HomeMy WebLinkAbout07-23-93
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A PROH5S10NAL CORPORATION
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v I.:JJ,j UIl
WILLlAM F. MARTSON
DANIEL K. DEARDORFF
THOMAS J. WILLIAMS
Ivo V. Orrc, ill
STEPHEN L. BLOOM
GEORGE B. FALLER, JR.
Scon A. FREEU\ND
ATTORNEYS AND COUNSELLORS AT LAw
TEN EAST HIGH STREET
CARLISLE, PENNSYLVANIA 17013
TELEPHONE
(717) 243-3341
July 23, 1993
FACSIMILE
(717) 243-1850
The Honorable Harold E. Sheely
President Judge
Cumberland County Courthouse
Carlisle, PA 17013
RE: Mumma Estate
Our File No. 5844.1
Dear Judge Sheely:
Enclosed are the Response of Barbara McK. Mumma and Lisa M. Morgan to the Petition
of the Guardian Ad Litem, Robert M. Frey for Preliminary Injunction and Rule to Show Cause
along with a Memorandum in opposition to the Petition for the Preliminary Injunction and Rule
to Show Cause.
These matters are fIled in anticipation of the hearing on July 26 at 9:00 a.m. and we
would respectfully point out to the court that the transaction sought to be enjoined was completed
on July 21, 1993. Further, all funds with respect to this transaction have been transferred and
the purchaser, CRH pic has been in full possession of all the assets and properties purchased and
has assumed control of the operations thereof.
The Response fIled herewith has been reviewed by Mrs. Mumma and Mrs. Morgan, but
does not contain a verification attached. We would anticipate providing a verification at the
hearing on Monday morning.
Respectfully submitted,
~ORFF' WILUAMS &OTIO
Ivo V. Otto ill
IVOllas
Enclosures
cc:
Robert G. Frey, Esquire (w/enc.) (hand delivered)
Charles E. Shields, ill, Esquire (w/enc.) (via facsimile)
Gerald K. Morrison, Esquire (w/enc.) (via facsimile)
Brady L. Green, Esquire (via facsimile)
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UIlVOllllIB OF 8AQAD Kelt. KU1IIlIA 1UO) LISA K. KORGP
'1'0 'BTIfIO. OJ' Gtl:UJ)IAII' AI) LI'1'BK ItOBBRT X. 'OJ
!'OR PR!lLIMIDRY Xll'JUltC'l'IQlIl un R'D':w8 '1'0 SHOW CAU..
8arbara MeX. MllllIlIla and Lisa K. Morgan, by and through
tneir undersigned counsel, hereby respond as follows to the
petition of Robert M. Frey, Esquire, the guardian ad litem for
the minor persons interested in the Estate of Robert M. Mumma
(lithe Estate"), for a preliminary injunction and a rule to show
cause:
1. Admitted.
2. Admitted in part, denied in part as stated. It is
admitted that Petitioner was appointed guardian ad litem for the
minor persons interested in the Estate. The terms of the
appointment are set forth in the Court's December 29, 1988 Order,
which Order speaks for itself. By way of further response, the
December 29, 1988 Order states that Petitioner is authorized
to represent said ~inor persons in all ~tters related
to the sale of Nine Ninety-Nine, Inc. ["999"J and
HUIIlI!\elstovt'l Quarries, Ino. ["HOl"] ana the aotions for
Declaratory JUdgment and Other Relief pertaining
thereto, which actions are now pending before this
Court, and in any further or other proceedings in the
Court of Common Pleas of CUmberland County or the court
of common Pleas of Dauphin County, Pennsylvania
relating to or ~rising out of such matters.
3. Admitted in part, denied in part. It is admitted
that Mrs. Mumma and Mrs. Morgan filed a Petition for Appointment
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of Guardian Ad Litem in the above-captioned action, and that the
December 29, 1988 Order was entered upon that Petition. It is
further admitted that Mrs. Mumma and Mrs. Morgan are the
Executrices of and Trustees under the will of Robert M. Mumma,
Sr. ("Mr. MUlllllla, Sr."). :It is denied that the Petition in any
way constituted a formal request for Court approval of the sale
of the stock of 999 and HQI. Zndeed, no such relief was
requested by the Petition. By way of further respQnse, the
Petition speaks for itself. It is denied that there is anything
"unique" about an investment interest, consisting of a small
fraction of the stock, in 999 and HQI.
4. Admitted in part, denied in part as stated. rt is
ad1llitted that Robert M. Mumma, II ("Bob") on June 6, 1987 signed
a disclaimer of his interest under the will of Robert M. Mumma,
Sr. It is further admitted that paraqraph 5 of the Petition of
Mrs. MUl1UIla and Mrs. Morqan for Appointment of Guardian Ad Litem
made reference to the disclaimer filed by Robert M. Mumma, II
("Bob"). By ..ay of further response, the petition speaks for
itself.
5. Denied as stated. The Court's December 29, 1988
Order speaks for itself. By way of fUrther response, Mrs. Mumma
and Mrs. Morgan incorporate herein by reference their responses
to paragraphs 2 and 3 above.
6. Admitted in part, denied in part as stated. It is
admitted only that, since the entry of the December 29, 1988
Order, Petitioner has taken certain actions on behalf of the
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minor person~ interested in the Estate pursuant to his
appointment.
7 and 8. Admitted in part, denied in part as stated.
It is admitted that SOb petitioned this Court for leave to revoke
his disclaimer, and that this Court granted Bob's petition on
November 17, 1989. It is further admitted that Petitioner has
filed exceptions to that ruling. By way of further response,
those exceptions were denied by Order of this court dated JUlY
21, 1993.
9. Denied. It is expressly denied that Bob's petition
"confirms" any of the matters alleqed in this paragraph.
Moreover, Mrs. Mumma and Mrs. Morgan are without information
sufficient either to admit or to deny the allegations of this
paragraph with respect to the intentions of Bob. By way of
further response, Bob's joinder speaks for itself.
10. AdlIlitted in part, denied as stated. Mrs. MU1I\lIla
and Mrs. Morgan are without information sufficient either to
admit or to deny the allegations of this paragraph with respect
to the information available to Petitioner. It is admitted that
Mrs. Mumma and Mrs. Morqan have entered into negotiations
regarding the sale of the Penney Supply Businesses, as defined in
the Information Statement which is Annex F to the Notice of
Shareholder Actions by Written Consent dated July 8 and 9, 1993
(lithe Notice") to the shareholders of Nine Ninety-Nine, Inc.
(11999") and Hummelstown QUarries, Inc. ("HQ!"), including Bob,
and that the sale of the pennsy Supply Businesses to CRH pIc
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("CRH"), a large and financially well-established :Irish
corporation, was completed on the morning of July 21, 1993. A
copy of the Information statement, which recites in detail the
terms and mechanics of and the circumstances underlying the sale
of the Pennsy Supply Businesses, is attached hereto as EXhibit A
for the Court's convenience. Petitioner was not given notice of
the proposed sale because, On the current state of the record in
this action, Bob's disclaimer is ineffective and his minor
children are not, therefore, beneficiaries under the will of Mr.
