|
|
131,814
|
|
|
|
123,863
|
|
Other
|
|
|
118,312
|
|
|
|
127,621
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,503,691
|
|
|
$
|
1,417,826
|
|
|
|
|
|
|
|
|
(3)
|
|
Funds generated from the disposed operations were used in part to offset the operating loss
at CIPAR and were deemed capital contributions. In future periods CIPAR may need to borrow
such funds for working capital purposes.
|
(4)
|
|
Adjusted to reflect income tax effects of the pro forma adjustments at the applicable
statutory income tax rates.
|
72
MANAGEMENTS DISCUSSION AND ANALYSIS
In 2006 and 2007, CIPAR reported its operations in three segments CIPAR Franchising and
Licensing, CIPAR Rehabilitation, and Cohesant Materials Inc. (CMI).
The CIPAR Franchising and Licensing segment represent the combined financial results of our
Raven Lining System (RLS) business, CuraFlo Dealer Network, and CuraFlo Franchising businesses.
Prior to its acquisition by Cohesant in August 2005, CuraFlo Technologies distributed its products
through a network of Licensed Dealers. Following such acquisition, Cohesant began an in depth
assessment of the CuraFlo Dealership business model. After consulting with existing dealers,
industry experts and legal experts, CIPAR concluded that a franchise business model was more
advantageous for both Cohesant and the prospective CuraFlo business owners. Accordingly, CIPAR
formed CuraFlo Franchising to house its franchising operations and filed a Uniform Franchise
Offering Circular in order to enable it to legally sell franchises. In addition to CuraFlo
Franchising, CIPAR also continues to support a network of CuraFlo Licensed Dealers recruited under
the previous business model. CIPAR Franchising and Licensing franchises and licenses proprietary
technology and sells epoxy coatings (supplied by CMI) and equipment used to apply its technology to
its Franchisees and CuraFlo Licensed Dealers. RLS promotes similar, products, services and
technology to the municipal water and wastewater markets through a network of Certified
Applicators. In this way, CIPAR Franchising and Licensing revenues include franchise and license
fees, royalty revenues, as well as income from other value added services.
CIPAR Rehabilitation, comprised of CuraFlo of British Columbia, CuraFlo Spincast Services and
CuraFlo Services, performs protection, renewal and replacement of drinking water distribution and
wastewater collection systems (Rehabilitation revenue) and, in part, operates as CIPAR
franchisees in three North American territories: Western Canada, the U.S. Pacific Northwest and
the U.S. Midwest.
CMI sells corrosion protection and other specialty coatings used in the protection and renewal
of infrastructure. CMIs sales and marketing focus is on developing new markets for its AquataPoxy
products. Currently, substantially all of its sales currently are internal sales to the CIPAR
Franchising and Licensing segment.
As of December 1, 2007, Cohesant management reconfigured the corporate structure (collectively
referred to in the Financial Statements as the Carved-Out Subsidiaries and elsewhere in this
document referred to as the CIPAR Business) in the manner described below in the section
Description of CIPAR Business. We maintain a strategy for growth through steady organic expansion
supported by select acquisitions. Our long-term strategic plan is to be a global leader providing
technologies for infrastructure rehabilitation and protection in the water distribution and
wastewater collection systems markets.
Results of Operations
Fiscal Year Ended November 30, 2007 as compared to Fiscal Year Ended November 30, 2006
On a combined basis, the CIPAR Business had net sales for the fiscal year ended November 30,
2007 of $11,549,410 compared to $11,966,139 for the same period in fiscal 2006, a decrease of
$416,729, or 3.5%. Equipment and Parts sales decreased $415,294, or 42.3%; Rehabilitation revenue
decreased $164,406, or 3.8%; and Coatings sales decreased $14,730, or less than 1%. These
decreases were partially offset by an increase in Franchisee and Licensee revenue of $177,701, a
64.4% increase. On a combined basis, the CIPAR Business had a loss in the current period of
($679,921) compared to net income of $472,948 in 2006.
The CIPAR Business Franchising and Licensing segment had revenues of $6,843,605, a decrease
of $268,784, or 3.8% from comparable fiscal 2006 revenue. This decline, illustrated in the table
below, was principally due to a decline in equipment sales, offset, in part, by the increase in
Franchise and Licensee revenue resulting from the third quarter sale of Franchises to two entities
that were formerly CuraFlo Licensed Dealers.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Coatings
|
|
$
|
5,823,248
|
|
|
$
|
5,854,439
|
|
Equipment and Parts
|
|
|
566,517
|
|
|
|
981,811
|
|
Franchisee & Licensee
|
|
|
453,840
|
|
|
|
276,139
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,843,605
|
|
|
$
|
7,112,389
|
|
|
|
|
|
|
|
|
Franchising and Licensing sells equipment either as the result of the sale of a new franchise
or if an existing franchisee or licensed dealer expands its operations. Several of CuraFlo
Licensed Dealers expanded operations in 2006 and had no need for additional equipment in 2007.
Additionally, although Franchising and Licensing began offering Franchises in 2007, and sold
franchises to two of its existing licensed dealers who already had equipment, it did not begin to
market franchises outside of the CuraFlo Dealer Network to the general public until late 2007.
Similarly, Ravens Certified Applicators purchased replacement components rather than purchasing
new or additional equipment packages. Also, to a lesser extent, a weakness in Raven product sales
contributed to the sales decrease. The increased costs (primarily additional personnel,
advertising and promotion and legal) relating to the launch and support of the franchise program
resulted in a net loss of ($319,249) at Franchising and Licensing compared to net income of
$271,211 in 2006.
Revenues at the CIPAR Business Rehabilitation segment were $4,115,453, a decrease of
$164,406, or 3.8% from the prior year period. For 2007, Rehabilitation focused its marketing on
its core business of pipe lining services in Western Canada and in the Midwest and shifted
resources away from other regions and from selling pipe replacement services. Management determined
that focusing on its proprietary pipe lining technologies was a preferable long run strategy than
promoting a generic pipe replacement methodology. In addition, management believed that given the
age of infrastructure systems in the U.S. Midwest and its proximity to CIPAR Business franchising
headquarters, the U.S. Midwest presented a prime expansion market for CIPAR Business
Rehabilitation segment. As a result of this strategic shift, Rehabilitation enjoyed a 95.4%
increase in revenues from pipe lining services in Western Canada, realized substantial revenues for
the first time in the new Midwest region, and saw its first revenues from CuraFlo Spincast
Services. Unfortunately, these revenue gains were more than offset by a 32.1% decline in revenues
for pipe replacement services in Western Canada and a decline in pipe lining revenues in the U.S.
Pacific Northwest region (Washington and Oregon). The decline in revenues at Rehabilitation,
combined with overhead costs added to support both the first quarter 2007 opening of the CIPAR
Business CuraFlo operations in Cleveland, Ohio (Midwest region) and the launch of CuraFlo Spincast
Services, resulted in a loss at the Rehabilitation segment of ($371,377) for the period.
Primarily all of CMI sales are internal sales to the CIPAR Businesses. In fiscal 2007
external sales at CMI were $590,352 compared to $573,891 for the comparable period in the prior
year.
Despite the 4% decrease in revenues, the CIPAR Business gross margin remained substantially
unchanged at $5,496,016, or 47.6% of net sales, in the 2007 period compared to $5,507,850, or 46.0%
of net sales, in the 2006 period. This result was achieved due to Rehabilitations focus on pipe
lining services and an increase in high margin Franchisee and Licensee revenues.
73
Research and development expenses were $266,941 and $162,095 for the fiscal years ended
November 30, 2007 and 2006, respectively. This increase of $104,846, or 64.7% was primarily
attributable to increased personnel costs resulting from the hiring of a Vice-President of Research
and Development for the CIPAR Businesses.
Selling, general and administrative expenses in fiscal 2007 were $6,122,143 compared to
$4,538,126 for the fiscal 2006, an increase of $1,584,017, or 34.9%. This increase was primarily
due to increased sales and increased overhead costs at the Franchise and Licensing and
Rehabilitation segments resulting from the launch of CuraFlo Franchising, CuraFlo Midwest, and
CuraFlo Spincast Services. These increased costs consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CuraFlo Spincast
|
|
|
|
|
|
|
CuraFlo Franchising
|
|
|
Services
|
|
|
CuraFlo Midwest
|
|
Personnel
|
|
$
|
263,363
|
|
|
$
|
362,590
|
|
|
$
|
78,672
|
|
Advertising and Promotion
|
|
|
113,132
|
|
|
|
24,779
|
|
|
|
75,994
|
|
Legal
|
|
|
80,544
|
|
|
|
|
|
|
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
457,039
|
|
|
$
|
387,369
|
|
|
$
|
158,063
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above, in 2007, the CIPAR Business added a new facility in Beachwood, OH to
house these three businesses and certain Cohesant administrative functions. As a result of this new
facility, these three businesses incurred additional facility expenses of $290,905. With the
exception of the legal fees at CuraFlo Franchising, which pertained primarily to the filing of a
preliminary Uniform Franchise Offering Circular, management anticipates these costs to continue in
future periods with little change. Management believes that this investment in its future is both
prudent and necessary to support and grow these important new businesses. Although these new
business produced only 5.7% of the total revenues of the CIPAR Business, virtually all such revenue
occurred in the second half of the year, and we expect the upward trend in revenues from these
entities to continue in 2008. All of the new business units are expected to generate significant
revenues in fiscal 2008 but such revenues may not be sufficient to offset the previously discussed
investment in overhead. At the time of the spin off of the CIPAR Business from Cohesant, the CIPAR
Business will become a stand-alone, public, SEC reporting company. As a result, certain costs that
were previously shared with GlasCraft, will be borne completely by the CIPAR Business. These
additional costs, consisting of personnel and administrative costs, as well as the costs associated
with being a public SEC reporting company such as accounting, legal and professional fees, are
estimated at $750,000 to $1,000,000.
Other income (expense) was ($23,657) compared to $23,287 in the 2006 period. This decrease
was primarily attributable to increased interest expense (borrowings under the Cohesant line of
credit), a loss from foreign currency exchange at the CIPAR Business Canadian division, and
decreased interest earned on lower cash balances.
The effective tax rate for the years ended November 30, 2007 and 2006 was (25.8%) and 43.1%,
respectively.
Liquidity and Capital Resources
The CIPAR Business primary sources of liquidity have been operations, cash
reserves, and Cohesants credit facility. Income from GlasCraft substantially funded the CIPAR
Business negative cash flow in fiscal 2007. This source of liquidity will cease immediately
following the merger resulting in the sale of GlasCraft to Gracoalthough the CIPAR Business may
have a cash balance available at the time of the spin-off. The Cohesant credit facility will also
terminate immediately following GlasCrafts sale to Graco; however, the CIPAR Business has received
a commitment letter from its bank for a new $2,500,000 secured credit facility which it expects to
have documented by the effective date of the sale. At November 30, 2007, the CIPAR Business has
cash and cash equivalents of $191,486 and net working capital of $2,427,559.
For the fiscal year ended November 30, 2007 cash used in operations was $826,299 compared to
cash from operations of $829,971 in the prior year. This decrease was primarily due to the net
loss and to a lesser extent increased inventory levels at the Franchising and Licensing segment in
fiscal 2007. The increased inventory is primarily due to the purchase of components used in the
assembly of start-up equipment packages for CuraFlo franchisees that have long delivery times. Management has determined to inventory several of these
start-up equipment packages to allow for quick delivery to new franchisees. Cash used in investing
activities increased to $546,299 in the current period from $475,546 in the prior period. The
CIPAR Business purchased $535,519 of capital equipment in the current year period (principally
equipment, furnishing and leasehold improvements for its new Cleveland facility). Cash provided by
financing activities was $955,402 in the current period compared to $50,785 in the prior year
period. This increase was primarily due to increased contributions from Cohesant.
The CIPAR Business does not have any significant commitments or guarantees, except for rental
commitments.
The CIPAR Business believes that its existing cash resources, working capital, and the
anticipated credit facility will be adequate to meet its capital needs for the foreseeable future.
Acquisitions
CuraFlo.
On August 12, 2005, Cohesant, through its CIPAR subsidiary, acquired substantially all of the
assets and assumed certain liabilities of 4279 Investments Ltd., a British Columbia corporation,
and its subsidiaries, CuraFlo Technologies Inc., a Canadian federal company, Curalease Ltd., a
British Columbia corporation, CuraFlo Technologies (Canada) Inc., a British Columbia corporation,
CuraFlo of BC Inc. (dba West Coast Pipe Restoration Ltd.), a British Columbia corporation, CuraFlo
Technologies (USA) Inc., a Nevada corporation, and CuraFlo of the Silicon Valley, Inc., a
California corporation (collectively CuraFlo). CuraFlo licenses technology for the protection and
renewal of small diameter water pipes. The process is used to rehabilitate aging water pipes in
apartment buildings, private homes and other commercial, industrial and residential buildings.
This process is an alternative to the process of tearing out and replacing the old pipes. CuraFlo
also provides equipment, epoxy (supplied by CMI) and other supplies to its Franchisees and
Licensees. In addition CuraFlo performs protection, renewal and replacement of plumbing lines in
Western Canada and the United States.
Triton.
On September 5, 2006, CIPAR completed the purchase of the operations and substantially all of
the assets of Triton Insitutech, LLC, of Orlando Florida. The assets were transferred by CIPAR to
CuraFlo Spincast Services, Inc., (CuraFlo Spincast) a wholly owned subsidiary of CuraFlo Services
Inc. The CuraFlo Spincast System utilizes epoxy and other polymer linings to rehabilitate aging
medium and large diameter water, wastewater and other pipelines, including public and private water
mains. For the twelve months ended November 30, 2007, CuraFlo Spincast had revenues of $124,117
and a net loss of ($309,473). For the three months ended November 30, 2006, CuraFlo Spincast had
no revenues and a net loss of ($69,224).
Critical Accounting Policies and Estimates
The CIPAR Business has disclosed those accounting policies that it considers to be significant
in determining the amounts to be utilized for communicating its combined financial position,
results of operations and cash flows in the notes to its combined financial statements.
The preparation of financial statements in conformity with these principles requires
management to make estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Management continually evaluates the information used to make
such estimates as its business and economic environment changes and has discussed these estimates
with the Audit Committee of the Cohesant Board of Directors. Actual results are likely to differ
from these estimates, but management does not believe such differences will materially affect the
CIPAR Business financial position or results of operations.
74
The following accounting policies represent the most critical based on managements analysis
due the impact on the CIPAR Business results of operations.
Revenue Recognition.
Revenue is recognized in accordance with SEC Staff Accounting Bulletin
No. 104, Revenue Recognition (SAB 104). Under SAB 104, revenue is recognized when there is
persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the
sales price is fixed or determinable, and collectibility is reasonably assured.
For equipment, coatings, and replacement and spare part revenue, the criteria of SAB 104 are
generally met upon shipment at which time title and risks of ownership are transferred to these
customers. Therefore, revenue is recognized at the time of shipment. There are no rights of
return, customer acceptance, installation or other post-shipment obligations with any of these
products. Pricing is fixed at the time of shipment.
The CIPAR Rehabilitation segment performs protection, renewal and replacement of drinking
water distribution systems and wastewater collection systems in accordance with the specifications
set forth in the binding contracts with our customers. Performance under these contracts generally
extends over periods of time ranging from a few months to over a year. Rehabilitation revenues are
recognized on the percentage of completion method in the ratio that total incurred costs bear to
total estimated costs. Excess materials are held in inventory and are not recorded as contract
costs until utilized. The estimated total cost of a contract is based on managements best estimate
of the remaining costs that will be required to complete a project.
Franchise fee and license fee revenue from an individual franchise or license sale is
recognized when all material services or conditions relating to the sale, consisting predominantly
of training, have been substantially performed and collectibility is assured. Revenue is deferred
for franchise and license fees when there are obligations to provide training and other services to
Franchisees and Licensed Dealers. Continuing franchise and license fee revenue, including royalty
revenue, is recognized as the fees are earned and become receivable from the Franchisees and
Licensees.
Allocation Policies.
The combined financial statements of the CIPAR Business give effect to
accounting and allocation policies established by management for purposes of these combined
financial statements and are in accordance with the guidelines provided by Staff Accounting
Bulletin 55, Allocation of Expenses and Related Disclosures in Financial Statements of
Subsidiaries, Divisions, and Lesser Business Components of Another Entity of the Securities and
Exchange Commission.
Cohesant allocates the cost of certain corporate general and administrative services and
shared services, including shared personnel, to each location. These shared services include
executive compensation, legal, and accounting costs. These costs have been allocated to the CIPAR
Business based on their relative percentage to consolidated Cohesant revenues. Cohesant believes
the financial size of each of Cohesants operating units best reflects the level corporate service
provided to each.
The combined financial statements of the CIPAR Business have been prepared on a basis that
management believes to be reasonable to reflect the combined financial position, results of
operations and cash flows of the businesses that comprise the CIPAR Business, including allocated
portions of Cohesants overhead and administrative shared services. We believe the allocation of
the various operating expenses discussed above to be an appropriate means of allocation; however
determination of the allocation methodology involves significant judgments and alternative
methodologies may produce differing results. It is not practicable to estimate the costs that
would have been incurred by the CIPAR Business if it had operated on a stand-alone basis.
Accounts receivable.
The CIPAR Business evaluates the allowance for doubtful accounts on a
periodic basis and reviews any significant customers with delinquent balances to determine future
collectibility. The determination includes a review of legal issues (such as bankruptcy status),
past payment history, current financial information and credit reports, and the CIPAR Business
experience. Allowances are established in the period in which the account is deemed uncollectible
or when collection becomes uncertain.
Inventories
.
Inventories are stated at the lower of cost or market, with cost determined using
the first-in, first-out method. Inventory costs include raw material, labor (including material
handling) and overhead costs. An inventory reserve is provided for obsolete and slow-moving
inventory to reduce the carrying amount to its estimated net realizable value.
Goodwill.
In accordance with SFAS No. 142, the CIPAR Business tests goodwill for impairment on
an annual basis or more frequently if an event occurs or circumstances change that could more
likely than not reduce the fair value of a reporting unit below its carrying amount. The CIPAR
Business estimates fair value based upon the present value of future cash flows. In estimating the
future cash flows, the CIPAR Business takes into consideration the overall and industry economic
conditions and trends, market risk of the CIPAR Business and historical information.
Based on a critical assessment of its accounting policies and the underlying judgments and
uncertainties affecting the application of those policies, management believes that the CIPAR
Business combined financial statements provide a meaningful and fair perspective of the CIPAR
Business. This is not to suggest that other risk factors such as changes in economic conditions,
changes in material costs, and others could not adversely impact the CIPAR Business combined
financial position, results of operations and cash flows in future periods.
New Accounting Standards
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the recognition
threshold and measurement principles for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 (fiscal
year 2008). The CIPAR Business is currently evaluating the provisions of FIN 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements. The Statement provides guidance for using fair value to measure assets
and liabilities and only applies when other standards require or permit the fair value measurement
of assets and liabilities. It does not expand the use of fair value measurement. This Statement is
effective for fiscal years beginning after November 15, 2007. The FASB is currently proposing to
delay the effective date of the Statement to fiscal years beginning after November 15, 2008, for
all nonfinancial assets and nonfinancial liabilities except those that are recognized or disclosed
at fair value in the financial statements on a reoccurring basis (that is, at least annually). The
CIPAR Business is evaluating the impact that this Statement will have on its financial position,
results of operations, and cash flows.
75
DESCRIPTION OF CIPAR BUSINESS
At the time of the spin-off, CIPAR will be renamed Cohesant Inc. and new Cohesants web
address will be
www.cohesant.com.
After the closing, new Cohesant will be comprised of
Cohesants four infrastructure protection and renewal businesses, RLS Inc. (RLS), CuraFlo
Franchising Inc (CFI), CuraFlo Services Inc. (CSI) and Cohesant Materials Inc. (CMI). These
four businesses report their results in three segments Franchising and Licensing, Rehabilitation
Services and Materials.
Together RLS and CuraFlo Franchising make up new Cohesants Franchising and Licensing
segment. RLS focuses on providing rehabilitation solutions to the municipal markets. RLS inherits
the former Raven Lining Systems divisions Raven products and its Raven Certified Applicator
network. In addition, RLS adds to its sales repertoire the AquataPoxy and CuraFlo Spincast brands
in the municipal market. CFI supports CuraFlos franchisees and licensed dealers in their
independent efforts to protect and renew drinking water pipes in single and multi-family
residences, apartment buildings and commercial buildings.
The businesses making up New Cohesants Rehabilitation Services segment have recently been
consolidated into CSI. CSI operates company owned CuraFlo franchises in Vancouver, BC and in
Cleveland, OH and owns and operates CuraFlo Spincast Services (CSS). CSS operates as a
subcontractor installing the CuraFlo Spincast System in water mains, process pipes, and other
medium diameter pipes for municipal, industrial and commercial clients. CSS often works in
connection with RLS and also with CuraFlo licensees and franchisees.
Finally, CMI manufactures CuraPoxy, Raven AquataPoxy and other materials sold by RLS and
CuraFlo Franchising. CMI also sells products, including certain non-exclusive Aquatapoxy products,
into markets not served by RLS and CuraFlo, as well as private labels epoxies and coatings.
Accordingly, in addition to the Franchising and Licensing and Rehabilitation segment, new
Cohesant includes a small amount of revenues from CMIs external sales to these other markets.
History of CIPAR
CIPAR was organized in December 2005 following Cohesants acquisition in August 2005 of the
business assets of CuraFlo Technologies Inc. (CuraFlo). At that time, Cohesant combined
CuraFlos network of licensed dealers with its subsidiary Raven Lining Systems network of
Certified Applicators to form the Franchising and Licensing segment of CIPARs business. During
Fiscal 2006, CIPAR determined that CuraFlo would be best served by transition to a franchising
business model. Accordingly, CIPAR froze its licensed CuraFlo dealer network at 12 licensed
dealers and instead began development of a franchising program. In early 2007, CuraFlo completed
work on a Uniform Franchise Offering Circular (UFOC) and by July 30, 2007, CuraFlo was approved
to sell franchises in all 50 states. In December 2007, CIPAR combined the Municipal sales channels
for its various products and services into a single business unit RLS. Because of the Certified
Applicators focus on the Municipal market, RLS assumed responsibility for the management and
support of the Raven Certified Applicator network.
At the time of CIPARs formation in December 2005, CuraFlo British Columbia became the core of
CIPARs Rehabilitation Services segment. In September 2006, Cohesant acquired the assets of Triton
Insitutech LLC. The resulting entity, CuraFlo Spincast Services, also became part of the
Rehabilitation Services segment. Finally, in February 2007, CuraFlo MidWest commenced operations
as a company-owned franchise.
After transferring Ravens Certified Applicator Network to CIPAR in 2005, Raven Lining Systems
changed its name to Cohesant Materials Inc. and focused on manufacturing the specialty epoxy blends
used by the Franchising and Licensing networks. CMI also sold a small volume of products into
markets not served by the CuraFlo and Raven networks. CMI became part of CIPAR on December 1, 2007
as part of the consolidation designed to allow the spin-off contemplated by the agreements.
Franchising and Licensing
Franchising and Licensing operates under its two primary trade names: Raven and CuraFlo.
76
Raven
Raven high performance sprayable epoxies are formulated for ultra high-build (20-250 mils per
coat) application on concrete, masonry and steel surfaces providing protection from atmospheric and
chemical corrosion. Raven coatings are solvent-free, nontoxic, 100% solids epoxy products,
emitting no volatile organic chemicals (VOCs). The high physical strengths of some Raven
formulations permit the epoxy to enhance the structural integrity of damaged structures. Raven
products can be quickly applied under harsh environmental conditions providing quick return to
service and substantial savings for industrial facilities by lessening downtime. The life span of
the infrastructure exposed to these conditions can increase dramatically with the use of Raven high
performance protective coatings and linings.
Raven products are sold through a network of Certified Applicators who are trained, managed
and supported by RLS to use the Raven Engineered system consisting of Raven epoxies, specially
designed application equipment and proven methods for applying these epoxies to wastewater
collection systems and other concrete infrastructure.
CuraFlo
CuraFlo is a provider of epoxy lining solutions for failing plumbing systems. CuraFlo and its
predecessors have been providing solutions for pipe problems in homes, apartment buildings, and
commercial structures in North America since 1996. Plumbing systems in residential and commercial
buildings inevitably deteriorate. Pinhole leaks form, rust and other contaminants accumulate, and
interior services degrade with time. These conditions can contaminate drinking water, impede water
flow, or cause mold to develop in unseen damp areas. Uncorrected, they could render a building
uninhabitable. Conventional methods for addressing these troubles involve tearing out or digging
up and replacing the old pipes. CuraFlo businesses solve pipe problems such as these with less
cost and disruption because they use techniques that do not require destruction of walls or digging
to replace the pipes. CuraFlo has developed a distinctive set of specifications and operating
procedures for CuraFlo businesses the distinguishing characteristics of which include the use of
the CuraFlo Engineered Flow Lining System (CEFLS) consisting of proprietary equipment and
processes to clean potable water, waste and vent pipes that are between one half inch and four
inches in diameter and then to line those pipes with our proprietary epoxy and extensive training
of our certified technicians. We support the CuraFlo businesses with a rigorous brand image and
customer service standards, a strong marketing program, our web site, and the accumulated
experience reflected in our training program and operating procedures.
Prior to its acquisition by Cohesant, CuraFlo entered into license agreements giving a select
group of commercial plumbers access to its earlier version of CEFLS. Cohesant stopped selling new
licenses when it acquired CuraFlo in 2005, but CuraFlo Franchising Inc. continues to manage and
support 12 CuraFlo licensed dealers located in North America. A typical license agreement
contained a 10-year term and provides the licensee with the right to utilize the Companys
propriety pipe lining and restoration system within a specified geographical territory. Under the
related exclusive supply agreement, the licensed dealer agreed to purchase CuraPoxy and equipment
for use in the pipe lining and restoration system exclusively from CuraFlo. The arrangement also
provides the licensed dealer with fee-based access to technical assistance from CuraFlo.
Starting in February 2007, CuraFlo began offering a new Franchise program to replace the
former licensing program. The CuraFlo franchising program allows qualified applicants to offer
CEFLS to commercial and multi-tenant residential clients within protected geographic territories.
A successful applicant will pay a population based sum for a geographic territory (typically
$67,500 for an initial territory with a population of 1 million). In addition, each new franchisee
will incur an initial investment of between $250,000 and $410,000, the majority of which relates to
the purchase of equipment and start-up supplies from CuraFlo. On an ongoing basis, CuraFlo will
receive a royalty on the gross sales of each franchisee. Franchisees will also pay 2% of sales to
a Marketing and Brand Fund managed by Curaflo and designed to build and promote the CuraFlo brand.
CuraFlo franchisees purchase many of the products necessary to install CEFLS from CuraFlo,
including most importantly, CuraPoxy, a proprietary epoxy approved for use with potable water,
manufactured for CuraFlo by CMI, and specialized dispense and application equipment.
Rehabilitation Services
The Rehabilitation Services segment of the companies business involves the renewal of small
diameter plumbing lines using CFLS through company owned CuraFlo franchises based in Vancouver,
British Columbia and Beachwood, Ohio. Rehabilitation Services revenues are also generated by the
subcontracting activities of CuraFlo Spincast Services, which rehabilitates larger diameter pipes,
including water mains and other types of pipes, using the CuraFlo Spincast System. CSSs
subcontracting services are sold by RLS to the municipal market, and by CuraFlo franchisees and
dealers to the commercial and industrial markets. In addition to CFLS revenues, the Companys
Vancouver franchisee generates revenues from an alternative to CFLS which involves removal and
replacement of older pipes (repiping) rather than cleaning and
77
lining of such pipes. CSI has made a strategic decision to focus on obtaining lining jobs and, as
a result, repiping revenues have fallen since the CuraFlo acquisition.
Although the Rehabilitation Services segment of the business is run as a profit making
segment, the primary purpose of this segment is to allow CuraFlo to continually refine its business
and technical processes, provide hands on training to its licensees and develop markets for future
franchisee prospects. CuraFlo Franchising relies upon the expertise developed by Rehabilitation
Services to train and support its franchisees.
Marketing
RLS markets its services primarily through its network of independent Certified Applicators.
RLS presently has 42 active Raven Certified Applicators with annual revenues of more than $10,000.
For the fiscal years ended November 30, 2007 and 2006, RLS top ten Certified Applicators accounted
for 67% and 70% of their revenues, respectively. In addition, RLS directly sells a small amount
of Raven and AquataPoxy products to Municipal customers.
CFI markets its services exclusively through its licensed dealers and franchisees, including
its Company owned franchises. CFIs network currently consists of 5 CuraFlo franchisees and 12
independent Licensed Dealers. For the fiscal years ended November 30, 2007 and 2006, CuraFlos ten
largest dealers and franchisees accounted for 81% and 62%, respectively, of CFI revenues. CuraFlo
franchisees are required to spend a minimum of 3% of their annual revenues on local marketing. In
addition, CuraFlo franchisees pay 2% of their revenues into the Marketing and Brand Fund which
engages in national and regional marketing and activities designed to promote the CuraFlo brand.
These activities included preparation, for use by franchisees in their local markets, of brochures,
direct mailing pieces, and several advertising templates for various media. In addition, Company
personnel, representatives and distributors attend national and regional trade shows in the United
States that are attended by potential end-users of CEFLS. These shows afford CFI the opportunity
to keep abreast of its competitors products and developments in the industry.
In addition to its support of the end-user marketing efforts of its franchisees, CFI also
markets franchises to commercial plumbing contracts and others in markets throughout the United
States. CFI prepares media promotion kits and product demonstration kits for use in the franchise
sales process. Company personnel, representatives and distributors attend trade shows in the
United States and overseas. Typically, potential franchisees attend these shows. In addition,
these shows afford CFI the opportunity to keep abreast of competitive franchisors.
Manufacturing and Raw Materials Supply
New Cohesant is not dependent upon any single vendor for the conduct of its business, and
generally has alternative sources for all necessary raw materials and equipment vendors. CMI has
maintained good working relationships with its major resin suppliers. CMI does not believe the
loss of any one supplier would have a material adverse impact.
Competition
The markets for all of new Cohesants products and services are highly competitive.
Licensing and rehabilitation competitors include ACE DuraFlo on a national level and various
regional players. Raven products compete with products from the Carboline Company, Tnemec Company,
and Saurereisen. All of CIPARs business units compete by increasing customer awareness of its
technology and quality products, by offering its products at a competitive price, and through
product line extensions.
The markets for new Cohesants products and services are characterized by changing
technology and industry standards. Accordingly, the ability of Cohesant to compete is dependent
upon its ability to complete development and effectively market its technology and state-of-the-art
equipment and coating products.
Research and Development
CIPAR has a research and development program to continually improve its existing products, to
develop new products and to custom engineer equipment and products to meet specific customer
requests. Research and development expenses for the fiscal years ended November 30, 2007 and 2006
were $266,941 and $162,095, respectively, or 2.4% and 1.4%, respectively, of net sales. We expect
this level of research and development expense to continue or slightly increase in the future.
78
Government Regulation
New Cohesant is subject to regulations administered by the EPA, OSHA, various state
agencies, county and local authorities acting in cooperation with Federal, state and Canadian
authorities and international governmental regulatory agencies. Among other things, these
regulatory bodies impose restrictions to control air, soil and water pollution, to protect against
occupational exposure to chemicals, including health and safety risks, and to require notification
or reporting of the storage, use and release of certain hazardous chemicals and substances. The
extensive regulatory framework imposes significant compliance burdens and risks on our operating
subsidiaries. Governmental authorities have the power to enforce compliance with these regulations
and to obtain injunctions or impose civil and criminal fines in the case of violations.
Many states require certification of products used in drinking water applications, such as
CuraPoxy, to be certified to ANSI/NSF Standard 61. Several of new Cohesants products currently
are certified to this standard. Certified products are retested on a regular basis to confirm
their continued eligibility for the certification.
New Cohesant has in place programs to achieve and maintain substantial compliance with the
currently existing environmental and worker exposure laws and regulations, which materially affect
our continuing businesses. Based on its experience and consultations with environmental
consultants, management believes that we are taking or have taken all necessary measures to comply
with applicable Federal, state and local environmental laws and regulations and worker exposure
regulations.
As a product exporter, new Cohesant is subject to import and other regulations by
international governments. While we currently do not experience any significant difficulties with
exports, future changes to international laws and regulations could impact international sales.
Patents, Trademarks and Proprietary Information
CIPAR believes that product recognition is an important competitive factor in the chemical and
pipe replacement industries. Accordingly, we hold a United States trademark registration for
AquataPoxy, CuraFlo, CuraPoxy, Raven and others and has several trademark applications pending. We
promote these trade names in connection with our marketing activities. We also rely on proprietary
know-how and confidential information and employ various methods to protect the processes,
concepts, ideas and documentation associated with our products. CIPAR holds no patents, but has
applied for certain patents relating to the purity and suitability for use in drinking water
applications of its epoxy products.
Employees
As of December 31, 2007, CIPAR employed 64 full time persons. We believe CIPARs relations
with its employees are good.
DESCRIPTION OF CIPAR PROPERTY
CIPARs executive offices are located in approximately 15,000 sq. ft of leased office and
warehouse space in Beachwood, Ohio. This lease expires in 2012. CIPAR has a leased specialty
coatings manufacturing facility of approximately 15,000 sq. ft. near Tulsa, Oklahoma; the lease
expires in March 2011. CIPARs Vancouver operation leases approximately 4,100 square feet of
combined office and warehouse space through August 2009.
MANAGEMENT AND DIRECTORS OF CIPAR
The following table sets forth certain information regarding the directors and executive
officers of CIPAR as of December 31, 2007 and after the spin-off. Prior to the spin-off, the
directors of CIPAR are Messrs. Pawlak, Wheeler, and LeMaire, none of whom are independent.
Following the spin-off, it is expected that the directors of Cohesant will become the directors of
CIPAR. CIPAR will not request to list its stock on any securities exchange but will evaluate the
independence of its directors according to the definition of independence that is required by the
NASDAQ Capital Market, which is the exchange on which shares of Cohesant common stock trade prior
to the spin-off and Merger. After the spin-off and Merger, none of the officers or directors will
hold any position with the existing Cohesant or GlasCraft.
|
|
|
Name
|
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Principal Occupation and Age
|
Morris H. Wheeler
|
|
Chairman and CEO; age 46
|
Robert W. Pawlak
|
|
EVP, Finance and Chief Financial Officer; age 39
|
Brian LeMaire
|
|
VP, CuraFlo and President, CuraFlo Services Inc.; age 45
|
Steven Goden
|
|
VP, Administration; age 47
|
79
|
|
|
Name
|
|
Principal Occupation and Age
|
Michael L. Boeckman
|
|
Chief Financial Officer and Administrative Partner of Cohen & Co.;
age 60
|
Morton A. Cohen
|
|
Chairman and Chief Executive Officer of Clarion Capital Corp.; age 72
|
Richard L. Immerman
|
|
President of BleachTech LLC; age 56
|
Terrence R. Ozan
|
|
Director of Capgemini; age 60
|
Stuart C. McNeill
|
|
CEO of Lions Bay Media; age 43
|
Morris H. Wheeler
has been the Chief Executive Officer of CIPAR since its formation in 2005.
Until the spin-off, his primary position has been and will continue to be as Chief Executive
Officer and President of Cohesant, a position held for over five years. Mr. Wheeler is the
son-in-law of Morton A. Cohen.
Robert W. Pawlak
serves as Executive Vice President of Finance and Accounting for CIPAR and as
its CFO. Mr Pawlak also has served as Chief Financial Officer of Cohesant since June 1998 and has
been the Chief Financial Officer of CIPAR since its formation in 2005.
Brian LeMaire
has been the President of CuraFlo Services Inc since December 2005 and also
serves as CIPARs Vice President, CuraFlo. In this latter position, Mr. LeMaire has dotted line
responsibility for all CuraFlo branded products and services. Mr. LeMaire joined the Company
through the CuraFlo acquisition in August 2005. Prior to joining the Company, Mr. LeMaire served
as president of CuraFlo and also served as General Manager of West Coast Pipe Restoration in
Vancouver, Canada.
Steven Goden
has served as our Vice President of Systems & Planning since September 2006. He
also has held the same position with Cohesant since March 2005. He served as Director of Planning
of Cole Vision Corporation (CVC), the owner of the Pearle Vision System, in Cleveland, Ohio from
September 2003 to March 2005 and Director of Information Technology Control for CVC from April 2002
to August 2003. Mr. Goden was Division Controller for Contact Lens Supply Inc. in Cleveland, Ohio
From March 2001 to March 2002.
Michael L. Boeckman
has been a Director of Cohesant since 1994. Mr. Boeckman has been
Administrative Partner and Chief Financial Officer of Cohen & Co., a Northeast Ohio regional based
accounting firm (no relation to Morton A. Cohen) for more than five years.
Morton A. Cohen
has been a Director of Cohesant since 1994. Mr. Cohen has been Chairman of
the Board of Directors and Chief Executive Officer of Clarion Capital Corporation (Clarion), a
private, small business investment company, for more than five years. Mr. Cohen is the
father-in-law of Morris H. Wheeler.
Richard L. Immerman
has been a Director of Cohesant since 1998. Mr. Immerman has been
President of BleachTech LLC, a manufacturer of sodium hypochlorite, since its inception in January
2002. Mr. Immerman is a partner of Chemical Ventures (marketer of magnesium chloride), a position
he has held for over five years.
