<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10
---------------
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
NEW MORTON INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
INDIANA 36-4140798
(State or Other Jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or Organization)
100 North Riverside Plaza, 60606
Chicago, Illinois
(Address of Principal (Zip Code)
Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (312) 807-2000
------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, par value $1.00 per share New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION STATEMENT
NEW MORTON INTERNATIONAL, INC.
(to be renamed "Morton International, Inc.")
SPINOFF OF
NEW MORTON
THROUGH A COMMON STOCK DISTRIBUTION
Morton International, Inc. (Morton) is sending you this Information
Statement together with a separate Proxy Statement/Prospectus/Exchange Offer,
which describes the proposed combination of Morton's automotive safety products
business with the business of Autoliv AB (Autoliv), through the formation of a
new U.S. holding company, Autoliv, Inc. (New Autoliv). Morton intends to
accomplish the combination by first transferring all of Morton's specialty
chemicals and salt businesses to a new company (New Morton), spinning off New
Morton to Morton shareholders (the Spinoff), and then combining Morton's
automotive safety products business with Autoliv. The combination with Autoliv
will be completed in two parts: (a) Morton (then consisting only of Morton's
automotive safety products business and $750 million of debt used to finance a
capital contribution to New Morton) will be merged with a subsidiary of New
Autoliv, with Morton shareholders receiving approximately one New Autoliv share
for every three Morton shares (the Merger), and (b) New Autoliv will offer to
exchange its shares for all of the outstanding shares of Autoliv (the Exchange
Offer). The Exchange Offer is conditioned on more than 90% of the outstanding
Autoliv securities being tendered by Autoliv stockholders. If the Exchange Offer
is fully accepted, Morton shareholders will own 46.5% of the outstanding New
Autoliv shares and Autoliv stockholders will own 53.5% of the outstanding New
Autoliv shares.
This Information Statement relates to the shares of New Morton that will be
issued in the Spinoff, and provides important information on the business and
financial condition of New Morton AFTER the Spinoff. You should read the entire
document very carefully. For a description of New Morton's businesses, please
review the pro forma financial information beginning on page 6 and the
information set forth in "BUSINESS AND PROPERTIES" beginning on page 33. You
should also pay particular attention to the information set forth in "RISK
FACTORS" beginning on page 16. For more detailed information on the
transactions, including the proposals relating to the Spinoff and the Merger
that will be considered at Morton's special meeting of shareholders, see the
Proxy Statement/Prospectus/Exchange Offer (the Proxy Statement/Prospectus/
Exchange Offer) being sent to Morton shareholders in connection with the special
meeting to be held to consider the transactions.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE NEW MORTON COMMON STOCK TO BE
ISSUED OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT IS FIRST BEING MAILED TO MORTON SHAREHOLDERS ON OR
ABOUT MARCH 24, 1997.
The Information Agent for the Spinoff is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Call Toll Free 1-800-511-2024
<PAGE>
Morton's Board of Directors (the Morton Board) is recommending that Morton
shareholders vote in favor of a tax-free Spinoff and Merger that, if
consummated, will result in the following changes:
NEW MORTON WILL:
- own and operate Morton's specialty chemicals and salt businesses; and
- immediately prior to the Spinoff, receive a $750 million capital
contribution from old Morton, as well as $50 million of the cash generated
by Morton's automotive safety products business from July 1, 1996, plus
$7.2 million of cash for each month that the Spinoff is delayed past March
31, 1997.
OLD MORTON WILL:
- own and operate only Morton's automotive safety products business;
- be a subsidiary of New Autoliv, which will also own the shares of old
Autoliv; and
- retain the obligation to repay $750 million of debt used to finance the
capital contribution to New Morton.
MORTON SHAREHOLDERS WILL OWN:
- 100% of New Morton; and
- 46.5% of New Autoliv (assuming full acceptance of the Exchange Offer by
Autoliv's stockholders).