Mumma, Sr. Moreover, Petitioner's wards are not shareholders of
either 999 or of HQI. Petitioner is not, therefore, entitled to
notice of shareholder actions of those corporations.
11. Denied. Mrs. M~mma and Mrs. Morgan are without
information sufficient either to admit or to deny the allegations
of this paragraph with respect to the information provided to
Petitioner by aob. By way of further response, the Information
statement speaks for itself as to the assets sold to CRH.
12. Denied. Mrs. M\l1\l1ll8 and Mrs. Morgan are without
information sufficient either to admit or to deny the allegations
of this paragraph with respect to what information has been
provided to Petitioner by Bob. By way of further response, the
purchase price received for the Pennsy Supply Businesses is fully
disclosed in the Information Statement. Any difference between
the purChase price and those contemplated by the prior proposed
sale of the family-owned businesses to eRH is due in large part
to the qeneral declines in the market for the products of the
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pennsy Supply Businesses and the overall worseninq of economic
conditions. Moreover, as this Cou~t has observed, the failure of
the prior proposed sale of the family-owned businesses was the
result of Bob's actions. ~ In ReI Petitioner's aotion for
Entry of, Default Judament or Motion to co~el Discoyer,y, No. 21-
86-398, Opinion and Order (MarCh 6, 1992) ("!h-s. HWllmCl and [Lisa)
were unable to consummate the [sale of Estate-owned) businesses
and assets for cash to (a large and financially well-established]
Irish company because of the legal position taken by [Bob)"). In
addition, the performance of the Pennsy Supply Businesses has
been ha~pered by Bob's entry into the marketplace through
businesses operating in direct and sUbstantial competition with
the pennsy Su.pply Businesses. ~ In ReI Transcrint of
ProceeclinCls, No. 21-86-398 (May 11, 1992) ("I can certainly see
that there .
is competition from [Bob's) businesses . .
")
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13. Denied. Mrs. Mumma and Mrs. Morgan are without
information sufficient either to admit or to deny the allegations
of this paraqraph with respect to what information may have been
provided to Petitioner by Bob. By way of fUrther response, as
disclosed in the Information Statement, Mrs. Mumma and Mrs.
Morgan have or will receive a percentage of the proceedS of the
sale of the pennsy Supply Businesses which is in direct
proportion to their respective individual percentage interests as
shareholders of 999 and HQI. The Marital Trust and the Estate,
the only entities in which the minor children of Bob have even a
potential interest, will receive the proceeds of the sale in
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direct proportion to their ownership of the assets transferred to
the purchaser. Moreover, Bob's minor children hold no ownership
interest in any of the assets beinq sold to CRH and are not.
therefore, entitled to any of the proceeds of the sale.
14. Denied. Mrs. Mumma and Mrs. Morqan are without
information sufficient either to admit or to deny the allegations
of this paragraph with respect to the information available to
Petitioner. By way of further response, approval of this Court
of the sale of the Penney Supply Businessel> was neither sought
nor required. Moreover, !'.in. MWl\Jlla and Mrs. Morqan never
requested approval by this Court of any sale of any family-owned
assets.
15. Denied. Mrs. Mu1\lIlIa and Mrs. Morqan are without
information sufficient either to admit or to deny the alleqations
of this paragraph with respect to what information may have been
provided to Petitioner by Bob. By way of further response, Mrs.
Mumma and Mrs. Morgan have contacted other potential purchasers
of the pennsy Supply Businesses, and have not received any
indication that any such bUY$r would at this time be prepared,
especiallY in light of the extensive litigation initiated by Bob,
to purchase the pennsy supply Businesses on terms approaching
those offered by CRH. In addition, while Bob has at various
times claimed that he was prepared to purchase the businesses on
the same terms proposed by CRH, he has never offered any oredible
proof that he was willing or financially able to match the amount
and quality of the cash purchase price offered by CRH. Indeed,
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Bob's previous offer for the family businesses was for an asset
purchase, a transaction posing substantial federal tax
disadvantages vis-a-vis the stook sale accomplished with CRH.
Moreover, BOb's prior offer also was predicated upon a pledge or
lien upon the assets to be purchased, rather than upon an all
cash purchase as proposed by CP~. Ultimately it became clear
that, wI1i1e Bob claimed he desired to purchase the businesses, he
was utterly without the financial wherewithal so to do, and that
he was intent solely upon obstructing any sale to any buyer on
any terms. Finally, Le99 Mason Wood Walker, Inc. a financial
consultant retained by 999 and the Marital Trust, pursuant to a
review of: the hooks, records and operations of the various
components of ~he Pennsy Supply Businesses, rendered its opinion
that the purchase price was fair froln a financial point of vi(!w.
16. Deni(!d. Mrs. Mumma and Mrs. Morgan are without
information sufficient either to admit or to deny the allegations
of this paragraph with respect to any information which may have
been provided to Petitioner by aob. ~y way of further response,
it is deni~ that the sale of the Penney Supply Businesses was to
be approved at a July 22, 1993 meetinq of the shareholders of 999
and MQl. On the contrary, as set forth in the Notice to
SharehOlders, corporate actions necessary to complete the
transaction were effected by written consent of a majority of the
shareholders of 999 and HQI, and the sale was completed on the
morning of July 21, 1993. As set forth in the Notice to
Shareholders, the July 22 meeting was intended only to enable the
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shareholder& of the corporations to ratify the actions previously
taken by written consent, and to take any additional actions
desirable to facilitate the sale or to take any necessary
corrective action.
17 and 18. Denied. The allegations of these
paragraphs constitute legal conclusions to which no responsive
pleading is required. By way of further response, Mrs. Mumma and
Mrs. Morgan incorporate by reference herein their response to
paragraphs 12 and 15 above.
19. Denied. Mrs. MU1\I1lIa and Mrs. Morgan are without
inforlllation sufficient either to acbDit or to deny the alleqati.ons
of this paragraph with respect to the belief of petitioner. By
way of further response, Petitioner's request that Bob be given
an opportunity to purchase the pennsy Supply Businesses "on equal
terms to that of the best offer to purchase" flatly ignores this
Court's prior orders that: (1) Bob has "no right of first
refusal as to any transfers by the ex~cutrices, Barbara McK.
Mumma and Lisa M. Morgan, of the real estate held by the MRA
tenants-in-common when [as here] there is approval by a majority
in interest" of the tenants; and (2) Robert M. Mumma, II was
never given an oral right of first refusal to purchase pennsy
Supply." In Re: Declaratorv Judament, No. 66 Equity 1988, Order
of Court (March 24, 1992). ~ Alag In Re: Motion of Defendant
Robert M. Mumma. II for Post-Trial Relief, No. 66 Equity 1988,
Opinion and Order of Court (November 5, 1992).
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Moreover, Bob has been given a full opportunity to make
an offer for the pennsy Supply Businesses. This Court found
that, despite having been provided with voluminous information
regarding the family-owned businesses and repeated opportunities
to make an offer, "Bob . . . never lI1ade an offer to purchase
pennsy supply or Elco Concrete [the two chief operating
components of the pennsy Supply Businesses]," ~:In Re:
DBclarato~ Judgment, No. 66 Equity 1988, opinion and Order of
Court at 15-16 (March 24, 1992).