Terrence R. Ozan
has been a Director of Cohesant since March 2006. Mr. Ozan was a member of
the Global Management Committee, CEO of North American operations and the Managing Director of
world wide consulting services of Capgemini from May 2000 until his retirement in June 2003. Prior
to that, Mr. Ozan held various executive positions at Ernst & Young including CEO of Worldwide
Consulting and Director of US Manufacturing Services. Mr. Ozan currently serves on the Board of
Directors of Capgemini.
Stuart C. McNeill
has been a Director of Cohesant since June 2007. Mr. McNeill is currently
the CEO of Lions Bay Media Inc., an online media company. He was President of CIPAR from the time
of its acquisition by Cohesant in August 2005 until March 2007. Prior to that, he was Chief
Financial Officer of CuraFlo from November 2003 until the acquisition. Mr. McNeill is the founder
and President of McNeill & Associates, a venture capital firm.
The Board of Directors will meet immediately following the completion of the spin-off. At
such time, the CIPAR Board will establish two committees of independent directors: an audit
committee and a compensation committee. Each of the committees will be governed by a written
charter, which will be approved by the Board. CIPAR intends to compensate each non-employee
director for service on its board of Directors as follows: an annual retainer of $8,000 plus $750
and reimbursement for expenses for each meeting attended.
EXECUTIVE COMPENSATION OF CIPAR
The following table sets forth information relating to the annual and long-term compensation
for the fiscal years ended November 30, 2007 and 2006 for the Chief Executive Officer and the next
three most highly compensated executive
80
officers of CIPAR and its subsidiaries. In the case of Messrs. Wheeler and Pawlak, their
compensation was paid by Cohesant and they will not be paid by CIPAR until after the spin-off is
completed.
SUMMARY COMPENSATION TABLE
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Name and
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
Morris H. Wheeler, Chief Executive Officer
|
|
|
2007
|
|
|
|
220,000
|
|
|
|
129,500
|
|
|
|
7,745
|
|
|
|
357,245
|
|
|
|
|
2006
|
|
|
|
201,000
|
|
|
|
118,147
|
|
|
|
7,584
|
|
|
|
326,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Pawlak, Chief Financial Officer
|
|
|
2007
|
|
|
|
118,800
|
|
|
|
46,000
|
|
|
|
5,015
|
|
|
|
169,815
|
|
|
|
|
2006
|
|
|
|
108,000
|
|
|
|
35,699
|
|
|
|
5,279
|
|
|
|
148,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian LeMaire, Vice President, CuraFlo
|
|
|
2007
|
|
|
|
131,500
|
|
|
|
17,000
|
|
|
|
5,920
|
|
|
|
154,420
|
|
|
|
|
2006
|
|
|
|
120,000
|
|
|
|
40,745
|
|
|
|
3,095
|
|
|
|
163,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Goden, Vice President, Administration
|
|
|
2007
|
|
|
|
102,850
|
|
|
|
28,413
|
|
|
|
4,141
|
|
|
|
135,404
|
|
|
|
|
2006
|
|
|
|
93,500
|
|
|
|
25,389
|
|
|
|
3,677
|
|
|
|
122,566
|
|
|
|
|
(1)
|
|
Includes corporate contributions to the Companys 401(K)
Plan and the dollar value of additional life insurance paid by the Company for fiscal
2007 and 2006.
|
81
SECURITY OWNERSHIP OF COHESANT TECHNOLOGIES, INC. AND CIPAR INC.
Cohesant beneficially and of record holds, and will hold before the spin-off, all of the
outstanding shares of CIPARs common stock. Upon completion of the special dividend, Cohesant will
not own any shares of CIPAR common stock. The following table provides information as of December
31, 2007, concerning stock ownership by (i) the beneficial owners of more than five percent of any
class of Cohesants voting securities and (ii) directors and executive officers. The table also
provides the number of shares of CIPAR common stock that each such person or entity would own
immediately after the spin-off on a pro forma basis. To our knowledge, unless we state otherwise,
each person or entity has sole voting and investment power with respect to the shares set forth
opposite the persons name.
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|
|
|
|
|
|
Cohesant Technologies
|
|
CIPAR
|
Name and address of
|
|
Amount and nature
|
|
Percent of
|
|
Amount and nature of
|
|
Percent of
|
beneficial owner
|
|
of beneficial owner
|
|
class
|
|
beneficial owner(1)
|
|
class(1)
|
Morton A. Cohen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3690 Orange Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite 400
|
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|
|
|
|
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|
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Beachwood, OH 44122
|
|
|
1,273,480
|
(2)(3)
|
|
|
37.3
|
%
|
|
|
1,273,480
|
(2)(3)
|
|
|
34.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarion Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3690 Orange Place
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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Suite 400
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
Beachwood, OH 44122
|
|
|
1,175,980
|
|
|
|
34.6
|
%
|
|
|
1,175,980
|
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian LeMaire
23400 Commerce Park Road
Beachwood, OH 44122
|
|
|
176,434
|
(4)
|
|
|
5.2
|
%
|
|
|
176,434
|
(4)
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morris H. Wheeler
23400 Commerce Park Road
Beachwood, OH 44122
|
|
|
175,850
|
(3)(4)
|
|
|
5.1
|
%
|
|
|
175,850
|
(3)(4)
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael L. Boeckman
|
|
|
25,783
|
(3)
|
|
|
*
|
|
|
|
25,783
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard L. Immerman
|
|
|
67,000
|
(3)
|
|
|
2.0
|
%
|
|
|
67,000
|
(3)
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrence R. Ozan
|
|
|
25,000
|
(3)
|
|
|
*
|
|
|
|
25,000
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart C. McNeil
|
|
|
147,357
|
|
|
|
4.3
|
%
|
|
|
147,357
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Pawlak
|
|
|
74,973
|
(3)(4)
|
|
|
2.2
|
%
|
|
|
74,973
|
(3)(4)
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Goden
|
|
|
32,856
|
(3)(4)
|
|
|
1.0
|
%
|
|
|
32,856
|
(3)(4)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and
executive officers as a
group (9 persons)
|
|
|
1,998,733
|
(3)(4)(5)
|
|
|
56.7
|
%
|
|
|
1,998,733
|
(3)(4)(5)
|
|
|
52.3
|
%
|
|
|
|
*
|
|
Represents less than 1%
|
|
(1)
|
|
Assumes all option holders with options exercisable within 60 days of the date hereof
exercise such options before the distribution of CIPAR stock.
|
|
(2)
|
|
Includes 1,175,980 shares owned of record by Clarion Capital Corporation, an entity of which
Mr. Cohen is a principal.
|
|
(3)
|
|
Includes shares issuable upon exercise of options exercisable within 60 days of the date
hereof as follows: Messrs. Cohen, Boeckman and Immerman 15,000 shares each, Mr. Ozan 25,000
shares, Mr. Pawlak 16,700 shares, Mr. Wheeler 17,500 shares, and Mr. Goden 25,000 shares.
|
|
(4)
|
|
Includes shares owned in the Cohesant sponsored 401(k) Plan as of December 31, 2007 as
follows: Mr. Pawlak 4,605 shares, Mr. Wheeler 6,092 shares, Mr. LeMaire 3,926 shares, and Mr.
Goden 406 shares.
|
82
|
|
|
(5)
|
|
Includes 129,200 shares issuable upon exercise of options exercisable within 60 days of the
date hereof. Includes 15,029 shares owned in the Cohesant sponsored 401(k) Plan as of
December 31, 2007.
|
On December 3, 2007, in connection with the execution of the Merger Agreement, each of Messrs.
Cohen, Pawlak and Wheeler, together with Clarion Capital Corporation, who, in the aggregate, own
approximately 45% of the outstanding shares of the Company, entered into the Voting and Support
Agreement under which they have each agreed to vote
FOR
the adoption of the Merger Agreement. As
part of such Agreement, they furnished Graco a proxy to vote their shares in favor of the proposal
to approve the Merger Agreement.
There has been no public market for CIPAR common stock. We have not requested, and therefore
have not been approved, to list our common stock on any securities exchange. We anticipate that
the shares of CIPAR common stock will be quoted in the over-the-counter markets. Immediately prior
to the spin-out, CIPAR is expected to change its name to Cohesant, Inc. Initially, the CIPAR
common stock will be registered under the Securities Exchange Act; however, the Board of Directors
of CIPAR may examine such registration, from time to time, and elect to deregister the CIPAR Common
Stock if such de-registration is permitted under federal law and the Board determines such action
is in the best interest of CIPAR and its stockholders.
We cannot predict the prices at which our common stock may trade before the spin-off on a
when issued basis or after the spin-off. These prices will be determined by the marketplace and
may be significantly below either the valuation ascribed by Western Reserve or the book value per
share of CIPAR common stock. Prices at which trading in shares of CIPAR common stock occurs may
fluctuate significantly. These prices may be influenced by many factors, including, the small size
of CIPAR, the small size of the public float of CIPAR shares, and quarter-to-quarter variations in
CIPAR actual or anticipated financial results or those of other companies in CIPARs industry or
the markets that CIPAR serves.
Shares of CIPAR common stock that you will receive in the spin-off will be freely
transferable, except if you are considered an affiliate of CIPAR under Rule 144 under the
Securities Act of 1933. Persons who can be considered CIPAR affiliates after the spin-off
generally include individuals or entities that directly, or indirectly through one or more
intermediaries, control, are controlled by, or are under common control with, CIPAR. CIPAR
affiliates may only sell common stock received in the spin-off:
|
|
|
under a registration statement that the SEC has declared effective under the
Securities Act of 1933; or
|
|
|
|
|
under an exemption from registration under the Securities Act of 1933, such as the
exemption afforded by Rule 144.
|
CIPAR has not entered into any agreement or otherwise committed to register any shares of its
common stock under the Securities Act of 1933 for sale by security holders. None of CIPARs common
equity is being, or has been publicly proposed to be, publicly registered or offered by CIPAR,
except for the shares registered in connection with the spin-off on the Form 10-SB of which this
proxy statement/information statement will form a part.
DESCRIPTION OF CAPITAL STOCK OF CIPAR
CIPARs authorized capital stock will consist of:
|
|
|
Seven million shares of common stock, par value $0.01 per share; and
|
|
|
|
|
One million shares of preferred stock,
|
of which 100 shares are outstanding as of the date of this proxy statement/information
statement.
Below, you will find a description of the material provisions of CIPARs certificate of
incorporation affecting the relative rights of CIPARs common and preferred stock. Because this
description is a summary, it does not contain all of the information that may be important to you.
You should read CIPARs certificate of incorporation, which we will file as an exhibit to the Form
10-SB of which this proxy statement/information statement will form a part.
83
Common Stock
Voting Rights
The holders of CIPAR common stock will be entitled to one vote per share on all matters to be
voted on by stockholders. Holders of CIPAR common stock will not be entitled to cumulate their
votes in the election of directors. Generally, all matters on which stockholders will vote must be
approved by a majority of the votes entitled to be cast by all shares of common stock present in
person or represented by proxy, subject to any voting rights granted to holders of any preferred
stock.
Dividends
CIPAR anticipates that future earnings will be used principally to support operations and
finance the growth of the business. Thus, CIPAR does not intend to pay cash dividends on its
common stock in the foreseeable future. If CIPAR declares dividends, the dividend amounts, if any,
will be determined by the Board of Directors. CIPARs board will consider a number of factors,
including its financial condition, capital requirements, funds generated from operations, future
business prospects, applicable contractual restrictions and any other factors the board may deem
relevant.
Other Rights
If CIPAR is liquidated, dissolved or wound up, it will pay the full amounts required to be
paid to holders of shares of any outstanding preferred stock before it makes any payments to
holders of shares of common stock. All holders of shares of CIPAR common stock are entitled to
share ratably in any assets available for distribution to these holders, after all of CIPARs other
creditors have been satisfied.
No shares of CIPAR common stock may be redeemed. Holders of shares of CIPAR common stock do
not have any preemptive rights to purchase additional shares of common stock. Immediately after
the spin-off, all of the outstanding shares of CIPAR common stock will be validly issued, fully
paid and non-assessable.
Preferred Stock
CIPAR may issue preferred stock from time to time in one or more series and with the terms of
each series stated in the resolutions providing for the designation and issue of the series that
the CIPAR board adopts. CIPARs certificate of incorporation authorizes the board to determine the
dividend, voting, conversion, redemption and liquidation preferences, rights, privileges and
limitations pertaining to each series of preferred stock that CIPAR issues. Without seeking any
stockholder approval, the CIPAR board may issue preferred stock with voting and other rights that
could adversely affect the voting power of the holders of CIPAR common stock and could have
anti-takeover effects.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, CIPARs certificate of incorporation and its bylaws contain
provisions relating to the limitation of liability and indemnification of its directors and
officers. We describe these provisions below.
CIPARs certificate of incorporation provides that its directors are not personally liable to
CIPAR or its stockholders for monetary damages for breach of their fiduciary duties as directors to
the fullest extent permitted by Delaware law. Existing Delaware law permits the elimination or
limitation of directors personal liability to CIPAR or its stockholders for monetary damages for
breach of their fiduciary duties as directors, except liability for:
|
|
|
any breach of a directors duty of loyalty to CIPAR or its stockholders;
|
|
|
|
|
acts or omissions not in good faith or involving intentional misconduct or a knowing
violation of law;
|
|
|
|
|
any transaction from which a director derived improper personal benefit;
|
|
|
|
|
the unlawful payment of dividends; and
|
|
|
|
|
unlawful stock repurchases or redemptions.
|
84
Because of these exculpation provisions, stockholders may be unable to recover monetary
damages against directors for actions taken by them that constitute negligence or that otherwise
violate their fiduciary duties as directors, although it may be possible to obtain injunctive or other equitable relief with respect
to such actions. If equitable remedies are not available to stockholders, stockholders may not
have an effective remedy against a director in connection with the directors conduct.
CIPARs bylaws also provide that CIPAR will indemnify and hold harmless any person who was or
is a party or is threatened to be made a party to, or is involved in, any threatened, pending or
completed civil, criminal, administrative or investigative action, suit or proceeding by reason of
the fact that the person:
|
|
|
is or was one of CIPARs directors or officers; or
|
|
|
|
|
is or was serving at CIPARs request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or as a
member of any committee or similar body,
|
to the fullest extent permitted by Delaware Law. CIPAR will also pay the expenses incurred in
connection with any such proceeding in advance of its final disposition to the fullest extent
authorized by Delaware Law. This right to indemnification will be a contract right. CIPAR may, by
action of its board, provide indemnification to its employees and agents to the extent and to the
effect that CIPARs board determines to be appropriate and authorized by Delaware law.
CIPAR intends to purchase and maintain insurance on behalf of any person who:
|
|
|
is or was one of CIPARs directors, officers, employees or agents; or
|
|
|
|
|
is or was serving at CIPARs request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
|
against any liability asserted against and incurred by the person in any such capacity, or arising
out of the persons status as such, whether or not CIPAR would have the power or obligation to
indemnify the person against such liability under its bylaws.
85
ADDITIONAL INFORMATION
This document incorporates important business and financial information about Cohesant and
CIPAR from documents that are not included in or delivered with this document. You can obtain
documents incorporated by reference in this document by requesting them in writing or by telephone
from Cohesant Technologies Inc., Attn: Secretary, 5845 West 82nd Street, Suite 102, Indianapolis,
Indiana 46278, telephone: (317) 871-7611.
You will not be charged for any of these documents that you request. If you wish to request
documents, you should do so by [
] in order to receive them before the special
meeting. See Where You Can Find More Information on page
[
]
.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to incorporate by reference information into this proxy
statement/information statement, which means that important business and financial information
about us can be disclosed to you by referring you to another document filed separately with the
SEC. The information incorporated by reference is considered part of this proxy
statement/information statement, except for any information superseded by information contained
directly in this proxy statement/information statement or in any document that we later file with
the SEC.
This proxy statement/information statement incorporates by reference the documents set forth
below that we have previously filed with the SEC. These documents contain important business and
financial information about us.
|
|
|
Cohesant SEC Filings
|
|
Period and Date Filed
|
Annual Report on Form 10-KSB
|
|
Year ended November 30, 2006 (filed February 26, 2007)
|
|
|
|
Quarterly Reports on Form 10-QSB
|
|
Quarters ended February 28, 2007 (filed April 12,
2007); May 31, 2007 (filed June 29, 2007); and August
31, 2007 (filed October 10, 2007)
|
CIPAR SEC Filings
|
|
|
Form 10-SB
|
|
Filed on January 4, 2008
|
If you are a stockholder, we may have sent you some of the documents incorporated by
reference, but you can obtain any of them through us, the SEC, or the SECs Internet web site as
set forth below. You may obtain documents we incorporate by reference from us without charge,
other than exhibits, except for those that we have specifically incorporated by reference in this
proxy statement/information statement. Stockholders may obtain documents incorporated by reference
in this proxy statement/information statement by requesting them in writing or by telephone from us
at the following address:
Cohesant Technologies Inc.
Attn: Robert W. Pawlak, Chief Financial Officer
5845 West 82nd Street, Suite 102
Indianapolis, Indiana 46278
(317) 871-7611
If
you would like to request documents, please do so by [
], 2008, to receive
the documents before the special meeting. We will send you any of these documents within one
business day of your request by first class mail.
You may read and copy this information at the Public Reference Room of the Securities and
Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on
the operation of the Securities and Exchange Commissions Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers, such as Cohesant, who file electronically with the
SEC. The address of the site is
http://www.sec.gov.
Except as specifically incorporated
by reference into this proxy statement/information statement, information on the Securities and
Exchange Commissions web site is not part of this proxy statement/information statement.
86
Information on the Cohesant Website
Information on any Cohesant Internet website is not part of this document and you should not
rely on that information in deciding whether to approve the Merger Agreement and the Merger, unless
that information is also included in this document or in a document that is incorporated by
reference in this document.
THIS PROXY STATEMENT/INFORMATION STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE A PROXY
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY STATEMENT/INFORMATION STATEMENT
SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/INFORMATION STATEMENT BY REFERENCE
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROXY STATEMENT/INFORMATION STATEMENT.
87
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
F-2
|
|
|
F-3
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors
Cohesant Technologies Inc.
We have audited the accompanying combined balance sheets of CIPAR Inc., CuraFlo of British
Columbia Ltd., and Cohesant Materials Inc., all of which are direct subsidiaries of Cohesant
Technologies Inc., (collectively the Carved-Out Subsidiaries or the CIPAR Business) as of
November 30, 2007 and 2006, and the related combined statements of operations, changes in combined
equity, and cash flows for each of the two years in the period ended November 30, 2007. These
financial statements are the responsibility of the management of Cohesant Technologies Inc., of
which the Carved-Out Subsidiaries are a part. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Carved-Out Subsidiaries internal
control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Carved-Out Subsidiaries internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the combined financial position of the Carved-Out Subsidiaries at November 30, 2007 and
2006, and the combined results of their operations and their cash flows for each of the two years
in the period ended November 30, 2007, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 2 to the Combined Financial Statements, the Carved-Out Subsidiaries
adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment in 2007.
ERNST & YOUNG LLP
Indianapolis, Indiana
January 4, 2008
F-2
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
191,486
|
|
|
$
|
608,682
|
|
Accounts receivable, net of allowance for doubtful accounts of
$130,797 and $114,682, respectively
|
|
|
2,029,601
|
|
|
|
1,919,646
|
|
Income tax receivable
|
|
|
19,148
|
|
|
|
41,195
|
|
Current portion of long-term note receivable
|
|
|
21,935
|
|
|
|
|
|
Inventories, net of allowance for obsolete and slow moving inventories of
$11,000 and $25,809, respectively.
|
|
|
1,270,573
|
|
|
|
699,300
|
|
Costs in excess of billings and estimated earnings
|
|
|
6,005
|
|
|
|
52,805
|
|
Prepaid expenses and other
|
|
|
190,908
|
|
|
|
232,409
|
|
Deferred tax assets
|
|
|
159,298
|
|
|
|
111,454
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,888,954
|
|
|
|
3,665,491
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
1,078,172
|
|
|
|
671,866
|
|
License agreements and other intangibles, net of accumulated
amortization of $349,035 and $230,886, respectively
|
|
|
875,120
|
|
|
|
976,469
|
|
Goodwill
|
|
|
8,767,563
|
|
|
|
8,767,563
|
|
Long-term note receivable, net of current portion
|
|
|
104,070
|
|
|
|
|
|
Other noncurrent assets
|
|
|
7,394
|
|
|
|
7,394
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,721,273
|
|
|
$
|
14,088,783
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-3
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
LIABILITIES
:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
758,108
|
|
|
$
|
753,196
|
|
Current portion of long-term note payable
|
|
|
129,054
|
|
|
|
122,604
|
|
Accrued salaries, benefits and commissions
|
|
|
322,733
|
|
|
|
332,784
|
|
Accrued taxes
|
|
|
26,207
|
|
|
|
192,280
|
|
Billings in excess of costs and estimated earnings
|
|
|
86,328
|
|
|
|
49,224
|
|
Other current liabilities
|
|
|
138,965
|
|
|
|
172,179
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,461,395
|
|
|
|
1,622,267
|
|
|
|
|
|
|
|
|
|
|
Long-term note payable, net of current portion
|
|
|
135,843
|
|
|
|
264,896
|
|
Deferred tax liabilities
|
|
|
650,207
|
|
|
|
413,048
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,247,445
|
|
|
|
2,300,211
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMBINED EQUITY
(Note 4)
|
|
|
12,473,828
|
|
|
|
11,788,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and combined equity
|
|
$
|
14,721,273
|
|
|
$
|
14,088,783
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-4
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
NET SALES
|
|
$
|
11,549,410
|
|
|
$
|
11,966,139
|
|
COST OF SALES
|
|
|
6,053,394
|
|
|
|
6,458,289
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,496,016
|
|
|
|
5,507,850
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT EXPENSES
|
|
|
266,941
|
|
|
|
162,095
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
6,122,143
|
|
|
|
4,538,126
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
6,389,084
|
|
|
|
4,700,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
Loss) income from operations
|
|
|
(893,068
|
)
|
|
|
807,629
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
361
|
|
|
|
7,167
|
|
Interest expense
|
|
|
(28,544
|
)
|
|
|
(4,999
|
)
|
Foreign exchange loss, net
|
|
|
(12,787
|
)
|
|
|
|
|
Other income, net
|
|
|
17,313
|
|
|
|
21,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE TAXES
|
|
|
(916,725
|
)
|
|
|
830,916
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT (PROVISION)
|
|
|
236,804
|
|
|
|
(357,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(679,921
|
)
|
|
$
|
472,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(679,921
|
)
|
|
$
|
472,948
|
|
Foreign currency translation adjustment
|
|
|
99,408
|
|
|
|
12,918
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
$
|
(580,513
|
)
|
|
$
|
485,866
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-5
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
COMBINED STATEMENTS OF CHANGES IN COMBINED EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2007 AND 2006
|
|
|
|
|
|
|
Total
|
|
|
|
Combined
|
|
|
|
Equity
|
|
BALANCE
, November 30, 2005
|
|
$
|
10,839,815
|
|
|
Allocated charges funded by Cohesant Technologies Inc.
|
|
|
729,576
|
|
|
Net distributions to Cohesant Technologies Inc.
|
|
|
(678,791
|
)
|
|
Stock-based compensation funded by Cohesant Technologies Inc.
|
|
|
55,906
|
|
|
Triton acquisition
|
|
|
430,825
|
|
|
Stock returned in connection with the CuraFlo acquisition
|
|
|
(74,625
|
)
|
|
Foreign currency translation
|
|
|
12,918
|
|
|
Net income
|
|
|
472,948
|
|
|
|
|
|
|
BALANCE
, November 30, 2006
|
|
$
|
11,788,572
|
|
|
|
|
|
|
Allocated charges funded by Cohesant Technologies Inc.
|
|
|
781,695
|
|
|
Net contributions from Cohesant Technologies Inc.
|
|
|
296,310
|
|
|
Stock-based compensation funded by Cohesant Technologies Inc.
|
|
|
187,764
|
|
|
Foreign currency translation
|
|
|
99,408
|
|
|
Net loss
|
|
|
(679,921
|
)
|
|
|
|
|
|
BALANCE
, November 30, 2007
|
|
$
|
12,473,828
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-6
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(679,921
|
)
|
|
$
|
472,948
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
349,892
|
|
|
|
243,967
|
|
Stock-based compensation
|
|
|
187,764
|
|
|
|
55,906
|
|
Loss on asset disposal
|
|
|
|
|
|
|
242
|
|
Deferred tax provision
|
|
|
214,929
|
|
|
|
202,732
|
|
Provision for doubtful accounts
|
|
|
61,067
|
|
|
|
20,344
|
|
Net change in assets and liabilities-
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(148,975
|
)
|
|
|
(64,282
|
)
|
Note receivable
|
|
|
(126,005
|
)
|
|
|
|
|
Inventories
|
|
|
(660,575
|
)
|
|
|
(186,584
|
)
|
Costs in excess of billings and estimated earnings
|
|
|
46,800
|
|
|
|
(52,805
|
)
|
Prepaid expenses and other
|
|
|
41,501
|
|
|
|
(140,343
|
)
|
Accounts payable
|
|
|
4,912
|
|
|
|
230,280
|
|
Billings in excess of costs and estimated earnings
|
|
|
37,104
|
|
|
|
(84,620
|
)
|
Other current liabilities
|
|
|
(234,952
|
)
|
|
|
127,213
|
|
Other noncurrent assets
|
|
|
80,160
|
|
|
|
4,973
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(826,299
|
)
|
|
|
829,971
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Patent and trademark additions
|
|
|
(10,780
|
)
|
|
|
|
|
Property and equipment additions
|
|
|
(535,519
|
)
|
|
|
(212,160
|
)
|
Proceeds from sales of property and equipment
|
|
|
|
|
|
|
1,500
|
|
Return of cash paid for acquisition of CuraFlo
|
|
|
|
|
|
|
77,250
|
|
Payment to former owners of acquired CuraFlo business
|
|
|
|
|
|
|
(342,136
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(546,299
|
)
|
|
|
(475,546
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net contributions (distributions) from/to Cohesant Technologies Inc.
|
|
|
296,310
|
|
|
|
(678,791
|
)
|
Funding of allocated charges by Cohesant Technologies Inc.
|
|
|
781,695
|
|
|
|
729,576
|
|
Payments on Triton note payable
|
|
|
(122,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
955,402
|
|
|
|
50,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(417,196
|
)
|
|
|
405,210
|
|
CASH AND CASH EQUIVALENTS
, beginning of year
|
|
|
608,682
|
|
|
|
203,472
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
, end of year
|
|
$
|
191,486
|
|
|
$
|
608,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
Cash paid during the year for-
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
28,544
|
|
|
$
|
4,999
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
325,000
|
|
|
$
|
138,795
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-7
THE CIPAR BUSINESS
(CIPAR INC., CURAFLO OF BRITISH COLUMBIA LTD. AND COHESANT MATERIALS INC.
CARVEDOUT SUBSIDIARIES OF COHESANT TECHNOLOGIES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 2007 AND 2006
1.
NATURE OF BUSINESS
Cohesant Technologies Inc. and its subsidiaries (the Company or Cohesant) are engaged in
the protection and renewal of drinking water distribution systems and wastewater collection systems
for municipal, industrial, commercial and residential infrastructure; the design, development,
manufacture and sale of specialized dispense equipment systems, replacement parts and supplies used
in the operation of the equipment; and the design, development, manufacture and sale of specialty
coatings. Included within the Company are the net assets and operations of CIPAR Inc., CuraFlo of
British Columbia Ltd., and Cohesant Materials Inc. (CMI) (collectively the Carved-Out
Subsidiaries or the CIPAR Business). CIPAR Inc. itself is comprised of three subsidiaries;
CuraFlo Services Inc., CuraFlo Spincast Services Inc., and CuraFlo Franchising Inc. The CIPAR
Business has four revenue categories Equipment and Parts, Coatings, Franchisee and Licensee, and
Protection and Renewal Services (Rehabilitation).
Cohesant reports results for four segments; CIPAR Franchising and Licensing, CIPAR
Rehabilitation, Cohesant Materials Inc., and GlasCraft Inc. As defined here, the CIPAR Business
consists only of the CIPAR Franchising and Licensing, CIPAR Rehabilitation, and Cohesant Materials
segments. CIPAR Franchising and Licensing (i) franchises and licenses systems for the protection
and renewal of drinking water distribution systems and wastewater collection systems for municipal,
industrial, commercial and residential infrastructure; (ii) exclusively sells its Raven and
CuraPoxy branded coatings (manufactured by CMI) as well as other products to its Certified
Applicators, Franchisees and Licensed Dealers and (iii) sells equipment to its Certified
Applicators, Franchisees and Licensed Dealers used for the application of its Raven and CuraPoxy
coatings. In 2007 and 2006, CIPAR Rehabilitation operated (i) three company-owned franchises and
(ii) CuraFlo Spincast Services (CIPAR added CuraFlo Spincast Services to its offerings through the
acquisition of the assets of Triton Insitutech LLC in September 2006) which perform protection,
renewal and replacement of drinking water distribution systems and wastewater collection systems in
Western Canada and the United States.
CMI manufactures, markets and sells corrosion protection and other specialty coatings used in
the protection and renewal of infrastructure. Currently, substantially all of CMIs Coating sales
are to CIPAR.
The CIPAR Business executive offices are located in Cleveland, Ohio with its principal
manufacturing, warehouse and distribution facilities located in Cleveland, Ohio, Tulsa, Oklahoma,
and Vancouver, Canada.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a.
Basis of Presentation
The combined financial statements include the accounts of Carved-Out Subsidiaries and their
direct, wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.
The combined financial statements of the Carved-Out Subsidiaries give effect to accounting and
allocation policies established by Cohesants management for purposes of these combined financial
statements and are in accordance with the guidelines provided by Staff Accounting Bulletin 55,
Allocation of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions,
and Lesser Business Components of Another Entity of the Securities and Exchange Commission.
Allocations include corporate overhead, taxes, and other expenses. The combined financial
statements of the Carved-Out Subsidiaries have been prepared on a basis that management believes to
be reasonable to reflect the combined financial position, results of operations and cash flows of
the businesses that comprise the Carved-Out Subsidiaries, including allocated portions of
Cohesants overhead and administrative shared services.
b.
Allocation Policies
The following allocation policies have been established by management of Cohesant. Unless
otherwise noted, these policies have been consistently applied in the historical financial
statements. In the opinion of management, the
F-8
methods for allocating these costs are reasonable. It is not practicable to estimate the costs that
would have been incurred by the Carved-Out Subsidiaries if they had been operated on a stand-alone
basis.
(i)
Specifically Identifiable Operating Expenses
Costs which relate solely to the operations of the Carved-Out Subsidiaries are allocated
entirely to the Carved-Out Subsidiaries. These expenses consist of costs of personnel who are 100%
dedicated to the operations of the Carved-Out Subsidiaries, all costs associated with locations
that conduct only the business of the Carved-Out Subsidiaries and amounts paid to third parties for
services rendered to the Carved-Out Subsidiaries. In addition, any costs incurred by Cohesant,
which are specifically identifiable to the operations of the Carved-Out Subsidiaries, are allocated
to the Carved-Out Subsidiaries.
(ii)
Shared Operating Expenses
Cohesant allocates the cost of certain corporate general and administrative services and shared
services, including shared personnel, to each location. These shared services include executive
compensation, legal, and accounting costs. These costs have been allocated to the Carved-Out
Subsidiaries based on their relative percentage to consolidated Cohesant revenues. Cohesant
believes the financial size of each of Cohesants operating units best reflects the level of
corporate service provided to each.
(iii)
Allocated Expenses
Allocations of Cohesants expenses as described in (i) and (ii) above have been included in
the combined statements of operations of the Carved-Out Subsidiaries as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Corporate administrative expenses
|
|
$
|
769,578
|
|
|
$
|
736,743
|
|
Investment income
|
|
|
(361
|
)
|
|
|
(7,167
|
)
|
Interest expense
|
|
|
12,478
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated charges from Cohesant
|
|
$
|
781,695
|
|
|
$
|
729,576
|
|
|
|
|
|
|
|
|
(iv)
Taxes
The Carved-Out Subsidiaries allocated share of the consolidated Cohesant Federal and state
tax provision is determined using the stand-alone method. Under the stand-alone method, tax expense
or benefit is calculated as if the Carved-Out Subsidiaries were subject to their own tax returns.
Deferred tax assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities of the Carved-Out Subsidiaries and are measured
using the enacted tax rates that are expected to be in effect in the period in which these
differences are expected to reverse.
c.
Foreign Currency Accounting
The financial statements of the Carved-Out Subsidiaries Canadian location have been
translated into U.S. dollars in accordance with Financial Accounting Standards Board (FASB)
Statement No. 52, Foreign Currency Translation. Assets and liabilities have been translated
using the exchange rate in effect at the balance sheet date. Sales and expenses have been
translated using a weighted-average exchange rate for the period. The resulting translation
adjustments are recorded in combined equity. Gains or losses resulting from foreign currency
transactions are included in Foreign Exchange Loss, net on the combined statements of operations.
d.
Revenue Recognition
Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104). Under SAB 104, revenue is recognized when there is persuasive evidence of
an arrangement, delivery has occurred or services have been rendered, the sales price is fixed or
determinable, and collectibility is reasonably assured.
For equipment, coatings, and replacement and spare part revenue, the criteria of SAB 104 are
generally met upon shipment at which time title and risks of ownership are transferred to these
customers. Therefore, revenue is recognized at the time of shipment. There are no rights of
return, customer acceptance, installation or other post-shipment obligations with any of these
products. Pricing is fixed at the time of shipment.
F-9
The CIPAR Rehabilitation segment performs protection, renewal and replacement of drinking water
distribution systems and wastewater collection systems in accordance with the specifications set
forth in the binding contracts with our customers. Performance under these contracts generally
extends over periods of time ranging from a few months to over a year. Rehabilitation revenues are
recognized on the percentage of completion method in the ratio that total incurred costs bear to
total estimated costs. Excess materials are held in inventory and are not recorded as contract
costs until utilized. The estimated total cost of a contract is based on managements best estimate
of the remaining costs that will be required to complete a project.
Franchise fee and license fee revenue from an individual franchise or license sale is
recognized when all material services or conditions relating to the sale, consisting predominantly
of training, have been substantially performed and collectibility is assured. Revenue is deferred
for franchise and license fees when there are obligations to provide training and other services to
Franchisees and Licensed Dealers. Continuing franchise and license fee revenue, including royalty
revenue, is recognized as the fees are earned and become receivable from the Franchisees and
Licensees.
e.
Statements of Cash Flows
Certain noncash investing activities are described below:
During 2007 and 2006, the Carved-Out Subsidiaries transferred $89,302 and $54,585 of inventory
to property and equipment, respectively.
f.
Advertising Costs
Advertising costs are expensed in the period incurred. Advertising costs in the amounts of
$498,275 and $316,854 were included in selling, general and administrative expenses for 2007 and
2006, respectively.
g.
Cash and Cash Equivalents
The Carved-Out Subsidiaries consider all highly liquid investments purchased with a maturity
of three months or less to be cash. Cash equivalents are stated at cost, which approximates market
value.
h.
Allowance for Doubtful Accounts
The Carved-Out Subsidiaries evaluate the allowance for doubtful accounts on a periodic basis
and review any significant customers with delinquent balances to determine future collectibility.
The determination includes a review of legal issues (such as bankruptcy status), past payment
history, current financial information and credit reports, and the Carved-Out Subsidiaries
experience. Allowances are established in the period in which the account is deemed uncollectable
or when collection becomes uncertain.
i.
Inventories
Inventories are stated at the lower of cost or market, with cost determined using the
first-in, first-out method. Inventory costs include raw material, labor (including material
handling) and overhead costs. An inventory reserve is provided for obsolete and slow-moving
inventory to reduce the carrying amount to its estimated net realizable value. Inventories consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
Raw materials
|
|
$
|
233,587
|
|
|
$
|
215,104
|
|
Finished goods
|
|
|
209,599
|
|
|
|
145,452
|
|
Equipment, parts and supplies
|
|
|
672,618
|
|
|
|
273,475
|
|
Rehabilitation materials
|
|
|
154,769
|
|
|
|
65,269
|
|
|
|
|
|
|
|
|
|
|
$
|
1,270,573
|
|
|
$
|
699,300
|
|
|
|
|
|
|
|
|
F-10
j.
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consisted of the following at November
30:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Costs incurred on uncompleted contracts
|
|
$
|
547,380
|
|
|
$
|
719,209
|
|
Estimated earnings to date
|
|
|
250,751
|
|
|
|
386,199
|
|
|
|
|
Subtotal
|
|
|
798,131
|
|
|
|
1,105,408
|
|
Less Billings to date
|
|
|
(878,454
|
)
|
|
|
(1,101,827
|
)
|
|
|
|
Total
|
|
$
|
(80,323
|
)
|
|
$
|
3,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the accompanying balance sheets under the following caption:
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
6,005
|
|
|
$
|
52,805
|
|
Billings in excess of costs and estimated earnings
|
|
|
(86,328
|
)
|
|
|
(49,224
|
)
|
|
|
|
Total
|
|
$
|
(80,323
|
)
|
|
$
|
3,581
|
|
|
|
|
All unbilled amounts are expected to be billed and collected within one year.
k.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Maintenance and repairs are expensed as
incurred. Depreciation of property, plant and equipment is provided by use of the straight-line
method over the estimated useful lives of the assets, or the lease term, if shorter, for leasehold
improvements, as follows:
|
|
|
Leasehold improvements
|
|
1-5 years
|
Machinery and equipment
|
|
3-10 years
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Leasehold improvements
|
|
$
|
119,943
|
|
|
$
|
61,765
|
|
Machinery and equipment
|
|
|
1,574,793
|
|
|
|
976,970
|
|
|
|
|
|
|
|
|
|
|
|
1,694,736
|
|
|
|
1,038,735
|
|
Less accumulated deprecation
|
|
|
(616,564
|
)
|
|
|
(366,869
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,078,172
|
|
|
$
|
671,866
|
|
|
|
|
|
|
|
|
Depreciation expense for the fiscal years ended November 30, 2007 and 2006 was $237,763 and
$127,391, respectively.
l.
Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill in each of the fiscal years ended November 30, 2007
and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIPAR
|
|
|
CIPAR
|
|
|
|
|
|
|
CMI
|
|
|
Licensing
|
|
|
Rehabilitation
|
|
|
Total
|
|
Balance as of November 30, 2005
|
|
|
420,127
|
|
|
|
6,243,028
|
|
|
|
1,560,758
|
|
|
|
8,223,913
|
|
CuraFlo acquisition
|
|
|
|
|
|
|
(59,058
|
)
|
|
|
(14,765
|
)
|
|
|
(73,823
|
)
|
Triton acquisition (Note 3)
|
|
|
|
|
|
|
|
|
|
|
617,473
|
|
|
|
617,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30,
2006
and 2007
|
|
$
|
420,127
|
|
|
$
|
6,183,970
|
|
|
$
|
2,163,466
|
|
|
$
|
8,767,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets the Carved-Out Subsidiaries test goodwill for impairment on an annual
basis or more frequently if an event occurs or circumstances change that could more likely than not
reduce the fair value of a reporting unit below its carrying amount. The Carved-Out Subsidiaries
estimate fair value based upon the present value of future cash flows. In estimating the future
F-11
cash flows, the Carved-Out Subsidiaries take into consideration the overall and industry economic
conditions and trends, market risk of the Carved-Out Subsidiaries and historical information. The Carved-Out
Subsidiaries have conducted annual impairment tests as of September 1, 2007 and 2006 and determined
that no impairment of goodwill existed.
Intangible Assets
License agreements had a gross balance of $1,121,303 ($864,340 net of amortization) and
$1,121,303 ($976,469 net of amortization) at November 30, 2007 and 2006, respectively, and are
being amortized over 10 years. The Carved-Out Subsidiaries have other intangible assets including
contracting agreements and patents with a net balance of $10,780 and $0 at November 30, 2007 and
2006, respectively. Amortization expense for 2007 and 2006 was $112,129 and $116,576,
respectively, and is estimated to be $112,128 in fiscal 2008 through 2012.
m.
Research and Development
The costs associated with research and development programs for new products and significant
improvements, which totaled $266,941, and $162,095 in 2007 and 2006, respectively, are expensed as
incurred.
n.
Impairment of Long-Lived Assets
The Carved-Out Subsidiaries evaluate the carrying value of long-lived assets and long-lived
assets to be disposed of in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Under the provisions of the statement, the Carved-Out Subsidiaries
continually evaluate their long-lived assets in light of events and circumstances that may indicate
that the remaining estimated useful life may warrant revision or that the remaining carrying value
may not be recoverable. When factors indicate that long-lived assets should be evaluated for
possible impairment, the Carved-Out Subsidiaries use an estimate of the related undiscounted cash
flows over the remaining life of the asset in measuring whether that asset is recoverable. To the
extent an impairment has occurred, the excess of the carrying value of the long-lived assets over
their estimated fair value will be charged to operations.
o.
Stock-based Compensation
Cohesant has a long-term incentive plan to provide employees with stock options and restricted
stock. Stock-based compensation includes compensation expense associated with the issuance of
stock options to purchase Cohesant common stock and for the issuance of restricted stock of
Cohesant.
The Carved-Out Subsidiaries adopted SFAS No. 123 (revised 2004), Share-Based Payment on
December 1, 2006 (SFAS No. 123R). SFAS No. 123R, which revised SFAS No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, superseded APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R requires that all
share-based payments to employees, including grants of employee stock options, be recognized in the
financial statements based upon their fair value. The Carved-Out Subsidiaries had previously
followed APB No. 25 in accounting for its stock options and accordingly, no stock-based
compensation cost had been previously expensed other than for restricted stock.
The Carved-Out Subsidiaries have adopted SFAS No. 123R using the modified prospective method.
Under this transition method, compensation cost has been recognized for all share-based payments in
the combined financial statements in fiscal 2007 based upon the fair value of the stock or option
grant. Prior period results have not been restated. The Carved-Out Subsidiaries use the
Black-Scholes valuation model. The Carved-Out Subsidiaries policy is to recognize expense for
awards subject to graded vesting using the straight-line attribution method. The amount of
after-tax compensation cost related to nonvested stock options and restricted stock not yet
recognized was $159,023 at November 30, 2007, for which the expense will be recognized through
2011.
As a result of adopting SFAS No. 123R on December 1, 2006, the Carved-Out Subsidiaries have
incurred additional stock-based compensation expense of $166,626 ($106,509 after tax) for the year
ended November 30, 2007.
SFAS No. 123, as amended, required pro forma presentation as if compensation costs had been
expensed under the fair value method. For purpose of pro forma disclosure, the estimated fair value
of stock options at the grant date is amortized to expense over the vesting period. The following
table illustrates the effect on net income if compensation expense had been recognized in the year
ended November 30, 2006:
F-12
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
|
November 30, 2006
|
|
Net income, as reported
|
|
$
|
472,948
|
|
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
|
|
|
34,662
|
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
|
|
|
(154,461
|
)
|
|
|
|
|
Pro forma net income
|
|
$
|
353,149
|
|
|
|
|
|
In accordance with FAS 123R, awards granted to employees of the Carved-out Subsidiaries are
reflected in these combined financial statements even though the stock compensation was granted in
the common stock of Cohesant. Additionally, stock-based compensation costs for corporate employees
have been allocated to these combined financial statements as discussed herein.
p.
Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and expenses during the
reporting period. These estimates also include the allocation of costs from Cohesant to the
Carved-Out Subsidiaries. Actual results could differ from those estimates.
q.
New Accounting Standards
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the recognition
threshold and measurement principles for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 (fiscal
year 2008). The Carved-Out Subsidiaries are currently evaluating the provisions of FIN 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements. The Statement provides guidance for using fair value to measure assets
and liabilities and only applies when other standards require or permit the fair value measurement
of assets and liabilities. It does not expand the use of fair value measurement. This Statement is
effective for fiscal years beginning after November 15, 2007. The FASB is currently proposing to
delay the effective date of the Statement to fiscal years beginning after November 15, 2008, for
all nonfinancial assets and nonfinancial liabilities except those that are recognized or disclosed
at fair value in the financial statements on a reoccurring basis (that is, at least annually). The
Carved-Out Subsidiaries are evaluating the impact that this Statement will have on the Carved-Out
Subsidiaries financial position, results of operations, and cash flows.
3.
ACQUISITIONS
CURAFLO
On August 12, 2005, Cohesant acquired substantially all of the assets and assumed certain
liabilities of 4279 Investments Ltd., a British Columbia corporation, and its subsidiaries, CuraFlo
Technologies Inc., a Canadian federal company, Curalease Ltd., a British Columbia corporation,
CuraFlo Technologies (Canada) Inc., a British Columbia corporation, CuraFlo of BC Inc. (dba West
Coast Pipe Restoration Ltd.), a British Columbia corporation, CuraFlo Technologies (USA) Inc., a
Nevada corporation, and CuraFlo of the Silicon Valley, Inc., a California corporation (collectively
CuraFlo). CuraFlo, formerly based in Vancouver, Canada, and now part of the operations of the
CIPAR Subsidiary, licenses technology for the protection and renewal of small diameter water pipes.
The process is used to rehabilitate aging water pipes in apartment buildings, private homes and
other commercial, industrial and residential buildings. This process is an alternative to the
process of tearing out and replacing the old pipes. CuraFlo also provides
F-13
equipment, epoxy (supplied by CMI) and other supplies to its Franchisees and Licensees. In
addition CuraFlo performs protection, renewal and replacement of plumbing lines in Western Canada
and the United States.
TRITON
On September 5, 2006, Cohesant completed the purchase of the operations and substantially all
of the assets of Triton Insitutech, LLC, of Orlando Florida; such assets were then contributed to
CuraFlo Spincast Services Inc., the results of which are included with those of the Carved-Out
Subsidiaries. The CuraFlo Spincast System utilizes epoxy and other polymer linings to rehabilitate
aging medium and large diameter water, wastewater and other pipelines, including public and private
water mains. The purchase price included an initial cash payment of $400,000, direct legal costs
related to the acquisition of $30,285, and an unsecured, $387,500 three-year promissory note,
bearing interest at 5.16% per annum and payable in quarterly installments, for a total purchase
price of $817,785. Further, up to $387,500 of additional consideration is contingent on certain
performance achievements occurring on or before September 30, 2009, and is payable as each
performance measure is attained and each contingency is resolved. The contingent consideration has
not been included as part of the purchase price. The contingent consideration will be recorded and
the amount included as part of the purchase price if and when the contingency is resolved. No
contingent consideration was earned in the period ending November 30, 2007.
4.
COMBINED EQUITY
Combined equity includes Cohesants historical investment in the Carved-Out Subsidiaries,
retained earnings of the Carved-Out Subsidiaries, the funding of allocated expenses from Cohesant,
the U.S. Federal tax benefit recognized using the stand-alone method, and the intercompany accounts
between the Carved-Out Subsidiaries and Cohesant.
5.
RETIREMENT PLANS
Cohesant has a defined contribution profit sharing and savings plan for all United States
employees meeting minimum eligibility requirements. It is Cohesants policy to contribute up to 3%
of total wages for each employee who makes certain minimum contributions. The amounts contributed
for the Carved-Out Subsidiaries employees during 2007 and 2006 were $36,880 and $32,652,
respectively.
6.
INCOME TAXES
The provision for income taxes consists of the following at November 30:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
CURRENT
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(555,843
|
)
|
|
$
|
(126,199
|
)
|
State
|
|
|
(6,244
|
)
|
|
|
30,588
|
|
Canadian
|
|
|
110,354
|
|
|
|
250,847
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(451,733
|
)
|
|
|
155,236
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
214,929
|
|
|
|
202,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX (BENEFIT) PROVISION
|
|
$
|
(236,804
|
)
|
|
$
|
357,968
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory U.S. Federal income tax rate to the Companys effective income
tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
(5.9
|
)
|
|
|
5.3
|
|
State valuation allowance
|
|
|
13.0
|
|
|
|
3.1
|
|
Other
|
|
|
1.1
|
|
|
|
0 .7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(25.8
|
)%
|
|
|
43.1
|
%
|
|
|
|
|
|
|
|
|
|
Temporary differences which give rise to the net deferred tax liability at November 30 are as
follows:
F-14
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
State net operating loss
|
|
|
127,667
|
|
|
|
18,237
|
|
Financial reporting reserves not yet deductible
|
|
|
100,370
|
|
|
|
118,907
|
|
Stock based compensation
|
|
|
76,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,138
|
|
|
|
137,144
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(600,598
|
)
|
|
|
(391,459
|
)
|
Property, plant and equipment
|
|
|
(27,301
|
)
|
|
|
(14,937
|
)
|
Other
|
|
|
(22,308
|
)
|
|
|
(6,652
|
)
|
|
|
|
|
|
|
|
|
|
|
(650,207
|
)
|
|
|
(413,048
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(144,840
|
)
|
|
|
(25,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DEFERRED TAX LIABILITY
|
|
$
|
(490,909
|
)
|
|
$
|
(301,594
|
)
|
|
|
|
|
|
|
|
The Carved-Out Subsidiaries have a state tax net operating loss carryforward of approximately
$2.1 million, which will expire beginning in 2028, if unused, and which may be subject to other
limitations under IRS rules. Under SFAS No. 109, Accounting for Income Taxes, deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The Carved-Out
Subsidiaries have determined that a valuation allowance is necessary and, accordingly, has recorded
a valuation allowance for certain deferred tax assets as of November 30, 2007 and 2006. In future
periods, the Carved-Out Subsidiaries will evaluate the deferred income tax asset valuation
allowance and adjust the allowance when management has determined that impairment to future
realizability of the related deferred tax assets, or a portion thereof, has been removed as
provided in the criteria set forth in SFAS No. 109.
The Carved-Out Subsidiaries allocated share of the consolidated Cohesant Federal and state
tax provision was determined using the stand-alone method. Under the stand-alone method, tax
expense or benefit is calculated as if the Carved-Out Subsidiaries were subject to their own tax
returns. Due to the respective legal structures of the Carved-Out Subsidiaries, U.S Federal income
taxes are generally not paid by the Carved-Out Subsidiaries, but are included in the amounts paid
by Cohesant Technologies Inc. on a consolidated basis. The U.S. Federal tax benefit recognized in
the statement of operations is included in combined equity, within net distributions/contributions
to/from Cohesant Technologies Inc.
7.
RELATED PARTY TRANSACTIONS
The Carved-Out Subsidiaries are party to a number of transactions with their parent, Cohesant.
Such transactions primarily involve the provision for certain corporate services, which have been
allocated to the Carved-Out Subsidiaries as described in Note 2 and are reflected in the combined
financial statements.
8.
SEGMENT INFORMATION
Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, the Carved-Out Subsidiaries have reportable segments of CIPAR Franchising and
Licensing, CIPAR Rehabilitation, and CMI. CIPAR Franchising and Licensing is a franchisor and
licensor of its technology and sells epoxy coatings, supplied by CMI, and equipment used to apply
its technology to its Certified Applicators, Franchisees and Licensed Dealers. CIPARs franchisee
and licensee revenue includes franchise and license fees, royalty revenues, equipment rental as
well as other value added services. CIPAR Rehabilitation performs protection, renewal and
replacement of drinking water distribution and wastewater collection systems (Rehabilitation
revenue). CMI sells corrosion protection and other specialty coatings used in the protection and
renewal of infrastructure. CMIs sales and marketing focus is on developing new markets for its
AquataPoxy products, although substantially all of its sales currently are internal sales to the
CIPAR Franchising and Licensing segment.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Carved-Out Subsidiaries account for intersegment sales and
transfers at cost plus a specified mark-up. Reportable segment information is as follows:
F-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIPAR
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchising &
|
|
CIPAR
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
Rehabilitation
|
|
CMI
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
6,843,605
|
|
|
$
|
4,115,453
|
|
|
$
|
590,352
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,549,410
|
|
Intersegment sales
|
|
|
175,577
|
|
|
|
|
|
|
|
3,430,624
|
|
|
|
|
|
|
|
(3,606,201
|
)
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
7,019,182
|
|
|
$
|
4,115,453
|
|
|
$
|
4,020,976
|
|
|
$
|
|
|
|
$
|
(3,606,201
|
)
|
|
$
|
11,549,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
|
7,112,389
|
|
|
|
4,279,859
|
|
|
|
573,891
|
|
|
|
|
|
|
|
|
|
|
|
11,966,139
|
|
Intersegment sales
|
|
|
55,504
|
|
|
|
|
|
|
|
3,390,286
|
|
|
|
|
|
|
|
(3,445,790
|
)
|
|
|
|
|
|
|
|
Total net sales
|
|
|
7,167,893
|
|
|
|
4,279,859
|
|
|
|
3,964,177
|
|
|
|
|
|
|
|
(3,445,790
|
)
|
|
|
11,966,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
172,624
|
|
|
|
134,180
|
|
|
|
43,088
|
|
|
|
|
|
|
|
|
|
|
|
349,892
|
|
2006
|
|
|
118,946
|
|
|
|
89,686
|
|
|
|
35,335
|
|
|
|
|
|
|
|
|
|
|
|
243,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
(319,249
|
)
|
|
|
(371,377
|
)
|
|
|
503,729
|
|
|
|
(493,024
|
)
|
|
|
|
|
|
|
(679,921
|
)
|
2006
|
|
|
271,211
|
|
|
|
264,897
|
|
|
|
406,217
|
|
|
|
(469,377
|
)
|
|
|
|
|
|
|
472,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
9,520,388
|
|
|
|
3,960,262
|
|
|
|
1,062,177
|
|
|
|
178,446
|
|
|
|
|
|
|
|
14,721,273
|
|
2006
|
|
|
9,424,075
|
|
|
|
3,540,908
|
|
|
|
971,151
|
|
|
|
152,649
|
|
|
|
|
|
|
|
14,088,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
313,350
|
|
|
|
210,842
|
|
|
|
11,327
|
|
|
|
|
|
|
|
|
|
|
|
535,519
|
|
2006
|
|
|
21,198
|
|
|
|
58,417
|
|
|
|
132,545
|
|
|
|
|
|
|
|
|
|
|
|
212,160
|
|
In 2007 and 2006, CIPAR Franchising and Licensing had a Certified Applicator, F&L Concrete
Services, which accounted for approximately 19% and 21%, respectively of CIPAR Franchising and
Licensings total net sales and 28% and 26% of CIPAR Franchising and Licensings accounts
receivable for the fiscal years ended November 30, 2007 and 2006, respectively. On a combined
basis, this customer accounted for 11% and 12% of the Carved-Out Subsidiaries net sales and 17%
and 20% of the Carved-Out Subsidiaries accounts receivable for the fiscal years ended November 30,
2007 and 2006, respectively.
The following table presents percentage of total revenues by region.
|
|
|
|
|
|
|
|
|
Region
|
|
2007
|
|
2006
|
United States
|
|
|
67
|
%
|
|
|
67
|
%
|
Canada
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
At November 30, 2007 and 2006, property, plant and equipment, net of accumulated depreciation
related to the Companys Canadian Subsidiary was $145,577 and $145,835, respectively.
The Carved-Out Subsidiaries recognize revenues primarily in four general categories of
equipment and parts, coatings, licensee and rehabilitation revenue. The following table sets forth
the product category sales and their percentage of consolidated net sales:
F-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Coatings
|
|
$
|
6,413,600
|
|
|
|
55.6
|
%
|
|
$
|
6,428,330
|
|
|
|
53.7
|
%
|
Rehabilitation
|
|
|
4,115,453
|
|
|
|
35.6
|
|
|
|
4,279,859
|
|
|
|
35.8
|
|
Equipment and Parts
|
|
|
566,517
|
|
|
|
4.9
|
|
|
|
981,811
|
|
|
|
8.2
|
|
Franchisee & Licensee
|
|
|
453,840
|
|
|
|
3.9
|
|
|
|
276,139
|
|
|
|
2.3
|
|
|
|
|
|
|
Total
|
|
$
|
11,549,410
|
|
|
|
100
|
%
|
|
$
|
11,966,139
|
|
|
|
100
|
%
|
9.
COMMITMENTS
The Carved-Out Subsidiaries lease office and manufacturing space and equipment under operating
leases. The Carved-Out Subsidiaries have renewal options at all of their office and manufacturing
facilities ranging from 3 to 10 years. Future minimum lease payments required under these lease
commitments as of November 30, 2007 are as follows:
|
|
|
Fiscal Year
|
|
Amount
|
2008
|
|
260,785
|
2009
|
|
252,020
|
2010
|
|
212,956
|
2011
|
|
148,088
|
2012
|
|
67,299
|
Thereafter
|
|
0
|
Rent expense totaled $242,675 and $137,805 for the years ended November 30, 2007 and 2006,
respectively.
10.
CONTINGENCIES
From time to time, the Carved-Out Subsidiaries are a party to certain legal matters arising in
the ordinary course of business. Management believes the ultimate disposition of these matters
will not have a material adverse effect on the Carved-Out Subsidiaries financial position or
results of operations.
11. SUBSEQUENT EVENT
On December 3, 2007, Cohesant announced that it has entered into a definitive agreement
pursuant to which Graco Inc. would acquire Cohesants GlasCraft Inc. subsidiary. The acquisition
will be accomplished through a merger with Cohesant, and a spin off of all the non-GlasCraft
business operations (i.e. Carved-Out Subsidiaries).
Cohesant recently consolidated all of its infrastructure protection and renewal operations,
including CMI, under the umbrella of its CIPAR subsidiary. As part of the sale of GlasCraft,
Cohesant will spin-off its CIPAR subsidiary by declaring a taxable dividend of one share of CIPAR
for each share of Cohesant common stock outstanding. The resulting company, which will initially be
registered under the Securities Exchange Act and will be quoted on the over-the-counter market,
will be known as Cohesant Inc. and will be based in Cleveland, Ohio.
The acquisition by Graco Inc., which is expected to be completed in the first quarter of 2008,
is conditioned upon customary closing conditions for a transaction of this nature, including the
approval of Cohesants shareholders. The merger agreement contains a customary provision allowing
the Board of Directors to terminate the agreement in the event it receives another offer to
purchase the Company or GlasCraft on terms more favorable to its shareholders than those contained
in the merger agreement.
F-17
Appendix A
AGREEMENT AND PLAN OF MERGER
by and among
GRACO INC.,
GRACO INDIANA INC.,
COHESANT TECHNOLOGIES INC.,
CIPAR INC.
and
GLASCRAFT INC.
DATED AS OF DECEMBER 3, 2007
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
ARTICLE 1.
|
|
DEFINITIONS
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Certain Defined Terms
|
|
|
1
|
|
1.2
|
|
Interpretation
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 2.
|
|
TERMS OF MERGER
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Effect of Merger and Surviving Corporation
|
|
|
10
|
|
2.2
|
|
Stock of Company
|
|
|
11
|
|
2.3
|
|
Company Stock Options; Company Restricted Stock
|
|
|
11
|
|
2.4
|
|
Effect on Merger Sub Stock
|
|
|
13
|
|
2.5
|
|
Exchange Procedures
|
|
|
13
|
|
2.6
|
|
Adjustments
|
|
|
14
|
|
2.7
|
|
Directors of Surviving Corporation
|
|
|
15
|
|
2.8
|
|
Executive Officers of Surviving Corporation
|
|
|
15
|
|
2.9
|
|
No Further Ownership Rights in Stock
|
|
|
15
|
|
2.10
|
|
Certificate of Incorporation and Bylaws
|
|
|
15
|
|
2.11
|
|
Withholding Taxes
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 3.
|
|
THE CLOSING
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Closing Date
|
|
|
16
|
|
3.2
|
|
Certificate of Merger
|
|
|
16
|
|
3.3
|
|
Further Assurances
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 4.
|
|
REPRESENTATIONS AND WARRANTIES OF COMPANY AND COMPANY SUB
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Incorporation, Standing and Power
|
|
|
17
|
|
4.2
|
|
Capitalization
|
|
|
17
|
|
4.3
|
|
Subsidiaries
|
|
|
18
|
|
4.4
|
|
Financial Statements
|
|
|
18
|
|
4.5
|
|
Reports and Filings
|
|
|
19
|
|
4.6
|
|
Authority
|
|
|
20
|
|
4.7
|
|
Insurance
|
|
|
21
|
|
4.8
|
|
Tangible Assets
|
|
|
21
|
|
4.9
|
|
Real Estate
|
|
|
21
|
|
4.10
|
|
Litigation
|
|
|
22
|
|
4.11
|
|
Taxes
|
|
|
22
|
|
4.12
|
|
Compliance with Charter Provisions and Laws and Regulations
|
|
|
25
|
|
4.13
|
|
Employees
|
|
|
26
|
|
4.14
|
|
Brokers and Finders
|
|
|
26
|
|
4.15
|
|
Scheduled Contracts
|
|
|
27
|
|
4.16
|
|
Performance of Obligations
|
|
|
28
|
|
4.17
|
|
Certain Material Changes
|
|
|
28
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
4.18
|
|
Licenses and Permits
|
|
|
29
|
|
4.19
|
|
Undisclosed Liabilities
|
|
|
29
|
|
4.20
|
|
Employee Benefit Plans
|
|
|
29
|
|
4.21
|
|
Corporate Records
|
|
|
32
|
|
4.22
|
|
Accounting Records
|
|
|
32
|
|
4.23
|
|
Vote Required
|
|
|
32
|
|
4.24
|
|
Disclosure Documents and Applications
|
|
|
32
|
|
4.25
|
|
Intellectual Property
|
|
|
33
|
|
4.26
|
|
State Takeover Laws
|
|
|
34
|
|
4.27
|
|
Opinion of Western Reserve Partners, LLC
|
|
|
35
|
|
4.28
|
|
Affiliate Transactions
|
|
|
35
|
|
4.29
|
|
Customers and Suppliers; Inventory
|
|
|
35
|
|
4.30
|
|
No Additional Representations
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 5.
|
|
REPRESENTATIONS AND WARRANTIES OF PARENT
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
5.1
|
|
Incorporation, Standing and Power
|
|
|
36
|
|
5.2
|
|
Authority
|
|
|
36
|
|
5.3
|
|
Ownership of Merger Sub
|
|
|
36
|
|
5.4
|
|
Accuracy of Information Furnished for Company Proxy Statement
|
|
|
36
|
|
5.5
|
|
Financing
|
|
|
37
|
|
5.6
|
|
No Additional Representations
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 6.
|
|
COVENANTS OF COMPANY AND COMPANY SUB PENDING EFFECTIVE TIME OF THE MERGER
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
Limitation on Conduct Prior to Effective Time of the Merger
|
|
|
37
|
|
6.2
|
|
Affirmative Conduct Prior to Effective Time of the Merger
|
|
|
40
|
|
6.3
|
|
Acquisition Proposals
|
|
|
41
|
|
6.4
|
|
No Change in Company Recommendation or Alternative Acquisition Agreement
|
|
|
45
|
|
6.5
|
|
Access to Information
|
|
|
45
|
|
6.6
|
|
Filings
|
|
|
46
|
|
6.7
|
|
Notices; Reports
|
|
|
46
|
|
6.8
|
|
Company Stockholders Meeting
|
|
|
46
|
|
6.9
|
|
Proxy Statement
|
|
|
47
|
|
6.10
|
|
Restructuring and Spin Off
|
|
|
47
|
|
6.11
|
|
Directors and Officers Insurance
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 7.
|
|
COVENANTS OF PARENT AND MERGER SUB
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
7.1
|
|
Limitation on Conduct Prior to Effective Time of the Merger
|
|
|
49
|
|
7.2
|
|
Applications
|
|
|
49
|
|
7.3
|
|
Notices; Reports
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 8.
|
|
ADDIT IONAL COVENANTS
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
Commercially Reasonable Efforts
|
|
|
50
|
|
8.2
|
|
Public Announcements
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 9.
|
|
CONDITIONS PRECEDENT TO THE MERGER
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
9.1
|
|
Stockholder Approval
|
|
|
50
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
9.2
|
|
No Judgments or Orders
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 10.
|
|
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF COMPANY AND COMPANY SUB
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Representations and Warranties; Performance of Covenants
|
|
|
51
|
|
10.2
|
|
Officers Certificate
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 11.
|
|
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
|
|
51
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
Representations and Warranties; Performance of Covenants
|
|
|
51
|
|
11.2
|
|
Authorization of Merger
|
|
|
51
|
|
11.3
|
|
Officers Certificate
|
|
|
52
|
|
11.4
|
|
Company Dissenting Shares
|
|
|
52
|
|
11.5
|
|
Restrictive Covenant Agreements
|
|
|
52
|
|
11.6
|
|
Intercompany Payments
|
|
|
52
|
|
11.7
|
|
Restructuring and Spin Off
|
|
|
52
|
|
11.8
|
|
2007 Audited Financial Statements
|
|
|
52
|
|
11.9
|
|
Assumed Transaction Expenses and Debt Pay-Off Letters Payments
|
|
|
52
|
|
11.10
|
|
Merger Consideration Payments
|
|
|
53
|
|
11.11
|
|
Per Share Merger Consideration Certificate and Option Shares
Merger Consideration Certificate Payments
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 12.
|
|
EMPLOYEE BENEFITS
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
12.1
|
|
Executive Employment Agreements Payments
|
|
|
53
|
|
12.2
|
|
Benefit Plans
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 13.
|
|
TERMINATION
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
13.1
|
|
Termination
|
|
|
55
|
|
13.2
|
|
Effect of Termination
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 14.
|
|
[INTENTIONALLY OMITTED]
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 15.
|
|
MISCELLANEOUS
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
Expenses
|
|
|
59
|
|
15.2
|
|
Notices
|
|
|
59
|
|
15.3
|
|
Assignment
|
|
|
60
|
|
15.4
|
|
Counterparts
|
|
|
60
|
|
15.5
|
|
Effect of Representations and Warranties
|
|
|
61
|
|
15.6
|
|
Third Parties
|
|
|
61
|
|
15.7
|
|
Integration
|
|
|
61
|
|
15.8
|
|
Knowledge
|
|
|
61
|
|
15.9
|
|
Governing Law; Jurisdiction
|
|
|
61
|
|
15.10
|
|
Captions
|
|
|
62
|
|
15.11
|
|
Severability
|
|
|
62
|
|
15.12
|
|
Waiver and Modification; Amendment
|
|
|
62
|
|
A-iii
EXHIBITS AND SCHEDULES
|
|
|
Exhibit A
|
|
Form of Voting and Support Agreement
|
|
|
|
Exhibit B
|
|
Form of Restrictive Covenant Agreement
|
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Exhibit C
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Form of Separation Agreement
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Exhibit D
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Form of Tax Matters Agreement
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Exhibit E
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Form of Transition Services Agreement
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Exhibit F
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Examples of Per Share Merger Consideration Calculation
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Company Disclosure Letter
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A-iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (Agreement) is made and entered into as of the 3rd day of
December, 2007 by and among GRACO INC., a Minnesota corporation (Parent), GRACO INDIANA INC., a
Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub), COHESANT TECHNOLOGIES,
INC, a Delaware corporation (Company), GLASCRAFT INC., an Indiana corporation and a wholly owned
subsidiary of Company (Company Sub) and CIPAR Inc., a Delaware corporation (CIPAR).
WHEREAS, the Boards of Directors of each of Parent, Merger Sub, Company, Company Sub and CIPAR
deem advisable and in the best interests of their respective stockholders to merge Merger Sub with
and into Company (the Merger) upon the terms and conditions set forth herein and in accordance
with the Delaware General Corporation Law (the DGCL) (Company, following the effectiveness of the
Merger, being hereinafter sometimes referred to as the Surviving Corporation);
WHEREAS, the Boards of Directors of Parent, Merger Sub, Company, Company Sub and CIPAR have
approved, and the sole stockholder of Merger Sub, Company Sub and CIPAR have approved, this
Agreement and the Merger pursuant to which Merger Sub will merge with and into Company and each
outstanding share of Company common stock, par value $.001 per share, and each outstanding share
(if any) of Company preferred stock, par value $.001 per share (the Company Stock), excluding any
Company Dissenting Shares (as defined below), will be converted into the right to receive the Per
Share Merger Consideration (as defined below) upon the terms and subject to the conditions set
forth herein;
WHEREAS, the Board of Directors of Company has unanimously resolved to recommend adoption of
the agreement of the Merger and the transactions contemplated hereby by the stockholders of
Company;
WHEREAS, immediately prior to the Effective Time of the Merger (as defined below), Company
will effect the Restructuring and Spin Off (each, as defined below) such that, at the Effective
Time of the Merger, Company Sub is the sole subsidiary of the Company;
WHEREAS, as an inducement to and condition of Parents willingness to enter into this
Agreement, certain of the directors and executive officers of the Company are each entering into a
Voting and Support Agreement (each, a Voting and Support Agreement), each substantially in the
form attached as
Exhibit A
, concurrently with the execution of this Agreement; and
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration of the respective
covenants, agreements, representations and warranties contained herein, the parties hereto agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1
Certain Defined Terms
. Except as otherwise expressly provided for in this Agreement, or unless the context
otherwise requires, as used throughout this Agreement the following terms shall have the respective
meanings specified below:
A-1
Acceptable Confidentiality Agreement has the meaning set forth in Section 6.3(a).
Acquisition Proposal has the meaning set forth in Section 6.3(a).
Affiliate of, or a Person Affiliated with, a specific Person(s) is a Person that directly
or indirectly, through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person(s) specified.
Affiliated Group means, with respect to any entity, a group of entities required or
permitted to file consolidated, combined or unitary Tax Returns (as defined herein).
Alternative Acquisition Agreement has the meaning set forth in Section 6.3(d).
American Chemical means American Chemical Company, a Missouri corporation, which was a
Subsidiary of Cohesant prior to the date hereof and was dissolved prior to the date hereof.
Assumed Transaction Expenses and Debt means all of the following costs, expenses and
liabilities, but only to the extent (a) not paid or satisfied on or before the Effective Time of
the Merger and (b) Company, Company Sub, Parent or Surviving Corporation is or will be liable
therefor (whether directly or indirectly, as a guarantor or otherwise) following the Effective Time
of the Merger:
(A) all costs and expenses (including legal, accounting, investment banking, advisory
and other fees and expenses) incurred by Company, Company Sub or the Spun-Off Entities
relating to the Restructuring and Spin Off;
(B) all costs and expenses (including legal, accounting, investment banking, advisory
and other fees and expenses) incurred by Company, Company Sub or the Spun-Off Entities in
connection the preparation, negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby, including, but not limited to, (1) the Transaction
and Retention Bonuses, (2) the employer portion of all employment tax, including FICA,
Medicare and any other taxes due with respect to Company Stock Options and Transaction and
Retention Bonuses, (3) any payments made to, or associated with, the termination of any
employees of Company or its Subsidiaries at or prior to the Closing, (4) the broker,
fairness and other fees payable to Western Reserve Partners, LLC, (5) all costs, expenses
and premiums associated with the D&O Insurance to be purchased pursuant to Section 6.11 and
(6) the amount of any lost tax benefit to the extent resulting from the inability to deduct
any excess parachute payment under Section 280G of the Code; and
(C) all Debt.
Assumed Transaction Expenses and Debt Pay-Off Letters has the meaning set forth in Section
6.12.
Benefit Arrangements has the meaning set forth in Section 4.20(b).
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Book Entry Shares has the meaning set forth in Section 2.5(b).
Business shall mean the business historically operated by GlasCraft, including the business
of designing, assembling, developing, manufacturing and selling specialized dispense equipment
systems, including, without limitation, metering and pumping units, spray, pour and injection guns,
and specialty engineered products, as well as replacement parts, auxillary components, supplies and
accessories for, or used in the operation of, such equipment; provided, however, that the
definition of Business shall exclude the following: the design, assembly and sale by the Spun-Off
Entities to their licensees and franchisees (for their own use and not for resale) of specialized
equipment systems for dispensing epoxies and other specialty coatings (it being acknowledged and
agreed that the Spun-Off Entities are not in the business of manufacturing any pumps, proportioners
or other component parts of such systems).
Business Day means any day other than a Saturday, Sunday or other day on which banks in New
York or Minnesota are required or authorized by law to be closed.
Capitalization Date has the meaning set forth in Section 4.2(a).
Certificate of Merger has the meaning set forth in Section 3.2.
Certificates has the meaning set forth in Section 2.5(b).
Change in Company Recommendation has the meaning set forth in Section 6.3(d).
Closing has the meaning set forth in Section 3.1.
Closing Date has the meaning set forth in Section 3.1.
CIPAR has the meaning set forth in the recitals.
CMI means Cohesant Materials, Inc., an Oklahoma corporation.
Code means the Internal Revenue Code of 1986, as amended.
Cohesant Canada means Cohesant Infrastructure Protection and Renewal of Canada Ltd., a
corporation organized under the laws of Canada.
Commencement Date has the meaning set forth in Section 12.3.
Common Stock has the meaning set forth in Section 4.2(a).
Company has the meaning set forth in the introductory paragraph of this Agreement.
Company Sub has the meaning set forth in the introductory paragraph of this Agreement.
Company Disclosure Letter means that letter designated as such which has been delivered by
Company and Company Sub to Parent concurrently with the execution and delivery of this Agreement.
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Company Dissenting Shares has the meaning set forth in Section 2.2(c).
Company Option List has the meaning set forth in Section 4.2(b).
Company Patents has the meaning set forth in Section 4.25(b).
Company Property has the meaning set forth in Section 4.12(b).
Company Recommendation has the meaning set forth in Section 4.6.
Company Registered IP has the meaning set forth in Section 4.12(b).
Company Registered Marks has the meaning set forth in Section 4.12(b).
Company Requisite Vote has the meaning set forth in Section 4.23.
Company Restricted Stock means any right to acquire Company Stock issued pursuant to the
Company Stock Option Plans, other than under Company Stock Options.
Company SEC Documents has the meaning set forth in Section 4.5(a).
Company Stock has the meaning set forth in the second recital of this Agreement.
Company Stock Merger Consideration means the product of the Per Share Merger Consideration,
multiplied by
the Number of Outstanding Shares.
Company Stock Option means any option or right to acquire Company Stock issued pursuant to
the Company Stock Option Plans.
Company Stock Option Plans means, collectively, the 1994 Employee Stock Option Plan and the
2005 Long-Term Incentive Plan, in each case as amended.
Company Stockholders Meeting has the meaning set forth in Section 6.8.
Company Sub has the meaning set forth in the recitals.
Confidentiality Agreement means that certain Confidentiality Agreement dated June 22, 2007,
by and between Parent and Company, so as to allow Parent access to certain materials of Company.
Contract has the meaning set forth in Section 4.6.
Copyrights has the meaning set forth in Section 4.25(b).
CuraFlo BC means CuraFlo of British Columbia Ltd., a corporation organized under the laws of
British Columbia.
CuraFlo Franchising means CuraFlo Franchising, Inc., a Delaware corporation, formerly known
as CIPAR Franchising, Inc.
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CuraFlo Services means CuraFlo Services, Inc., a Delaware corporation, formerly known as
CIPAR Services, Inc.