These transactions are subject to the approval of the holders of a majority
of the outstanding Morton shares. If Morton shareholders approve the
transactions, the Exchange Offer is successfully completed and the other
conditions are satisfied (including receipt of an Internal Revenue Service
ruling and regulatory approvals, which ruling and approvals have been received),
Morton expects the Spinoff and the Merger to occur in late April or early May
1997. Following the Spinoff, Morton shareholders will automatically receive
their New Morton shares, which will be in book-entry form rather than in
certificate form. If you own Morton shares on the record date for the Spinoff,
the distribution agent will mail you a book-entry account statement reflecting
your ownership in New Morton. Also, following completion of the combination of
Morton's automotive safety products business with Autoliv, New Autoliv will send
you instructions for exchanging your old Morton shares for New Autoliv shares,
which will also be in book-entry form.
Morton expects New Morton's stock to trade on the New York Stock Exchange
and the Chicago Stock Exchange under the symbol "MII." New Morton will change
its name to "Morton International, Inc." and old Morton will change its name to
"Autoliv ASP, Inc." after the transactions are completed.
This Information Statement relates to the New Morton shares to be issued to
Morton shareholders in connection with the Spinoff. The accompanying Proxy
Statement/ Prospectus/Exchange Offer is (i) a proxy statement of Morton
furnished to Morton shareholders in connection with the solicitation of proxies
by the Morton Board to be used at the special meeting of Morton shareholders to
consider two proposals relating to the Spinoff and the combination of Morton's
automotive safety products business with Autoliv; (ii) a prospectus of New
Autoliv relating to the shares of New Autoliv stock to be issued in the Merger
and the Exchange Offer; and (iii) an offer to all U.S. and Canadian holders of
Autoliv shares to exchange their shares for shares of New Autoliv common stock.
YOU ARE URGED TO READ BOTH OF THESE DOCUMENTS CAREFULLY SINCE EACH CONTAINS
INFORMATION NOT CONTAINED IN THE OTHER.
MORTON SHAREHOLDERS ARE BEING ASKED TO APPROVE THE SPINOFF AND THE MERGER.
THE PROXY STATEMENT/PROSPECTUS/EXCHANGE OFFER FURNISHED BY MORTON AND NEW
AUTOLIV REQUESTS PROXIES AND OFFERS NEW AUTOLIV COMMON STOCK TO MORTON
SHAREHOLDERS.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Information Statement includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding New Morton's expected future financial position, business
strategy, budgets, projected costs, and plans and objectives of management for
future operations are forward-looking statements. Although Morton believes its
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include, among others, those set forth under "Risk Factors,"
general economic and business and market conditions, costs or difficulties
relating to the establishment of New Morton as an independent entity and
increased competitive and/or customer pressure in the specialty chemicals and
salt industries.
<PAGE>
NEW MORTON INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------------------------------------------- -----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF NEW
MORTON........................................ 1
SUMMARY OF CERTAIN INFORMATION................. 2
Why Morton is Distributing New Morton Common
Stock...................................... 2
The New Morton Businesses.................... 3
Relationship between New Morton and New
Autoliv after the Spinoff and Merger....... 3
Risk Factors................................. 4
CAPITALIZATION................................. 5
NEW MORTON UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION........................ 6
Unaudited Pro Forma Condensed Consolidated
Balance Sheet of New Morton................ 6
Unaudited Pro Forma Condensed Consolidated
Statements of Income of New Morton......... 8
SUMMARY SELECTED HISTORICAL FINANCIAL
INFORMATION.................................. 11
WHERE SHAREHOLDERS CAN FIND MORE INFORMATION... 13
INTRODUCTION................................... 14
RISK FACTORS................................... 16
No Operating History as an Independent
Company; No Access to Morton ASP's Cash
Flow....................................... 16
No Prior Market for New Morton Common
Stock...................................... 16
Dividend Policy.............................. 16
Certain Anti-Takeover Effects................ 16
Certain Federal Income Tax Considerations.... 17
Seasonality; Backlog......................... 17
Competition.................................. 18
Risks of Doing Business Outside the United
States..................................... 18
Environmental and Other Potential