Finally, it is denied that requiring Mrs. Mumma and
Mrs. Morgan to offer the Pennsy Supply Businesses to Bob before
selling them to any other buyer would further the desire of Mr.
Mumma, Sr. This Court previouslY has held that
under Article THIRTEENTH of decedent's Will, the
(executrices) may sell Mumma family company stock to
non-family members once the [executrices] unanimously
agree in writing. Therefore, the language of Article
THIRTEENTH is precatory and not mandatory.
In re: Estate of Mumma, No. 21-86-398, Order of Court (March 8,
1989). No appeal was taken by Bob frOm that order, and it has
now become final.
20. Denied. The allegations of this paragraph
constitute leqal conclusions to which no responsive pleading is
required. By way of further response, the sale of the Pennsy
Supply Businesses to CRH was completed on the morning of July 21,
1993. By way of fUrther response, Mrs. MUll\IIlD and Mrs. Morgan
incorporate by referenoe herein their response to paragraph 10
above.
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WHEREFORE, Barbara McK. MUllIJlla and Lisa M. Morgan
respectfully request that this Court deny the Petition of Robert
M. Frey for Preliminary Injunction and Rule to Show Cause.
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s ph A. O'connor, Jr.
Marc J. Sonnenfeld
Brady L. Green
2000 One Logan Square
Philadelphia, PA 19103
(215) 963-5212, 5572, 5079
William F. Hartson
lvo V. otto, III
HARTSON, DEARDORFF, WILLIAMS
6\ OTTO
10 East High street
Carlisle, PA 17013
(717) 243-3341
Attorneys for
Barbara McK. Mumma
and Lisa M. Morgan
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ANNEX F
NINE NINETY-NINE, INC.
HUMMELSTOWN QUARRIES, INC.
INFORMATION STATEMENT
NOTE:
The information set forth below represents a summary of
the several Plans of Division and other documents
accompanying this Information Statement, and this
Information Statement is qualified in its entirety by
reference to the actual text of those documents.
I. FACTUAL BACKGROUND
A. The Familv-OWned Businesses. Propertv and Assets
1. Benders Quarry and Lebanon Rock, Inc.
Robert M. Mumma, Sr. ("Mr. Mumma, Sr.") died testate on
April 12, 1986, leaving a widow, Barbara. McK. Mumma ("Mrs.
Mumma"), and four children, Lisa M. Morgan ("Lisa"), Linda M.
Roth (" Linda"), Robert M. Mumma, I I (" Bob") and Barbara M.
McClure ("Barbara"). Mrs. Mumma and Lisa are executrices of Mr.
Mumma, Sr.'s Estate (the "Estate") and trustees of a marital
trust (the "Marital Trust") and a residuary trust (the "Residuary
Trust") under Mr. Mumma, Sr.'s Will, dated May 19, 1982 and the
first Codicil thereto dated October 12, 1984 (collectively the
"Will"). The Marital Trust is the owner of, inter alia, real
estate and other assets known as Benders Quarry, and the Estate
is the owner of 50% of the outstanding and issued stock of
Lebanon Rock, Inc. ( "LRI") .11
~/ The remaining 50% of LRI is owned by Bob.
F~I
EXHIBIT "A"
2008
2. Nine Ninety-Nine. Inc.
Mrs. Mumma and Lisa, in their individual and
representative capacities, control the majority (65.68%) of the
voting power of Nine Ninety-Nine, Inc. ("999"), a non-operating
holding company. Mrs. Mumma, Lisa and Linda together control
more than 77% of the voting power of 999. The present ownership
of the stock of 999 is as follows:
8% 10% Total and
Common Pref'd Pref'd Ownershio
Marital Trust 349.74 0.00 576.97 984.71 (28.44%)
Mrs. Mumma 370.27 142.00 336.54 790.81 (22.84%)
Lisa 348.72 103.00 46.59 498.31 (14.39%)
Bob 350.82 0.00 46.72 397.54 (11.48%)
Linda 348.72 0.00 46.59 395.31 (11.42%)
Barbara 348.72 0.00 46.59 395.31 (11.42%)
Mrs. Mumma and Lisa are the officers of 999, and Mrs. Mumma, Lisa
and Linda are its directors.
3. pennsy Supply, Inc. and Subsidiaries
Pennsy Supply, Inc. ("Pennsy Supply") is a wholly owned
subsidiary of 999. Pennsy Supply operates several quarries and
is a supplier of ready-mix concrete, asphalt, crushed stone and
other building products to the construction industry, primarily
in Dauphin, Cumberland and Perry Counties. Elco Concrete
Products, Inc. ("Elco") is, in turn, a wholly-owned subsidiary of
pennsy Supply, and is a supplier of crushed stone, ready-mix
concrete and concrete block in the Lebanon County area. Smith
Quarries, Inc. is also a wholly-owned subsidiary of pennsy
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Supply, and is a supplier of crushed stone in the Lebanon County
area.V
4. Hummelstown Quarries, Inc.
Mrs. Mumma, Lisa, Linda, Barbara, Bob and the Marital
Trust also are the only shareholders of Hummelstown Quarries,
Inc. ("HQI"), a closely-held corporation which owns three
quarries and other real property. The present ownership of the
stock of HQI is as follows:
Marital Trust
Mrs. Mumma
Lisa
Linda
Barbara
Bob
500 (79.74%)
115 (18.34%)
3 ( 0.48%)
3 ( 0.48%)
3 ( 0.48%)
3 ( 0.48%)
Thus, Mrs. Mumma and Lisa, in their individual and representative
capacities, control more than 98% of the voting power of HQI; and
Mrs. Mumma, Lisa and Linda control more than 99% of that power.
Mrs. Mumma and Lisa are the officers of HQI, and Mrs. Mumma, Lisa
and Linda are its directors.
5. The Paxton Street Yards
In addition, Mrs. Mumma, Lisa, Linda, Barbara and Bob
also are owners, under an agreement among tenants-in-common
executed on December 19, 1986 (the "MRA-I Agreement") of certain
~/ Robert M. Mumma, Inc. is also a wholly-owned subsidiary of
pennsy Supply. The Estate also owns a 50% equity interest
in Union Quarries, rne. ("Union Quarries If) 1 a corporation
engaged in the supply of crushed stone and concrete in
Cumberland County. Union Quarries is not involved in any of
the transactions disclosed in this Information Statement.
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real estate and other assets located throughout central
Pennsylvania. The holdings of the tenants-in-common under the
MRA-I Agreement includes real estate comprising part of a large
tract of property located on Paxton Street in Harrisburg (the
"Paxton Street Yards") .11 The respective ownership shares of
the tenants under the MRA-I Agreement are as follows:
Estate
Bob
Lisa
Linda
Barbara
Mrs. Mumma
81.82507%
4.24708%
4.23555%
4.23555%
4.23555%
1. 22120%
See MRA-I Agreement, at p. 19.