CuraFlo Spincast means CuraFlo Spincast Services, Inc., a Delaware corporation.
Debt means (i) indebtedness for borrowed money, (ii) indebtedness secured by any Encumbrance
on property owned, (iii) indebtedness evidenced by notes, bonds, debentures or similar instruments,
(iv) capital leases, including, without limitation, all amounts representing the capitalization of
rentals in accordance with GAAP, (v) earnouts and similar payment obligations, (vi) guarantees
with respect to liabilities of a type described in any of clauses (i) through (v) above, and (vii)
interest, penalties, premiums, fees and expenses related to any of the foregoing.
Deferred Compensation Plans has the meaning set forth in Section 4.20(f).
DGCL has the meaning set forth in the first recital of this Agreement.
D&O Insurance has the meaning set forth in Section 6.11.
Effective Time of the Merger means the date and time at which the Certificate of Merger is
filed with the Secretary of State of the State of Delaware in accordance with the DGCL, or at such
time thereafter as shall be agreed to by the parties and specified in the Certificate of Merger.
Employee Plans has the meaning set forth in Section 4.20(a).
Encumbrance shall mean any option, pledge, security interest, lien, charge, encumbrance or
restriction (whether on voting or disposition or otherwise), whether imposed by agreement,
understanding, law or otherwise.
Environmental Regulations has the meaning set forth in Section 4.12(b).
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliates has the meaning set forth in Section 4.20(a).
Excess Assumed Transaction Expenses and Debt means the amount, if any, by which the balance
of (A) the Merger Consideration
plus
the Assumed Transaction Expenses and Debt,
minus
(B) the Option Shares Exercise Cash Amount, exceeds $35,000,000. If the balance of
(i) the Merger Consideration
plus
the Assumed Transaction Expenses and Debt,
minus
(ii) the Option Shares Exercise Cash Amount, is equal to or less than $35,000,000, the Excess
Assumed Transaction Expenses and Debt shall be deemed to be zero (0).
Excess Proceeds has the meaning set forth in Section 2.3(c).
Exchange Act means the Securities Exchange Act of 1934, as amended.
A-5
Exchange Agent means Wells Fargo Bank Minnesota, N.A. or another bank proposed by Parent and
reasonably acceptable to Company.
Exchange Fund has the meaning set forth in Section 2.5(a) hereof.
Executive Employment Agreements mean the employment agreements between the Company and
certain officers of the Company described in Section 1.1 of the Company Disclosure Letter.
Expenses has the meaning set forth in Section 15.1 hereof.
Financial Statements means (i) the audited consolidated financial statements of Company
consisting of the balance sheets as of November 30, 2006 and 2005, the related statements of
income, stockholders equity and cash flows for the years then ended and the related notes thereto
and related opinions of Ernst & Young LLP thereon for the years then ended, in each case contained
in the Companys Annual Report on Form 10-KSB, (ii) the unaudited financial statements of the
Company consisting of the balance sheet as of August 31, 2007, and the related statements of
operations and cash flows for the period then ended, contained in the Companys Quarterly Report on
Form 10-QSB filed with the SEC on October 10, 2007 and (iii) the balance sheet of the Company and
Company Sub as of August 31, 2007, which is set forth on Section 1.1 of the Company Disclosure
Letter prepared on a pro forma basis assuming the Restructuring and Spin Off was completed as of
that date (the GlasCraft Balance Sheet).
GAAP means United States generally accepted accounting principles consistently applied
during the periods involved.
GlasCraft Balance Sheet has the meaning set forth in the definition of Financial Statements.
Governmental Entity means any court, tribunal or judicial or arbitral body in any
jurisdiction or any United States federal, state, municipal or local or any foreign or other
governmental, regulatory (including stock exchange) or administrative authority, agency or
instrumentality.
Hazardous Materials has the meaning set forth in Section 4.12(b).
Intellectual Property has the meaning set forth in Section 4.25(a).
IRS means the Internal Revenue Service.
IRS Guidance has the meaning set forth in Section 4.20(f).
Loss means, with respect to any Person, any liability, cost, damage, deficiency, penalty,
fine, Encumbrance, fee, or other loss or expense, including court costs and reasonable attorneys
fees and expenses, whether or not arising out of a third party claim, against or
affecting such Person, but excluding punitive damages (other than punitive damages that an
Indemnified Party is required to pay to an unaffiliated third party).
A-6
Marks has the meaning set forth in Section 4.25(a)
Material Adverse Effect means an event, change, effect, development, condition or occurrence
(1) that is, or would reasonably be expected to be, materially adverse to the condition (financial
or otherwise), business, properties, assets, liabilities, or results of operations of Company or
the Surviving Corporation, taken as a whole, or (2) that materially impairs or materially delays
the ability of the Company to consummate the Restructuring and Spin Off or to consummate the
transactions contemplated hereby; provided, however, that, with respect to clause (1) of this
definition, in determining whether there is a Material Adverse Effect, there shall be excluded
effects to the extent arising or resulting from: (i) any change in GAAP or regulatory accounting
requirements applicable to Company generally, (ii) any general social, political, economic,
environmental or natural condition, change, effect, event or occurrence, including changes in
prevailing interest rates, currency exchange rates or general economic or market conditions, the
effects of which on Company or the Surviving Corporation are not materially disproportionate,
compared with other companies operating in the same industry segments in which Company operates,
(iii) any action or omission by Company taken at the written request or with the prior written
consent of Parent or Merger Sub, and (iv) the undertaking and performance or observance of the
obligations contemplated by this Agreement or the Separation Agreement or the consummation of the
transactions contemplated hereby or thereby, including the public announcement of the transactions
contemplated by this Agreement.
Merger has the meaning set forth in the first recital of this Agreement.
Merger Consideration means the sum of the Company Stock Merger Consideration and the Option
Shares Merger Consideration.
Merger Sub has the meaning set forth in the introductory paragraph of this Agreement.
Notice Period has the meaning set forth in Section 6.3(d).
Number of Outstanding Shares means the total number of shares of Company Stock outstanding
immediately prior to the Effective Time of the Merger, including shares of vested Company
Restricted Stock (if any) and shares of Company Stock that have been issued in connection with the
exercise of any Company Stock Options prior to the Effective Time of the Merger.
Number of Unexercised Company Stock Option Shares means the total number of shares of
Company Stock issuable in respect of all Unexercised Company Stock Options.
Option Shares Exercise Cash Amount has the meaning set forth in Section 2.3(c).
Option Shares Exercise Price Account has the meaning set forth in Section 2.3(c).
Option Shares Merger Consideration has the meaning set forth in Section 2.3(a). The Option
Shares Consideration shall be set forth in a certificate (the Option Shares Merger Consideration
Certificate), jointly executed and delivered by the Chief Financial Officer of each
of Company and CIPAR, setting forth and certifying as to the accuracy of the calculation of
the Option Shares Merger Consideration.
A-7
Option Shares Merger Consideration Certificate has the meaning set forth in the definition
of Option Shares Merger Consideration.
Parent has the meaning set forth in the introductory paragraph of this Agreement.
Patents has the meaning set forth in Section 4.25(a).
Per Share Merger Consideration means the value (rounded down to the nearest whole $0.01 and
taking into account the effect of the Per Share Merger Consideration on, among other things, the
calculation of the Option Shares Merger Consideration, the Company Stock Merger Consideration and
the Merger Consideration) which results in the balance of (A) the Merger Consideration,
plus
the Assumed Transaction Expenses and Debt,
minus
(B) the Option Shares
Exercise Cash Amount, being equal to $35,000,000. Notwithstanding the foregoing, in the event that
the Per Share Merger Consideration, based upon the foregoing calculation, is less than $9.05, the
Per Share Merger Consideration shall be revised upward to $9.05 (thereby resulting in CIPAR
assuming the Excess Assumed Transaction Expenses and Debt and making payment of the Excess Assumed
Transaction Expenses and Debt to Company as provided in Section 6.12), and in the event that the
Per Share Merger Consideration, based upon the foregoing calculation, is greater than $9.55, the
Per Share Merger Consideration shall be revised downward to $9.55 (thereby resulting in Companys
payment to CIPAR of the Excess Proceeds as provided in Section 2.3(c)). Examples of the
calculation of the Per Share Merger Consideration are set forth on
Exhibit F
hereto. The
Per Share Merger Consideration shall be set forth in a certificate (the Per Share Merger
Consideration Certificate), jointly executed and delivered by the Chief Financial Officer of each
of Company and CIPAR, setting forth and certifying as to the accuracy of the calculation of the
Assumed Transaction Expenses and Debt (including that such calculation includes all amounts owing
to all payees in respect of all Assumed Transaction Expenses and Debt), the Number of Outstanding
Shares, the Number of Unexercised Company Stock Option Shares, the Company Stock Merger
Consideration, the Option Shares Merger Consideration and the calculation of the Per Share Merger
Consideration.
Per Share Merger Consideration Certificate has the meaning set forth in the definition of
Per Share Merger Consideration.
Person means any individual, corporation, association, partnership, limited liability
company, trust, joint venture, other entity, unincorporated organization, government or
governmental department or agency or other Governmental Entity.
Preferred Stock has the meaning set forth in Section 4.2(a).
Proxy Statement means the joint proxy and information statement, together with any
amendments or supplements thereto, to be used to solicit proxies for the Company Stockholders
Meeting in connection with the Merger and to provide holders of Company Stock with information
relevant to the Restructuring and Spin Off.
Representatives has the meaning set forth in Section 6.3(a).
A-8
Restrictive Covenant Agreements means those certain Restrictive Covenant Agreements entered
into by and among Parent, Company, Company Sub and the Persons identified in Section 11.5,
substantially in the form attached as
Exhibit B
.
Restructuring has the meaning set forth in Section 6.10.
Scheduled Contract has the meaning set forth in Section 4.15.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Separation Agreement means the Separation Agreement to effect the Restructuring and Spin Off
by and between Company and CIPAR dated as of the date of this Agreement in the form attached hereto
as
Exhibit C
. The transactions contemplated by the Separation Agreement are, by the terms
of the Separation Agreement, to be consummated at or prior to the Effective Time of the Merger.
Spin Off has the meaning set forth in Section 6.10.
Spun-Off Entities means the CIPAR, CMI, CuraFlo Services, CuraFlo Spincast, CuraFlo
Franchising and CuraFlo BC.
Subsidiary of a Person means any current or former corporation, partnership, limited
liability company or other business entity of which more than 25% of the voting power is or was
owned or controlled by such Person.
Sub Stock has meaning set forth in Section 4.2(a).
Superior Proposal has the meaning set forth in Section 6.3(b).
Surviving Corporation has the meaning set forth in the first recital of this Agreement.
Tangible Assets has the meaning set forth in Section 4.8.
Tank has the meaning set forth in Section 4.12(b).
Tax or Taxes means (i) any and all federal, state, local or foreign taxes, charges, fees,
imposts, levies or other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property, corporation and estimated taxes, custom duties, fees,
assessments and charges of any kind whatsoever; (ii) any liability for the payment of any amounts
of the type described in (i) as a result of being a member of an Affiliated Group for any taxable
period or as a result of being a Person required by law to withhold or collect taxes imposed on
another Person; (iii) any liability for the payment of amounts of the type described in (i) and
(ii) as a result of being a transferee of, or a successor-in-interest to, any Person, or as a result of
an express or implied obligation to indemnify any Person (including by reason of a tax sharing, tax
A-9
reimbursement or tax indemnification agreement); and (iv) any and all interest, penalties,
fines, additions to tax or additional amounts imposed by any taxing authority in connection with
any amounts described in clause (i), (ii) or (iii) above.
Tax Matters Agreement means the Tax Matters Agreement between Company and CIPAR dated as of
the date of, or on a date preceding, the consummation of the transactions contemplated by the
Separation Agreement, in the form attached hereto as
Exhibit D
.
Transition Services Agreement means the Transition Services Agreement between Company and
CIPAR dated as of, or on a date preceding, the consummation of the transactions contemplated by the
Separation Agreement, in the form attached hereto as
Exhibit E
.
Tax Returns means all returns, declarations, reports, information returns, statements,
elections, disclosures and schedules required to be filed in respect of any Taxes (including any
attachments thereto or amendments thereof).
Termination Date has the meaning set forth in Section 13.1(e).
Termination Fee has the meaning set forth in Section 13.2(b).
Trade Secrets has the meaning set forth in Section 4.25(a).
Transaction and Retention Bonuses means any employee bonuses, change of control payments,
retention bonuses or similar payments made or triggered in connection with the transactions
contemplated hereby, including any and all payments to be made under the Executive Employment
Agreements in accordance with Section 12.1 hereof.
Unexercised Company Stock Options means all outstanding vested Company Stock Options that
have not been exercised prior to the Effective Time of the Merger.
Voting and Support Agreement has the meaning set forth in the recitals.
1.2
Interpretation
. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words include, includes or including are used in this Agreement they shall be
deemed to be followed by the words without limitation. The words hereof, herein and
herewith and words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs,
exhibits and schedules of this Agreement unless otherwise specified. A reference herein to any
party to this Agreement or any other agreement or document shall include such partys successors
and permitted assigns.
ARTICLE 2.
TERMS OF MERGER
2.1
Effect of Merger and Surviving Corporation
. At the Effective Time of the Merger, Merger Sub will be merged with and into Company
pursuant to the terms, conditions
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and provisions of this Agreement and in accordance with the applicable provisions of the DGCL,
and the separate corporate existence of Merger Sub shall cease and Company shall continue as the
Surviving Corporation of the Merger. The Merger will have the effects set forth in the DGCL.
2.2
Stock of Company
. Subject to Section 2.6, each share of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger shall, without any further action
on the part of Company or the holders of such shares, be treated on the basis set forth in this
Section 2.2.
(a) All shares of Company Stock that are owned by Company as treasury stock and all shares of
Company Stock that are owned directly or indirectly by Company or Parent shall be cancelled and
shall cease to exist, and no Merger Consideration shall be delivered in exchange therefor.
(b) At the Effective Time of the Merger, each issued and outstanding share of Company Stock
(other than shares to be cancelled in accordance with Section 2.2(a)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically be canceled and
cease to be an issued and outstanding share of Company Stock and (except for Company Dissenting
Shares) converted solely into the right to receive, without interest, the Per Share Merger
Consideration.
(c) Notwithstanding anything in this Agreement to the contrary, any shares of Company Stock
that are issued and outstanding as of the Effective Time of the Merger and that are held by a
stockholder of Company who has properly exercised such holders appraisal rights under the DGCL
(the Company Dissenting Shares) shall not be converted into the right to receive the Per Share
Merger Consideration unless and until such holder shall have failed to perfect, or shall have
effectively withdrawn or lost, such holders right to dissent from the Merger under the DGCL and to
receive such consideration as may be determined to be due with respect to such Company Dissenting
Shares pursuant to and subject to the requirements of the DGCL. The holders of Company Dissenting
Shares shall be entitled to only such rights as are granted by Section 262 of the DGCL. If any
such holder fails to perfect or effectively withdraws or loses such right at the Effective Time of
the Merger, each share of such holders Company Stock shall thereupon be deemed to have been
converted into and to have become, as of the Effective Time of the Merger, the right to receive,
without any interest thereon, the Per Share Merger Consideration. Company shall give Parent (i)
prompt notice of any notice or demands for appraisal or payment for shares of Company Stock
received by Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to any such demands or notices. Company shall not, without the prior written consent of
Parent, or as required by DGCL, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
2.3
Company Stock Options; Company Restricted Stock
(a) As soon as practicable following the date of this Agreement, the Board of Directors of Company
(or, if appropriate, any committee administering the Company Stock Option Plans) shall take such
actions as are required to: (i) provide that the vesting of each outstanding Company Stock Option
shall automatically accelerate so that each such Company Stock Option shall, prior to the Closing
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Date, become fully vested and fully exercisable for all the shares of Company Stock at the
time subject to such Company Stock Option and may be exercised by the holder thereof for any or all
of such shares as fully vested shares of Company Stock; (ii) provide that the vesting of each
outstanding share of Company Restricted Stock (if any) shall automatically accelerate so that each
such outstanding share of Company Restricted Stock shall, prior to the Closing Date, become fully
vested; and (iii) provide that, upon the Effective Time of the Merger, each outstanding Unexercised
Company Stock Option shall be cancelled (and each holder of an Unexercised Company Stock Option
shall cease to have any rights with respect thereto except as provided in this Section 2.3(a)(iii))
in exchange for a cash payment by Company of an amount equal to the sum of the following in respect
of each share of Company Stock subject to such Unexercised Company Stock Option: (A) the excess, if
any, of (x) the Per Share Merger Consideration, over (y) the exercise price per share of such share
of Company Stock subject to such Unexercised Company Stock Option (the Option Shares Merger
Consideration). For example, if the Per Share Merger Consideration is equal to $9.50 and if,
under an Unexercised Stock Option, the holder thereof could purchase 40 shares of Company Stock at
an exercise price of $4.00 and 60 shares of Company Stock at an exercise price of $5.00, then the
Option Shares Merger Consideration in respect of such Unexercised Company Stock Option would be
equal to $490.00 (i.e., ($9.50 $4.00)*40 + ($9.50 $5.00)*60).
(b) The Board of Directors of Company (or, if appropriate, any committee administering the
Company Stock Plans) shall adopt such resolutions or take such actions as are required to delete as
of the Effective Time of the Merger the provision in any other Benefit Arrangements of Company
providing for the issuance, transfer or grant of any capital stock of Company or any interest in
respect of any capital stock of Company and to ensure that following the Effective Time of the
Merger no holder of a Company Stock Option or any participant in any Company Stock Plan or other
Company Benefit Arrangement shall have any right thereunder to acquire any capital stock of Company
or the Surviving Corporation.
(c) In the event that the holder of a Company Stock Option exercises such Company Stock Option
prior to the Effective Time of the Merger to purchase a share of Company Stock, the exercise price
paid by such holder for such share of Company Stock under such Company Stock Option shall be
retained by the Company in a separate cash account (the Option Shares Exercise Price Account),
shall be considered an asset of the Company as of the Effective Time of the Merger and shall not be
used or applied by Company for any purpose until after the Effective Time of the Merger. For
purposes of this Agreement, Option Shares Exercise Cash Amount means the aggregate amount of cash
in the Option Shares Exercise Price Account at the Effective Time of the Merger. In the event that
the balance of (A) the Merger Consideration
plus
the Assumed Transaction Expenses and Debt,
minus
(B) the Option Shares Exercise Cash Amount, is less than $35,000,000, then
immediately following the Effective Time of the Merger, Parent shall cause Company to pay to CIPAR,
by wire transfer of immediately available funds out of the Option Shares Exercise Price Account, or
to the extent such funds are insufficient, from funds of Parent, an amount (such amount being the
Excess Proceeds) equal to the amount by which $35,000,000 exceeds the balance of (A) the Merger
Consideration
plus
the Assumed Transaction Expenses and Debt,
minus
(B) the Option
Shares Exercise Cash Amount.
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2.4
Effect on Merger Sub Stock
. At the Effective Time of the Merger, each issued and
outstanding share of capital stock of Merger Sub shall be converted into and become one fully paid
and non-assessable share of common stock of the Surviving Corporation.
2.5
Exchange Procedures
.
(a) (i) At the Effective Time of the Merger, Parent shall deposit with the Exchange Agent for
the benefit of the holders of shares of Company Stock outstanding immediately prior to the
Effective Time of the Merger, for exchange in accordance with this Section 2.5 through the Exchange
Agent, cash in the amount of that portion of the Company Stock Merger Consideration payable to such
holders of Company Stock pursuant to Section 2.2 in exchange for their shares of Company Stock
(collectively, the Exchange Fund). Such amounts may be invested by the Exchange Agent as
directed by Merger Sub or, after the Effective Time of the Merger, the Surviving Corporation;
provided that such investments shall be in short-term obligations of the United States of America
with maturities of no more than 30 days or guaranteed by the United States of America and backed by
the full faith and credit of the United States of America. Any income produced by such investments
will be payable to the Surviving Corporation or Parent, as Parent directs.
(ii) At the Effective Time of the Merger, Parent shall deposit with the payroll agent for the
Company for the benefit of the holders of Unexercised Company Stock Options the Option Share Merger
Consideration; provided, however, that the Parent shall directly pay to any director of the Company
who holds Unexercised Company Stock Options their respective share of the Option Share Merger
Consideration. The payroll agent shall then issue checks to the employees of the Company and its
subsidiaries in amounts equal to such employees share of the Option Share Merger Consideration,
less applicable withholding taxes.
(b) Parent shall direct the Exchange Agent to mail, promptly after the Effective Time of the
Merger, to each holder of record of shares of Company Stock which are represented by (x) a
certificate or certificates which immediately prior to the Effective Time of the Merger represented
outstanding shares of Company Stock (the Certificates) or (y) an entry to that effect in the
shareholder records maintained on behalf of Company by the Company stock transfer agent (the Book
Entry Shares), whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.2 hereof, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates (if any) shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and Company may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates or authorizing transfer and cancellation of Book Entry
Shares in exchange for the Per Share Merger Consideration applicable to such Certificates or Book
Entry Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, or authorizing transfer of Book Entry Shares,
together with such letter of transmittal, duly executed, the holder of such shares of Company Stock
shall be entitled to receive in exchange therefor that portion of
the Company Stock Merger Consideration which such holder has the right to receive pursuant to
Section 2.2 hereof (less any withholding Taxes pursuant to Section 2.11), and any Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated by this Section 2.5,
each Certificate and any Book Entry Shares shall be deemed at any time after the Effective Time
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of the Merger to represent only the right to receive upon such surrender the Merger
Consideration to be paid in consideration therefor upon surrender of such Certificate or transfer
of the Book Entry Shares, as the case may be, as contemplated by this Section 2.5. Notwithstanding
anything to the contrary set forth herein, if any holder of shares of Company Stock that are not
Book Entry Shares should be unable to surrender the Certificates for such shares, because they have
been lost or destroyed, such holder shall, if required by Parent or Exchange Agent, deliver in lieu
thereof a bond in form and substance and with surety reasonably satisfactory to Parent and shall be
entitled to receive that portion of the Company Stock Merger Consideration to be paid in
consideration therefor in accordance with Section 2.2 hereof (less any withholding Taxes pursuant
to Section 2.11).
(c) No interest shall be paid or accrued for the benefit of holders of the Certificates or
Book Entry Shares on that portion of the Company Stock Merger Consideration payable in respect
thereof. If payment of any portion of the Company Stock Merger Consideration is to be made to a
Person other than the Person in whose name the surrendered Certificate is registered, it shall be a
condition of 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 the payment of the applicable portion of the
Company Stock Merger Consideration to a Person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Parent that such Tax either has
been paid or is not applicable.
(d) If, after the Effective Time of the Merger, Certificates or Book Entry Shares are
presented to Parent for any reason, they shall be canceled and exchanged as provided in this
Agreement, subject to the other provisions of this Article 2.
(e) Any portion of the Exchange Fund which remains undistributed to the former stockholders of
Company following the passage of twelve months after the Effective Time of the Merger shall be
delivered (together with any income received with respect thereto) to the Surviving Corporation,
upon demand, and any former stockholders of Company who have not theretofore complied with this
Section 2.5 shall thereafter look only to the Surviving Corporation and/or Parent, subject to any
applicable abandoned property, escheat or similar law, only as general creditors thereof for
payment of their claim for that portion of the Company Stock Merger Consideration payable in
consideration for any Certificate or transfer of any Book Entry Shares.
(f) Any portion of the Exchange Fund remaining unclaimed as of a date which is immediately
prior to such time as such amounts would otherwise escheat to or become property of any
Governmental Entity shall, to the extent permitted by applicable law, become the property of Parent
free and clear of any claims or interests of any Person previously entitled thereto. Except as
otherwise required by law, none of the Exchange Agent, Parent, Company or the Surviving Corporation
shall be liable to any former holder of shares of Company Stock or any other Person for any
consideration from the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6
Adjustments
. If after the date hereof and on or prior to the Effective Date of the Merger, the
outstanding shares of Company Stock shall be changed into a different number of
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shares by reason of any reclassification, recapitalization or combination, stock split,
reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event
shall occur, the Per Share Merger Consideration shall be adjusted accordingly to provide to the
holders of Company Stock the same economic effect as contemplated by this Agreement prior to such
event.
2.7
Directors of Surviving Corporation
. At the Effective Time of the Merger, the
Board of Directors of the Surviving Corporation shall be comprised of the persons serving as
directors of Merger Sub immediately prior to the Effective Time of the Merger. Such persons shall
serve until the earlier of their resignation or removal or until their respective successors are
duly elected and qualified.
2.8
Executive Officers of Surviving Corporation
. At the Effective Time of the Merger,
the executive officers of the Surviving Corporation shall be comprised of the persons serving as
executive officers of Merger Sub immediately prior to the Effective Time of the Merger. Such
persons shall serve until the earlier of their resignation or termination.
2.9
No Further Ownership Rights in Stock
. The applicable portion of the Company Stock
Merger Consideration delivered upon the surrender for exchange of shares of Company Stock in
accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all
rights pertaining to ownership of such shares of stock. At and after the Effective Time of the
Merger, there shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Stock which were outstanding immediately prior to
the Effective Time of the Merger, and upon delivery of the Per Share Merger Consideration upon
surrender for exchange of Company Stock, each such share of Company Stock shall be canceled.
2.10
Certificate of Incorporation and Bylaws
. The Certificate of Incorporation of
Company as in effect immediately prior to the Effective Time of the Merger shall, at the Effective
Time of the Merger and by virtue of the Merger, be amended and restated in its entirety to be
identical to the Certificate of Incorporation of Merger Sub in effect immediately prior to the
Effective Time of the Merger and, as so amended, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with its terms and as provided by law.
The Bylaws of Merger Sub as in effect immediately prior to the Effective Time of the Merger shall,
by virtue of the Merger and without any further action on the part of Company or Merger Sub, be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with their terms and the
certificate of incorporation of the Surviving Corporation and as provided by law.
2.11
Withholding Taxes
. Parent, the Surviving Corporation and the Exchange Agent
shall be entitled to deduct, withhold and transmit to the proper tax authorities from the
consideration otherwise payable to any former holder of shares of Company Stock, Company Stock Options or Company Restricted
Stock (if any) pursuant to this Agreement any stock transfer Taxes and such other amounts as are
required to be withheld under the Code, or any applicable provision of state, local or foreign Tax
law. To the extent that amounts are so withheld and transmitted, such withheld and transmitted
amounts shall be treated for all purposes of this Agreement as having been paid to the holder of
the share of Company Stock, Company
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Stock Option or Company Restricted Stock (if any) in respect of which such deduction and
withholding was made.
ARTICLE 3.
THE CLOSING
3.1
Closing Date
. The closing of the Merger (the Closing) shall take place at the
offices of Lindquist & Vennum P.L.L.P., 80 South Eighth Street, Suite 4200, Minneapolis, MN, at
10:00 a.m. Minneapolis time, on the last day of the calendar month in which the last of the
conditions specified in Articles 9, 10 and 11 (excluding, for purposes of this Section 3.1,
conditions that, by their terms, are to be satisfied on the Closing Date, but subject to the
fulfillment of such conditions at the Closing) have been fulfilled or waived (if permissible), or
such other earlier date or at such other place as Parent may select. The date on which the Closing
actually occurs is referred to herein as the Closing Date.
3.2
Certificate of Merger
. Subject to the provisions of this Agreement, the parties
shall cause a certificate of merger (the Certificate of Merger) to be duly prepared and executed
in such form as required by and in accordance with the relevant provisions of the DGCL and
thereafter delivered to the Secretary of State of the State of Delaware for filing, as provided in
the DGCL, on the Closing Date.
3.3
Further Assurances
. At the Closing, the parties hereto shall deliver, or cause to
be delivered, such documents or certificates as may be necessary in the reasonable opinion of
counsel for any of the parties, to effectuate the transactions contemplated by this Agreement. If,
at any time after the Effective Time of the Merger, the Surviving Corporation shall consider or be
advised that any further deeds, assignments or assurances in law or any other acts are necessary or
desirable to (a) vest, perfect or confirm, or record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets of Company; or (b)
otherwise carry out the provisions of this Agreement, Company and the officers and directors of
Company shall be deemed to have granted to the Surviving Corporation an irrevocable power of
attorney, and the Surviving Corporation and the officers and directors of the Surviving Corporation
shall be authorized in the name of and on behalf of Company to execute and deliver all such deeds,
assignments or assurances in law and to take all acts necessary, proper or desirable to vest,
perfect or confirm title to and possession of such rights, properties or assets in the Surviving
Corporation and otherwise to carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of Company or otherwise to take
any and all such action.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF COMPANY AND COMPANY SUB
The following representations and warranties by Company and Company Sub to Parent and Merger
Sub are qualified by reference to the correspondingly numbered section of the Company Disclosure
Letter; provided, however, that an exception or matter disclosed with respect to one representation
or warranty shall also be deemed disclosed with respect to each other warranty or representation to
which the exception or matter reasonably relates to the extent such relationship is reasonably
apparent on the face of the disclosure contained in the Company
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Disclosure Letter. Except as expressly stated as applicable to one or more of the Spun-Off
Entities, including by referencing the Companys Subsidiaries, no representations and warranties
are being made in this Agreement by the Company with respect to the Spun-Off Entities, the parties
acknowledging that the representations and warranties being made in this Agreement, except as
otherwise stated, pertain to Company Sub and Company. The inclusion of any item in such Company
Disclosure Letter shall not be deemed an admission that such item is a material fact, event or
circumstance or that such item has or had, individually or in the aggregate, a Material Adverse
Effect. Subject to the preceding sentences of this paragraph, Company and Company Sub, jointly and
severally, hereby represent and warrant to Parent and Merger Sub as follows:
4.1
Incorporation, Standing and Power
.
(a) Company has been duly organized, is validly existing and in good standing as a corporation
under the laws of the State of Delaware. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on its business as
presently conducted. The Company is duly qualified to do business in each jurisdiction where the
character of its properties owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect. Company has delivered to Parent true and correct
copies of the Companys Certificate of Incorporation and Bylaws, as currently in effect.
(b) Company Sub has been duly organized, is validly existing and in good standing as a
corporation under the laws of the State of Indiana. Company Sub has all requisite corporate power
and authority to own, lease and operate its properties and assets and to carry on its business as
presently conducted. Company Sub is not required to be qualified to do business in any
jurisdiction, other than the State of Indiana. Company Sub has delivered to Parent true and
correct copies of the Company Subs Certificate of Incorporation and Bylaws, as currently in
effect.
(c) CIPAR has been duly organized, is validly existing and in good standing as a corporation
under the laws of the State of Delaware. CIPAR has all requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its business as presently
conducted. CIPAR is duly qualified to do business in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect. CIPAR has delivered to Parent true and correct copies of CIPARs
Certificate of Incorporation and Bylaws, as currently in effect.
4.2
Capitalization
.
(a) The authorized capital stock of Company consists of 15,000,000 shares of Company Stock
consisting of 10,000,000 shares of common stock, par value $.001 per share (the Common Stock),
and 5,000,000 shares of preferred stock, par value $.001 per share (the Preferred Stock). As of
the close of business on November 30, 2007 (the Capitalization Date), 3,357,809 shares of Common
Stock were issued and outstanding, no shares of Common
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Stock were held in the treasury of Company, and no shares of Preferred Stock were issued or
outstanding. All of the outstanding shares of Company Stock and of the Company Subs capital stock
have been validly issued, fully paid and non-assessable, are not subject to preemptive rights and
have been issued in compliance with all applicable federal and state securities laws, rules and
regulations. From the close of business on the Capitalization Date through the date of this
Agreement, (i) no Company Stock Options or other options to acquire shares of Common Stock or
Preferred Stock have been granted, and (ii) no shares of Common Stock or Preferred Stock have been
issued or become outstanding, or have been sold or transferred from the treasury of the Company,
except Common Stock issued or sold from treasury pursuant to the exercise of Company Stock Options
outstanding on the date hereof in accordance with their terms. Company Sub is, and CIPAR is and at
all times prior to the Spin Off will be, wholly owned by the Company. Company has good and
marketable title to the stock of Company Sub and Company has, and at all time prior to the Spin Off
will have, good and marketable title to the stock of CIPAR, which in each case is set forth on the
Company Disclosure Letter (Sub Stock).
(b) Except for Company Stock Options covering (as of the close of business on the
Capitalization Date) 337,700 shares of Company Stock granted pursuant to the Company Stock Option
Plans, there are no outstanding options, warrants or other rights in or with respect to the
unissued shares of Common Stock, Preferred Stock or Sub Stock nor any securities convertible into
such stock, nor any rights to acquire from Company, Company Sub or CIPAR issued or unissued capital
stock of Company, Company Sub or CIPAR, and none of Company, Company Sub or CIPAR is obligated to
issue any additional shares of its capital stock or any additional options, warrants or other
rights in or with respect to the unissued shares of such stock or any other securities convertible
into such stock. Section 4.2(b) of the Company Disclosure Letter sets forth a list (the Company
Option List) as of the Capitalization Date setting forth the name of each holder of a Company
Stock Option, the number of shares of Company Stock covered by each such option, the vesting
schedule of each such option, the exercise price per share and the expiration date of each such
option.
(c) No bonds, debentures, notes or other indebtedness having the right to vote on any matters
on which stockholders of Company, Company Sub or CIPAR may vote are issued and outstanding. Except
in respect of the issuance of Company Stock upon the exercise of Company Stock Options, there are
no outstanding obligations of Company, Company Sub or CIPAR to repurchase, redeem or otherwise
acquire any options, warrants or other rights in or with respect to the Common Stock, Preferred
Stock, Sub Stock or any securities convertible into such stock (other than with respect to the
payment of or withholding of shares to cover the exercise price or statutory tax withholding as
permitted under the terms of the applicable Company Stock Options or as expressly provided in
Section 2.3).
4.3
Subsidiaries
. Other than Company Sub and the Spun-Off Entities, the Company does
not currently have any Subsidiaries and does not own, directly or indirectly, beneficially or of
record, an equity interest in any Person, except as set forth in Section 4.3 of the Company
Disclosure Letter.
4.4
Financial Statements
. Company has previously furnished to Parent a copy of the
Financial Statements or has included them in the Company Disclosure Letter attached hereto.
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The Financial Statements (a) present fairly, in all material respects, the financial condition
of Company or, in the case of the GlasCraft Balance Sheet, of the Company and Company Sub, as of
the respective dates indicated and its statements of income and changes in stockholders equity and
cash flows, for the respective periods then ended (subject, in the case of unaudited Financial
Statements, to normal year-end adjustments in accordance with GAAP, none of which will be
material); and (b) have been prepared in accordance with GAAP consistently applied throughout the
periods involved (except as may be indicated in the notes thereto).
4.5
Reports and Filings
.
(a) Company has filed or otherwise furnished all required forms, reports, proxy statements,
schedules, registration statements, certifications and other documents with the SEC since July 31,
2002 (including all amendments and supplements thereto filed prior to the date hereof, the Company
SEC Documents). As of their respective dates of filing with the SEC (or, if amended, supplemented
or superseded by a filing prior to the date hereof, as of the date of such filing), the Company SEC
Documents, including any financial statements or schedules included or incorporated by reference
therein, complied in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Documents, and none of the Company SEC Documents, including any financial
statements or schedules included or incorporated by reference therein, when filed (or, to the
extent superseded or amended by a Company SEC Document filed subsequently and prior to the date
hereof, at the date of such subsequent filing), contained any untrue statement of a material fact
or omitted to state a material 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. The
financial statements of Company included in the Company SEC Documents complied as to form, as of
their respective dates of filing with the SEC, in all material respects with all applicable
accounting requirements and with the published rules and regulations of the SEC with respect
thereto.
(b) Each Company SEC Document containing financial statements that has been filed with or
submitted to the SEC since July 31, 2002, was accompanied by the certifications required to be
filed or submitted by the Companys chief executive officer and chief financial officer pursuant to
the Sarbanes-Oxley Act of 2002, and at the time of filing or submission of each such certification,
such certification was true and accurate. To the knowledge of the Company, its chief executive
officer and chief financial officer reasonably expect to give such certifications when next due.
(c) Except as set forth in Section 4.5(c) of the Company Disclosure Letter, since July 31,
2002
,
neither the Company, Company Sub nor, to the Companys knowledge, any director, officer,
employee, auditor, accountant or representative of the Company or Company Sub has received or
otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices, procedures, methodologies or
methods of the Company or its respective internal accounting controls, including any complaint,
allegation, assertion or claim that the Company has engaged in questionable accounting or auditing
practices. No attorney representing the Company, whether or not employed by the Company, has
reported evidence of a material violation of securities laws, breach of fiduciary duty or similar
violation by the Company or any of its officers,
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directors, employees or agents to the Company Board or any committee thereof or to any
director or officer of the Company.
(d) Company has designed and maintains disclosure controls and procedures to ensure that
material information relating to Company is made known to the chief executive officer and the chief
financial officer of Company by others within the Company. As of the date hereof, to the knowledge
of Company, Company has not identified any material weaknesses in the design or operation of its
internal control over financial reporting. In connection with the preparation and filing of its
Forms 10-KSB and Forms 10-QSB for the last two years, the Company disclosed, based on its most
recent evaluation prior to the date thereof, to Companys auditors and the audit committee of
Companys Board of Directors (i) any significant deficiencies and material weaknesses in the design
or operation of its internal control over financial reporting which are reasonably likely to
adversely affect in any material respect Companys 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 Companys internal control over financial reporting.