Liabilities................................ 18
THE SPINOFF.................................... 19
Background and Reasons for the Spinoff....... 19
Manner of Effecting the Spinoff.............. 19
Certain Federal Income Tax Considerations.... 20
Accounting Treatment of the Transactions..... 20
Relationships after the Spinoff.............. 20
<CAPTION>
DESCRIPTION PAGE
- ----------------------------------------------- -----
<S> <C>
Listing and Trading of New Morton Common
Stock...................................... 20
Dividend Policy and Share Repurchases........ 21
REGULATORY MATTERS............................. 21
AGREEMENTS AMONG MORTON, AUTOLIV AND NEW
MORTON....................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 23
BUSINESS SEGMENT INFORMATION................... 32
BUSINESS AND PROPERTIES........................ 33
Overview..................................... 33
Recent Developments.......................... 33
Specialty Chemicals.......................... 33
Salt......................................... 34
Competition.................................. 34
Government Regulations; Environmental
Matters.................................... 35
Research and Development..................... 35
Employees.................................... 35
Raw Materials................................ 36
Seasonality; Backlog......................... 36
Patents and Trademarks....................... 36
Customers.................................... 36
Properties................................... 36
Litigation and Regulation.................... 37
MANAGEMENT..................................... 39
Directors of New Morton...................... 39
Executive Officers of New Morton............. 42
EXECUTIVE COMPENSATION......................... 44
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION................................ 51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF MORTON COMMON STOCK....................... 52
DESCRIPTION OF NEW MORTON CAPITAL STOCK........ 53
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS.... 56
LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF NEW MORTON...................... 69
INDEPENDENT AUDITORS........................... 71
SHAREHOLDER PROPOSALS.......................... 71
INDEX OF DEFINED TERMS......................... 72
INDEX TO FINANCIAL STATEMENTS OF MORTON
INTERNATIONAL, INC.*......................... F-1
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE SPINOFF OF NEW MORTON
Q. WHEN WILL THE SPINOFF OCCUR?
A. Morton and Autoliv expect that the Spinoff and the combination will be
completed in late April or early May, 1997. In addition to Morton
shareholder approval and acceptance of the exchange offer by holders of more
than 90% of the Autoliv common stock, Morton and Autoliv must obtain
clearance under certain antitrust laws and a ruling from the Internal
Revenue Service confirming the tax-free status of the Spinoff for U.S.
federal income tax purposes (which ruling has been received).
Q. WHAT BUSINESSES WILL NEW MORTON OWN?
A. After the Spinoff, New Morton will own the specialty chemicals and salt
businesses of Morton consisting of the adhesives & chemical specialties
group, coatings group, electronic materials group, salt group and corporate
operations currently owned by Morton. Please read the information on New
Morton's businesses and the associated risks beginning on pages 33 and 16,
respectively.
Q. WHAT WILL I RECEIVE IN THE SPINOFF?
A. Morton shareholders will receive, in what is intended to be a tax-free
distribution for U.S. federal income tax purposes, one share of New Morton
common stock, together with an associated preferred share purchase right,
for each share of Morton common stock that they own. New Morton shares will
be distributed in book-entry form rather than in certificate form. You
should receive an account statement reflecting your ownership of New Morton
common stock within several weeks after the completion of the transactions.
Shareholders may request certificates representing such shares at any time
following the Spinoff. For details on this procedure, see the discussion on
page 19.
Q. WILL NEW MORTON PAY DIVIDENDS?
A. Morton currently expects that, following the Spinoff, New Morton will
initially pay quarterly cash dividends at the annual rate of $.48 per share
of New Morton common stock. However, the actual amount of such dividends may
vary and will depend on New Morton's operating results, financial
requirements and other factors.
Q. DO I HAVE TO PAY TAXES ON THE RECEIPT OF NEW
MORTON COMMON STOCK?
A. The distribution of New Morton common stock will generally be tax free to
Morton shareholders for U.S. federal income tax purposes. To review certain
tax consequences of the transactions in greater detail, see page 17.
Q. WILL NEW MORTON STOCK BE LISTED ON THE NEW
YORK STOCK EXCHANGE AND THE CHICAGO STOCK
EXCHANGE?