Section 4 of the MRA-I Agreement provides that:
[g]eneral, overall management of the Premises and of
all matters arising out of or in connection with the
Premises, including a sale or mortgage of the entire
Premises or any part thereof, shall be vested in the
Owners jointly and each Owner shall abide by the
policies and decisions in respect thereof. Any
agreement, approval, decision, consent, request or
other action of the Owners hereunder shall be by
majority (in interest) vote and in writing unless
otherwise indicated.
Id. at p. 12. In order to facilitate transfers approved by a
majority-in-interest of the tenants-in-common under section 4,
the MRA-I Agreement further provides that:
each Owner hereby names each of the other Owners, with
full power of substitution, as his, her or its
attorney-in-fact coupled with an interest to execute
any such deed or other instrument to carry out any of
the purposes of this agreement or to effectuate a
decision of the Owners thereunder. in the name of and
on behalf of such refusing or otherwise failing Owner.
To facilitate the recording of any such deed or other
instrument, each of the Owners has executed and
~I The balance of the Paxton Street Yards is owned by 999.
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delivered to the Manager, as escrow agent, a power of
attorney in recordable form with respect to the
Premises conveyed into the names of the Owners and
contemplated by this Agreement.
Id., Section 14, at pp. 17-18.i/
Because Mrs. Mumma and Lisa, in their individual
capacities and as executrices of the Estate, and Linda represent
a majority-in-interest of the MRA-I tenants-in-common, they have
the power pursuant to section 4 of the MRA-I Agreement to
transfer properties owned by the tenancy. In the event one or
more of the remaining tenants objects to such a transfer and
refuses to sign any transfer documents, Mrs. Mumma, Lisa and
Linda nonetheless may proceed under section 14 with such transfer
on behalf of all tenants-in-common.
B. Past Attempts to Sell the Pennsy Supply Businesses and
the Cumberland County Eauitv Litiaation
Article NINTH of the will broadly authorizes the
Executrices and Trustees to retain "for such time as in their
judgment may seem advisable," manage or dispose of "at such price
or prices and on such terms and conditions as [they] ... may
consider advisable" property in their care, including the
Estate's or Trust's interest in the family-owned businesses.
Article THIRTEENTH of the Will provides:
"THIRTEENTH: Notwithstanding the powers herein
otherwise given, I direct that my stock in privately
held corporations, supervised and administered by me as
the Executive or operating officer prior to my decease
~/ Bob signed a power of attorney in accordance with section 14
of the MRA I Agreement on December 19, 1986.
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or my stock in privately held corporations which
otherwise is owned by me at my decease be not sold
unless all of my trustees, and particularly my
individual trustee or trustees, shall agree in writing
that such stock be sold. It is my desire that if
expedient and possible, the businesses which I have
personally directed during my lifetime and of which I
have had an interest be continued for the benefit of
and under the management and control of my immediate
family. "
By order of March 8, 1989 in In re Estate of Mumma, No. 21-86-
398, the Court of Common Pleas of Cumberland County ruled:
"under Article THIRTEENTH of decedent's Will,
the [executrices] may sell Mumma family
company stock to non-family members once the
[executrices] unanimously agree in writing.
Therefore, the language of Article THIRTEENTH
is precatory and not mandatory."
No appeal was taken by Bob from that order, and it has now become
final.
During 1988, Mrs. Mumma and Lisa entered into
negotiations with CRH pIc, a large and financially well-
established Irish corporation ("CRR"), regarding a possible sale
of the family-owned businesses and certain related assets and
real property. In the course of negotiations, CRR offered $43.5
million in cash and the absorption of $8 million in debt, for a
total purchase price of approximately $51 million, for the stock
of 999 and HQI and certain real estate assets. However, in
letters dated November 2, 1988 and addressed to Mrs. Mumma, Lisa,
Linda and Barbara, Bob asserted a right of first refusal as to
pennsy Supply which he allegedly was granted at a meeting of the
family members in June 1987. At no time prior to the November 2,
1988 letters had Bob asserted that he had been given a right of
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first refusal as to pennsy Supply at the June 1987 family
meeting.
On December 27, 1988, Mrs. Mumma and Lisa filed an
equity action against Bob in the Court of Common Pleas of
Cumberland County (No. 66 Equity 1988) in order to remove Bob's
objections to the sale of the businesses. In their complaint,
Mrs. Mumma and Lisa sought a declaratory judgment that: (1) Bob
possessed no right of first refusal as to pennsy Supply or any
other related business arising out of the June 1987 family
meeting; (2) Bob did not possess, under the MRA-I Agreement, any
right of first refusal triggered by transfers of individual
parcels of tenancy-owned property approved by a majority-in-
interest of the tenants; and (3) the MRA power of attorney signed
by Bob in December 1986 could be used to transfer tenancy-owned
property without his approval, as expressly provided in section
14 of the MRA-I Agreement. Thereafter a second amended complaint
was filed adding Linda as a plaintiff and Barbara as a defendant.
Bob never filed a counterclaim requesting enforcement of his
alleged rights against Mrs. Mumma and Lisa, in their various
capacities, and Barbara and Linda.
After the commencement of the Cumberland County equity
litigation, Bob persisted in his opposition to the proposed sale
of the family businesses and other assets. On June 30, 1989, Bob
wrote directly to CRH. In his letter Bob claimed that he
possessed alleged first refusal rights as to pennsy Supply and
the individual properties owned by the MRA tenants-in-common. He
F-7
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also threatened litigation against CRH if it proceeded to
purchase any of those assets. At the end of September 1989, CRR
advised Mrs. Mumma and Lisa that, as a result of Bob's letter,
and his persistent refusal to discontinue his assertion of a
claimed right of first refusal, it had decided to withdraw from
negotiations to purchase the businesses.
At various times during the course of the negotiations
with CRR, Bob claimed that he was prepared to purchase the
businesses on the same terms proposed by CRR. However, despite
repeated opportunities, Bob failed to offer any credible proof
that he was willing or financially able to match the amount and
quality of the cash purchase price offered by CRR.