4.6
Authority
. The execution and delivery by Company, Company Sub and CIPAR of this
Agreement and, subject to obtaining the Company Requisite Vote, the consummation of the
transactions contemplated hereby, including the Restructuring and Spin Off, have been duly and
validly authorized by all necessary corporate action on the part of Company, Company Sub and CIPAR
including, without limitation, the vote of the Boards of Directors of Company and Company Sub
(which votes were unanimous) approving and declaring advisable this Agreement and the Merger,
including the agreement of merger (within the meaning of Section 251 of the DGCL) contained herein.
The Board of Directors of Company has unanimously resolved to recommend that the stockholders of
Company adopt the agreement of merger (within the meaning of Section 251 of the DGCL) at the
Company Stockholders Meeting (the Company Recommendation), which resolutions have not as of the
date of this Agreement been subsequently rescinded or modified. This Agreement is a valid and
binding obligation of Company, Company Sub and CIPAR enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, fraudulent transfer, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles. Except as set forth in Section
4.6 of the Company Disclosure Letter, neither the execution and delivery by Company, Company Sub or
CIPAR of this Agreement, the consummation of the transactions contemplated herein, including the
Restructuring and Spin Off, nor compliance by Company, Company Sub or CIPAR with any of the
provisions hereof, will: (a) conflict with or result in a breach of any provision of any of
Companys, Company Subs or CIPARs Certificate of Incorporation, as amended, or Bylaws, as
amended; (b) constitute a breach of or result in a default, or event that with notice or lapse of
time or both would become a default (or give rise to any rights of termination, cancellation or
acceleration, or unilateral rights to amend, or any right to acquire any securities or assets, or
any loss of benefit), under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, franchise, license, permit, agreement or other instrument or obligation (each, a
Contract) to which Company, Company Sub or CIPAR is a party or by which Company, Company Sub or
CIPAR or any of their respective properties or assets is bound; (c) result in the creation or
imposition of any Encumbrance on any of the properties or assets of Company, Company Sub or CIPAR; or (d)
violate any order, writ, injunction, decree, statute, rule or
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regulation applicable to Company, Company Sub or CIPAR or any of their respective properties
or assets, except with respect to clauses (b), (c) and (d), for such violations, breaches, defaults
or Encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect.
No consent of, approval of, notice to or filing with any Governmental Entity having jurisdiction
over any aspect of the business or assets of Company, Company Sub or CIPAR is required in
connection with the execution and delivery by Company, Company Sub or CIPAR of this Agreement or
the consummation by Company of the Merger or the other transactions contemplated hereby or thereby,
including the Restructuring and Spin Off, except (i) under the Exchange Act (including the filing
of the Proxy Statement and the Form 10 for CIPAR with the SEC) and the rules and regulations
promulgated thereunder and (ii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with relevant authorities of other states in
which the Company is qualified to do business.
4.7
Insurance
. Set forth in Section 4.7 of the Company Disclosure Letter is a list,
as of the date hereof, of all policies of insurance carried and owned by Company, Company Sub and
CIPAR and which are in force on the date hereof. Such policies and bonds provide coverage on such
terms and of such kinds and amounts as is reasonable and customary for businesses of the type
conducted by Company, Company Sub and CIPAR. No insurer under any such policy or bond has canceled
or indicated an intention to cancel or not to renew any such policy or bond or generally disclaimed
liability thereunder. None of the Company, Company Sub or CIPAR is in breach or default (including
with respect to the payment of premiums or the giving of notices) under any such policy or bond
which is material to the operations of Company, Company Sub or CIPAR and all material claims
thereunder have been filed in a timely fashion.
4.8
Tangible Assets
. Company and Company Sub have good and valid title to all of
their respective machinery, equipment, computers and related equipment, furniture, vehicles, and
all other tangible assets and properties (the Tangible Assets) owned or stated to be owned by
Company or Company Sub in the last audited balance sheet included in the Financial Statements or
acquired after the date thereof, free and clear of all Encumbrances except: (a) as set forth in
the Financial Statements; (b) for Encumbrances for current taxes not yet due; (c) for Encumbrances
that are not substantial in character, amount or extent and that do not materially detract from the
value, or interfere with present use, of the property subject thereto or affected thereby, or
otherwise materially impair the conduct of business of Company or Company Sub or (d) Tangible
Assets that were or will be transferred as a result of the Restructuring and Spin Off none of which
are utilized in the conduct of the Business. After giving effect to the Restructuring and the Spin
Off, Company and Company Sub own or lease or will own or lease all Tangible Assets necessary for
the conduct of the Business. Each Tangible Asset material to the operation of the Business is in
good operating condition and repair (ordinary wear and tear excepted), and is suitable for the
purposes for which it is used.
4.9
Real Estate
. Company and Company Sub own no real property. The only real property used or occupied by
Company or Company Sub and necessary for the operation of the Business is Company Subs primary
facility located at 5845 West 82nd Street in Indianapolis, Indiana (the Indianapolis Leased
Property). Company and Company Sub have a valid leasehold interest in the Indianapolis Leased
Property, free and clear of all Encumbrances, except (a) for rights of lessors, co-lessees or
sublessees in such matters that are reflected in the lease as in effect on the date hereof; (b) for
current taxes not yet due and payable; and (c) for such
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Encumbrances, if any, as do not materially detract from the value of or materially interfere
with the present use of such property. Company and Company Sub are in possession of the
Indianapolis Leased Property, and the lease covering the Indianapolis Leased Property is valid
without default thereunder by the lessee or, to the knowledge of Company or Company Sub, the
lessor. Company and Company Sub have made available to Parent complete and correct copies of such
lease covering the Indianapolis Leased Property, including all amendments, supplements, side
letters and other modifications thereto.
4.10
Litigation
. Section 4.10 of the Company Disclosure Letter sets forth each suit,
action, investigation or proceeding (whether judicial, arbitral, administrative or other) pending
or, to the knowledge of Company or Company Sub, threatened in writing against or affecting Company,
Company Sub or any other Subsidiary of Company. Except as set forth on Section 4.10 of the Company
Disclosure Letter, there is no suit, action, investigation or proceeding (whether judicial,
arbitral, administrative or other) pending or, to the knowledge of Company or Company Sub,
threatened against or affecting Company, Company Sub or any other Subsidiary of Company that would,
individually or in the aggregate, have a Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity outstanding against Company, Company
Sub or any other Subsidiary of Company having or that would have, individually or in the aggregate,
a Material Adverse Effect. There are no material judgments, decrees, stipulations or orders
against Company, Company Sub or any other Subsidiary of Company or enjoining their respective
directors, officers or employees in respect of, or the effect of which is to prohibit, any business
practice or the acquisition of any property or the conduct of business in any area.
4.11
Taxes
. Except as set forth in Section 4.11 of the Company Disclosure Letter:
(a) all Tax Returns required to be filed on or prior to the date hereof by or on behalf of
Company and its Subsidiaries (including Company Sub and the Affiliated Group(s) of which Company
and its Subsidiaries is or was a member), have been duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after
giving effect to any valid extensions of time in which to make such filings), and all such Tax
Returns were true, correct and complete, in all material respects, and were prepared in compliance
with all applicable laws;
(b) all Taxes due and payable by or on behalf of Company and its Subsidiaries (including
Company Sub), either directly, as part of an Affiliated Group Tax Return, or otherwise (whether or
not shown due on any Tax Return), have been fully and timely paid;
(c) each of Company and its Subsidiaries has made adequate provision in the consolidated
financial statements contained in the Company SEC Documents discussed in Section 4.5 for all unpaid
Taxes of the Company and its Subsidiaries;
(d) no agreement, waiver or other document or arrangement extending or having the effect of
extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation) has been executed or filed with any taxing authority by
or on behalf of Company, its Subsidiaries or any Affiliated Group(s) of which Company or any of its
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Subsidiaries is or was a member, nor has any closing agreement pursuant to Section 7121 of the
Code been received or entered into by or with respect to Company or its Subsidiaries;
(e) each of Company and its Subsidiaries have materially complied with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes and have duly and timely
withheld from any payments, salaries, wages or other compensation paid to any employee or
independent contractor, shareholder or other Person and have paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all periods under all
applicable laws;
(f) Company has furnished to Parent true and correct copies of each of the following: (i) all
federal Tax Returns of Company and Company Sub for the prior five years; (ii) all state and local
Tax Returns of Company and Company Sub for the prior five years; (iii) all audit reports, letter
rulings, technical advice memoranda and similar documents issued by any taxing authority relating
to the United States Federal, state, local or foreign Taxes due from or with respect to Company and
Company Sub; and (iv) any closing agreements entered into by any of Company and Company Sub with
any tax authority in each case existing on the date hereof;
(g) no written claim has been made by a taxing authority in a jurisdiction where Company or
any of its Subsidiaries does not file a Tax Return that either Company or any of its Subsidiaries
is or may be subject to taxation by that jurisdiction;
(h) all deficiencies asserted or assessments made as a result of any examinations by any
taxing authority of the Tax Returns of or covering or including Company any of its Subsidiaries
have been fully paid and, to the Companys knowledge, there are no other audits or investigations
by any taxing authority in progress, nor has Company or any of its Subsidiaries received any
written notice from any taxing authority that it intends to conduct such an audit or investigation;
(i) no requests for a ruling or a determination letter are pending with any taxing authority
and no issue has been raised in writing by any taxing authority in any current or prior examination
which, by application of the same or similar principles, could reasonably be expected to result in
a proposed deficiency against Company or any of its Subsidiaries for any subsequent taxable period;
(j) except for the Tax Matters Agreement, neither Company nor any of its Subsidiaries is a
party to any tax allocation, indemnification or sharing agreement (or similar agreement or
arrangement), whether written or not written, pursuant to which it will have any obligation to make
any payments after the Closing;
(k) neither Company nor any of its Subsidiaries has been a member of an Affiliated Group other
than a group whose common parent was Company;
(l) to Companys knowledge, neither Company nor any of its Subsidiaries has liability for the
Taxes of any Person (other than Company or Company Sub) under Section 1.1502-6 of the Treasury
Regulations (or any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise;
A-23
(m) neither Company nor any of its Subsidiaries is subject to a private letter ruling issued
by the Internal Revenue Service or a comparable ruling issued by another taxing authority or has a
request for a ruling in respect of Taxes pending with any taxing authority;
(n) there is no contract, agreement, plan or arrangement covering any Person that,
individually or collectively, could give rise to the payment of any amount that would not be
deductible by Company, Company Sub or their Affiliates by reason of Section 280G of the Code, or
would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code;
(o) there are no Encumbrances as a result of any due and unpaid Taxes upon any of the assets
of Company or Company Sub;
(p) neither Company nor any of its Subsidiaries has entered into a transaction that is either
a listed transaction or that is a reportable transaction (both as defined in Section 1.6011-4
of the Treasury Regulations);
(q) Company and its Subsidiaries have disclosed on all relevant Tax Returns any positions
taken therein that could give rise to a substantial understatement of Taxes within the meaning of
Section 6662 of the Code.
(r) neither Company nor any of its Subsidiaries is or has been a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code;
(s) neither Company nor any of its Subsidiaries have been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method
initiated by the Company or its Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method;
(t) neither Company nor any of its Subsidiaries has been a distributing corporation or a
controlled corporation in a distribution intended to qualify under Section 355 of the Code within
the past five years;
(u) Neither the Company nor any of its Subsidiaries has any deferred gain or loss from a
deferred intercompany transaction within the meaning of Section 1.1502-13 of the Treasury
Regulations (or any similar provision under state, local or foreign law) or an excess loss account
with respect to any stock of a Subsidiary within the meaning of Section 1.1502-19 of the Treasury
Regulations (or any similar provision under state, local or foreign law);
(v) none of the indebtedness of Company or Company Sub constitutes (i) corporate acquisition
indebtedness (as defined in Section 279(b) of the Code) with respect to which any interest
deductions may be disallowed under Section 279 of the Code; or (ii) an applicable high yield
discount obligation under Section 163(i) of the Code;
(w) neither Company nor Company Sub will recognize any income or gain (including deferred
intercompany gain under Section 1.1502-13 of the Treasury Regulations (or any similar
A-24
provision under state, local or foreign law)) for federal, state, local or foreign income or
franchise Tax purposes as a result of the Restructuring or the Spin Off; and
(x) neither the Restructuring nor the Spin Off will cause Company or Company Sub to incur any
liability for Taxes (including, without limitation, withholding taxes).
4.12
Compliance with Charter Provisions and Laws and Regulations
.
(a) Company and Company Sub are not (and since July 31, 2002 have not been) in default under
or in breach or violation of (i) any provision of their respective Certificates of Incorporation,
as amended, or Bylaws, as amended, or (ii) any order, writ, injunction, law, ordinance, rule or
regulation promulgated by any Governmental Entity except, with respect to this clause (ii), for
such violations as would not have, individually or in the aggregate, a Material Adverse Effect. No
investigation by any Governmental Entity with respect to Company, Company Sub or any other
Subsidiary of Company is pending or, to the knowledge of Company and Company Sub, threatened, other
than, in each case, those which, individually or in the aggregate, would not have a Material
Adverse Effect.
(b) To Companys and Company Subs knowledge, (i) Company and its Subsidiaries are and have
been in compliance in all material respects with all Environmental Regulations; (ii) there are no
Tanks on or about Company Property or any real estate currently owned or leased or otherwise used
or occupied by any Subsidiary of Company; (iii) there are no Hazardous Materials on, below or above
the surface of, or migrating to or from Company Property or any real estate currently owned or
leased or otherwise used or occupied by any Subsidiary of Company; and (iv) without limiting
Section 4.10 hereof or the foregoing representations and warranties contained in clauses (i)
through (iii), as of the date of this Agreement, there is no claim, action, suit, or proceeding or
notice thereof related to any Environmental Regulation pending against Company or its Subsidiaries
or any Person whose liability Company or any of its Subsidiaries has assumed or retained by
Contract or operation of law and there is no outstanding judgment, order, writ, injunction, decree,
or award against or affecting Company, it Subsidiaries or Company Property that is reasonably
expected to give rise to liability to Company or Company Sub under any Environmental Regulations.
For purposes of this Agreement, the term Environmental Regulations shall mean all applicable
statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises, and similar items, of all Governmental Entities and all
applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the
protection of human health or the environment, including, without limitation, those pertaining to
reporting, licensing, permitting, investigation, and remediation of emissions, discharges,
releases, or threatened releases of Hazardous Materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes whether solid, liquid, or
gaseous in nature, into the air, surface water, groundwater, or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials, or
wastes, whether solid, liquid, or gaseous in nature and all requirements pertaining to the
protection of the health and safety of employees or the public. Company Property shall mean real
estate currently owned or leased or otherwise used or occupied by Company or Company Sub. Tank
shall mean treatment or storage tanks, gas or oil wells and associated piping transportation
devices. Hazardous
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Materials shall mean any substance: (1) the presence of which requires investigation or
remediation under any federal, state or local statute, regulation, ordinance, order, action, policy
or common law; (2) which is or becomes defined as a hazardous waste, hazardous substance, hazardous
material, used oil, pollutant or contaminant under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601, et seq.); the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.); the Clean Air Act, as
amended (42 U.S.C. Section 7401, et seq.); the Federal Water Pollution Control Act, as amended (33
U.S.C. Section 1251, et seq.); the Toxic Substances Control Act, as amended (15 U.S.C. Section
9601, et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 651); the
Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, et seq.); the
Mine Safety and Health Act of 1977, as amended (30 U.S.C. Section 801, et seq.); the Safe Drinking
Water Act (42 U.S.C. Section 300f, et seq.); and all comparable state and local laws; (3)
comparable laws of other jurisdictions or orders and regulations thereunder; or (4) the presence of
which causes or threatens to cause a nuisance, trespass or other common law tort upon real property
or adjacent properties or poses or threatens to pose a hazard to the health or safety of persons or
without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (5)
polychlorinated biphenyls (PCBs), asbestos, lead-containing paints or urea formaldehyde foam
insulation.
(c) To the knowledge of Company, the marketed products of Company and Company Sub are and have
been developed, tested, manufactured and stored by Company in compliance with all applicable laws
and regulations, and with all foreign laws, rules and regulations applicable to Company, Company
Sub or their respective products, including those requirements relating to good manufacturing
practice, except for such non-compliance as would not, individually or in the aggregate, have a
Material Adverse Effect. Since July 31, 2002, there have not been any recalls, whether voluntary
or otherwise, of products manufactured, distributed or sold by Company or Company Sub.
4.13
Employees
. There are no controversies pending or, to the Companys or Company
Subs knowledge, threatened between Company or any of its Subsidiaries and any of their respective
employees that could reasonably be expected to have a Material Adverse Effect. Neither Company nor
any of its Subsidiaries is a party to any collective bargaining agreement with respect to any of
its employees or any labor organization to which any of its employees belong, and no such
collective bargaining agreement is currently being negotiated by or on behalf of Company or Company
Sub. To the knowledge of Company and Company Sub, no activities or proceedings of any labor
organization to organize or attempt to organize any of its employees are pending.
4.14
Brokers and Finders
. Neither Company nor any of its Subsidiaries is a party to
or obligated under any agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the consummation of the
transactions provided for herein will result in any liability to any broker or finder; provided,
however, that the Company has engaged Western Reserve Partners, LLC to provide a fairness opinion to the Companys Board
of Directors and to provide other services relating to the Spin-Off.
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4.15
Scheduled Contracts
. Except as set forth in Section 4.15 of the Company
Disclosure Letter (each item listed or required to be listed in such Company Disclosure Letter
being referred to herein as a Scheduled Contract), as of the date hereof, neither Company nor
Company Sub is a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting Contract that (i) has a
remaining term, as of the date of this Agreement, of more than one year in length of obligation on
the part of Company or Company Sub and is not terminable by Company or Company Sub within one year
without penalty or (ii) requires payment by Company or Company Sub of (or under which such payments
are reasonably expected to be) $25,000 or more per annum;
(b) any advertising, brokerage, distributor, representative or agency relationship or Contract
requiring payment by or to Company or Company Sub of (or under which such payments are reasonably
expected to be) $50,000 or more per annum (other than sales orders entered into in the ordinary
course of business consistent with past practice);
(c) any Contract that restricts Company or Company Sub, or would restrict any Affiliate of
Company or Company Sub or the Surviving Corporation (including Merger Sub and its Subsidiaries
after the Effective Time of the Merger), from competing in any line of business, in any
distribution or sales channel, with any Person or product, or in any geographic area;
(d) any lease of real or personal property providing for annual lease payments by or to
Company in excess of $25,000 per annum (other than sales orders entered into in the ordinary course
of business consistent with past practice);
(e) any (i) license agreement granting any right to use or practice any right under
Intellectual Property (whether as licensor or licensee) (other than sales orders entered into in
the ordinary course of business consistent with past practice) or (ii) Contract involving the
payment of royalties or other amounts exceeding, or that would reasonably be expected to exceed,
$50,000 per annum calculated based upon the revenues or income of Company or Company Sub or income
or revenues related to any product of Company or Company Sub;
(f) any stock purchase, stock option, stock bonus, stock ownership, profit sharing, group
insurance, bonus, deferred compensation, severance pay, pension, retirement, savings or other
incentive, welfare or employment plan or similar Contract providing benefits to any present or
former employees, officers or directors of Company or Company Sub;
(g) any Contract to acquire equipment or any commitment to make capital expenditures of
$25,000 or more;
(h) other than Contracts entered into in the ordinary course of business for the sale of
inventory, any Contract for the sale of any material property or assets in which Company or Company
Sub has an ownership interest or for the grant of any Encumbrance on any such
property or asset, in each case involving consideration in excess of $25,000 individually or
$100,000 in the aggregate;
(i) any Contract for the borrowing of any money and any guaranty agreement;
A-27
(j) any Contract pursuant to which Company or Company Sub has an obligation (contingent or
otherwise) to make an investment in or extension of credit to any Person or any partnership or
joint venture agreement;
(k) any material Contract which would be terminable other than by Company or Company Sub as a
result of the consummation of the transactions contemplated by this Agreement or agreement that
would prevent, materially delay or materially impede Companys or Company Subs ability to
consummate the transactions contemplated by this Agreement;
(l) other than Contracts entered into in the ordinary course of business, any other Contract
of any other kind which involves future payments or receipts or performances of services or
delivery of items requiring payment of $50,000 or more to or by Company or Company Sub;
(m) any Contract that would be required to be filed by Company as a material contract
pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act;
(n) any Contract with any Subsidiary of Company (other than GlasCraft).
Complete, correct and unredacted copies of all Scheduled Contracts, including all amendments,
supplements and other modifications thereto, have been delivered or made available to Parent.
4.16
Performance of Obligations
. Each of the Scheduled Contracts is valid and binding
on Company and, to the knowledge of Company or Company Sub, each other party thereto, and is in
full force and effect, except for such failures to be valid and binding or to be in full force and
effect as would not, individually or in the aggregate, have a Material Adverse Effect. Company and
Company Sub have performed in all respects all of the obligations required to be performed by them
to date and are not in default under or in breach of any term or provision of any Scheduled
Contract to which it is a party, are subject or are otherwise bound, and no event has occurred
that, with the giving of notice or the passage of time or both, would constitute such default or
breach, except where such failure of performance, breach or default would not, individually or in
the aggregate, have a Material Adverse Effect. Except as set forth in the Company Disclosure
Letter, to Companys or Company Subs knowledge, no party to any Scheduled Contract is in default
thereunder, and no event has occurred that, with the giving of notice or the passage of time or
both, would constitute such default.
4.17
Certain Material Changes
. Since August 31, 2007, and prior to the date hereof,
Company and Company Sub have conducted their businesses in the ordinary course consistent with past
practice, except for the negotiation of and entry into this Agreement and except for the
Restructuring and the Spin Off. Except as set forth on Section 4.17 of the Company Disclosure
Letter, since August 31, 2007 there has not been, occurred or arisen any of the following (whether
or not in the ordinary course of business unless otherwise indicated):
(a) any change in methods of accounting or accounting practices, business, or manner of
conducting business, of Company or Company Sub or any other event or development that has had or
would have, individually or in the aggregate, a Material Adverse Effect;
A-28
(b) any damage, destruction or other casualty loss (whether or not covered by insurance) to
any property of Company or its Subsidiaries that has had or would have a Material Adverse Effect;
(c) any amendment, modification or termination of any existing, or entry into any new Contract
or permit that has had or would have a Material Adverse Effect;
(d) any disposition by Company or Company Sub of an asset the lack of which has had or would
have a Material Adverse Effect; or
(e) any direct or indirect redemption, purchase or other acquisition by Company of any equity
securities or any declaration, setting aside or payment of any dividend or other distribution on or
in respect of Company Stock whether consisting of money, other personal property, real property or
other things of value (except for the declaration by the Board of Directors of Company of a
semi-annual cash dividend, payable on December 19, 2007 to Company stockholders of record as of
December 5, 2007 and the subsequent payment of such dividends).
4.18
Licenses and Permits
. Company and Company Sub have all material licenses and
permits that are necessary for the conduct of its business, and such licenses and permits are in
full force and effect in all material respects. The respective properties, assets, operations and
businesses of Company and Company Sub are and have been maintained and conducted, in all material
respects, in compliance with all such applicable licenses and permits. No proceeding is pending
or, to the knowledge of Company and Company Sub, threatened by any Governmental Entity which seeks
to revoke or limit any such licenses or permits. Except for any failures to be in compliance that
would not, individually or in the aggregate, have a Material Adverse Effect, to the knowledge of
Company and Company Sub, any third party that is a manufacturer or contractor for Company is in
compliance with all licenses and permits insofar as the same pertain to the manufacture of product
components or products for Company. To the knowledge of Company and Company Sub, no proceeding,
inquiry or investigation by any Governmental Entity is pending or threatened against any third
party that is a manufacturer or contractor for Company or Company Sub, which threatens to revoke or
limit any such licenses or permits or that otherwise would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the manufacture of product
components or products for Company or Company Sub.
4.19
Undisclosed Liabilities
. Except for liabilities or obligations which,
individually or in the aggregate, do not and would not have a Material Adverse Effect, none of the
Company, Company Sub or any other Subsidiary of Company has any liabilities or obligations, either
accrued or contingent, of any nature that have not been: (a) reflected or disclosed in the
Financial Statements; (b) incurred subsequent to August 31, 2007 in the ordinary course of business
consistent with past practices; or (c) disclosed in Section 4.19 of the Company Disclosure Letter or Company SEC Documents
filed after August 31, 2007 and prior to the date of this Agreement (to the extent it is reasonably
apparent on the face of such Company SEC Documents that such disclosure is applicable).
4.20
Employee Benefit Plans
.
A-29
(a) Company and Company Sub have previously made available to Parent copies of current
documents constituting of each employee benefit plan, as defined in Section 3(3) of ERISA, of
which Company or Company Sub or any member of the same controlled group of corporations, trades or
businesses as Company and Company Sub within the meaning of Section 4001(a)(14) of ERISA (ERISA
Affiliates) is a sponsor or participating employer or as to which Company or Company Sub or any of
its ERISA Affiliates makes contributions or is required to make contributions and which is subject
to any provision of ERISA and covers any employee, whether active or retired, of Company or any of
its ERISA Affiliates, together with all amendments thereto, all currently effective and related
summary plan descriptions, the determination letter from the IRS, the annual reports for the most
recent three years (Form 5500 including, if applicable, Schedule B thereto, and Form 11-K, if
applicable) and a summary of material modifications prepared in connection with any such plan.
Such plans are hereinafter referred to collectively as the Employee Plans, and are listed in
Section 4.20(a) of the Company Disclosure Letter. No Employee Plan is a multiemployer plan
within the meaning of Section 3(37) of ERISA. Each Employee Plan that is intended to be qualified
in form and operation under Section 401(a) of the Code has received a favorable opinion letter from
the IRS and the associated trust for each such Employee Plan is exempt from tax under Section
501(a) of the Code and Company knows of no fact that would materially adversely affect the
qualified status of any such Employee Plan. No event has occurred that will subject such Employee
Plans to a material amount of tax under Section 511 of the Code. All amendments required to bring
each Employee Plan into conformity with all of the applicable provisions of ERISA, the Code and all
other applicable laws have been made, except to the extent that such amendments that would
retroactively cover any period prior to the Effective Time are not required to be adopted prior to
the Effective Time.
(b) Company and Company Sub have previously made available to Parent copies or descriptions of
each plan or arrangement maintained or otherwise contributed to by Company, Company Sub or any of
their ERISA Affiliates which is not an Employee Plan and which (exclusive of base salary and base
wages and any benefit, in each case, required solely under the law of any state) provides for any
form of current or deferred compensation, bonus, stock option, stock awards, stock-based
compensation or other forms of incentive compensation, or insurance, savings, profit sharing,
benefit, severance, change of control, retention, retirement, retiree medical or life insurance,
group health, disability, workers compensation, welfare or similar plan or arrangement for the
benefit of any employee or class of employees, whether active or retired, of Company or any of its
ERISA Affiliates. Such plans and arrangements are hereinafter collectively referred to as Benefit
Arrangements, and are listed in Section 4.20(b) of the Company Disclosure Letter. Except as set
forth in Section 4.20(b) of the Company Disclosure Letter, there has been no material increase in
the compensation of or benefits payable to any senior executive employee of Company or Company Sub
since November 30, 2006, nor any employment, severance or similar contract entered into with any such employee, nor any
material amendment to any such contract, since November 30, 2006.
(c) With respect to all Employee Plans and Benefit Arrangements, Company and Company Sub and
their ERISA Affiliates are in compliance (other than noncompliance the cost or liability for which,
individually or in the aggregate, would not have a Material Adverse Effect) with the terms of such
Employee Plans and Benefit Arrangements, the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations
A-30
currently in effect, including
but not limited to ERISA and the Code, applicable to such plans or arrangements. All government
reports and filings required by law have been properly and timely filed and all information
required to be distributed to participants or beneficiaries has been distributed with respect to
each Employee Plan. There is no pending or, to the Companys or Company Subs knowledge,
threatened legal action, proceeding or investigation against or involving any Employee Plan or
Benefit Arrangement, other than routine claims for benefits. No prohibited transaction, as
defined in Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any
Employee Plan that could subject the Company or any Person for whom the Company or Company Sub has
an obligation to indemnity to liability under Title I of ERISA or to the imposition of tax under
Section 4975 of the Code (other than any such transaction the cost or liability of which would not
have a Material Adverse Effect). No Employee Plan is subject to Title IV or Part 3 of Subtitle B
of Title I of ERISA or Section 412 of the Code. No reportable event as defined in ERISA has
occurred with respect to any of the Employee Plans. All contributions, premiums and other payments
required to be made to each of the Employee Plans or Benefit Arrangement under the terms of the
Employee Plan, Benefit Arrangement and ERISA, the Code or any other applicable laws have been
timely made. Except as required by law or as set forth in Section 4.20(c) of the Company
Disclosure Letter, no condition or term under any Employee Plan or Benefit Arrangement exists which
would prevent Parent, the Surviving Corporation or any of their Subsidiaries from terminating or
amending any such Employee Plan or Benefit Arrangement at any time for any reason without liability
to Parent, the Surviving Corporation or any of their Subsidiaries (other than reasonable
administrative notice periods, ordinary administration expenses, reasonable administrative expenses
related to the termination process, or routine claims for benefits) that, in the aggregate for all
such liability under all such Employee Plans or Benefit Arrangements, would not exceed $100,000.
(d) Except as set forth in Section 4.20(d) of the Company Disclosure Letter, all Company Stock
Options and Company Restricted Stock (if any) granted after July 31, 2002, have been granted in
compliance with (i) the terms of the applicable Company Stock Option Plans, (ii) applicable laws
and (iii) the applicable provisions of Companys Certificate of Incorporation, as amended, and
Bylaws, as amended, and are accurately disclosed as required in (x) the Company SEC Documents and
the Financial Statements and (y) the Tax Returns of Company.
(e) Except as set forth in Section 4.20(e) of the Company Disclosure Letter or expressly
provided in Article 12, neither the execution of this Agreement nor the consummation of the Merger
or any other transaction contemplated by this Agreement (whether alone or in connection with any
other event) will (i) result in any payment or benefit becoming due or payable, or required to be
provided, to any director, employee or independent contractor of Company, Company Sub or CIPAR; (ii) increase the amount or value of any benefit or
compensation otherwise payable or required to be provided to any such director, employee or
independent contractor; (iii) result in the acceleration of the time of payment, vesting or funding
of any such benefit or compensation; or (iv) result in the failure of any amount to be deductible
by reason of Section 280G of the Code.
(f) Section 4.20(f) of the Company Disclosure Letter lists each Employee Plan maintained,
contributed to or under which the Company, Company Sub or any ERISA Affiliate
A-31
has had any Liability
for the period after December 31, 2004 providing for deferred compensation that constitutes a
nonqualified deferred compensation plan (as defined in Section 409A(d)(1) of the Code and
regulations and notice promulgated thereunder, hereinafter IRS Guidance) for any service provider
to the Company, Company Sub or any ERISA Affiliate (or any entity that together with the Company,
Company Sub or any ERISA Affiliate would be a service recipient as defined in Code Section 409A
and IRS Guidance) (the Deferred Compensation Plans). Each Deferred Compensation Plan (i)
complies with requirements of Code Section 409A and IRS Guidance, or (ii) is exempt from compliance
under the grandfather provisions of such IRS Guidance, and has not been materially modified since
October 3, 2004, or (iii) may, without the consent of any service provider or other Person and
without any Liability to the Company, Company Sub or any ERISA Affiliate (or any entity that
together with the Company, Company Sub or any ERISA Affiliate would be a service recipient), other
than for the payment of benefits due thereunder, the full amount of which has been reflected on the
GlasCraft Balance Sheet, be amended or terminated to comply with or to be exempt from, the
requirements of 409A of the Code and IRS Guidance. Each nonqualified deferred compensation plan
has been operated in good faith compliance with any applicable IRS Guidance for the period after
December 31, 2004.
4.21
Corporate Records
. The minute books of Company and Company Sub accurately
reflect all material corporate actions taken by the respective stockholders, board of directors and
committees of Company or Company Sub.
4.22
Accounting Records
. Company, Company Sub and CIPAR maintain accounting records
which fairly and accurately reflect, in all material respects, its transactions, and maintains
accounting controls sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with its managements general or specific authorization, (ii) transactions are
recorded as necessary to permit the preparation of financial statements in conformity with GAAP,
(iii) access to assets is permitted only in accordance with managements general or specific
authorization, and (iv) the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any differences.
4.23
Vote Required
. The affirmative vote of the holders of a majority in combined
voting power of the outstanding shares of Company Stock to adopt the agreement of merger (within
the meaning of Section 251 of the DGCL) contained in this Agreement (the Company Requisite Vote)
is the only vote of the holders of any class or series of Company capital stock necessary to
approve and adopt this Agreement and the transactions contemplated hereby (including the Merger).
The affirmative vote of Companys stockholders is not required to approve, and will not be obtained
in respect of, the Restructuring or Spin Off.
4.24
Disclosure Documents and Applications
. None of the information supplied or to be
supplied by Company or Company Sub for inclusion or incorporation by reference in the Proxy
Statement or in any other document to be filed with the SEC or any other Governmental Entity in
connection with the transactions contemplated in this Agreement will, at the respective times such
documents are filed or become effective, or with respect to the Proxy Statement at the date it is
first mailed to the stockholders of Company and at the time of the Company Stockholders Meeting
(and at the date of any amendment thereof or supplement thereto as thereby supplemented or
amended), contain any untrue statement of a material fact, or omit to
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state any material fact
required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement will, at the date it
is first mailed to stockholders, comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder. Notwithstanding the
foregoing, Company and Company Sub make no representation or warranty with respect to any
information supplied by Parent or Merger Sub or any of their respective representatives which is
contained or incorporated by reference in the Proxy Statement or in any other document to be filed
with the SEC or any other Governmental Entity in connection with the transactions contemplated by
this Agreement.
4.25
Intellectual Property
.
(a) As used herein, the term Intellectual Property means all intellectual property rights,
applicable in whole or in part to the Business, arising under the laws of the United States or any
other jurisdiction with respect to the following: (i) trade names, trademarks and service marks
(registered and unregistered), domain names and applications to register any of the foregoing
(collectively, Marks); (ii) patents and patent applications (collectively, Patents); (iii)
copyrights and registrations and applications therefor (collectively, Copyrights); and (iv)
know-how, inventions, discoveries, methods, processes, technical data, specifications, customer
lists, in each case that derives economic value (actual or potential) from not being generally
known to other persons who can obtain economic value from its disclosure, but excluding any
Copyrights or Patents that cover or protect any of the foregoing (collectively, Trade Secrets).
(b) Section 4.25(b) of the Company Disclosure Letter sets forth an accurate and complete list
of all registered Marks and applications for registration of Marks owned by the Company or Company
Sub (collectively, Company Registered Marks), the Company Disclosure Letter also sets forth an
accurate and complete list of all Patents owned by the Company or Company Sub (collectively, the Company Patents and, together with the Company
Registered Marks, the Company Registered IP). Except as set forth in the Company Disclosure
Letter, no Company Registered IP has been or is now involved in any interference, reissue,
reexamination, opposition or cancellation proceeding and, to the knowledge of the Company or
Company Sub, no such action is or has been threatened with respect to any of the Company Registered
IP. Except as set forth in the Company Disclosure Letter, the Company Registered IP relating to
the Companys or Company Subs existing products and products currently under development is valid,
subsisting and, to the knowledge of the Company and Company Sub, enforceable, and no notice or
claim challenging the validity or enforceability or alleging the misuse of any of the Company
Registered IP has been received by the Company or Company Sub. Except as set forth in the Company
Disclosure Letter, and other than abandoned patent applications and/or closed patent application
files, (i) neither the Company nor Company Sub have taken any action or failed to take any action
that could reasonably be expected to result in the abandonment, cancellation, forfeiture,
relinquishment, invalidation or unenforceability of any of the Company Registered IP, and (ii) all
filing, examination, issuance, post registration and maintenance fees, annuities and the like
associated with or required with respect to any of the Company Registered IP have been timely paid,
except for any such actions and failures as would not, individually or in the aggregate, have a
Material Adverse Effect.
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(c) The Company and Company Sub own or possess adequate licenses or other valid rights to use,
all of the Intellectual Property that is necessary for the conduct of the Companys or Company
Subs businesses as currently conducted and where the failure to own or possess such license or
other valid rights to use such Intellectual Property would have a Material Adverse Effect. Except
as set forth in the Company Disclosure Letter, none of the Intellectual Property owned by the
Company or Company Sub is subject to any outstanding order, judgment, or stipulation restricting
the use thereof by the Company or Company Sub.
(d) The rights licensed under each agreement granting to the Company or Company Sub any
material right or license under or with respect to any Intellectual Property owned by a third party
shall be exercisable by the Surviving Corporation on and after the Closing to the same extent in
all material respects as by the Company or Company Sub prior to the Closing. No loss or expiration
of any such agreement is pending or reasonably foreseeable or, to the knowledge of the Company or
Company Sub, threatened. Any and all license fees, royalties, or other amounts due with respect to
any such licensed Intellectual Property licensed have been paid in full. Neither Company nor
Company Sub have granted to any third party any exclusive rights under any Intellectual Property
owned by the Company or Company Sub or otherwise granted any rights under such Intellectual
Property outside the ordinary course of business.
(e) The Company and Company Sub have taken reasonable steps to protect their respective rights
in the Intellectual Property owned by the Company or Company Sub and maintain the confidentiality
of all material Trade Secrets of the Company and Company Sub. The Intellectual Property owned by
or validly licensed to the Company or Company Sub constitutes all the material Intellectual
Property rights necessary for the conduct of the Companys or Company Subs businesses as each is
currently conducted.