A. Yes, we anticipate that New Morton common stock will be traded on the New
York Stock Exchange and on the Chicago Stock Exchange under the symbol
"MII."
Q. WHAT HAPPENS TO EXISTING MORTON STOCK?
A. You will receive written instructions for exchanging your old Morton shares
for shares of New Autoliv common stock (and your cash payment in lieu of any
fractional shares of New Autoliv). New Autoliv shares will also be
distributed in book-entry form rather than in certificate form.
Q. WHAT DOES A MORTON SHAREHOLDER NEED TO DO NOW?
A. Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meeting at
which the transactions will be considered. MORTON SHAREHOLDERS SHOULD NOT
SEND IN THEIR STOCK CERTIFICATES AT THIS TIME. If you continue to hold your
Morton shares at the time of the Spinoff, you will automatically receive
your New Morton shares.
1
<PAGE>
SUMMARY OF CERTAIN INFORMATION
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT (THIS
"INFORMATION STATEMENT"). IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO MORTON SHAREHOLDERS. TO BETTER UNDERSTAND THE TRANSACTIONS AND FOR
A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE TRANSACTIONS, YOU SHOULD
CAREFULLY READ THIS ENTIRE INFORMATION STATEMENT, THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS/EXCHANGE OFFER (THE "PROXY STATEMENT/PROSPECTUS/EXCHANGE
OFFER") AND THE OTHER DOCUMENTS REFERRED TO THEREIN AND IN THIS SUMMARY.
If you have questions about Morton,
New Morton, the Spinoff
or the Combination, please contact:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Telephone: (800) 511-2024
WHY MORTON IS DISTRIBUTING NEW MORTON COMMON STOCK
Autoliv AB, a corporation organized under the laws of the Kingdom of Sweden
("Autoliv"), and Morton International, Inc., an Indiana corporation ("Morton"),
have agreed to combine Autoliv with the Morton business that manufactures and
sells automotive safety products (which we refer to as the "ASP Business") into
Autoliv, Inc. ("New Autoliv"), a new U.S. corporation formed by Morton and
Autoliv. In order to separate the ASP Business from the rest of Morton's
businesses, Morton will transfer these other businesses and the related assets
and liabilities plus a certain amount of cash to a new Indiana corporation
formed by Morton ("New Morton"), and then distribute the shares of New Morton to
Morton's shareholders as a dividend (the "Spinoff"). Next, Morton (then
consisting only of the ASP Business and $750 million of debt used to finance the
capital contribution to New Morton) will be merged (the "Merger") with a wholly
owned subsidiary of New Autoliv, with Morton surviving the Merger as a wholly
owned subsidiary of New Autoliv. (Morton, as it will exist following the
Spinoff, is referred to in this Information Statement as "Morton ASP.") To
complete the combination of the ASP Business with Autoliv, New Autoliv is
offering to exchange its shares for all of the outstanding Autoliv securities
(the "Exchange Offer"). The Merger and the Exchange Offer will be completed at
substantially the same time.
The combination with Autoliv will occur promptly following the Spinoff. In
the Merger, Morton's shareholders will receive approximately one share of common
stock, par value $1.00 per share, of New Autoliv ("New Autoliv Common Stock") in
exchange for every three shares of common stock, par value $1.00 per share, of
Morton ("Morton Common Stock") that they own. In the Exchange Offer, New Autoliv
is offering to exchange one share of New Autoliv Common Stock for each
outstanding Autoliv share. If the Exchange Offer is fully accepted, Autoliv
shareholders will own 53.5% of the outstanding shares of New Autoliv and Morton
shareholders will own 46.5%. The Exchange Offer is conditioned on more than 90%
of the outstanding shares of Autoliv common stock being tendered by Autoliv
stockholders. If the Exchange Offer is successfully completed, New Autoliv,
through a wholly owned subsidiary organized under the laws of the Kingdom of
Sweden ("Swedish Sub"), will acquire any remaining Autoliv shares for cash in a
compulsory acquisition to be conducted in accordance with Swedish law (the
"Compulsory Acquisition"). (The Merger, the Exchange Offer and the Compulsory
Acquisition are sometimes referred to in this Information Statement as the
"Combination.")