In particular, Bob did not provide information
concerning the degree to which his proposed financing to raise
the cash purchase price for the businesses would be predicated
upon a pledge or lien upon the assets to be purchased. This was
an important omission, particularly to the Martial Trust, since
Mrs. Mumma, Lisa and Linda had been advised by counsel that if
they engaged in a sale transaction with an underfinanced buyer
who subsequently defaulted on such purchase-money debt, the
trustee in bankruptcy of the buyer might be able to require the
sellers to refund all or a substantial portion of the purchase
price to the bankrupt estate. Thus it became clear that, while
Bob claimed he desired to purchase the businesses on competitive
terms, he was without the financial wherewithal so to do, and
that he was intent solely upon obstructing any sale to any buyer
F-8
2015
on any terms. See In Re Petitioner's Motion for Entrv of Default
Judoment or Motion to Compel Discoverv, No. 21-86-398, Opinion
and Order (O.C. Cumbo March 6, 1992) (Sheely, P.J.) (nMrs. Mumma
and [Lisa] were unable to consummate the [sale of Estate-owned]
businesses and assets for cash to [a large and financially well-
established] Irish company because of the legal position taken by
[Bob] n) .~/
Following a three and one-half day bench trial in March
1991, President Judge Sheely on March 24, 1992 entered an Order
in the Cumberland County equity litigation granting the relief
sought by Mrs. Mumma and Lisa. On November 5, 1992, the trial
court issued an opinion denying Bob's motion for post-trial
relief and reaffirming its earlier decision and entering a final
decree ("the November 5 Opinionn). Bob's appeal from Judge
Sheely's November 5 Opinion presently is pending before the
Superior Court (No. 00056HBG93).
c. Neaotiation and Aareement with CRR
Following the trial in the Equity No. 66 action in
March 1991, Mrs. Mumma and Lisa commenced discussions with a
number of potential buyers regarding a sale of the family-owned
businesses. In May 1993 Mrs. Mumma and Lisa, in their individual
2/ In addition, Bob has been found to have repeatedly disrupted
and harassed Mrs. Mumma and Lisa in their administration of
the Estate and the Trusts under the Will of Mr. Mumma, Sr.
See In Re Petition to Appoint a Temporarv Fiduciarv, No. 31-
86-398, Opinion and Order (O.C. Cumbo March 6, 1992)
(Sheely, P.J.) (nif anyone is hampering [the administration
of the Estate] or endangering the estate, it is [Bob]n).
F-9
2016
and representative capacities and as directors and officers of
999, and Linda individually and as director of 999, executed a
letter of intent (subject to the negotiation of a definitive
agreement) to sell to CRR: (1) all of the issued and outstanding
stock of 999; (2) all of the issued and outstanding stock of HQI;
(3) the Paxton Street Yards; (4) Benders Quarry; and (5) an
option to purchase the Estate's interest in LRI (the "Lebanon
Rock Option")Y. The purchase price for the stock, real
property and other assets to be sold to CRH (sometimes referred
to collectively herein as the "pennsy Supply Businesses") is $32
million11, with that purchase price to be allocated among the
various components as follows:
999 Stock
HQI Stock
Paxton Street Yards.!.!
Benders Quarry
Lebanon Rock Option
$ 25,696,000
2,816,000
1,760,000
1,568,000
160,000
The foregoing allocation of the purchase price is based upon
calculations performed and conclusions reached by Legg Mason Wood
Walker Inc., a financial consultant retained by 999 and the
2/ The option extends for 120 days and provides a purchase
price of $ 2 million for the Estate's interest in LRI.
2/ Plus interest from July 9, 1993, the date on which the
purchase funds were deposited in to the Initial Escrow at
the Stage I Closing. This figure does not include the debt
of the pennsy Supply Businesses, all of which is to be
assumed by CRR.
~/ This figure represents the portion of the total purchase
price allocated to those portions of the Paxton Street Yards
owned by MRA-I. The remaining portions of the Paxton Street
Yards are allocated as part of the price for the stock of
999.
F-l0
201'(1
. .
Marital Trust, pursuant to a review of the books, records and
operations of the various components of the Pennsy Supply
Businesses.
D. Potential Forms of the Transaction
In negotiations regarding a potential sale, the goal of
Mrs. Mumma, Lisa and Linda was at all times to sell the entirety
of the pennsy Supply Businesses, essentially in the form of a
sale of stock, in order to maximize the total value received.
Certain of the shares of stock and interests in real estate
constituting the pennsy Supply Businesses are owned directly by
Bob. As described above, Bob repeatedly has disrupted any
attempt to complete such a sale. In light of these
considerations, several potential forms of the proposed sale were
considered and rejected prior to the adoption of the present
plan.
Initially, Mrs. Mumma, Lisa and Linda considered a
direct sale of the stock of 999 and HQI and the other assets to
CRH ("Stock Sale Alternative"). This approach was not possible
because Bob would not agree to sell his stock in 999 and HQI.
Second, Mrs. Mumma, Lisa and Linda considered the
adoption, as the holders in their various capacities of the
majority of the voting power of 999, HQI and MRA-I, of a plan to
cause 999 and HQI to sell all of their assets included in the
pennsy Supply Businesses, to CRH, followed by pro rata
distribution of the resulting proceeds to the shareholders of 999
F-ll
2018
and HQI (the "Sale of Assets Alternative"). The Sale of Assets
Alternative, however, would have triggered a double taxation on
the proceeds of the sale of assets by 999 and HQI. A federal
income tax first would have been paid by. the corporations on the
difference between the value received and the current tax basis
of the corporations in the assets sold. In addition, the
distribution of the proceeds to the shareholders of 999 and HQI
would have resulted in a second federal income tax. This double
taxation can be avoided, however, by structuring the transaction
in the preferred manner as a stock sale, i.e., by selling the
stock of 999 and HQI. Because the net federal and state tax
savings to the shareholders from a transaction structured as a
stock sale amounts to millions of dollars, the possibility of
making an asset sale at the 999 and HQI level was rejected by
Mrs. Mumma, Lisa and Linda as being imprudent.11
A third option considered was for Mrs. Mumma, Lisa and
Linda to use their majority voting power to sell to CRH all of
the stock of 999 and HQI, including stock owned by dissenting
family members, by means of a "share exchange" under 15 Pa.C.S.
~ 1931 (the "Share Exchange Alternative"). This technique was
added to the Pennsylvania Business Corporation Law of 1988
("BCL") effective October 1, 1989, after CRH withdrew its initial
2/ Had this option been selected, objecting shareholders of 999
and HQI would not have had a right to dissenters' rights
appraisal proceedings in the Court of Common Pleas of
Cumberland County because the respective sales would have
been immediately followed by distributions of the proceeds
to shareholders. See 15 Pa.C.S. ~ 1932(c) (2).
F-12
2019
offer. However, use of the Share Exchange Alternative would have
resulted in any dissenting shareholders, i.e., Barbara or Bob, or
both, having dissenters' rights against 999 and HQI as
subsidiaries of CRR. ~ Pa.C.S. ~ 1931(d). CRH made clear in
its 1993 negotiations with Mrs. Mumma, Lisa and Linda that it was
not willing to incur the risk of valuation litigation with Bob in
the event that he dissented from a transaction canceling his
shares in 999 and HQI. As a result, Mrs. Mumma, Linda and Lisa
concluded that a sale of all of the stock of 999 and HQI to CRH
by means of the Share Exchange Alternative, while satisfactory
from a tax point of view, was impracticable as a business matter.
In order to (1) avoid the unfavorable tax consequences
of an asset sale at the 999 and HQI level, (2) protect CRR from
the risk of dissenters' rights litigation with Bob, and (3)
ensure the fair and equal treatment of all shareholders of 999
and HQI, a fourth alternative approach to the sale was developed
to accomplish a transaction in the best interests of all
utilizing plans of division.
Under this approach, the Mumma family members are
engaging in intra-family corporate transactions, under 15 Pa.C.S.