(f) To the knowledge of the Company and Company Sub, none of the products or services
distributed, sold or offered by the Company or Company Sub, nor any technology, materials or Intellectual Property used, sold, distributed or otherwise commercially exploited
by or for the Company or Company Sub, in any material respect, infringes upon, misappropriates or
violates any Intellectual Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction and, to the knowledge of the Company or Company Sub,
neither the Company nor Company Sub have received any notice or claim asserting or suggesting in
writing that any such infringement, misappropriation, violation, or dilution, unfair competition or
trade practices has occurred. To the knowledge of the Company and Company Sub, except as set forth
in the Company Disclosure Letter, (i) no third party is, in any material respect, misappropriating
or infringing any material Intellectual Property owned by the Company or Company Sub; and (ii) no
third party has made any unauthorized disclosure of any material Trade Secrets of the Company or
Company Sub.
4.26
State Takeover Laws
. The Boards of Directors of Company and Company Sub have
approved this Agreement and the transactions contemplated hereby, and have taken such other
actions, and such actions are sufficient, to render inapplicable to the Voting and Support
Agreements, this Agreement and the transactions contemplated thereby and hereby, including, without
limitation, the Merger, all applicable state takeover statutes and any similar fair price,
takeover or interested stockholder law, including Section 203 of the DGCL.
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4.27
Opinion of Western Reserve Partners, LLC
. Company has received the written
opinion of Western Reserve Partners, LLC, dated December 3, 2007, to the effect that, based upon
and subject to the matters set forth in the opinion, the Per Share Merger Consideration is fair
from a financial point of view to the holders of the Company Stock, a complete copy of which
opinion has been made available to Parent solely for informational purposes.
4.28
Affiliate Transactions
. No executive officer or director of Company, Company Sub
or any other Subsidiary of Company or any Person owning 5% or more of the Company Stock is a party
to any material Contract with or binding upon the Company or Company Sub or any of their respective
properties or assets or has any material interest in any material property owned by the Company or
Company Sub or has engaged in any material transaction with any of the foregoing since November 30,
2006, in each case, that is of a type that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.
4.29
Customers and Suppliers; Inventory
.
(a) Section 4.29 of the Company Disclosure Letter sets forth the names of the ten largest
customers of the Business (as measured by revenue for the twelve-month period ended on November 30,
2007) and the ten largest suppliers of the Business (as measured by aggregate cost of items or
services purchased for the twelve-month period ended on November 30, 2007). As of the date of this
Agreement, except as set forth in Section 4.29 of the Company Disclosure Letter, Company and
Company Sub (i) are not involved in any material dispute with any such customer or supplier; and
(ii) have not been notified in writing by any such customer or supplier that it intends to terminate or adversely alter the terms of its business with Company or Company Sub,
except as would not have a Material Adverse Effect.
(b) Except for such reserves as are established on the Financial Statements, all inventory of
Company and Company Sub consisting of raw materials or packaging is usable in the ordinary course
of business consistent with past practice, and all such inventory consisting of finished goods of
Company and Company Sub is, and all such inventory consisting of work-in-process of the Company or
Company Sub completed prior to the Effective Time will, upon completion, be of merchantable
quality, meeting all contractual requirements, and is, or in the case of work-in-process, will be,
saleable in the ordinary course of business consistent with past practice, except for such failures
of inventory to meet such standards or requirements as would not, individually or in the aggregate,
have a Material Adverse Effect.
4.30
No Additional Representations
. Neither the Company nor Company Sub makes, and
have not made, any representations or warranties relating to the Company or Company Sub or the
business of the Company or Company Sub or otherwise in connection with the transactions
contemplated hereby other than those expressly set forth in this Agreement that are made by the
Company and Company Sub.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Company and Company Sub as follows:
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5.1
Incorporation, Standing and Power
. Parent has been duly organized, is validly
existing and in good standing as a corporation under the laws of the State of Minnesota. Merger
Sub has been duly organized, is validly existing and in good standing as a corporation under the
laws of the State of Delaware.
5.2
Authority
. The execution and delivery by Parent of this Agreement, and the
consummation of the transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent. The execution and delivery by Merger Sub of this
Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action on the part of Merger Sub. Parent, as the sole
stockholder of Merger Sub, has adopted the agreement of merger (within the meaning of Section 251
of the DGCL) contained in this Agreement. This Agreement is a valid and binding obligation of
Parent and Merger Sub, in each case enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, fraudulent conveyance, moratorium or other similar laws affecting the rights of
creditors generally and by general equitable principles. Neither the execution and delivery by
Parent or Merger Sub of this Agreement, the consummation of the transactions contemplated herein,
nor compliance by Parent and Merger Sub with any of the provisions hereof, will: (a) conflict with
or result in a breach of any provision of its respective governing documents; (b) constitute a
breach of or result in a default, or event that with notice or lapse of time or both would become a default (or give rise to any rights of termination, cancellation,
amendment or acceleration, or any right to acquire any securities or assets, or any loss of
benefit), under any of the terms, conditions or provisions of any Contract to which Parent is a
party, or by which Parent or any of its properties or assets is bound (except as would not, and
would not reasonably be expected to, have a Material Adverse Effect on the ability of Parent and
Merger Sub to consummate the transactions contemplated by this Agreement); or (c) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to Parent or any of its
properties or assets (except as would not, and would not reasonably be expected to, have a material
adverse effect on the ability of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement). No consent of, approval of, notice to or filing with any Governmental Entity
having jurisdiction over any aspect of the business or assets of Parent is required in connection
with the execution and delivery by Parent or Merger Sub of this Agreement, or the consummation by
Parent and Merger Sub of the Merger or the transactions contemplated hereby, except (i) under the
Exchange Act (including the filing of the Proxy Statement with the SEC) and the rules and
regulations promulgated thereunder, and state securities, takeover and blue sky laws and (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of Delaware.
5.3
Ownership of Merger Sub
. Merger Sub is a direct, wholly owned subsidiary of
Parent. Merger Sub has not conducted any activities other than in connection with the organization
of Merger Sub, the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
5.4
Accuracy of Information Furnished for Company Proxy Statement
. None of the
information supplied or to be supplied by Parent for inclusion or incorporation by reference in the
Proxy Statement or in any other document to be filed with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement will, at
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the respective times
such documents are filed or become effective, or with respect to the Proxy Statement at the date it
is first mailed to the stockholders of Company and at the time of the Company Stockholders Meeting
or at the date of any amendment thereof or supplement thereto, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, Parent makes no representation or warranty with respect
to any information supplied by Company or Company Sub or any of their respective representatives
which is contained or incorporated by reference in the Proxy Statement or in any other document to
be filed with the SEC or any other Governmental Entity in connection with the transactions
contemplated by this Agreement.
5.5
Financing
. Parent and Merger Sub have, and at the Effective Time of the Merger
will have, sufficient funds available to finance and consummate the transactions contemplated by
this Agreement.
5.6
No Additional Representations
. Each of Parent and Merger Sub does not make, and
has not made, any representations or warranties in connection with the transactions contemplated
hereby other than those expressly set forth in this Agreement that are made by Parent.
ARTICLE 6.
COVENANTS OF COMPANY AND COMPANY SUB PENDING EFFECTIVE TIME OF THE MERGER
Company and Company Sub covenant and agree with Parent and Merger Sub as follows:
6.1
Limitation on Conduct Prior to Effective Time of the Merger
. Between the date
hereof and the earlier of the Effective Time of the Merger or the termination of the Agreement,
except as expressly provided in this Agreement and subject to requirements of law and regulation,
Company and Company Sub agree to conduct the Business in the ordinary course in substantially the
manner heretofore conducted and, without limiting the generality of the foregoing, neither Company
nor Company Sub shall (and to the extent an action by a Subsidiary of Company (other than Company
Sub) would adversely affect Company or Company Sub or the transactions contemplated by this
Agreement, Company and CIPAR shall cause such Subsidiary not to) without the prior written consent
of Parent, which consent shall not be unreasonably withheld or delayed:
(a) issue, sell, encumber or grant
(i) any Company Stock (except pursuant to the exercise of Company Stock Options
outstanding as of the date hereof) or Sub Stock,
(ii) any other securities (including long-term debt) of Company or Company Sub, or any
rights, stock appreciation rights, options or securities to acquire any Company Stock or Sub
Stock, or
(iii) enter into any agreements to take any of the foregoing actions;
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(b) (i) declare, set aside or pay any dividend (except for the semi-annual cash dividend
declared prior to the date of this Agreement and described in Section 4.17(e)) or make any other
distribution upon any of the capital stock of Company or Company Sub, or
(ii) split, combine or reclassify any shares of capital stock or other securities of
Company or Company Sub;
(c) purchase, redeem or otherwise acquire any capital stock or other securities of Company or
Company Sub or any rights, options, or securities to acquire any capital stock or other securities
of Company or Company Sub (other than the issuance of Company Stock upon the exercise of Company
Stock Options that are outstanding as of the date hereof in accordance with their present terms and
except as expressly provided in Section 2.3);
(d) except in accordance with Section 2.10 as may be required to effect the transactions
contemplated herein, amend its Certificate of Incorporation or Bylaws;
(e) grant to any employee or employees of the Business any general or uniform increase in the
rate of pay of employees or employee benefits other than in the ordinary course of business
consistent with past practice;
(f) except as required by law or by the terms of any Employee Plan or Benefit Arrangements in
effect on the date hereof and disclosed in the Company Disclosure Letter, grant to any employee of
the Business any increase in salary, incentive compensation or employee benefits or pay any bonus
to any such Person or voluntarily accelerate the vesting of any employee benefits, other than (i)
payments of bonuses consistent with past practice pursuant to plans in effect on the date hereof
and disclosed in the Company Disclosure Letter, and (ii) increases in salary consistent with past
practice to Persons eligible for such salary increases on the regularly scheduled review dates of
their employment (provided that the percentage increase in salaries for all such Persons shall not
exceed 3.5% on average from the salaries in effect on the date of this Agreement).
(g) (i) make any capital expenditure or commitments with respect thereto in excess of $25,000
individually or $100,000 in the aggregate, except for capital expenditures described in the capital
expenditure budget set forth in Section 6.1(g) of the Company Disclosure Letter or
(ii) materially increase the level of shipments to distributors of the Business except
in the ordinary course of business and consistent with the organic growth of the Business;
(h) compromise or otherwise settle or adjust any assertion or claim of a deficiency in respect
of Taxes (or interest thereon or penalties in connection therewith), extend the statute of
limitations with any tax authority or file any pleading in court in any Tax litigation or any
appeal from an asserted deficiency, or amend any federal, foreign, state or local Tax Return, or
make any Tax election;
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(i) (i) change or make any Tax elections or Tax or accounting policies and procedures or any
method or period of accounting unless required by GAAP or a Governmental Entity or
(ii) except as may be required as a result of a change in law or GAAP, change in any
material respect any accounting, financial reporting, or inventory principle, practice,
method or policy used by Company;
(j) grant or commit to grant any extension of credit or amend the terms of any such credit
outstanding on the date hereof to any executive officer, director or beneficial owner of 5% or more
of the outstanding Company Stock, or any Affiliate or associate (as defined in Rule 12b-2
promulgated under the Exchange Act) of such Person;
(k) close or relocate any principal offices at which the Business is operated or open any new
principal offices;
(l) adopt or enter into any new employment agreement with any executive-level employee of the
Business or adopt or amend any new employee benefit plan or arrangement or amend, modify or
terminate any employment agreement for an employee of the Business or employee benefit plan or
arrangement except as required by law;
(m) grant any Person a power of attorney or similar authority;
(n) (i) make any investment by purchase of stock or securities, contributions to capital,
property transfers or otherwise in any other Person, except for federal funds, obligations of the
United States Treasury or an agency of the United States Government the obligations of which are
entitled to or implied to have the full faith and credit of the United States government and which
have an original maturity not in excess of one year, bank qualified investment grade municipal
bonds, in any case, in the ordinary course of business consistent with past practices,
(ii) acquire on behalf of Company Sub or at the Company level (whether by merger,
consolidation, acquisition of securities or assets, or otherwise) any Person or other
business organization or division thereof, or
(iii) create any Subsidiary, other than a Subsidiary of CIPAR or its Subsidiaries, in
connection with the Restructuring and Spin Off;
(o) terminate, amend or modify, or waive or assign any material rights or claims under, any
Scheduled Contract or enter into any agreement or Contract that would be required to be a Scheduled
Contract under Section 4.15; provided, that Company may renew an existing Scheduled Contract in the
ordinary course of business on terms permitting Company to terminate upon no more than 60 days
notice without any liability, penalty or premium and otherwise on substantially equivalent terms;
(p) sell, transfer, mortgage, encumber, lease or otherwise dispose of any assets or release or
waive any claim, except (i) assets and claims having an aggregate value not exceeding $100,000 and
(ii) sale of inventory in the ordinary course of business and consistent with past practices;
provided, however, that this restriction shall not apply to the business of the Spun-Off
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Entities,
but only to the extent that, by virtue of engaging in any of the foregoing conduct, the actions of
the Spun-Off Entities would not in any manner impact Company or Company Sub;
(q) take any action which would or could reasonably be expected to
(i) adversely affect the ability of Parent, Company or Company Sub to obtain any
necessary approval of any Governmental Entity required for the transactions contemplated
hereby;
(ii) adversely affect Companys or Company Subs ability to perform its covenants and
agreements under this Agreement; or
(iii) result in any of the conditions to the performance of Parents, Companys or
Company Subs obligations hereunder, as set forth in Articles 9, 10 or 11 herein not being
satisfied;
(r) settle, on behalf of Company or Company Sub, any claim, action or proceeding involving any
liability for monetary damages in excess of $25,000 or enter into any settlement agreement
containing material obligations;
(s) (i) incur or modify in any respect the terms of any indebtedness for borrowed money or
assume, guaranty, endorse or otherwise as an accommodation become responsible for the obligations
of any other Person, except for short-term borrowings made in the ordinary course at prevailing
market rates and terms consistent with prior practice, or
(ii) enter into any hedging, swap or off-balance sheet transaction for its own account,
or enter into any arrangement having the economic effect of any of the foregoing;
(t) enter into any new line of business;
(u) engage in any material transaction or incur or sustain any material obligation not in the
ordinary course of business consistent with past practice;
(v) agree or make any commitment to take any actions prohibited by this Section 6.1.
Except as expressly provided in this Section 6.1 (by reference to Subsidiaries of Company or
to the Spun-Off Entities), none of the covenants and agreements contained in this Section 6.1 are
applicable to the Spun-Off Entities.
6.2
Affirmative Conduct Prior to Effective Time of the Merger
. Between the date
hereof and the Effective Time of the Merger, Company and Company Sub shall do the following (and to
the extent a failure by a Subsidiary of Company (other than Company Sub) to do any of the following
would adversely affect Company or Company Sub or the transactions contemplated by this Agreement,
Company and CIPAR shall cause such Subsidiary to do the following):
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(a) use their commercially reasonable efforts consistent with this Agreement to maintain and
preserve intact their present business organizations (other than by virtue of the Restructuring and
the Spin Off) and to maintain and preserve their relationships and goodwill with customers,
employees and others having business relationships with the Business;
(b) use their commercially reasonable efforts to keep in full force and effect all of the
existing material permits and licenses of Company and Company Sub and to timely pay all filing,
examination, issuance, post registration and maintenance fees, annuities and the like associated
with or required with respect to any of the Company Registered IP;
(c) use their commercially reasonable efforts to maintain insurance coverage at least equal to
that now in effect on all properties which it owns or leases and on its business operations;
(d) perform their material contractual obligations and not become in material default on any
such obligations;
(e) pay all accounts payable and trade payables consistent with past practice and, in any
event, as the same are due and payable, and maintain inventory consistent with past practice;
(f) duly observe and conform in all material respects to all lawful requirements applicable to
its business;
(g) maintain their assets and properties in good condition and repair, normal wear and tear
excepted;
(h) file all Tax Returns and all extensions, where applicable, that are required to be filed
with any tax authority in accordance with all applicable laws, timely pay all Taxes due and payable
as shown in the respective Tax Returns that are so filed and ensure that the Tax Returns will, as
of the time of filing, be based on tax positions that have substantial support under all applicable
laws; and
(i) promptly notify Parent regarding receipt from any tax authority of any notification of the
commencement of an audit, any request to extend the statute of limitations, any statutory notice of
deficiency, any revenue agents report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the Tax liabilities or attributes of Company or Company
Sub, or any actual or threatened collection enforcement activity by any Tax authority with respect
to tax liabilities of Company or Company Sub.
Except as expressly provided in this Section 6.2 (by reference to Subsidiaries of Company or
to the Spun-Off Entities), none of the covenants and agreements contained in this Section 6.2 are
applicable to the Spun-Off Entities.
6.3
Acquisition Proposals
.
(a) Subject to Section 6.3(b), from the date of this Agreement until the Effective Time of the
Merger or, if earlier, the termination of this Agreement in accordance with Article 13, the Company
shall not, and shall cause its Subsidiaries and its officers, directors, employees,
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Affiliates,
investment bankers, lawyers and accountants (collectively, the Representatives) not to, directly
or indirectly: (i) initiate, or solicit or knowingly facilitate or encourage (including by way of
providing information) the making, submission or announcement of any inquiries, proposals or offers
that constitute or may reasonably be expected to lead to, any Acquisition Proposal or engage in any
discussions or negotiations with respect thereto or otherwise knowingly cooperate with or knowingly
assist or participate in, or knowingly facilitate or knowingly encourage any such inquiries,
proposals, discussions or negotiations or (ii) approve, endorse or recommend, or publicly propose
to approve or recommend, an Acquisition Proposal or enter into any merger agreement, letter of
intent, agreement in principle, share purchase agreement, asset purchase agreement or share
exchange agreement, option agreement or other similar agreement relating to an Acquisition Proposal
or enter into any agreement or agreement in principle requiring the Company to abandon, terminate
or fail to consummate the transactions contemplated hereby or breach its obligations hereunder or
propose or agree to do any of the foregoing.
As used herein, the term: (A) Acquisition Proposal means any inquiry, offer or proposal made
by a Person or group at any time relating to any direct or indirect acquisition of (i) more than 25% of the assets of Company Sub, (ii) beneficial ownership of more than 25% of the
outstanding equity securities of Company or Company Sub, (iii) a tender offer or exchange offer
that, if consummated, would result in any Person beneficially owning more than 25% of any class of
outstanding equity securities of Company, or (iv) any merger, consolidation or other business
combination, recapitalization or similar transaction, including any single or multi-step
transaction or series of related transactions, in each case other than the Merger and the
Restructuring and Spin Off under the terms of the Separation Agreement; and (B) Acceptable
Confidentiality Agreement shall mean a confidentiality and standstill agreement that contains
confidentiality and standstill provisions that are no less favorable in the aggregate to the
Company than those contained in the Confidentiality Agreement.
(b) Notwithstanding anything to the contrary contained in Section 6.3(a), if at any time
following the date of this Agreement and prior to obtaining the Company Requisite Vote (i) the
Company has received a written Acquisition Proposal from a third party that the board of directors
of the Company believes in good faith to be bona fide, (ii) such Acquisition Proposal did not occur
as a result of a breach of this Section 6.3, (iii) the board of directors of the Company determines
in good faith, after consultation with its financial advisors and outside counsel, that such
Acquisition Proposal constitutes or may reasonably be expected to result in a Superior Proposal and
(iv) after consultation with its outside counsel, the board of directors of the Company determines
in good faith that the failure to take such actions or any of the actions described in the
following clauses (A) and (B) would be inconsistent with its fiduciary duties to the stockholders
of the Company under applicable Law, then the Company may, (A) furnish information (including
non-public information) with respect to the Company and Company Sub to the Person making such
Acquisition Proposal and (B) participate in discussions or negotiations with the Person making such
Acquisition Proposal regarding such Acquisition Proposal; provided that the Company (w) complies
with all of the terms and conditions of the Confidentiality Agreement, (x) gives Parent written
notice of the existence of such Person and of the Companys intention to furnish information to, or
enter into discussions with, such Person at least one Business Day prior to furnishing any such
information to, or entering into discussions with, such Person, (y) will not, and will not allow
its Subsidiaries or Representatives to disclose
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any non-public information to such Person without
first entering or having entered into an Acceptable Confidentiality Agreement and (z)
contemporaneously with making available any such information to such Person, provide to Parent any
information concerning the Company or Company Sub provided to such other Person which was not
previously provided to or made available to Parent.
As used herein, the term Superior Proposal means any bona fide Acquisition Proposal (with
all percentages included in the definition of Acquisition Proposal increased to 60% for purposes
of this definition) made in writing that (A) is on terms that the board of directors of the Company
has determined in good faith (after consultation with the Companys outside counsel and financial
advisor) are more favorable to the Companys stockholders from a financial point of view than this
Agreement, the Restructuring and the Spin Off, taken as a whole, after giving effect to any
modifications (if any) proposed to be made to this Agreement or any other offer by Parent after
Parents receipt of notice under Section 6.3(d), and (B) which the board of directors of the
Company has determined in good faith (after consultation with the Companys outside counsel and
financial advisor) is reasonably likely to be consummated (if accepted). The foregoing
determinations shall be made after consultation with the Companys financial advisor and outside counsel after taking into account all appropriate legal, financial (including the
financing terms of such proposal), regulatory and other aspects of such proposal.
(c) In the event that the Company or any of its Subsidiaries or Representatives receives any
of the following, the Company shall promptly (but not more than one Business Day after such
receipt) notify Parent thereof: (i) any Acquisition Proposal or written indication by any Person
that would reasonably be expected to result in an Acquisition Proposal (and provide the material
terms and conditions thereof); (ii) any request for non-public information relating to the Company
or Company Sub other than requests for information in the ordinary course of business and unrelated
to an Acquisition Proposal; or (iii) any inquiry or request for discussions or negotiations
regarding any Acquisition Proposal. In addition, the Company shall keep Parent informed on a
current basis (and in any event no later than one Business Day after the occurrence of any
significant changes, developments, discussions or negotiations) of the status of any Acquisition
Proposal, indication, inquiry or request (including the material terms and conditions thereof and
of any material modification thereto), and any material developments, discussions and negotiations,
including furnishing summaries of the principal terms of any material written inquiries and
correspondence (without identifying the party making the Acquisition Proposal). Without limiting
the foregoing, the Company shall promptly (within one Business Day) notify Parent if it determines
to provide non-public information or to engage in discussions or negotiations concerning an
Acquisition Proposal. The Company shall not, and shall cause its Subsidiaries not to, enter into
any confidentiality agreement with any Person subsequent to the date of this Agreement that
prohibits the Company from providing such information to Parent. The Company shall not, and shall
cause each of its Subsidiaries not to, terminate, waive, amend or modify any provision of, or grant
permission or request under, any standstill or confidentiality agreement to which it or any of its
Subsidiaries is a party, and the Company shall, and shall cause its Subsidiaries, to enforce the
provisions of any such agreement; provided, however, that the Company may permit a proposal to be
made under a standstill agreement if its board of directors determines in good faith, after
consultation with outside counsel, that the Companys failure to do so would be inconsistent with
the fiduciary duties of the board of directors to the stockholders of the Company under applicable
Law.
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(d) Notwithstanding anything in Section 6.3(a) to the contrary, if the Company receives an
Acquisition Proposal which the board of directors of the Company concludes in good faith, after
consultation with outside counsel and its financial advisors, constitutes a Superior Proposal after
giving effect to all of the adjustments to the terms of this Agreement which may be offered by
Parent, including pursuant to clause (ii) below, the board of directors of the Company may at any
time prior to obtaining the Company Requisite Vote, if it determines in good faith, after
consultation with outside counsel, that the failure to take such action or any of the actions
described in the following clauses (x), (y) and (z) would be inconsistent with the fiduciary duties
of the board of directors to the stockholders of the Company under applicable Law, (x) withdraw,
modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to
Parent or Merger Sub, the Company Recommendation (a Change of Company Recommendation), (y)
approve or recommend such Superior Proposal, and/or (z) terminate this Agreement to enter into a
definitive agreement with respect to such Superior Proposal; provided, however, that the board of
directors of the Company may not withdraw, modify or amend the Company Recommendation in a manner
adverse to Parent pursuant to the foregoing clause (x), approve or recommend such Superior Proposal
pursuant to the foregoing clause (y) or terminate this Agreement pursuant to the foregoing clause (z) (it being agreed
that any such purported termination shall be null and void and of no effect) unless (A) such
Superior Proposal did not result from a breach by the Company of this Section 6.3, (B) with respect
to clause (z) above, the Company pays the applicable Termination Fee pursuant to Section 13.2(b),
and (C): (i) the Company shall have provided prior written notice to Parent, of its intention to
take any action contemplated in this Section 6.3(d) with respect to a Superior Proposal at least
four Business Days in advance of taking such action (the Notice Period), which notice shall set
forth the material terms and conditions of any such Superior Proposal (including the identity of
the party making such Superior Proposal), and shall have contemporaneously provided a copy of the
relevant proposed transaction agreements with the party making such Superior Proposal and other
material documents, including the then-current form of each definitive agreement with respect to
such Superior Proposal (each, an Alternative Acquisition Agreement); and (ii) prior to effecting
such Change of Company Recommendation, approving or recommending such Superior Proposal or
terminating this Agreement to enter into a proposed definitive agreement with respect to such
Superior Proposal, the Company shall provide Parent the opportunity to submit an amended written
proposal or to make a new written proposal to the board of directors of the Company during the
Notice Period and shall itself and shall cause its Representatives to, during the Notice Period,
negotiate in good faith with Parent (to the extent Parent so requests in writing) to make such
adjustments to the terms and conditions of this Agreement so that such Superior Proposal ceases to
constitute a Superior Proposal. In the event of any subsequent material revisions to such Superior
Proposal, the Company shall deliver a new written notice to Parent and comply with the requirements
of this Section 6.3(d), and the Notice Period shall recommence.
(e) Nothing contained in this Agreement (including, without limitation, this Section 6.3)
shall prohibit the board of directors of the Company from (i) taking and disclosing to the
stockholders of the Company a position contemplated by Rule 14e-2(a) and Rule 14d-9 promulgated
under the Exchange Act, or (ii) disclosing the fact that the board of directors of the Company has
received an Acquisition Proposal and the terms of such proposal, if the board of directors of the
Company determines, after consultation with its outside legal counsel, that the failure to take any
such actions would be inconsistent with its fiduciary duties under applicable
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Law or to comply with
obligations under federal securities Laws or NASDAQ or the rules and regulations of any U.S.
securities exchange upon which the capital stock of the Company is listed; provided, however, that
any such disclosures (other than stop, look and listen letters or similar communications of the
type contemplated by Rule 14d-9(f) under the Exchange Act) shall be deemed to be a Change of
Company Recommendation (including for purposes of Section 13.1(h)) unless the board of directors of
the Company expressly publicly reaffirms its Company Recommendation not more than five Business
Days after a written request by Parent to do so (provided that, if such written notice is delivered
to the Company less than five Business Days prior to the Company Stockholders Meeting, the board
of directors of the Company shall so reaffirm its Company Recommendation at least one Business Day
prior to the Company Stockholders Meeting).
6.4
No Change in Company Recommendation or Alternative Acquisition Agreement
. Other
than in accordance with Section 6.3, the board of directors of the Company shall not:
(a) withhold, withdraw, qualify, modify or amend (or publicly propose or resolve to withhold,
withdraw, qualify or modify), in a manner adverse to Parent, the Company Recommendation with
respect to the Merger; or
(b) approve or recommend, or publicly propose to approve or recommend, an Acquisition Proposal
or cause or permit the Company to enter into any acquisition agreement, merger agreement, letter of
intent, agreement in principle, share purchase agreement, asset purchase agreement or share
exchange agreement, option agreement or other similar agreement relating to an Acquisition Proposal
or enter into any agreement or agreement in principle requiring the Company to abandon, terminate
or fail to consummate the transactions contemplated hereby or breach its obligations hereunder or
resolve, propose or agree to do any of the foregoing.
6.5
Access to Information
. Company and Company Sub will afford, upon reasonable
notice, to Parent and its representatives, counsel, accountants, agents and employees reasonable
access during normal business hours to all of their business, operations, properties, books, files
and records and will do everything reasonably necessary to enable Parent and its representatives,
counsel, accountants, agents and employees to make a complete examination of the financial
statements, business, assets and properties of Company and Company Sub and the condition thereof
and to update such examination at such intervals as Parent shall deem appropriate. Such
examination shall be conducted in cooperation with the officers of Company and Company Sub and in
such a manner as to minimize any disruption of, or interference with, the normal business
operations of Company and Company Sub. Upon the request of Parent, and upon Parents execution and
delivery of a customary waiver, Company and Company Sub will cause Ernst & Young LLP and BKD LLP to
provide reasonable access to representatives of Parent and Deloitte & Touche LLP, working on behalf
of Parent, to auditors and tax preparers work papers with respect to the business and properties
of Company and Company Sub, including tax accrual work papers prepared for Company and Company Sub
during the preceding 60 months, other than (a) books, records and documents covered by the
attorney-client privilege, or that are attorneys work product, and (b) books, records and
documents that Company and Company Sub are legally obligated to keep confidential. All documents
and information concerning Company and Company Sub so obtained from any of them (except to the
extent that such documents or
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information are a matter of public record or require disclosure in
the Proxy Statement or any of the public portions of any applications required to be filed with any
Governmental Entity to obtain the approvals and consents required to effect the transactions
contemplated hereby), shall be subject to the Confidentiality Agreement.
6.6
Filings
. Company agrees that through the Effective Time of the Merger, Companys
reports, proxy statements, registrations, statements and other filings required to be filed with
any applicable Governmental Entity will be filed timely and will comply in all material respects
with all the applicable statutes, rules and regulations enforced or promulgated by the Governmental
Entity with which it will be filed and none will contain any untrue statement of material fact or omit to state a material 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.
6.7
Notices; Reports
. Company and Company Sub will promptly notify Parent of any
event of which Company or Company Sub obtains knowledge which has had or may have a Material
Adverse Effect, or in the event that Company or Company Sub determines that it is unable to
fulfill, or that any event has occurred which is reasonably likely to prevent the fulfillment of,
any of the conditions to the performance of Parents obligations hereunder, as set forth in
Articles 9 or 11 herein, and Company or Company Sub will furnish Parent (i) as soon as available,
and in any event within one Business Day after it is mailed or delivered to the Board of Directors
of Company or committees thereof, any report by Company for submission to the Board of Directors of
Company or committees thereof, provided, however, that Company need not furnish to Parent
communications of Companys or Company Subs legal counsel regarding Companys or Company Subs
rights and obligations under this Agreement or the transactions contemplated hereby, or other
communication incident to Companys or Company Subs actions pursuant to Section 6.3 hereof (except
as required by Section 6.3 or Section 6.9), or books, records and documents covered by
confidentiality agreements or the attorney-client privilege, or which are attorneys work product,
(ii) prior to sending or filing same, all proxy statements, information statements, financial
statements, reports, letters and communications sent by Company to its stockholders or other
security holders, and all reports filed by Company with the SEC or other Governmental Entities, and
(iii) such other existing reports as Parent may reasonably request relating to Company or Company
Sub. No notification delivered pursuant to this Section 6.7 shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
6.8
Company Stockholders Meeting
. As promptly as practicable after the execution of
this Agreement, and subject to Section 6.9 hereof, Company will take action necessary in accordance
with applicable law and its Certificate of Incorporation and Bylaws to duly call, give notice of,
and convene and hold a meeting of its stockholders to consider and vote upon the agreement of
merger (within the meaning of Section 251 of the DGCL) contained in this Agreement and the
transactions contemplated hereby so as to permit the consummation of the transactions contemplated
hereby (the Company Stockholders Meeting). Except in the event of a Change of Company
Recommendation specifically permitted by Section 6.3(d), (a) the Proxy Statement shall include the
Company Recommendation and (b) the board of directors of the Company shall take all reasonable
lawful action to solicit the Company Requisite Vote.
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6.9
Proxy Statement
. Company will promptly prepare or cause to be prepared and file
with the SEC the Proxy Statement in preliminary form, and further agrees to provide any information
requested by Parent for the preparation of any applications necessary to consummate the
transactions contemplated hereby. Company shall afford Parent a reasonable opportunity to review
all such applications and all amendments and supplements thereto before the filing thereof. Parent
and Company will cooperate and consult with each other in the preparation of the Proxy Statement,
and Company shall provide Parent with copies of all correspondence between Company and its
Representatives, on the one hand, and the SEC, on the other hand, with respect to the Proxy
Statement. Company and Company Sub covenant and agree that, with respect to the information
relating to Company, Company Sub and the Spun-Off Entities, as applicable, the Proxy Statement will
comply in all material respects with the provisions of applicable law, and will not contain any
untrue statement of material fact or omit to state any material fact required to be stated therein
or necessary to make the statements contained therein, in light of the circumstances under which
they were made, not misleading, and 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 and to cause the Proxy Statement to be mailed to Companys stockholders as soon as
practicable after the Proxy Statement is cleared by the SEC. Company will use its commercially
reasonable efforts to assist Parent in obtaining all approvals or consents of Governmental Entities
necessary to effect the Merger and the transactions contemplated herein.
6.10
Restructuring and Spin Off
.
(a) Prior to the Closing: (i) Company will cause Cohesant Canada, which is an inactive,
dormant subsidiary of Company, to be dissolved; and (ii) Company will effect a restructuring (the
Restructuring) of its current subsidiaries such that immediately following such Restructuring the
following subsidiaries of the Company as of the date hereof will be direct or indirect subsidiaries
of the Companys wholly owned subsidiary, CIPAR: CMI, CuraFlo Services, CuraFlo Spincast, CuraFlo
Franchising and CuraFlo BC.
(b) Immediately following the Restructuring and prior to the Closing, Company will effect a
spin off of its direct, wholly owned subsidiary, CIPAR (and, due to the Restructuring, the indirect
subsidiaries owned by CIPAR, in addition to any liabilities associated with American Chemical and
Cohesant Canada), to Companys stockholders pursuant to a special dividend of the CIPAR capital
stock (the Spin Off) pursuant to the terms of the Separation Agreement. Following the
Restructuring and the Spin Off, Companys sole subsidiary will be Company Sub and Companys
stockholders will own all of the shares of capital stock of CIPAR. All rights in the name
Cohesant Technologies will be transferred pursuant to the Separation Agreement such that the
Surviving Corporation and Parent shall not use the name Cohesant Technologies or any derivation
thereof in their names or in the names of any of their Affiliates after the Effective Time of the
Merger.
(c) There shall have been delivered to Parent prior to the Closing Date evidence reasonably
satisfactory to Parent of the completion of the Restructuring and Spin Off in accordance with the
Separation Agreement, including, but not limited to, evidence of the dividend of the CIPAR stock to
the Companys stockholders.
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(d) Prior to Closing, Company and its Subsidiaries will take such actions and make such
filings as may be necessary to ensure that the Restructuring and the Spin Off transactions do not
cause Company or Company Sub to recognize any income or gain for federal, state, local or foreign
Tax purposes or otherwise incur any liability for Taxes as a result of the Restructuring or the
Spin Off.
6.11
Directors and Officers Insurance.
(a) Following the Effective Time of the
Merger, the Certificate of Incorporation and Bylaws of Surviving Corporation shall contain the
provisions with respect to indemnification set forth in the Certificate of Incorporation and Bylaws
of Merger Sub (as in effect as of the date hereof), which provisions shall not be amended, modified
or otherwise repealed for a period of six (6) years from the Effective Time of the Merger in any
manner that would adversely affect the rights thereunder as of the Effective Time of the Merger of
any individual who at the Effective Time of the Merger is covered by such provisions unless such
modification is required after the Effective Time of the Merger by law and then only to the minimum
extent required by such law.
(b) Prior to the Effective Time of the Merger, Company shall obtain and fund an extension of
(i) Companys and Company Subs existing directors and officers insurance policies, and (ii) the
Companys and Company Subs existing fiduciary liability insurance policies, in each case for a
claims reporting or discovery period of at least six years from and after the Effective Time of the
Merger from an insurance carrier with the same or better credit rating as the Companys and Company
Subs current insurance carrier with respect to directors and officers liability insurance and
fiduciary liability insurance (collectively, D&O Insurance) with terms, conditions, retentions
and limits of liability that are at least as favorable as the Companys and Company Subs existing
policies with respect to any actual or alleged error, misstatement, misleading statement, act,
omission, neglect, breach of duty or any matter claimed against a director or officer of the
Company or any of its Subsidiaries by reason of him or her serving in such capacity that existed or
occurred at or prior to the Effective Time of the Merger (including in connection with the
Restructuring and Spin Off and this Agreement or the transactions or actions contemplated hereby).
(c) The rights of each current officer and director of Company and Company Sub under this
Section 6.11 shall be in addition to any rights such individual may have under the Amended and
Restated Certificate of Incorporation and Bylaws (or other governing documents) of Company or any
of its Subsidiaries, under the DGCL or any other applicable Laws. These rights shall survive
consummation of the Merger and are intended to benefit, and shall be enforceable by, each such
current officer and director of Company and Company Sub. Companys obligation under this Section
6.11 shall be subject to its indemnification rights as provided in the Separation Agreement.