As a result of the Combination, New Autoliv will own both Morton ASP and old
Autoliv. Former Morton shareholders will retain their interest in Morton's
specialty chemicals and salt businesses in the
2
<PAGE>
form of shares of common stock, par value $1.00 per share, of New Morton ("New
Morton Common Stock") and will own an interest in the combined businesses of
Morton ASP and old Autoliv in the form of New Autoliv shares.
Following the Spinoff, New Morton will change its name to "Morton
International, Inc." and Morton ASP will change its name to "Autoliv ASP, Inc."
THE NEW MORTON BUSINESSES
After completion of the Spinoff, New Morton will consist of Morton's
specialty chemicals and salt businesses. The Morton Board of Directors (the
"Morton Board") and Morton management believe that separating the ASP Business
from Morton's specialty chemicals and salt businesses, which possess different
financial, investment and operating characteristics, will allow each to adopt
strategies and pursue objectives appropriate to its specific business and will
enable management of each business to concentrate its attention and financial
resources on its own businesses without considering the corporate objectives,
policies and investment needs of the other. In addition, receipt by New Morton
of $750 million in cash to be financed by new debt retained by Morton ASP, and
$50 million of the cash generated by the ASP Business from July 1, 1996, plus
$7.2 million of cash for each month that the Spinoff and the Merger are delayed
past March 31, 1997 (as adjusted as described herein, collectively, the "Capital
Contribution"), will assist New Morton in expanding its business and product
lines through an active acquisition program, making planned capital expenditures
and continuing its ongoing share acquisition program following the Spinoff. See
"Agreements Among Morton, Autoliv and New Morton."
SPECIALTY CHEMICALS BUSINESSES. New Morton will manufacture a wide variety
of high technology and specialized chemical products through three product
groups: Adhesives & Chemical Specialties, Coatings, and Electronic Materials
(the "Specialty Chemicals Business"). In December 1996, Morton announced plans
to purchase Pulverlac SpA ("Pulverlac"), an Italian coatings manufacturer. See
"Business and Properties--Recent Developments."
SALT BUSINESS. New Morton will be the leading salt supplier in North
America, selling salt principally under the MORTON and WINDSOR trademarks (the
"Salt Business"). On December 31, 1996, Morton announced that it had entered
into an agreement to acquire all of the stock, and in March 1997 completed the
initial acquisition with respect to two-thirds of the stock, of Compagnie de
Suez SA's salt business, Compagnie des Salins du Midi et Salines de l'Etat
("Salins du Midi"), which business is the leading independent salt producer in
Europe. See "Business and Properties--Recent Developments."
Morton expects that for the fiscal year ending June 30, 1997, 70%-75% of New
Morton's sales will come from the Specialty Chemicals Business as a whole and
25%-30% will come from the Salt Business. These estimates reflect the
acquisitions announced in December 1996, and include sales of Pulverlac and
Salins du Midi for a portion of the 1997 fiscal year.
The businesses that comprise New Morton, including Morton's headquarters
operations which will be transferred to New Morton, are sometimes referred to in
this document as the "New Morton Businesses."
RELATIONSHIP BETWEEN NEW MORTON AND NEW AUTOLIV AFTER THE SPINOFF AND MERGER
Upon completion of the Spinoff, New Morton and Morton ASP will be separate
companies. Prior to the Spinoff, Morton and New Morton will enter into
agreements to help in the separation and transition. The agreements deal with
many operational issues, including:
(a) the separation of the ASP Business from the New Morton Businesses;
3
<PAGE>
(b) transitional services to be provided by New Morton to Morton ASP for
up to one year following the Spinoff; and
(c) the allocation of certain tax, employee benefits and other
liabilities between New Morton and Morton ASP.