~ 1951 et ~., to be completed immediately prior to the transfer
of the Pennsy Supply Businesses to CRH, which operate to fasten
the 999 and HQI dissenters' rights litigation liabilities on two
new corporations to be retained by the family (the "corporate
Division Alternative"). As part of those family transactions all
of the stock of 999 and HQI and other assets constituting the
F-13
2020
pennsy Supply Businesses will be transferred to Kodie Acquisition
Corp. ("Kodie"). Immediately thereafter CRR will acquire 100%
stock ownership of Kodie. Kodie was formed and all of its stock
at all times has been owned by Mrs. Mumma and Lisa in their
individual capacities, and by Linda.ll/
CRR, pursuant to a subscription agreement with Kodie
(the "Subscription Agreement"), will acquire all of the stock of
Kodie in exchange for the total purchase price to be paid for the
Pennsy Supply Businesses. The purchase price will be distributed
to Mumma family members in a manner more fully described below.
E. The Staqe I Closinq of the Transaction
A two-step closing is contemplated for the sale of the
Pennsy Supply Businesses to CRR. At the Stage I Closing, which
occurred on July 8 and 9, 1993, CRR and Mrs. Mumma, Lisa and
Linda signed a subscription agreement pursuant to which CRR will
purchase 1000 shares of the stock of Kodie. Also at that
closing, Mrs. Mumma, Lisa and Linda placed into escrow (1) all of
their stock in Kodie, 999 and RQI, (2) the deeds to the Paxton
Street Yards and the Benders Quarry and (3) the Lebanon Rock
Option. Also, Kodie entered into subscription agreements for
1,000 shares of 999 stock, 300 shares of RQI stock, an agreement
of sale with MRA-I for the purchase of the portions of the Paxton
Street Yards owned by the tenants-in-common, an agreement of sale
10/ Kodie was incorporated in Pennsylvania on May 21, 1993.
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with the Marital Trust for Benders Quarry and the Lebanon Rock
Option executed by the Estate.
At the Stage I Closing, CRH, in turn, placed into
escrow $ 32,000,000, representing the total cash purchase price
for the pennsy Supply Businesses.
F. The Plans of Division of 999 and HOI
In order to facilitate the completion of the proposed
sale, and in accordance with the Corporate Division Alternative
form of the transaction, the board of directors of 999 on July 8
and 9, 1993 adopted a plan of division pursuant to 15 Pa.C.S.
SS 1951 et sea. (the "999 Plan of Division"). Under the 999 Plan
of Division, 999 will be divided into two resulting corporations,
999 and D-E Distribution Corporation, a Pennsylvania corporation
having its registered office in Cumberland County, Pennsylvania.
("D-E"). Those assets and liabilities of 999 which are to be
sold to CRR will be retained by surviving 999. D-E will receive
those assets and liabilities of 999 which are not included in the
sale to CRR.ill In addition, under the 999 Plan of Division,
D-E is the successor to 999 for purposes of, and therefore will
be responsible for all of 999 liabilities under, the dissenters'
rights provisions of the BCL. See 15 Pa.C.S. SS 1571 et ~.lll
11/ Those assets are described in Schedule 1.03 to the 999 Plan
of Division.
12/ Section 1572 of the BCL provides that
(continued. . .)
F-15
2022
A virtually identical plan of division has been adopted
at the same time by the board of directors of HQI (the "HQI plan
of Division") (the 999 Plan of Division and the HQI Plan of
Division are referred to collectively as the "Plans of Division)
HQI will divide into HQI as the surviving corporation and G-A-T
Distribution Corporation, a Pennsylvania corporation having its
registered office in Cumberland County, Pennsylvania ("G-A-T").
Under the HQI Plan of Division, HQI will retain those assets and
liabilities of HQI to be sold to CRR. G-A-T will receive and be
responsible for the remaining assets and liabilities of HQI,
including any liabilities to dissenting shareholders.
As indicated in the "Notice of Shareholder Actions -
Right to Exercise Dissenters Rights and Call of Special Meetings
of Shareholders" (the "Shareholder Notice") to which this
Information Statement is attached, on the same date as the Plans
of Division were approved by the respective boards of directors
of the corporations, Mrs. Mumma, Lisa and Linda, in their
respective capacities as majority shareholders of 999 and HQI,
consented in writing to the adoption of the Plans of Division by
the corporations. In addition, at the same time as they approved
~/(. ..continued)
[a] plan of division may designate which of the
resulting corporations is the successor
corporation for the purposes [dissenters' rights].
The successor corporation in a division shall have
sole responsibility for payments to dissenters and
other liabilities under this subchapter, except as
otherwise provided in the plan of division.
F-16
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the Plans of Division,lll the respective boards of directors of
999 and HQI declared dividends (the "Nonbusiness Asset
Dividends") to the present holders of the common stock of each
company of all of the stock of D-E and G-A-T and all of the
promissory notes issued by D-E and G-A-T pursuant to the plans of
Division. The stock of Kim and Kin, Inc. will also be
distributed to the present shareholders of 999 by a Nonbusiness
Asset Dividend.
G. The Staqe II Closinq
The Stage II Closing at which the sale of the Pennsy
Supply Businesses to CRH will be concluded will be held at a time
to be agreed upon by CRH and Mrs. Mumma and Lisa. It is
anticipated that it will take place as sOOn as permitted under
applicable law. See 15 Pa.C.S. ~ 1766(c). At the Stage II
Closing the few shares of Kodie temporarily owned by Mrs. Mumma,
Lisa and Linda will be canceled, CRH will purchase newly-issued
stock of Kodie pursuant to the Subscription Agreement (thereby
becoming the sole shareholder of Kodie), and the purchase funds
escrowed by CRH will be released for distribution as contemplated
by the Subscription Agreement and the Plans of Division,
discussed below.
~/ The Plans of Division and related Nonbusiness Asset Dividend
resolutions were adopted on July 8, 1993, and the Plans of
Division were amended on July 9, 1993. The Majority
Shareholders approved the Plans of Division by written
consent on July 8, 1993, and reapproved the amended Plans of
Division by written consent on July 9, 1993.
F-17
2024
As of the Stage II Closing date, the divisions of 999
and HQI will be completed, all of the existing outstanding shares
of 999 and HQI will be canceled, tit and those corporations will
retain only those assets desired by CRR. Kodie will purchase
newly-issued stock of 999 and HQI pursuant to the subscription
agreements entered into with those entities at the Stage I
Closing and under the Plans of Division will become the sole
shareholder of both 999 and HQI.
Concurrently, Kodie also will purchase the Paxton
Street Yards from MRA-I, the Benders Quarry from the Marital
Trust and the Lebanon Rock Option from the Estate.
Thus, at the conclusion of the Stage II Closing, Kodie
will be a wholly-owned subsidiary of CRR and will own the
entirety of the Pennsy Supply Businesses, except for LRI, and
will have a 120-day period within which to decide whether to
elect to purchase the Estate's 50% interest in LRI.