6.12
Assumed Transaction Expenses and Debt Pay-Off Letters
. Prior to the Closing,
Company shall obtain pay-off letters (in form and substance satisfactory to Parent) from payees in
respect of at least 90.0% of the aggregate amount all Assumed Transaction Expenses and Debt (the
Assumed Transaction and Debt Pay-Off Letters), which Assumed Transaction Expenses and Debt
Pay-Off Letters shall be dated within five (5) days of the Closing Date and shall include pay-off
amounts in respect of Assumed Transaction Expenses and Debt as of the Closing Date. CIPAR hereby
agrees to, and hereby agrees to cause all of the Spun-Off Entities to,
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indemnify, defend and hold
harmless Company, Company Sub and Parent from, against and in respect of all losses, claims,
liabilities, damages, costs and expenses relating to or arising out of the actual amount of Assumed
Transaction Expenses and Debt exceeding the amount of Assumed Transaction Expenses and Debt
reflected on the Per Share Merger Consideration Certificate (and, in turn, taken into account for purposes of calculating the Per Share Merger
Consideration). In accordance with the terms and conditions of the Separation Agreement, CIPAR is
assuming, and shall be responsible for discharging, among other things, the Excess Assumed
Transaction Expenses and Debt, if any. Immediately following the Effective Time of the Merger,
CIPAR shall pay to Company, by wire transfer of immediately available funds, an amount equal to the
Excess Assumed Transaction Expenses and Debt, if any.
6.13
Audited Financial Statements
. Prior to the Closing, Company shall cause its
independent auditors, Ernst & Young LLC, to complete an audit of Company and to prepare audited
consolidated financial statements of the Company as of and for the period ending November 30, 2007,
together with an opinion thereon (collectively, the 2007 Audited Financial Statements). Company
shall deliver the 2007 Audited Financial Statements to Parent promptly upon Companys receipt
thereof.
ARTICLE 7.
COVENANTS OF PARENT AND MERGER SUB
Parent and Merger Sub covenant and agree with Company and Company Sub as follows:
7.1
Limitation on Conduct Prior to Effective Time of the Merger
. Between the date
hereof and the Effective Time of the Merger, except as expressly provided in this Agreement, Parent
and Merger Sub shall not, without the prior written consent of Company and Company Sub, which
consent shall not unreasonably be withheld or delayed:
(a) take any action which would or is reasonably likely to (i) adversely affect the ability of
Parent to obtain any necessary approvals of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect Parents ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the performance of Companys,
Company Subs or Parents obligations hereunder, as set forth in Articles 9, 10 or 11 herein not
being satisfied; or
(b) agree or make any commitment to take any actions prohibited by this Section 7.1.
7.2
Applications
. Parent will, as promptly as practicable, prepare and file in final
form or cause to be prepared and filed in final form (it being recognized that applicable
Governmental Entities may require supplemental filings after such filing in final form) any
applications under applicable law necessary to consummate the transactions contemplated hereby.
Parent shall afford Company or Company Sub a reasonable opportunity to review all such applications
(except for the confidential portions thereof) and all amendments and supplements thereto before
the filing thereof.
7.3
Notices; Reports
. Parent will promptly notify Company and Company Sub in the
event that Parent determines that it is unable to fulfill, or that any event has occurred which is
reasonably likely to prevent the fulfillment of, any of the conditions to the performance of
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Companys or Company
Subs obligations hereunder, as set forth in Articles 9 or 10 herein. No notification delivered
pursuant to this Section 7.3 shall affect the representations, warranties, covenants or agreements
of the parties or the conditions to the obligations of the parties under this Agreement.
ARTICLE 8.
ADDITIONAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other as follows:
8.1
Commercially Reasonable Efforts
. Subject to the terms and conditions of this
Agreement, each party will use its commercially reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by this Agreement as
promptly as practicable.
8.2
Public Announcements
. No press release or other public disclosure of matters
related to this Agreement or any of the transactions contemplated hereby shall be made by Parent,
Company or Company Sub unless the other party shall have provided its prior consent (which shall
not be unreasonably withheld, delayed or conditioned) to the form and substance thereof; provided,
however, that nothing herein shall be deemed to prohibit any party hereto from making any
disclosure which its counsel deems necessary in order to fulfill such partys disclosure
obligations imposed by law, in which case the party required to make such disclosure shall use its
commercially reasonable efforts to allow the other party reasonable time to comment on such
disclosure prior to the time of its issuance.
ARTICLE 9.
CONDITIONS PRECEDENT TO THE MERGER
The obligations of each of the parties hereto to consummate the transactions contemplated
herein are subject to the satisfaction, on or before the Closing Date, of the following conditions:
9.1
Stockholder Approval
. The Company Requisite Vote shall have been obtained.
9.2
No Judgments or Orders
. No judgment, decree, injunction, investigation, order or
proceeding shall be outstanding by any Governmental Entity which prohibits or restricts the
effectuation of, or threatens to invalidate or set aside, the Merger substantially in the form
contemplated by this Agreement.
ARTICLE 10.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF COMPANY AND COMPANY SUB
All of the obligations of Company and Company Sub to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of the following
conditions, any of which may be waived in writing by Company:
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10.1
Representations and Warranties; Performance of Covenants
. All the covenants,
terms and conditions of this Agreement to be complied with and performed by Parent or Merger Sub on
or before the Closing Date shall have been complied with and performed in all material respects.
Each of the representations and warranties of Parent contained in Article 5 hereof shall have been
true and correct in all respects on and as of the date of this Agreement and (except to the extent
such representations and warranties expressly speak as of an earlier date) on and as of the Closing
Date, subject to such exceptions as would not (individually or in the aggregate) have or reasonably
be expected to have a material adverse effect on the ability of Parent or Merger Sub to perform
their respective obligations hereunder or to consummate the transactions contemplated hereby, with
the same effect as though such representations and warranties had been made on and as of the
Closing Date (it being understood that, for purposes of determining the effect of such exceptions,
all materiality qualifications contained in such representations and warranties shall be
disregarded).
10.2
Officers Certificate
. There shall have been delivered to Company and Company
Sub on the Closing Date a certificate executed by an officer of Parent and Merger Sub certifying,
to the best of their knowledge, compliance with all of the provisions of Section 10.1.
ARTICLE 11.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
All of the obligations of Parent and Merger Sub to effect the transactions contemplated hereby
shall be subject to the satisfaction, on or before the Closing Date, of the following conditions,
any of which may be waived in writing by Parent:
11.1
Representations and Warranties; Performance of Covenants
. All the covenants,
terms and conditions of this Agreement to be complied with and performed by Company and Company Sub
at or before the Closing Date shall have been complied with and performed in all material respects.
Each of the representations and warranties of Company, Company Sub and CIPAR contained in Article
4 hereof (other than the representations and warranties contained in Sections 4.2 and 4.3) shall
have been true and correct in all respects on and as of the date of this Agreement and (except to
the extent such representations and warranties expressly speak as of an earlier date) on and as of
the Closing Date, subject to such exceptions as would not (individually or in the aggregate) have a
Material Adverse Effect, with the same effect as though such representations and warranties had
been made on and as of the Closing Date (it being understood that, for purposes of determining the
effect of such exceptions, all Material Adverse Effect and materiality qualifications contained in
such representations and warranties shall be disregarded). Each of the representations and
warranties of Company contained in Sections 4.2 and 4.3 shall have been true and correct in all but
insignificant respects on and as of the date of this Agreement and (except to the extent such
representations and warranties expressly speak as of an earlier date) on and as of the Closing
Date.
11.2
Authorization of Merger
. All actions necessary to authorize the execution,
delivery and performance of this Agreement by Company and Company Sub and the
consummation of the transactions contemplated hereby shall have been duly and validly taken by
the Boards of Directors and stockholders of Company and Company Sub.
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11.3
Officers Certificate
. There shall have been delivered to Parent on the Closing
Date a certificate executed by the Chief Executive Officer and the Chief Financial Officer of
Company certifying, to the best of their knowledge, compliance with all of the provisions of
Sections 11.1 and 11.2.
11.4
Company Dissenting Shares
. The number of shares of Company Stock which
constitute Company Dissenting Shares shall not exceed 10% of the Company Stock issued and
outstanding as of the Closing Date.
11.5
Restrictive Covenant Agreements
. Parent shall have received executed Restrictive
Covenant Agreements from each of Morris H. Wheeler, Robert W. Pawlak, Morton A. Cohen and Clarion
Capital Corporation.
11.6
Intercompany Payments and Employee Loans
. As of the Closing: (a) Company and
Company Sub shall have made all payments due and owing to any of the Spun-Off Entities for any
obligations whatsoever and all of the Spun-Off Entities shall have made all payments due and owing
to either of Company or Company Sub for any obligations whatsoever; and (b) any employee of Company
or any Subsidiary of Company having received a loan from Company or any Subsidiary of Company to
pay the exercise price under any exercised Company Stock Options shall have paid cash to Company to
fund the exercise price for such Company Stock Options and such exercise price shall have been
deposited in the Option Shares Exercise Price Account.
11.7
Restructuring and Spin Off
. None of the parties to the Separation Agreement
shall have amended, supplemented or otherwise altered the terms of the Separation Agreement; none
of the parties to the Separation Agreement shall have waived compliance with any term or condition
of the Separation Agreement; the parties to the Tax Matters Agreement and the Transition Services
Agreement shall have entered into the Tax Matters Agreement and the Transition Services Agreement
in the forms attached hereto as
Exhibits D
and
E
, respectively; the parties to the
Tax Matters Agreement and the Transition Services Agreement shall not have amended, supplemented or
otherwise altered the terms of the Tax Matters Agreement or the Transition Services Agreement; none
of the parties to the Tax Matters Agreement or the Transition Services Agreement shall have waived
compliance with any term or condition of the Tax Matters Agreement or the Transition Services
Agreement; and the Restructuring and Spin Off shall have occurred in accordance with the terms and
conditions of the Separation Agreement.
11.8
2007 Audited Financial Statements
. Ernst & Young LLP shall have completed the
2007 Audited Financial Statements and Company shall have delivered the 2007 Audited Financial
Statements to Parent in accordance with Section 6.16.
11.9
Assumed Transaction Expenses and Debt Pay-Off Letters Payments
. Company shall
have delivered to Parent Assumed Transaction Expenses and Debt Pay-Off Letters in
respect of at least 90.0% of the aggregate amount of all Assumed Transaction Expenses and
Debt.
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11.10
Merger Consideration Payments
. The balance of (A) the Merger Consideration
plus
the Assumed Transaction Expenses and Debt,
minus
(B) the Option Shares
Exercise Cash Amount, shall not exceed $35,000,000.
11.11
Per Share Merger Consideration Certificate and Option Shares Merger Consideration
Certificate Payments
. Company and CIPAR shall have delivered to Parent the Per Share Merger
Consideration Certificate and the Option Shares Merger Consideration Certificate, each of which
shall be in form and substance reasonably satisfactory to Parent.
ARTICLE 12.
EMPLOYEE BENEFITS
12.1
Executive Employment Agreements Payments
. Parent will cause the Surviving
Corporation to assume and perform all of the payment obligations only (and not any other
obligations) of Company under the terms of the Executive Employment Agreements and to pay the
employees under the Executive Employment Agreements within three (3) Business Days of the Effective
Time of the Merger the change of control payments due under such Executive Employment Agreements to
the extent not paid prior to the Effective Time of the Merger. Parent and the Surviving
Corporation shall be entitled to deduct, withhold and transmit to the proper tax authorities from
the consideration otherwise payable to any such employee such amounts as are required to be
withheld under the Code, or any applicable provision of state, local or foreign Tax law. To the
extent that amounts are so withheld and transmitted, such withheld and transmitted amounts shall be
treated for all purposes of this Agreement as having been paid to such employees in respect of
which such deduction and withholding was made. In the event Section 409A(a)(1)(B) of the Code
requires a deferral of any payment to an employee who is a key employee as that term is defined
in Code 409A, such payment shall be accumulated and paid in a single lump sum on the earliest date
permitted by Code 409A. Notwithstanding the Surviving Corporations assumption of the payment
obligations under the Executive Employment Agreements, the non-competition provisions therein shall
be void and of no effect and the employees under the Executive Employment Agreements shall be bound
solely by the provisions in the Restrictive Covenant Agreements. As a condition to Surviving
Company paying any amounts under the Executive Employment Agreements, the employees to be receiving
such amounts must execute release agreements, in form and substance acceptable to Parent. All
amounts payable by the Surviving Corporation to employees under the Executive Employment Agreements
are included as Transaction and Retention Bonuses and, in turn, as Assumed Transaction Expenses and
Debt.
12.2
Benefit Plans
.
(a) Effective as of the Effective Time of the Merger, Company and Company Sub shall withdraw,
terminate and cease to have any rights or obligations as participating employers, fiduciaries or
any other capacity with respect to the Employee Plans listed in Section 4.20(a) of the Company
Disclosure Letter. From and after the Effective Time of the Merger, neither
Company nor Company Sub shall have any liability, direct or indirect, contingent or otherwise, with
respect to the Employee Plans and Benefit Arrangements. Effective as of the Effective Time of the
Merger, all active employees and all employees on an approved leave of absence with a right of
rehire by contract or statute of Company and Company Sub, and their respective dependants, shall
terminate participation in each such Employee Plan listed in Section 4.20(a) of
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the Company
Disclosure Letter as to any benefits that may otherwise accrue after the Effective Time of the
Merger, but shall remain as participants in such Employee Plans to the extent and until all such
benefits that accrued prior to and as of the Effective Time of the Merger have been paid and
provided in full.
(b) From and after the Effective Time of the Merger, except as set forth in the next sentence,
CIPAR, its subsidiaries and each Employee Plan and Benefit Arrangement shall retain and be solely
responsible for: (i) any and all Liabilities arising under or in any way related to the Employee
Plans and Benefit Arrangements, whether arising prior to, on, or after the Effective Time of the
Merger; (ii) coverage and any benefits related thereto for each and any COBRA beneficiaries and any
M&A qualified beneficiaries (as such term is defined under regulations issued pursuant to
continuation coverage under Code Section 4980B and ERISA Section 601, et. seq.); (iii) medical,
dental and vision plan claims incurred but not paid as of the Effective Time of the Merger; and
(iv) any expense related to the full vesting of participant accounts as of the Effective Time of
the Merger as set forth in subsection (c)(i) of this Section 12.2. From and after the Effective
Time of the Merger, Company and Company Sub shall be solely responsible for: (i) any contributions
due from the active employees of Company and Company Sub at the Effective Time of the Merger out of
the payroll period in which the Effective Time of the Merger occurs; (ii) amounts accrued on
Companys and Company Subs financial statements for unpaid wages representing vacation, sick leave
or other personal time off; and (iii) amounts withheld from payroll of active employees of Company
and Company Sub at the Effective Time of the Merger representing credits under Companys and
Company Subs flexible benefit plan for amounts withheld from employee wages but not paid for
benefits, less amounts paid for benefits under the flexible benefit plans in excess of amounts
withheld from employee wages.
(c) With respect to the qualified Cohesant Technologies Inc. (and Subsidiaries) Employee
401(k) Profit Sharing Plan in which Company and Company Sub participated immediately prior to the
Effective Time of the Merger: (i) the account of each active employee and employee on an approved
leave of absence with right of rehire by contract or statute (the Acquired Employees) shall be
fully (100%) vested as of the Effective Time of the Merger; (ii) each Acquired Employee will be
treated as incurring a severance from employment, and may elect distribution upon severance from
employment in accordance with plan provisions; and (iii) each Acquired Employee may, subsequent to
severance from employment, elect a direct rollover of any participant loan outstanding that has not
defaulted, provided that the election must be timely made and the rollover must be timely completed
prior to default, and provided further that the rollover is otherwise in accordance with the terms
of the plan, the Code and ERISA.
(d) Effective as of the Effective Time of the Merger, each Acquired Employee shall be eligible
for and shall become a participant in each employee retirement and welfare benefit plan and benefit
arrangement sponsored by Parent to its similarly situated active employees (the Parent Benefit
Plans and Arrangements), subject to the respective terms and conditions of each such plan or
arrangement. Parent shall cause each time off benefit and length of service award to
provide each such Acquired Employee and their dependents with credit for service with Company and
Company Sub prior to the Effective Time of the Merger. Nothing in this Section 12.2 shall require
Parent to continue to offer any Parent Benefit Plan and Arrangement from or after the Effective
Time of the Merger, to provide any benefit comparable to any benefit to which any Acquired Employee
was entitled immediately prior to the Effective Time of the
A-54
Merger or otherwise restrict the right of Parent to modify or terminate any such plan or arrangement without the consent of any Acquired
Employee or their dependant, except as otherwise required by applicable Law; provided, however,
that Parent shall maintain or timely adopt a group health plan that allows for immediate
participation by Acquired Employees, subject to the group health plans eligibility service
requirements as of the Effective Time of the Merger (taking into account any creditable coverage under
Companys and Company Subs group health plans prior to the Effective Time of the Merger),
and that Parent shall maintain or timely adopt a qualified plan that allows rollover of Acquired
Employees loan balances from the Cohesant Technologies Inc. (and Subsidiaries) Employee 401(k)
Profit Sharing Plan.
ARTICLE 13.
TERMINATION
13.1
Termination
. This Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before or after approval of this Agreement by the stockholders of
Company, upon the occurrence of any of the following:
(a) By mutual agreement of Parent and Company, in writing;
(b) By Parent or Company, upon written notice to the other, upon the failure of the Company
Requisite Vote to be obtained at the duly convened Company Stockholders Meeting required by
Section 6.8, or any adjournment or postponement thereof; provided that the right to terminate this
Agreement under this Section 13.1(b) shall not be available to the Company where the failure to
obtain the Company Requisite Vote shall have been caused by the action or failure of the Company
and such action or failure to act constitutes a breach by the Company of this Agreement;
(c) By Company, upon written notice to Parent, if there shall have been a breach by Parent or
Merger Sub of any of the covenants or agreements or any of the representations or warranties set
forth in this Agreement on the part of Parent or Merger Sub, which breach, either individually or
in the aggregate, would result in the failure of the condition set forth in Section 10.1 and which
breach has not been cured within 30 days following written notice thereof to Parent or, by its
nature, cannot be cured within such time period; provided that Company shall not have the right to
terminate this Agreement pursuant to this Section 13.1(c) if Company or Company Sub is then in
material breach of any of its covenants or agreements contained in this Agreement;
(d) By Parent, upon written notice to Company, (i) if there shall have been a breach by
Company, Company Sub or CIPAR of any of the covenants or agreements or any of the representations
or warranties set forth in this Agreement on the part of Company, Company Sub or CIPAR, which
breach, either individually or in the aggregate, would result in the failure of the condition set
forth in Section 11.1 and which breach has not been cured within 30 days following
written notice thereof to Company or Company Sub or, by its nature, cannot be cured within
such time period, or (ii) Company or Company Sub shall have materially breached any of its
obligations under Section 6.3, 6.8 or 6.9; provided that Parent shall not have the right to
terminate this Agreement pursuant to this Section 13.1(d) if Parent is then in material breach of
any of its covenants or agreements contained in this Agreement;
A-55
(e) By Company or Parent, if any conditions set forth in Article 9 shall not have been met by
the nine-month anniversary of this Agreement (the Termination Date) whether such date is before
or after the date of approval by the stockholders of the Company referred to in Section 6.8;
provided, however, that this Agreement shall not be terminated pursuant to this Section 13.1(e) by
a party if the relevant condition shall have failed due to the failure of such party (or, in the
case of Parent, of Merger Sub, or, in the case of Company, of Company Sub), to comply in all
material respects with its obligations under this Agreement;
(f) By Company, if any of the conditions set forth in Article 10 shall not have been satisfied
or waived by the Termination Date; provided, however, that this Agreement shall not be terminated
pursuant to this Section 13.1(f) if the relevant condition shall have failed due to the failure of
Company or Company Sub to comply in all material respects with its obligations under this
Agreement;
(g) By Parent, if any of the conditions set forth in Article 11 (other than Section 11.10)
shall not have been satisfied or waived by the Termination Date; provided, however, that this
Agreement shall not be terminated pursuant to this Section 13.1(g) if the relevant condition shall
have failed due to the failure of Parent or Merger Sub to comply in all material respects with its
obligations under this Agreement;
(h) By Parent, if
(i) a Change of Company Recommendation shall have occurred;
(ii) the board of directors of the Company fails to reaffirm the Company Recommendation
in accordance with Section 6.3(e);
(iii) the board of directors of the Company or any committee thereof shall approve,
adopt or recommend any Superior Proposal or Acquisition Proposal;
(iv) the Company shall have executed any letter of intent, memorandum of understanding
or similar agreement relating to any Superior Proposal or Acquisition Proposal;
(v) the Company approves or recommends that the Company Stockholders tender their
Shares in any tender or exchange offer or the Company fails to send the Company
Stockholders, within ten Business Days after the commencement of such tender or exchange
offer, a statement that the Company recommends rejection of such tender or exchange offer;
(vi) the Company publicly announces its intention to take any of the actions in the
foregoing clauses (i), (ii), (iii), (iv) or (v);
(vii) with the prior consent of the board of directors of the Company, any Person or
group (within the meaning of Section 13(d) of the Exchange Act) acquires beneficial
ownership of more than 25% of the outstanding Company Stock;
A-56
(viii) the Company breaches its obligation to hold the Company Stockholders Meeting
set forth in Section 6.8 other than solely as a result of actions taken or omitted by the
SEC; or
(ix) the condition set forth in Section 11.10 shall not have been satisfied or waived
prior to the Termination Date; or
(i) By Company, at any time prior to receipt of the Company Requisite Vote, in accordance
with, and subject to the terms of, Section 6.3(d).
The party desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e), (h) or (i) of
this Section 13.1 shall give written notice of such termination to each other party in accordance
with Section 15.2, specifying the provision or provisions hereof pursuant to which such termination
is effected.
13.2
Effect of Termination
.
(a) In the event of termination of this Agreement by either Company or Parent as provided in
Section 13.1, this Agreement shall forthwith become void and neither Company nor Company Sub nor
Parent nor Merger Sub shall have any further obligation or liability to the other party except
under the terms of the Confidentiality Agreement, Section 8.1, Section 13.1 and this Section 13.2,
each of which shall survive such termination; provided, however, that nothing herein shall relieve
any party from liability for any willful and material breach of the warranties and representations
made by it, or willful and material failure in performance of any of its covenants, agreements or
obligations hereunder.
(b) If:
(i) Parent terminates this Agreement pursuant to Section 13.1(h); or
(ii) the Company terminates this Agreement pursuant to Section 13.1(i); or
(iii) (A) either Parent or Company terminates this Agreement pursuant to Section
13.1(b), and
(B) at any time after the date of this Agreement and prior to the Company Stockholders
Meeting, an offer or proposal for an Acquisition Proposal was made directly to the
stockholders or to the Board of Directors of Company or became publicly known, or any Person
(other than Parent and its Affiliates) publicly announced an intention (whether or not
conditional) to make an offer or proposal for an Acquisition Proposal, and
(C) Company enters into an agreement for, or consummates any Acquisition Proposal with,
any Person within 12 months after such termination of this Agreement; or
(iv) (A) Parent terminates this Agreement pursuant to Section 13.1(d), and
A-57
(B) at any time after the date of this Agreement and prior to such breach, an offer or
proposal for an Acquisition Proposal was made directly to the stockholders or to the Board
of Directors of Company or became publicly known, or any Person (other than Parent and its
Affiliates) publicly announced an intention (whether or not conditional) to make an offer or
proposal for an Acquisition Proposal, and
(C) Company enters into an agreement for, or consummates any Acquisition Proposal with,
any Person within 12 months after such termination of this Agreement; or
(v) (A) Parent terminates this Agreement pursuant to Section 13.1(e) or (g) or Company
terminates this Agreement pursuant to Section 13.1(f), and the Company Stockholders Meeting
shall not have been held prior to such termination;
(B) at any time after the date of this Agreement and prior to such termination, an
offer or proposal for an Acquisition Proposal was made directly to the stockholders or to
the Board of Directors of Company or became publicly known, or any Person (other than Parent
and its Affiliates) publicly announced an intention (whether or not conditional) to make an
offer or proposal for an Acquisition Proposal; and
(C) Company enters into an agreement for or consummates any Acquisition Proposal within
12 months after such termination of this Agreement;
then Company shall pay to Parent, by wire transfer of immediately available funds the Termination
Fee (as defined below), (x) in the case Section 13.2(b)(i), no later than two (2) Business Days
following such termination, (y) in the case of Section 13.2(b)(ii), simultaneously with such
termination, and (z) in the case of Section 13.2(b)(iii), (iv) or (v), no later than the time of
Companys entering into an agreement for any Acquisition Proposal with any Person or, if there is
no such agreement, upon the consummation of such Acquisition Proposal. For avoidance of doubt, in
no event shall the Company or Company Sub be obligated to pay the Termination Fee on more than one
occasion.
For purposes of this Agreement, the term Termination Fee means, in the event that this Agreement
shall have been terminated pursuant to Section 13.1(b), Section 13.1(d), Section 13.1(h) or Section
13.1(i), an amount in cash equal to $1,330,000.
(c) If Company fails to pay all amounts due to Parent on the dates specified in this Section
13.2, then Company shall pay Parent interest on such unpaid amounts at the prime lending rate
prevailing at such time, as published in The Wall Street Journal, plus 2%, from the date such
amounts were required to be paid until the date actually received by Parent.
(d) Company acknowledges that the agreements contained in this Section 13.2 are an integral
part of the transactions contemplated by this Agreement, and that, without these agreements, Parent
and Merger Sub would not have entered into this Agreement. Company acknowledges that its
obligation to pay to Parent any amounts due pursuant to this Section 13.2 is not subject to the
Company Requisite Vote or any other stockholder vote or approval being obtained.
A-58
ARTICLE 14.
[INTENTIONALLY OMITTED]
ARTICLE 15.
MISCELLANEOUS
15.1
Expenses
. Except as otherwise provided for herein,
(a) Parent will pay all Expenses (as defined below) incurred by Parent or Merger Sub in
connection with or related to the authorization, preparation and execution of this Agreement and
all other matters related to the closing of the transactions contemplated hereby, including,
without limitation of the generality of the foregoing, all fees and expenses of agents,
representatives, counsel and accountants employed by Parent, Merger Sub or their Affiliates.
(b) CIPAR will pay all Expenses (as defined below) incurred by Company and Company Sub in
connection with or related to the authorization, preparation and execution of this Agreement, the
solicitation of stockholder approvals and all other matters related to the closing of the
transactions contemplated hereby, including, without limitation of the generality of the foregoing,
all fees and expenses of agents, representatives, counsel and accountants employed by Company,
Company Sub or their Affiliates.
Expenses as used in this Agreement shall include all reasonable out-of-pocket expenses (including
all fees and expenses of attorneys, accountants, investment bankers, experts and consultants to the
party and its Affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
15.2
Notices
. Any notice, request, instruction or other document to be given
hereunder by any party hereto to another shall be in writing and delivered personally or by
confirmed facsimile transmission or sent by a recognized overnight courier service or by registered
or certified mail, postage prepaid, with return receipt requested, addressed as follows:
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To Parent, Merger Sub or to Company
and Company Sub after the Effective
Time of the Merger:
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Graco Inc.
88 11th Avenue Northeast
Minneapolis, MN 55413
Attention: General Counsel
Facsimile Number:
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A-59
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With a copy to:
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Lindquist & Vennum P.L.L.P.
80 South 8th Street
Suite 4200
Minneapolis, MN 55402
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Attention:
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Robert Thompson
Joseph Humke
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Facsimile Number: (612) 371-3207
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To Company or Company Sub prior to
the Effective Time of the Merger, or
to CIPAR:
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Cohesant Technologies Inc.
5845 West 82nd Street
Suite 102
Indianapolis, Indiana 46278
Attention:
Facsimile Number:
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With a copy to:
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Porter Wright Morris & Arthur LLP
925 Euclid Avenue
Suite 1700
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Cleveland, OH 44115-1483
Attention: Michael A. Ellis
Facsimile Number: (216) 443-9011
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Any such notice, request, instruction or other document shall be deemed received (i) on the date
delivered personally or delivered by confirmed facsimile transmission, (ii) on the next Business
Day after it was sent by overnight courier, delivery charges prepaid; or (iii) on the fourth
Business Day after it was sent by registered or certified mail, postage prepaid. Any of the
Persons shown above may change its address for purposes of this section by giving notice in
accordance herewith.
15.3
Assignment
. All terms and conditions of this Agreement shall be binding upon and
shall inure, to the extent permitted by law, to the benefit of the parties hereto and their
respective permitted transferees and successors and permitted assigns; provided, however, that this
Agreement and all rights, privileges, duties and obligations of the parties hereto, without the
prior written approval of the other parties hereto, may not be transferred, assigned or delegated
by any party hereto (by operation of law or otherwise) and any such attempted transfer, assignment
or delegation shall be null and void.
15.4
Counterparts
. This Agreement and any exhibit hereto may be executed in one or
more counterparts, all of which, taken together, shall constitute one original document and shall
become effective when one or more counterparts have been signed by the appropriate parties and
delivered to each party hereto.
A-60
15.5
Effect of Representations and Warranties
. The representations and warranties
contained in this Agreement shall terminate immediately after the Effective Time of the Merger.
Notwithstanding the foregoing, the parties recognize that certain representations, warranties and
indemnification obligations contained in the Separation Agreement are to survive the Effective Time
of the Merger.
15.6
Third Parties
. Except as specified in Section 6.11 and Article 12 hereof, each
party hereto intends that this Agreement shall not benefit or create any right or cause of action
to any person other than parties hereto. As used in this Agreement the term parties shall refer
only to Parent, Merger Sub, Company or Company Sub, as the context may require. Without limiting
the foregoing, nothing in Article 12 hereof shall be deemed to confer any enforceable rights on any
current, former or future employee of Company, Company Sub, Parent, the Surviving Corporation or
any of their respective Affiliates, and nothing in this Agreement shall constitute or be construed
as an amendment or modification of any Employee Plan or Benefit Arrangement or any employee benefit
plan or arrangement of Parent, the Surviving Corporation or any of their Affiliates or limit in any
way the right of Company, Company Sub, Parent, the Surviving Corporation or any of their Affiliates
to amend, modify or terminate any of its employee benefit plans or arrangements. For the avoidance
of doubt, this Section 15.6 does not limit the rights of any Person under the terms of any Employee
Plan or Benefit Arrangement.
15.7
Integration
. This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.
15.8
Knowledge
. Whenever any statement herein or in any list, certificate or other
document delivered to any party pursuant to this Agreement is made to the knowledge or to the
knowledge of any party or another Person, such party or other Person shall make such statement
based upon the actual knowledge of the senior executive officers of such Person. The senior
executive officers of the Company and Company Sub are identified in Section 15.8 of the Company
Disclosure Letter.
15.9
Governing Law; Jurisdiction
.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.
(b) Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of
the Court of Chancery of the State of Delaware or any court of the United States located in the
State of Delaware in the event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that
it will not bring any action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than the Court of Chancery of the State of Delaware or, if under
applicable law exclusive jurisdiction over such matter is vested in the federal courts, any court
of the United States located in the State of Delaware, and (iv) consents to service being made
through the notice procedures set forth in Section 15.2. Each of the Company, Company
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Sub, Parent and Merger Sub hereby agrees that service of any process, summons, notice or
document by U.S. registered mail to the respective addresses set forth in Section 15.2 shall be
effective service of process for any claim, action, suit or proceeding in connection with this
Agreement or the transactions contemplated hereby.
15.10
Captions
. The captions contained in this Agreement are for convenience of
reference only and do not form a part of this Agreement and shall not affect the interpretation
hereof.
15.11
Severability
. If any portion of this Agreement shall be deemed by a court of
competent jurisdiction to be unenforceable, the remaining portions shall be valid and enforceable
only if, after excluding the portion deemed to be unenforceable, the remaining terms hereof shall
provide for the consummation of the transactions contemplated herein in substantially the same
manner and with substantially the same effect as originally set forth at the date this Agreement
was executed.
15.12
Waiver and Modification; Amendment
. At any time prior to the Effective Time of
the Merger, any party hereto may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and (iii) subject to the
requirements of applicable law, waive compliance with any of the agreements or conditions contained
herein. 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. No waiver of any term, provision or condition
of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such term, provision or condition of this Agreement. The failure of any
party to assert any rights or remedies shall not constitute a waiver of such rights or remedies.
Except as otherwise required by law, this Agreement, when executed and delivered, may be modified
or amended prior to the Effective Time of the Merger by action of the Boards of Directors of
Parent, Merger Sub, Company and Company Sub without action by their respective stockholders. This
Agreement may be modified or amended only by an instrument of equal formality signed by the parties
or their duly authorized agents.
[Remainder of Page Intentionally Left Blank]
A-62
IN WITNESS WHEREOF, the parties have duly executed this Agreement and Plan of Merger as of the
day and year first above written.
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PARENT:
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COMPANY:
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GRACO INC.
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COHESANT TECHNOLOGIES INC.
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/s/ Patrick J. McHale
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/s/ Morris H. Wheeler
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Name: Patrick J. McHale
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Name: Morris H. Wheeler
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Title: President and Chief Executive Officer
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Title: Chief Executive Officer
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MERGER SUB:
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COMPANY SUB:
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GRACO INDIANA INC.
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GLASCRAFT INC.
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/s/ Karen Park Gallivan
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/s/ Morris H. Wheeler
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Name: Karen Park Gallivan
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Name: Morris H. Wheeler
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Title: Vice President and Secretary
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Title: Chairman
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CIPAR INC.
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/s/ Morris H. Wheeler
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Name: Morris H. Wheeler
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Title: Chairman
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A-63
EXHIBIT F
Examples of Per Share Merger Consideration Calculation
The following are hypothetical example calculations of the Per Share Merger Consideration,
based upon the assumptions set forth below (none of which purport to reflect the actual state of
affairs as of the date of the Agreement and Plan of Merger to which this Exhibit F is attached or
the projected state of affairs as of the Effective Time of the Merger). These hypothetical example
calculations are for illustrative purposes only, and they are not intended to, and do not purport
to, reflect any actual or projected calculation of the Per Share Merger Consideration.
Example 1:
Assume(for illustrative purposes only) that, as of the date of this Agreement, there are
3,357,809 shares of Company Stock outstanding and Company Stock Options outstanding to purchase
337,700 shares of Company Stock at an exercise price of $8.00 per share of Company Stock. Further
assume that the Assumed Transaction Expenses and Debt is equal to $3,000,000 and that, prior to the
Effective Time of the Merger, all of the outstanding Company Stock Options are exercised to
purchase shares of Company Stock.
The Per Share Merger Consideration would be equal to $9.39 because, based on the Per Share
Merger Consideration, the following would hold true:
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Assumed Transaction Expenses and Debt = $3,000,000
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Option Shares Merger Consideration = $0.00
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Company Stock Merger Consideration = $34,700,830
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Merger Consideration = $34,700,830
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Option Shares Exercise Cash Amount = $2,701,600
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Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $34,999,230 (note that this amount is less than $35,000,000
because of rounding the Per Share Merger Consideration down to the nearest whole
$0.01)
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Excess Proceeds = $770.49
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Example 2:
Assume (for illustrative purposes only) that, as of the date of this Agreement, there are
3,357,809 shares of Company Stock outstanding and Company Stock Options outstanding to purchase
337,700 shares of Company Stock at an exercise price of $8.00 per share of Company
A-64
Stock. Further assume that the Assumed Transaction Expenses and Debt is equal to $3,000,000 and
that, prior to the Effective Time of the Merger, none of the outstanding Company Stock Options are
exercised to purchase shares of Company Stock.
The Per Share Merger Consideration would be equal to $9.39 because, based on the Per Share
Merger Consideration, the following would hold true:
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Assumed Transaction Expenses and Debt = $3,000,000
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Option Shares Merger Consideration = $469,403
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|
|
|
Company Stock Merger Consideration = $31,529,826
|
|
|
|
|
Merger Consideration = $31,999,229
|
|
|
|
|
Option Shares Exercise Cash Amount = $0.00
|
|
|
|
|
Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $34,999,229 (note that this amount is less than $35,000,000
because of rounding the Per Share Merger Consideration down to the nearest whole
$0.01)
|
|
|
|
|
Excess Proceeds = $770.49
|
Example 3:
Assume (for illustrative purposes only) that, as of the date of this Agreement, there are
3,357,809 shares of Company Stock outstanding and Company Stock Options outstanding to
purchase 337,700 shares of Company Stock at an exercise price of $8.00 per share of Company Stock.
Further assume that the Assumed Transaction Expenses and Debt is equal to $4,500,000 and that,
prior to the Effective Time of the Merger, all of the outstanding Company Stock Options are
exercised to purchase shares of Company Stock.
The Per Share Merger Consideration would be equal to $9.05 because the following would hold
true based on the Per Share Merger Consideration being equal to $8.98, and in accordance with the
definition of Per Share Merger Consideration, the floor on the Per Share Merger Consideration is
$9.05:
|
|
|
Assumed Transaction Expenses and Debt = $4,500,000
|
|
|
|
|
Option Shares Merger Consideration = $0.00
|
|
|
|
|
Company Stock Merger Consideration = $33,185,670
|
|
|
|
|
Merger Consideration = $33,185,670
|
|
|
|
|
Option Shares Exercise Cash Amount = $2,701,600
|
A-65
|
|
|
Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $34,984,070 (note that this amount is less than $35,000,000
because of rounding the Per Share Merger Consideration down to the nearest whole
$0.01)
|
However, using $9.05 as the Per Share Merger Consideration, the following would hold true:
|
|
|
Assumed Transaction Expenses and Debt = $4,500,000
|
|
|
|
|
Option Shares Merger Consideration = $0.00
|
|
|
|
|
Company Stock Merger Consideration = $33,444,356
|
|
|
|
|
Merger Consideration = $33,444,356
|
|
|
|
|
Option Shares Exercise Cash Amount = $2,701,600
|
|
|
|
|
Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $35,242,756
|
|
|
|
|
Excess Proceeds = $0.00
|
As such, the Excess Assumed Transaction Expenses and Debt would be equal to $242,756 (i.e.,
the amount by which the balance of (A) the Merger Consideration
plus
the Assumed
Transaction Expenses and Debt,
minus
(B) the Option Shares Exercise Cash Amount, exceeds
$35,000,000). Pursuant to Section 6.12 of this Agreement and in accordance with the terms and
conditions of the Separation Agreement, CIPAR would assume and be responsible for discharging the
Excess Assumed Transaction Expenses and Debt and, immediately following the Effective Time of the
Merger, CIPAR would pay to the Company, by wire transfer of immediately available funds, an amount
equal to the Excess Assumed Transaction Expenses and Debt.