Under these agreements, Morton ASP will agree to compensate New Morton, and
New Morton will agree to compensate Morton ASP and New Autoliv, for certain
losses, damages, claims and liabilities resulting from the operations of the ASP
Business and the New Morton Businesses, respectively. New Morton will also agree
to provide to Morton ASP, at Morton ASP's request, certain services for up to
one year following the Combination, including legal, accounting, intellectual
property, payroll and payroll tax, real estate, human resources, environmental,
corporate secretarial, insurance, treasury, management information, tax
preparation and other services (for which services Morton ASP will pay New
Morton). Any required tax preparation services will be provided in accordance
with the Tax Sharing Agreement (as defined below). New Morton will also agree to
make its personnel available to Morton ASP so as to permit Morton ASP to operate
its business in the ordinary course and to facilitate an orderly transition of
Morton ASP to New Autoliv. Additionally, Morton ASP and New Morton will each
agree to reimburse the other for certain tax liabilities related to their
respective businesses. Information about these agreements can be found under
"Agreements Among Morton, Autoliv and New Morton."
RISK FACTORS
Shareholders should carefully review the matters discussed under "Risk
Factors."
4
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization, as of December 31, 1996,
of Morton on an historical basis and of New Morton on a pro forma basis after
giving effect to the Spinoff, the Merger and the related transactions described
in the notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet of
New Morton and Unaudited Pro Forma Condensed Consolidated Statements of Income
of New Morton included elsewhere in this Information Statement. This table
should be read in conjunction with the notes referred to above and the Morton
historical consolidated financial statements and related notes thereto included
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996
----------------------
<S> <C> <C>
MORTON NEW MORTON
HISTORICAL PRO FORMA
--------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Debt, including short-term debt.......................................................... $ 326.7 $ 326.7
Shareholders' equity:
Morton Stock:
Common Stock--$1.00 par value, 300.0 million shares
authorized, 148.4 million issued................................................... 148.4(1) --
Preferred Stock--$1.00 par value, 25.0 million shares
authorized, none issued............................................................ -- --
New Morton Stock:
Common Stock--$1.00 par value, 500.0 million shares
authorized, 142.3 million issued and outstanding................................... -- 142.3(1)
Preferred Stock--$1.00 par value, 25.0 million shares
authorized, none issued............................................................ -- --
Additional paid-in capital............................................................. 50.8 -- (1)
Retained earnings...................................................................... 1,799.5 1,700.4(1)(2)
Currency translation................................................................... 15.8 14.6
Treasury stock......................................................................... (225.6) --
--------- -----------
Total shareholders' equity............................................................... 1,788.9 1,857.3
--------- -----------
Total capitalization..................................................................... $ 2,115.6 $ 2,184.0
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Morton Historical includes 6.1 million shares of treasury stock which will
be cancelled without payment of consideration therefor in connection with
the Spinoff, resulting in reductions in Morton Common Stock ($6.1 million),
additional paid-in capital ($50.8 million) and retained earnings ($168.7
million), and the elimination of treasury stock ($225.6 million).
(2) Decreased to reflect the divestiture of the net assets of the ASP Business
($602.6 million), increased to reflect the $750.0 million of cash retained
by New Morton funded by debt retained by the ASP Business, decreased to
reflect the elimination of intercompany indebtedness of the ASP Business and
the liability for New Morton's portion of estimated expenses recorded in
connection with the Spinoff.
5
<PAGE>
NEW MORTON
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET OF NEW MORTON
The unaudited pro forma condensed consolidated balance sheet of New Morton
has been derived from the historical consolidated balance sheet of Morton
adjusted for the divestiture of the ASP Business and certain costs and expenses
to be incurred as a result of the proposed transaction. The unaudited pro forma
condensed consolidated balance sheet of New Morton has been prepared assuming
the Spinoff occurred on December 31, 1996.
The unaudited pro forma condensed consolidated balance sheet should be read
in conjunction with the historical consolidated financial statements of Morton
and the notes thereto as of June 30, 1996 and 1995, and for the three years in
the period ended June 30, 1996 and as of December 31, 1996 and 1995, and for the
six month periods then ended, which are included elsewhere in this Information
Statement. The unaudited pro forma condensed consolidated balance sheet is not
necessarily indicative of the financial position of New Morton that would
actually have been obtained had the Spinoff been consummated on December 31,
1996.