Simultaneously with the issuance of new 999 and HQI
stock to Kodie pursuant to the subscription agreements and the
plans of Division, 999 and HQI will pay Nonbusiness Asset
Dividends of all of the outstanding stock in D-E and G-A-T,
respectively and the promissory notes issued by each corporation
under the Plans of Division, to the Mumma family (including
Barbara and Bob if either or both of them elect to waive their
right to dissent from the Plans of Division) as the former
14/ This action will trigger dissenters' rights in any
shareholder objecting to the 999 Plan of Division or the HQI
Plan of Division. See 15 Pa.C.S. ~~ 1571 and 1952(d) (1).
F-18
2025
. '. .
holders of the common stock of 999 and HQI. Thus nondissenting
Mumma family members after the Stage II Closing will own D-E and
G-A-T in the same proportions, respectively, as they owned 999
and HQI common stock prior to the transactions with CRR. In
addition, the balance of the cash received from Kodie as the
subscription for new 999 and HQI stock will be transferred to D-E
and G-A-T, respectively.lll
Those portions of the total purchase price allocated to
the Benders Quarry and the Lebanon Rock Option and to those
portions of the Paxton Street Yards owned by MRA-I will
transferred by Kodie to the Marital Trust, the Estate and MRA-I,
respectively. MRA-I may be obligated to leave all or a portion
of the purchase price allocable to it in escrow with the title
insurance company insuring the title to this property for some
period of time after the Stage II Closing.
H. The Initial Distribution of the Bulk of the Purchase
Price to Nondissentina Members of the Mumma Familv
Most of the cash paid by Kodie for the Pennsy Supply
Businesses will be distributable, directly or indirectly, to
Mumma family members at the Stage II Closing. Fully $28 million
(before adjustment for expenses of the sale and temporary title
insurance escrows), or 87.5% of the total cash received by 999,
HQI, MRA-I, the Marital Trust and the Estate, will be
15/ Interest on the $ 32 million initial escrow deposit will be
used to pay a part of the expenses of the transaction, e.g.,
real estate transfer taxes, title insurance company charges
and other expenses.
F-19
2026
distributable at that time to family members who elect to receive
such distribution.
In order to assure that all of the family members are,
as nearly as possible, treated equally, the Plans of Division
establish a special procedure for payment of the Nonbusiness
Asset Dividends and disbursement of the initial cash
distributions on account of the CRH sale (the "Initial
Distribution") to the family members. Under that procedure, each
former shareholder of 999 and HQI need only submit her or his
stock certificates to the appropriate corporation (D-E in the
case of 999 certificates and G-A-T in the case of HQI
certificates) for cancellation, together with a signed letter of
transmittal referred to as a "Consent and Joinder" in the form
attached as Exhibit B to each of the Plans of Division. By
signing the consent and joinder, a shareholder agrees to be bound
by the covenants of the sale arrangement with CRH,ll/
including, inter alia, those which operate to reduce the purchase
price in the event that certain representations made regarding
the nature and amount of the Pennsy Supply Businesses or their
constituent assets prove to be untrue. If and when Barbara or
16/ There is one exception to the rule of equality of treatment
among the family members. In recognition of the fact that
Bob owns and operates one or more businesses operating in
competition with the pennsy supply Businesses, ~ In Re:
Transcriot of Proceedinqs, No. 21-86-398 (O.C. Cumbo May 11,
1992) (before Sheely, P.J.) ("I can certainly see that there
. is competition from [Bob's] businesses. . "), he is
excused from agreeing not to compete with CRH following its
acquisition of the pennsy Supply Businesses. See Section
15.21 of the Subscription Agreement.
F-20
2027
. ". .
Bob, or both, claim their Nonbusiness Asset Dividends and Initial
Distributions, they will have joined in the CRR sale on
essentially a pro rata basis. Upon receipt from a shareholder of
the required documentation, D-E and G-A-T will pay the full
Nonbusiness Asset Dividends and the Initial Distributions to the
shareholder.
I. The Indemnification Escrows and Final Distribution of
the Remainder of the Purchase Price for the pennsy
Su~~lv Businesses
The remaining portion of the cash paid by Kodie to D-E
and G-A-T, rather than being distributed directly to the former
shareholders of 999 and HQI in the Initial Distribution, will
instead be escrowed for a period of two years or more pursuant to
the Subscription Agreement. Comparable portions of the purchase
price received directly by the Marital Trust for the Benders
Quarry, by MRA-I for the tenancy's interest in the Paxton Street
Yards and by the Estate for the Lebanon Rock Option, also will be
escrowed. The escrows total $ 4 million and the money will be
available to secure obligations in the Subscription Agreement
whereby Mrs. Mumma, Lisa, Linda and any other nondissenting
sellers in their respective capacities agree to indemnify CRH as
to: (a) any breach of representations or warranties; (b) claims
against CRR's subsidiaries as prior owners arising out of the
assets of 999 and HQI not purchased by CRH; and (c) claims
brought by dissenting Mumma family members in existing or future
litigation arising out of matters occurring prior to the Stage II
F-21
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. .
Closing date.lll At the end of the escrow periods, any unused
funds will be released to one or more of the Estate, the Marital
Trust, MRA-I, D-E and G-A-T, as their interests may appear. The
funds released from escrow to D-E and G-A-T will augment the
assets available to satisfy any liabilities of those corporations
to dissenting shareholders or other persons arising from the sale
and any costs and expenses of such entities subsequent to the
sale. Once such liabilities have been satisfied, the remaining
money received by D-E and G-A-T will be distributed by them to
the nondissenting former shareholders of 999 and HQI.
J. Provision for Protection of the Interests of Minority
Shareholders of 999 and HOI
Mrs. Mumma, Lisa and Linda have made provision in the
Plans of Division and the other transaction documents to protect
and secure the interests of Barbara and Bob as minority
shareholders 999 and HQI. Those shareholders have two options.
First, Barbara and Bob may, as set forth above, simply
join in the Subscription Agreement and become, in effect,
participating sellers. In the event that Barbara or Bob or both
elect this course, their rights vis-a-vis CRH with respect to the
sale of the pennsy Supply Businesses will be governed by the
Subscription Agreement itself, and they will be treated no
differently than Mrs. Mumma, Lisa and Linda, except, of course,
17/ The Subscription Agreement provides for two escrows, a
Regular and Non-Business Indemnification Escrow and a
Litigation Indemnification Escrow.
F-22
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- .
that Bob will not be bound by any agreement not to compete with
the pennsy Supply Businesses. The most significant effect will
be to subject them to the limited and unlimited personal
indemnification liabilities undertaken by Mrs. Mumma, Lisa and
Linda in their various capacities in the Subscription Agreement.
They will also receive the Nonbusiness Asset Dividends.
Second, Barbara or Bob or both may choose to dissent
from the Plans of Division, and the cancellation of their shares
of the stock in 999 and HQI (these cancellations will take effect
whether or not they exercise their dissenters rights under the
BCL). In the event that Barbara or Bob select this option, their
rights will be governed by the dissenters' rights provisions of
the BeL. Any amounts which Bob and Barbara may be awarded
pursuant to a Common pleas Court statutory appraisal will be
secured by: (1) their proportional shares of the purchase price
allocated to 999 and HQI received from CRR and paid to D-E and
G-A-T; (2) any unused escrow funds at the time those monies are
returned to D-E and G-A-T (prior to distribution to the
nondissenting former shareholders of 999 and HQI); and (3) the
nonbusiness assets of 999 and HQI not acquired by CRH but instead
retained by D-E and G-A-T.