Example 4:
Assume (for illustrative purposes only) that, as of the date of this Agreement, there are
3,357,809 shares of Company Stock outstanding and Company Stock Options outstanding to
purchase 337,700 shares of Company Stock at an exercise price of $8.00 per share of Company Stock.
Further assume that the Assumed Transaction Expenses and Debt is equal to $2,000,000 and that,
prior to the Effective Time of the Merger, all of the outstanding Company Stock Options are
exercised to purchase shares of Company Stock.
The Per Share Merger Consideration would be equal to $9.66 because the following would hold
true based on the Per Share Merger Consideration being equal to $9.55, and in accordance with the
definition of Per Share Merger Consideration, the maximum on the Per Share Merger Consideration
is $9.55:
|
|
|
Assumed Transaction Expenses and Debt = $2,000,000
|
A-66
|
|
|
Option Shares Merger Consideration = $0.00
|
|
|
|
|
Company Stock Merger Consideration = $35,698,616
|
|
|
|
|
Merger Consideration = $35,698,616
|
|
|
|
|
Option Shares Exercise Cash Amount = $2,701,600
|
|
|
|
|
Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $34,997,016 (note that this amount is less than $35,000,000
because of rounding the Per Share Merger Consideration down to the nearest whole
$0.01)
|
However, using $9.55 as the Per Share Merger Consideration, the following would hold true:
|
|
|
Assumed Transaction Expenses and Debt = $2,000,000
|
|
|
|
|
Option Shares Merger Consideration = $0.00
|
|
|
|
|
Company Stock Merger Consideration = $35,292,110
|
|
|
|
|
Merger Consideration = $35,292,110
|
|
|
|
|
Option Shares Exercise Cash Amount = $2,701,600
|
|
|
|
|
Merger Consideration + Assumed Transaction Expenses and Debt Option Shares
Exercise Cash Amount = $34,590,510
|
|
|
|
|
Excess Proceeds = $409,490
|
A-67
Appendix B
PARTNERS LLC
200 Public Square . Suite 3750 . Cleveland, Ohio 44114
Phone: (216) 589-0900 . Fax: (216) 589-9558 . www.wesrespartners.com
December 3,
2007
PERSONAL AND CONFIDENTIAL
The Board of Directors
Cohesant Technologies Inc.
5845 West 82
nd
St., Suite 102
Indianapolis, IN 46728
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of view, of the
Consideration (as defined below) to be received by the holders of the issued and outstanding
shares of Common Stock, $.001 par value (the Common Stock), of Cohesant Technologies Inc.
(the Company) pursuant to the Agreement and Plan of Merger (the Merger Agreement) dated
December 3, 2007 by and among Graco Inc. (Graco), Graco Indiana Inc., a wholly-owned
subsidiary of Graco (Merger Sub), the Company, CIPAR Inc., a wholly-owned subsidiary of the
Company (CIPAR) and GlasCraft Inc., a wholly-owned subsidiary of the Company (GlasCraft).
Capitalized terms used but not defined herein shall have the meanings ascribed to them in the
Merger Agreement.
You have advised us that, under the terms of the Merger Agreement, at the effective time
of the merger (the Effective Time), Merger Sub will merge with and into the Company, each
issued and outstanding share of Common Stock (other than shares held by Graco or Merger Sub
or a stockholder who is entitled to and who properly demands and perfects statutory appraisal
rights in compliance with all of the required procedures of Delaware law), will be converted
into the right to receive a minimum of $9.05 in cash, without interest (the Consideration),
and the Company will become a wholly-owned subsidiary of Graco.
You have advised us that the parties contemplate that, immediately prior to the
Effective Time, the Company will spin-off CIPAR to its stockholders by means of a special
dividend of one share of CIPAR common stock, $.001 par value, for each share of the Companys
Common Stock (the Spin-Out).
In connection with rendering this opinion, we have reviewed and analyzed, among other
things, the following: (i) the Agreement, including the exhibits and schedules thereto; (ii)
certain publicly available information concerning the Company and GlasCraft, including the
Annual Reports on Form 10-K of the Company for each of the years in the five year period
ended November 30, 2006 and the Quarterly Reports on Form 10-Q of the Company for the first
three quarters of the current fiscal year; (iii) certain other internal information,
primarily financial in nature, including projections, concerning the business and operations
of GlasCraft furnished to us by the Company for purposes of our analysis; (iv) certain
publicly available information with respect to certain other companies that we believe to be
comparable to GlasCraft and the trading markets for certain of such other companies
securities; and (v) certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have also visited
GlasCraft facilities in
Board of Directors
December 3, 2007
Page 2
Indianapolis, Indiana and met with certain officers and employees of the Company and GlasCraft to
discuss the business and prospects of GlasCraft as well as other matters we believe relevant to our
inquiry.
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 us or
publicly available and have assumed and relied upon the representations and warranties of the
Company contained in the 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 and GlasCraft as to the reasonableness and achievability of the financial and operating
projections (and the assumptions and bases therefore) provided to us and, with your consent, we
have assumed that such projections, reflect the best currently available estimates and judgments
of such respective managements of the Company and GlasCraft. 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. We have also assumed that the
conditions to the Merger as set forth in the Agreement would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the Agreement.
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
paid by the Company pursuant to the Merger Agreement and does not address the Companys underlying
business decision to effect the Merger or any other terms of the Merger Agreement or the
transactions contemplated thereby, including the proposed Spin-Out. 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.
It is understood that this opinion was prepared solely for the confidential use of the Board
of Directors (the Board) and senior management of the Company and may not be disclosed,
summarized, excerpted from or otherwise publicly referred to without our prior written consent.
Notwithstanding the foregoing, we recognize that this opinion, and a summary thereof which we will
prepare, will be included in the Proxy Statement of the Company to be sent to the stockholders of
the Company soliciting their approval of the Merger. Our opinion does not constitute a
recommendation to any stockholder of the Company as to how such stockholder should vote at the
stockholders meeting held in connection with the Merger.
We were engaged by the Board to render this opinion in connection with the Boards discharge
of its fiduciary obligations. We have advised the Board that we do not believe that any person
(including a stockholder of the Company) other than the directors has the legal right to rely on
this opinion for any claim arising under state law and that, should any such claim be brought
against us, this assertion will be raised as a defense. In the absence of governing authority,
this assertion will be resolved by the final adjudication of such issue by a court of competent
jurisdiction. Resolution of this matter under state law, however, will have no effect on the
rights and responsibilities of Western Reserve Partners LLC under the federal securities laws or
on the rights and responsibilities of the Companys Board of Directors under applicable law.
Board of Directors
December 3, 2007
Page 3
We will receive a fee for our services in rendering this opinion. In addition, we have been
engaged by the Company to provide an opinion concerning the relative fair market values of the
Company and CIPAR solely for the purpose of assisting the Companys shareholders with their
federal income taxes, and we will receive a fee for our services in rendering that opinion. The
Company has also agreed to indemnify us against certain liabilities, including liabilities under
the federal securities laws.
This opinion has been approved by the valuation and fairness opinion committee of Western
Reserve Partners LLC.
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,
|
|
|
|
|
|
|
|
|
|
|
|
Western Reserve Partners LLC
|
Appendix C
PARTNERS LLC
200
Public Square . Suite 3750 . Cleveland, Ohio 44114
Phone: (216) 589-0900 . Fax: (216) 589-9558 . www.wesrespartners.com
December 3, 2007
PERSONAL AND CONFIDENTIAL
Board of Directors
Cohesant Technologies Inc.
5845 West 82
nd
St., Suite 102
Indianapolis, IN 46728
Members of the Board:
You have requested our opinion with respect to the fair market value of various subsidiaries
of Cohesant Technologies Inc. (the Company) in connection with the transactions contemplated by
the Agreement and Plan of Merger (the Merger Agreement) dated December 3, 2007 by and among Graco
Inc. (Graco), Graco Indiana Inc., a wholly-owned subsidiary of Graco (Merger Sub), the Company,
CIPAR Inc., a wholly-owned subsidiary of the Company (CIPAR) and GlasCraft Inc., a wholly-owned
subsidiary of the Company (GlasCraft).
You have advised us that, under the terms of the Merger Agreement, at the effective time of
the merger (the Effective Time), Merger Sub will merge with and into the Company, each issued and
outstanding share of Common Stock (other than shares held by Graco or Merger Sub or a stockholder
who is entitled to and who properly demands and perfects statutory appraisal rights in compliance
with all of the required procedures of Delaware law), will be converted into the right to receive a
minimum of $9.05 in cash, without interest, (the Consideration), and the Company will become a
wholly-owned subsidiary of Graco. You have also advised us that the parties contemplate that,
immediately prior to the Effective Time, the Company will spin-off CIPAR to its stockholders by
means of a special dividend of one share of CIPAR common stock, $.001 par value, for each share of
the Companys Common Stock (the Spin-Out).
We understand that the operations to be transferred under the terms of the Merger Agreement
consist solely of the business conducted through the Companys GlasCraft subsidiary (the
GlasCraft Business), and that the Company conducts no business other than the GlasCraft Business
and the business conducted through the entities that are the subject of the Spin-Out (the
Spin-Out Business). The entities comprising the Spin-Out Business consist of CIPAR and its
wholly-owned direct and indirect subsidiaries CuraFlo Services, Inc., CuraFlo Spincast Services,
Inc., CuraFlo of British Columbia Ltd., and CuraFlo Franchising, Inc. and Cohesant Materials, Inc.
Board of Directors
December 3, 2007
Page 2
You have advised us that our opinion concerning the fair market value of Spin-Out Business has
been requested for federal income tax purposes. For purposes of this valuation, the term fair
market value means the price at which the property in question would change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both
having reasonable knowledge of relevant facts.
In connection with rendering this opinion, we have reviewed and analyzed, among other things,
the following: (i) the Merger Agreement, including the exhibits and schedules thereto); (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 years in the five year period ended November
30, 2006 and the Quarterly Reports on Form 10-Q of the Company for the first three quarters of the
current fiscal year; (iii) certain other internal information, primarily financial in nature,
including projections, concerning the business and operations of the Spin-Out Business furnished
to us by the Company for purposes of our analysis; (iv) certain publicly available information
with respect to certain other companies that we believe to be comparable to the Spin-Out Business
and the trading markets for certain of such other companies securities; and (v) certain publicly
available information concerning the nature and terms of certain other transactions that we
consider relevant to our inquiry. We have also visited the Spin-Out Businesss facilities in
Tulsa, Oklahoma and Beachwood, Ohio and met with certain officers and employees of the Company and
the Spin-Out Business to discuss the business and prospects of the Spin-Out Business as well as
other matters we believe relevant to our inquiry.
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 us or
publicly available and have assumed and relied upon the representations and warranties of the
Company and CIPAR 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 and the Spin-Out Business as to the reasonableness and achievability of
the financial and operating projections (and the assumptions and bases therefore) provided to us
and, with your consent, we have assumed that such projections reflect the best currently available
estimates and judgments of such respective managements of the Company and the Spin-Out Business.
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. We
have also assumed that the conditions to the Merger as set forth in the Merger Agreement would be
satisfied and that the Merger would be consummated on a timely basis in the manner contemplated by
the Merger Agreement.
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 limited to relative fair
market values of the Spin-Out Business for purposes of the Companys shareholders federal income
taxes and does not address the Companys underlying business decision to effect the Merger or any
other terms of the Merger Agreement or the transactions contemplated thereby, including the
Spin-Out. We are also expressing no opinion herein as to the price at which the common stock of
the Spin-Out Business will trade at any future time. 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.
Board of Directors
December 3, 2007
Page 3
It is understood that this opinion was prepared solely for the confidential use of the Board
of Directors (the Board) and senior management of the Company and may not be disclosed,
summarized, excerpted from or otherwise publicly referred to without our prior written consent.
Notwithstanding the foregoing, we recognize that this opinion, and a summary thereof which we will
prepare, will be included in the Proxy Statement of the Company to be sent to the stockholders of
the Company soliciting their approval of the Merger. Our opinion does not constitute a
recommendation to any stockholder of the Company as to how such stockholder should vote at the
stockholders meeting held in connection with the Merger.
We were engaged by the Board to render this opinion in connection with the Boards discharge
of its fiduciary obligations. We have advised the Board that we do not believe that any person
(including a stockholder of the Company) other than the directors has the legal right to rely on
this opinion for any claim arising under state law and that, should any such claim be brought
against us, this assertion will be raised as a defense. In the absence of governing authority,
this assertion will be resolved by the final adjudication of such issue by a court of competent
jurisdiction. Resolution of this matter under state law, however, will have no effect on the
rights and responsibilities of Western Reserve Partners LLC under the federal securities laws or
on the rights and responsibilities of the Companys Board of Directors under applicable law.
We will receive a fee for our services in rendering this opinion. In addition, we have been
engaged by the Company to provide an opinion concerning fairness, from a financial point of view,
to the shareholders of the Company, of the Consideration to be received pursuant to the Merger
Agreement, and we will receive a fee for our services in rendering that opinion. The Company has
also agreed to indemnify us against certain liabilities, including liabilities under the federal
securities laws.
This opinion has been approved by the valuation and fairness opinion committee of Western
Reserve Partners LLC.
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 fair market value of the Spin-Out Business was
$6,632,000.
|
|
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
|
|
|
|
Western Reserve Partners LLC
|
Appendix D
FORM OF VOTING AND SUPPORT AGREEMENT
This VOTING AND SUPPORT AGREEMENT (this
Agreement
) is entered into as of December 3,
2007, by and between GRACO INC., a corporation incorporated under the laws of the State of
Minnesota (
Parent
), and the undersigned stockholder (the
Stockholder
) of
COHESANT TECHNOLOGIES INC., a corporation incorporated under the laws of the State of Delaware (the
Company
).
WITNESSETH:
WHEREAS, the Stockholder is, as of the date hereof, the record and/or beneficial owner of the
number of shares of the common stock, par value $0.001 per share, of the Company (the
Company
Common Stock
) and preferred stock, par value $0.001 per share, of the Company (the
Company Preferred Stock
; and, together with the Company Common Stock, the
Company
Stock
), set forth on
Schedule 1
hereto (the
Existing Shares
, and together
with any shares of Company Stock acquired by the Stockholder after the date of this Agreement,
whether upon the exercise of options to purchase shares of Company Stock or otherwise, the
Shares
).
WHEREAS, concurrently herewith, Parent, Graco Indiana Inc., a Delaware corporation and wholly
owned subsidiary of Parent (
Merger Sub
), the Company, CIPAR, Inc., a Delaware corporation
and wholly owned subsidiary of the Company, and GlasCraft, Inc., an Indiana corporation and wholly
owned subsidiary of the Company (
Company Sub
), have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the
Merger Agreement
), which provides, among other
things, (i) for Merger Sub to merge with and into the Company, with the Company continuing as the
surviving corporation (the
Merger
) and (ii) for each share of Company Stock to be
converted into a right to receive a cash payment, all upon the terms and subject to the conditions
set forth in the Merger Agreement.
WHEREAS, as a condition to the willingness of Parent and Merger Sub to enter into the Merger
Agreement and as an inducement and in consideration therefor, the Stockholder has agreed to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set
forth herein and in the Merger Agreement, and intending to be legally bound hereby, the parties
hereto agree as follows:
AGREEMENT
Section 1. Capitalized terms used herein without definition shall have the respective meanings
specified in the Merger Agreement.
Section 2.
Representations and Warranties of the Stockholder
. The Stockholder hereby
represents and warrants to Parent as follows:
(a) The Existing Shares are, and any additional shares of Company Stock acquired by the
Stockholder after the date hereof and prior to the Effective Time of the Merger
D-1
will be, owned of record and/or beneficially by the Stockholder, free and clear of all
Encumbrances other than Encumbrances created by this Agreement. As of the date hereof, the
Existing Shares as set forth on
Schedule 1
constitute all of the shares of Company Stock
held of record, beneficially owned by, or for which voting power or disposition power is held or
shared by the Stockholder. The Stockholder has, and at all times during the term hereof will have,
sole voting and dispositive power over all of the Shares, and sole power to agree to all of the
matters set forth in this Agreement, with no limitations, qualification or restrictions on such
rights, subject to applicable federal securities laws and the terms of this Agreement.
(b) The Stockholder has the legal capacity to execute and deliver this Agreement, to perform
the Stockholders obligations hereunder, and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Stockholder and, assuming due
authorization, execution and delivery by Parent, constitutes a valid and binding obligation of the
Stockholder enforceable in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, liquidation, receivership, conservatorship, insolvency, fraudulent transfer,
moratorium or other similar laws affecting the rights of creditors generally and by general
equitable principles.
(c) Neither the execution and delivery by the Stockholder of this Agreement, the performance
by the Stockholder of his or her obligations hereunder, nor the consummation of the transactions
contemplated hereby will (i) constitute a breach of or result in a default, or event that with
notice or lapse of time or both would become a default (or give rise to any rights of termination,
cancellation or acceleration, or unilateral rights to amend, or any right to acquire any securities
or assets, or any loss of benefit), under any of the terms, conditions or provisions of any
Contract to which the Stockholder is a party or by which the Stockholder or the Stockholders
properties or assets is bound; (ii) violate any order, writ, injunction, decree, statute, rule or
regulation (
Law
) applicable to the Stockholder; or (iii) result in the creation or
imposition of any Encumbrance on the Stockholders properties or assets (except for any such
Encumbrances created by this Agreement), except for any of the foregoing as would not and would not
reasonably be expected to, individually or in the aggregate, materially impair the ability of the
Stockholder to perform his or her obligations hereunder or to consummate the transactions
contemplated hereby on a timely basis.
Section 3.
Representations and Warranties of Parent
. Parent hereby represents and
warrants to the Stockholder as follows:
(a) Parent has been duly organized, is validly existing and in good standing as a corporation
under the laws of the State of Minnesota. The execution and delivery by Parent of this Agreement,
the performance by Parent of its obligations hereunder, and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary corporate action on the
part of Parent.
(b) This Agreement has been duly executed and delivered by Parent and, assuming due
authorization, execution and delivery by the Stockholder, constitutes a valid and binding
obligation of Parent, enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, liquidation, receivership, conservatorship,
D-2
insolvency, fraudulent conveyance, moratorium or other similar laws affecting the rights of
creditors generally and by general equitable principles.
(c) Neither the execution and delivery by Parent of this Agreement, the performance by Parent
of its obligations hereunder, nor the consummation of the transactions contemplated hereby, will
(i) constitute a breach of or result in a default, or event that with notice or lapse of time or
both would become a default (or give rise to any rights of termination, cancellation or
acceleration, or unilateral rights to amend, or any right to acquire any securities or assets, or
any loss of benefit), under any of the terms, conditions or provisions of any Contract to which
Parent is a party or by which Parent or its properties or assets is bound; (ii) violate any Law
applicable to Parent; or (iii) result in the creation or imposition of any Encumbrance on Parents
properties or assets, except for any of the foregoing as would not and would not reasonably be
expected to, individually or in the aggregate, materially impair the ability of Parent to perform
its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 4.
Transfer of the Shares
. During the term of this Agreement, the Stockholder
agrees that, except pursuant to this Agreement or upon the written
consent of Parent
[(which consent shall not be unreasonably withheld solely in the case of any Transfer (as hereinafter defined) of
Shares owned by the Stockholder to
,
it being acknowledged that any such Shares so Transferred by the
Stockholders to
shall constitute Shares under and as defined in that
certain Voting and Support Agreement, dated of even date herewith, by
and between
and Parent)], the
Stockholder will not transfer, assign, sell, gift-over, pledge, or otherwise dispose of or encumber
(
Transfer
), or enter into any contract, arrangement or understanding with respect to any
Transfer (whether by actual disposition or effective economic disposition due to hedging, cash
settlement, or otherwise) of, any of the Shares or any options to acquire shares of Company Stock
acquired beneficially or of record by the Stockholder after the date hereof, or any interest
therein. Notwithstanding the foregoing, during the term of this Agreement, the Stockholder may
Transfer to charities and to the Stockholders children (whether directly to such children or to
trusts established for their benefit) (collectively,
Permitted Transferees
), Shares owned
by the Stockholder without the prior written consent of Parent;
provided
,
however
,
that the aggregate number of Shares so Transferred by the Stockholder to Permitted Transferees, on
a collective basis, shall not exceed two percent (2.0%) of the sum of (i) the Existing Shares and
(ii) any Shares acquired by the Stockholder after the date of this Agreement upon the exercise of
options to purchase shares of Company Stock.
Section 5.
Voting Arrangements
.
(a) During the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, and at every adjournment or postponement thereof, with respect to
outstanding Shares owned beneficially or of record by the Stockholder, the Stockholder shall: (i)
appear at such meeting or otherwise cause such Shares to be counted as present thereat for purposes
of establishing a quorum; (ii) vote or cause to be voted such Shares in favor of (A) the
Restructuring and the Spin Off (to the extent to be voted upon by the Companys stockholders) and
(B) the Merger and the approval and adoption by the Companys stockholders of the agreement of
merger (as such term is used in Section 251 of the DGCL) contained in the Merger Agreement, and
any action required in furtherance thereof; and (iii) vote or cause to be voted, or execute
consents in respect of, such Shares against (A) any Competing Transaction (as hereinafter defined)
or (B) any proposal, action or transaction involving the Company or any of the stockholders of the
Company which could reasonably be expected to
D-3
prevent or materially impede or delay the consummation of the transactions contemplated by the
Merger Agreement or by this Agreement or to deprive Parent of any material portion of the benefits
anticipated by Parent to be received from the consummation of the transactions contemplated by the
Merger Agreement or this Agreement, or change in any manner the voting rights of the Company Stock
(collectively,
Frustrating Transactions
) presented to the stockholders of the Company
(regardless of any recommendation of the Board of Directors of the Company) or in respect of which
vote or consent of the Stockholder is requested or sought. For purposes of this Agreement,
Competing Transaction
shall mean any of the following involving Company and any Person
other than Parent or any of its Affiliates: any merger, consolidation, share exchange or other
business combination; a sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets representing 15% or more of the consolidated assets of Company; a sale of shares of capital
stock (or securities convertible or exchangeable into or otherwise evidencing, or any agreement or
instrument evidencing, the right to acquire capital stock), representing 15% or more of the voting
power of Company; or a tender offer or exchange offer for at least 15% of the outstanding shares of
Company; or any other acquisition in any manner of an equity interest representing a 15% or more
economic or voting interest in Company, or of assets, securities or other ownership interests of or
in Company representing 15% or more of the consolidated assets of Company.
(b)
Irrevocable Proxy
.
(i) As security for the Stockholders obligations under Section 5(a), the Stockholder hereby
irrevocably constitutes and appoints Parent as the Stockholders attorney and proxy in accordance
with the DGCL, with full power of substitution and resubstitution, to vote the Shares owned
beneficially or of record by the Stockholder as indicated in Section 5(a). Such irrevocable proxy
will expire automatically and without further action by the parties upon termination of this
Agreement.
(ii) The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 5(b)
is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy
is given to induce Parent to enter into the Merger Agreement and to secure the performance of the
duties of the Stockholder under this Agreement. The Stockholder hereby further affirms that the
irrevocable proxy is coupled with an interest and, except as set forth in this Section or in
Section 8 hereof, is intended to be irrevocable in accordance with the provisions of Section 212 of
the DGCL. If for any reason the proxy granted herein is not irrevocable, then the Stockholder
agrees to vote the outstanding Shares owned beneficially or of record by the Stockholder in
accordance with Section 5(a) above as instructed by Parent in writing.
(c)
No Inconsistent Agreements
. The Stockholder hereby covenants and agrees that,
except for actions taken in furtherance of this Agreement, the Stockholder (i) has not entered, and
shall not enter at any time while this Agreement remains in effect, into any voting agreement or
voting trust with respect to the Shares owned beneficially or of record by the Stockholder, and
(ii) has not granted, and shall not grant at any time while this Agreement remains in effect, a
proxy, consent or power of attorney with respect to the Shares owned beneficially or of record by
the Stockholder. During the term of this Agreement, the Stockholder
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shall not take any action that would in any way restrict, limit or interfere with the
performance of the Stockholders obligations hereunder or the consummation of the transactions
contemplated hereby on a timely basis.
Section 6.
Appraisal Rights
. The Stockholder hereby waives any and all appraisal,
dissenters and similar rights that the Stockholder may have with respect to the Restructuring, the
Spin Off, the Merger or the other transactions contemplated by the Merger Agreement pursuant to the
DGCL or any other Law.
Section 7.
No Solicitation
.
(a) Subject to Section 8 hereof, the Stockholder shall not, and shall not permit any
representative of the Stockholder to, directly or indirectly: (i) solicit proxies or become a
participant in a solicitation (as such terms are defined in Regulation 14A under the Exchange
Act) with respect to a Competing Transaction or a Frustrating Transaction or otherwise encourage or
assist any Person in taking or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a vote or action by written consent in lieu of a
Company Stockholders Meeting; or (iii) become a member of a group (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) with respect to any voting
securities of the Company, as applicable, with respect to any Competing Transaction or Frustrating
Transaction.
(b) Subject to Section 8 hereof, the Stockholder shall not, and shall not permit any
representative of the Stockholder to, directly or indirectly: (i) solicit, initiate, participate
in, knowingly encourage or otherwise facilitate, directly or indirectly, any inquiries relating to,
or the making of, any offer or proposal for a Competing Transaction; or (ii) engage in any
negotiations concerning, or provide any information or data to, or have any discussions with, any
Person relating to any offer or proposal for a Competing Transaction that may reasonably be
expected to lead to an offer or proposal for a Competing Transaction.
Section 8.
Stockholder Capacity
. Notwithstanding anything else in this Agreement to
the contrary, Parent acknowledges and agrees that: (a) the Stockholder does not make any agreement
or understanding in any capacity other than in the Stockholders capacity as stockholder of the
Company; (b) the Stockholder executes this Agreement solely in the Stockholders capacity as a
stockholder of the Company and nothing herein shall limit or affect any actions or inactions taken
by the Stockholder in the Stockholders capacity as an officer or director of the Company in
conformity with the Merger Agreement; (c) the Stockholder, in the Stockholders capacity as an
officer or director of the Company, may provide information and engage in discussions with a third
party, to the extent that the Company is permitted to do so under Section 6.3 of the Merger
Agreement; and (d) the Stockholder shall have no liability to Parent or any of Parents affiliates
under this Agreement as a result of any action or inaction by the Stockholder, in the Stockholders
capacity as an officer or director of the Company, to the extent taken in accordance with Section
6.3 of the Merger Agreement.
Section 9.
Certain Events
. The Stockholder agrees to notify Parent promptly in
writing of (a) the number of any additional shares of Company Stock, options to purchase shares
D-5
of Company Stock or other securities of the Company, if any, acquired by the Stockholder after the
date hereof, and (b) with respect to the subject matter contemplated by Section 7, any such
inquiries, offers or proposals which are received by, any such information or data which is
requested from, and any such negotiations or discussions which are sought to be initiated or
continued with, the Stockholder.
Section 10.
Miscellaneous
.
(a)
Nonsurvival of Representations and Warranties
. The representations and warranties
contained in this Agreement shall terminate immediately after the Effective Time of the Merger.
(b)
Further Assurances
. The Stockholder shall, upon request of Parent, execute and
deliver any additional documents and take such further actions as may reasonably be deemed by
Parent to be necessary or desirable to carry out the provisions hereof.
(c)
Termination
. This Agreement, and all rights and obligations of the parties
hereunder, shall terminate immediately upon the earliest of: (a) the Effective Time of the Merger;
(b) the termination of the Merger Agreement; and (c) the mutual agreement of the parties to
terminate this Agreement;
provided
,
however
, that Section 11(d) shall survive any
termination of this Agreement, and such termination shall not relieve any party for any willful and
material breach of this Agreement prior to such termination.
(d)
Expenses
. All fees, costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne solely by the party which has incurred such
fees, costs and expenses.
(e)
No Ownership Interest
. Nothing contained in this Agreement shall be deemed to
vest in Parent any direct or indirect ownership or incidence of ownership of or with respect to any
Shares. All rights, ownership and economic benefits of and relating to the Shares shall remain
vested in and belong to the Stockholder, and Parent shall have no authority to manage, direct,
superintend, restrict, regulate, govern or administer any of the policies or operations of the
Company or exercise any power or authority to direct the Stockholder in the voting of any of the
Shares, except as otherwise provided herein.
(f)
Notices
. Any notice, request, instruction or other document to be given hereunder
by any party hereto to another shall be in writing and delivered personally or by confirmed
facsimile transmission or sent by a recognized overnight courier service or by registered or
certified mail, postage prepaid, with return receipt requested, addressed as follows:
If to the Stockholder, to:
D-6
with a copy to:
Porter Wright Morris & Arthur LLP
925 Euclid Avenue
Suite 1700
Cleveland, OH 44115-1483
Attention: Michael A. Ellis
Facsimile Number: (216) 443-9011
If to Parent, to:
Graco Inc
88 11th Avenue Northeast
Minneapolis, MN 55413
Attention: General Counsel
Facsimile Number:
with a copy to:
Lindquist & Vennum P.L.L.P.
80 South 8th Street
Minneapolis, MN 55402
Attention: Robert L. Thompson
Joseph J. Humke
Facsimile Number: (612) 371-3207
(g)
Interpretation
. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words include, includes or including are used in this Agreement they shall be
deemed to be followed by the words without limitation. The words hereof, herein and
herewith and words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement.
(h)
Counterparts
. This Agreement and any exhibit hereto may be executed in one or
more counterparts, all of which, taken together, shall constitute one original document and shall
become effective when one or more counterparts have been signed by the appropriate parties and
delivered to each party hereto.
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(i)
Integration.
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.
(j)
No Third-Party Beneficiaries
. Each party hereto intends that this Agreement shall
not benefit or create any right or cause of action to any Person other than the parties hereto.
(k)
Governing Law
. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflict of laws thereof.
(l)
Assignment
. All terms and conditions of this Agreement shall be binding upon and
shall inure, to the extent permitted by law, to the benefit of the parties hereto and their
respective permitted transferees and successors and permitted assigns;
provided
,
however
, that this Agreement and all rights, privileges, duties and obligations of the
parties hereto, without the prior written approval of the other parties hereto, may not be
transferred, assigned or delegated by any party hereto (by operation of law or otherwise) and any
such attempted transfer, assignment or delegation shall be null and void.
(m)
Enforcement
. The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement in any court of the United States, this being in addition to
any other remedy to which they are entitled at law or in equity.
(n)
Waiver of Trial by Jury
. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS
OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS
SECTION 11(n).
(o)
Jurisdiction and Venue
. Each of the parties hereto (i) consents to submit
himself, herself or itself to the personal jurisdiction of the Court of Chancery of the State of
Delaware or any court of the United States located in the State of Delaware in the event any
dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees
D-8
that he, she or it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, (iii) agrees that he, she or it will not bring any
action relating to this Agreement or any of the transactions contemplated hereby in any court other
than the Court of Chancery of the State of Delaware or, if under applicable Law exclusive
jurisdiction over such matter is vested in the federal courts, any court of the United States
located in the State of Delaware, and (iv) consents to service being made through the notice
procedures set forth in Section 10(f). Each of the Stockholder and Parent hereby agrees that
service of any process, summons, notice or document by U.S. registered mail to the respective
addresses set forth in Section 10(f) shall be effective service of process for any claim, action,
suit or proceeding in connection with this Agreement or the transactions contemplated hereby.
(p)
Amendment
. This Agreement may be modified or amended only by an instrument of
equal formality signed by the parties or their duly authorized agents.
(q)
Representation by Counsel; Construction
. Each of the parties to this Agreement
was represented by his, her or its own counsel in connection with this Agreement and had the
opportunity to discuss with such counsel the terms hereof. This Agreement has been drafted with
the joint participation of each of the parties hereto and shall be construed to be neither against
nor in favor of any party hereto, but rather in accordance with the fair meaning hereof.
[
Remainder of Page Left Blank Intentionally
]
D-9
IN WITNESS WHEREOF, Parent and the Stockholder have caused this Voting and Support Agreement
to be duly executed and delivered as of the date first written above.
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PARENT:
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GRACO INC.
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By: Patrick J. McHale
Its: President and Chief Executive Officer
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STOCKHOLDER:
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D-10
Appendix E
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
§ 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of
the making of a demand pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the stockholders shares of
stock under the circumstances described in subsections (b) and (c) of this section. As used in this
section, the word stockholder means a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words stock and share mean and include what is
ordinarily meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words depository receipt mean a receipt or other instrument issued
by a depository representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a
constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a
merger effected pursuant to § 251(g) of this title), § 252, § 254, § 257, § 258, § 263 or § 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall be available
for the shares of any class or series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or (ii) held of
record by more than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of § 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this
section shall be available for the shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a
merger effected under § 253 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights
under this section shall be available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any merger or consolidation in which
the corporation is a constituent corporation or the sale of all or
E-1
substantially all of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided
under this section is to be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a written demand
for appraisal of such stockholders shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228 or § 253 of this
title, then either a constituent corporation before the effective date of the merger or
consolidation or the surviving or resulting corporation within 10 days thereafter shall
notify each of the holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class or series of stock
of such constituent corporation, and shall include in such notice a copy of this section.
Such notice may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holders shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holders shares. If such notice
did not notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10 days after
such effective date; provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice need only be sent to
each stockholder who is entitled to appraisal rights and who has demanded appraisal of such
holders shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or
resulting corporation or any stockholder who has complied with subsections (a) and (d) of this
section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal
proceeding by filing a petition in the Court of Chancery demanding a determination of the value of
the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the
merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined
that proceeding as a named party shall have the right to
E-2
withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d) of this section
hereof, upon written request, shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting forth the aggregate number of shares
not voted in favor of the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholders written request for such a
statement is received by the surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection (d) of this section hereof,
whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial
owner of shares of such stock held either in a voting trust or by a nominee on behalf of such
person may, in such persons own name, file a petition or request from the corporation the
statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be
made upon the surviving or resulting corporation, which shall within 20 days after such service
file in the office of the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment for their shares
and with whom agreements as to the value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving or resulting corporation,
the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the hearing of such
petition by registered or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have
complied with this section and who have become entitled to appraisal rights. The Court may require
the stockholders who have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery for notation thereon
of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal
proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any
rules specifically governing appraisal proceedings. Through such proceeding the Court shall
determine the fair value of the shares exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, together with interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair value, the Court
shall take into account all relevant factors. Unless the Court in its discretion determines
otherwise for good cause shown, interest from the effective date of the merger through the date of
payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal
Reserve discount rate (including any surcharge) as established from time to time during the period
between the effective date of the merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior
to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of
this section and who has submitted such stockholders certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with
interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto.
Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Courts decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
E-3
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as
the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may
order all or a portion of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has
demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that if no petition for
an appraisal shall be filed within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such
stockholders demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as provided in subsection
(e) of this section or thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court deems just;
provided, however that this provision shall not affect the right of any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such
stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation
within 60 days after the effective date of the merger or consolidation, as set forth in subsection
(e) of this section.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting
stockholders would have been converted had they assented to the merger or consolidation shall have
the status of authorized and unissued shares of the surviving or resulting corporation.
E-4
PRELIMINARY COPY
COHESANT INC.
SPECIAL MEETING OF THE STOCKHOLDERS [
]
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby (i) appoints Morton A. Cohen and Morris H. Wheeler and each of them, as
proxy holders and attorneys, with full power of substitution, to appear and vote all of the Common
Shares of Cohesant Technologies Inc., which the undersigned shall be entitled to vote at the
Special Meeting of Stockholders of the Company, to be held at the offices of CIPAR, 23400 Commerce
Park Drive, Beachwood, Ohio, 44122, on [
], 2008, at 9:00 a.m., Eastern Standard
Time, and at any adjournments or postponements thereof, hereby revoking any and all proxies
heretofore given, and (ii) authorizes and directs said proxy holders to vote all of the Common
Shares of the Company represented by this proxy as indicated on the reverse side.
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Dated:
Signature
Signature
Your signature to this proxy should be exactly the same as the name imprinted
hereon. Persons signing as executors, administrators, trustees or in similar
capacities should so indicate. For joint accounts, the name of each joint
owner must be signed.
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The Board recommends a vote FOR Proposals 1 and 2.
1. To approve and adopt the Merger Agreement.
o
FOR
o
AGAINST
o
ABSTAIN
2. To approve allowing the Board of Directors to adjourn the special meeting, if necessary, to
solicit additional proxies in the event that there are not sufficient votes at the time of the
special meeting to approve and adopt the proposal to approve and adopt the Merger Agreement and the
Merger.
o
FOR
o
AGAINST
o
ABSTAIN
3. In their discretion, to transact any other business that may properly come before the special
meeting or any adjournment or postponement thereof.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
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