D-E and G-A-T will defer payment of any part of the
appraised value of the 999 and HQI shares canceled in the
division transaction until final judgment in the appraisal
F-23
Z030
. .
proceedings.lll Therefore, if Barbara or Bob or both elect this
option they will no longer have any interest in the nonbusiness
assets of the Mumma family owned by 999 and HQI, and probably
will not receive any cash with respect to their interest in the
nonbusiness assets of the Mumma family and the major portion of
their investment in the Pennsy Supply Businesses for an
undetermined number of years, but when payment is finally made,
will be entitled to such amount of interest thereon as the court
may determine to be appropriate in the circumstances. See 15
Pa.C.S. ~~ 1572 and 1579(d).
In the'event that Barbara or Bob does not dissent or
properly tender her or his 999 and HQI stock certificates, her or
his part of the Nonbusiness Asset Dividends and allocated shares
of the purchase price paid by CRR for the pennsySupply
Businesses will ultimately be paid over to their state of
residence (the Commonwealth of Pennsylvania) as abandoned or
unclaimed property.lll
~/ In any dissenters rights proceedings D-E and G-A-T expect to
take the position that the "stand-alone" values of the
equity of each of 999 and HQI at the effective date of the
Plans of Division (and unaffected by the CRR sale) would be
substantially less than their allocable values as components
of an integrated pennsy Supply Businesses enterprise and
that they should therefore be valued only on an independent
or "stand-alone" basis.
19/ Prior to this payment, the shares of Barbara or Bob, or
both, would be held by D-E and G-A-T as security for CRR and
other sale claims in lieu of joinder in the Subscription
Agreement.
F-24
2031
K. ReQUired Inducements by Buyer Aqainst Litiqation bY Bob
Due in large part to Bob's repeated interference with
and frustration of past attempts to sell the family businesses,
CRH required that provision be made in the Subscription Agreement
for the possibility that Bob might again attempt to block a
proposed sale to CRR. The Subscription Agreement provides that a
termination payment of $1 million~1 will be made by 999 to CRH
in the event that, inter alia, Bob succeeds in obtaining
(Subscription Agreement ~ 13.1.1):
an injunction or other legal process which has the
effect of preventing Owners from completing any of
their obligations hereunder or of preventing any
Transferor from transferring Assets, or of preventing
(Kodie] from issuing the Shares in accordance with the
provisions of this Agreement, which injunction or other
process has not been vacated prior to August 4, 1993.
Under Subscription Agreement ~ 13.2.2, 999 also becomes obligated
to make, in the event of a termination of the Subscription
Agreement:
(a] payment equal to 90% of all legal fees in excess of
US $25,000 incurred by (CRR] after May 6, 1993 in
20/ The $1 million figure is intended (Subscription Agreement
~ 13.2.1):
to compensate (CRR] for all risks and costs, excluding
legal fees, associated with entering into this
Agreement and not being able to consummate it,
including, but not limited to, (eRR] 's lost opportunity
costs, and prior costs (eRR] has incurred in attempting
to consummate a purchase of the pennsy Supply
Businesses. The foregoing payment reflects a
reasonable forecast as to the amount of compensation
necessary to fully compensate (CRH] for all risks
incurred heretofore described, such risks and costs
being otherwise difficult to estimate at the time of
entering into this Agreement.
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2032
. ' .
connection with the preparation and negotiation of, and
the updating and completion of, this Agreement and all
exhibits, schedules, agreements, instruments or
documents attached hereto or contemplated hereby.
Pursuant to the Subscription Agreement, 999 was required to and
has delivered an irrevocable letter of credit to CRR. One
purpose of the letter of credit is to provide a standby source of
funds in the event that 999 becomes obligated, by virtue of legal
action, to make the $1 million and other termination payments to
CRR.
L. Financial Information
Attached as Annex G to the Shareholder Notice is a copy
of the unaudited pro forma financial results of the Pennsy Supply
Businesses for the Fiscal Year ended June 30, 1992. In
conformity with past practices financial statements for HQI and
999 will be transmitted to shareholders as they become available,
which is expected to be by August 1, 1993 in the case of HQI and
September 1, 1993 in the case of 999.
M. Federal Income Tax Matters
THE FEDERAL AND STATE INCOME TAX CONSEQUENCES DISCUSSED
BELOW DEPEND UPON EACH SHAREHOLDER'S PARTICULAR TAX STATUS AND
DOMICILE, AND DEPEND FURTHER UPON FEDERAL INCOME TAX LAWS,
REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO CHANGE
(WHICH CHANGES MAY BE RETROACTIVE IN EFFECT). EACH SHAREHOLDER
SHOULD CONSULT HER OR HIS OWN TAX ADVISOR FOR A COMPLETE
DESCRIPTION OF THE TAX CONSEQUENCES OF THESE TRANSACTIONS.
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2033
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The discussion below is a summary of the United States
federal income tax consequences which an individual shareholder
may incur in connection with the transactions described in the
Subscription Agreement and the Plans of Division. The discussion
is based on the Internal Revenue Code of 1986, as amended, and
the related regulations, rulings and decisions currently in
effect (the "Code").
The conversion of each shareholder's shares in 999 and
HQI into the right to receive the payments described in the plans
of Division will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable
state, local and foreign laws. For federal income tax purposes,
gain or loss will be recognized by each shareholder in an amount
equal to the difference between (1) the sum of the cash received
for the shares canceled, plus the fair market value of the
property and other rights received by the shareholder by means of
the Nonbusiness Asset Dividends of D-E common stock, G-A-T common
stock, Kim & Kin, Inc. common stock and the promissory notes
issued by D-E and G-A-T pursuant to the Plans of Division, and
(2) the shareholder's adjusted tax basis in the shares canceled.
Assuming that each shareholder holds her or his shares as a
capital asset at the time the plans of Division take effect, gain
or loss in respect of the shares converted will be entitled to
capital gain treatment. Each shareholder should consult her or
his tax advisor with respect to the applicable rules for a
determination of whether or not the shares have been held for a
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203;1
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period sufficient to qualify for long-term capital gain treatment
and with respect to the potential for application of rules
regarding installment sale method of reporting gain due to the
fact that a portion of the consideration may be held in escrow
for. two years or more. The provisions of the Code applicable to
alternative minimum tax will also be applicable to any
shareholder recognizing net capital gain in connection with these
transactions.
N. Dissenters Riqhts Procedures
Information concerning the procedures for exercising
dissenters rights as shareholders of 999 or HQI, or both, is set
forth in the Shareholder Notice to which this Information
Statement is attached as Annex F, and in the BCL text attached to
the Shareholder Notice as Annex D.
Date: July 9, 1993
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2035
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