6
<PAGE>
NEW MORTON INTERNATIONAL, INC.
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------
ASP
MORTON BUSINESS NEW
HISTORICAL (1) OTHER MORTON
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Assets
Cash and cash equivalents........................................ $ 71.3 $ 10.7 $ 750.0(2) $ 832.0
Receivables...................................................... 660.1 (284.2) -- 375.9
Deferred income tax benefit...................................... 15.5 (4.2) -- 11.3
Receivable from affiliate........................................ -- 69.3 (69.3)(3) --
Inventories...................................................... 392.0 (80.7) -- 311.3
Prepaids......................................................... 131.5 (.4) -- 131.1
---------- ---------- ---------- --------
Total current assets....................................... 1,270.4 (289.5) 680.7 1,661.6
Property, plant and equipment, net............................... 1,178.5 (463.3) -- 715.2
Goodwill......................................................... 291.2 -- -- 291.2
Other assets..................................................... 197.3 (4.2) -- 193.1
---------- ---------- ---------- --------
Total assets............................................... $ 2,937.4 $(757.0) $ 680.7 $2,861.1
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Liabilities & Equity
Notes payable and current portion of long-term debt.............. $ 108.2 $ -- $ -- $ 108.2
Accounts payable and accrued liabilities......................... 463.5 (121.3) 8.5(4) 350.7
Income taxes..................................................... 31.9 (3.5) -- 28.4
---------- ---------- ---------- --------
Total current liabilities.................................. 603.6 (124.8) 8.5 487.3
Long-term debt................................................... 218.5 -- -- 218.5
Deferred income taxes............................................ 54.4 (16.9) -- 37.5
Accrued postretirement benefits other than pensions.............. 156.7 (6.2) -- 150.5
Other noncurrent liabilities..................................... 115.3 (5.3) -- 110.0
---------- ---------- ---------- --------
Total noncurrent liabilities............................... 544.9 (28.4) -- 516.5
Shareholders' equity:
Common stock..................................................... 148.4 -- (6.1)(5) 142.3
Additional paid-in-capital....................................... 50.8 -- (50.8)(5) --
Retained earnings................................................ 1,799.5 (602.6) 750.0 (2) 1,700.4
(69.3)(3)
(8.5)(4)
(168.7)(5)
Foreign currency translation..................................... 15.8 (1.2) -- 14.6
---------- ---------- ---------- --------
2,014.5 (603.8) 446.6 1,857.3
Less cost of common stock in treasury............................ (225.6) -- 225.6(5) --
---------- ---------- ---------- --------
Total shareholders' equity................................. 1,788.9 (603.8) 672.2 1,857.3
---------- ---------- ---------- --------
Total liabilities and shareholders' equity................. $ 2,937.4 $(757.0) $ 680.7 $2,861.1
---------- ---------- ---------- --------
---------- ---------- ---------- --------
</TABLE>
- ------------------------
(1) The divestiture of the ASP Business.
(2) Cash retained by New Morton funded by debt retained by the ASP Business.
(3) Elimination of intercompany indebtedness of the ASP Business.
(4) The estimated liability for New Morton's portion of expenses recorded in
connection with the Spinoff.
(5) The elimination of Morton Common Stock held in treasury, as such shares will
be canceled without payment of consideration therefor in connection with the
Spinoff.
7
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME OF NEW MORTON
The following pro forma financial information presents the Morton businesses
that will be contributed to New Morton. The unaudited pro forma condensed
consolidated statements of income of New Morton have been derived from the
historical consolidated statements of Morton included elsewhere herein. The
unaudited pro forma condensed consolidated statements of income of New Morton
have been prepared assuming that the Spinoff occurred on July 1, 1993, but do
not give effect to any use of the proceeds from the $750 million capital
contribution to be made by Morton to New Morton.
The unaudited pro forma condensed consolidated statements of income should
be read in conjunction with the historical consolidated financial statements of
Morton and the notes thereto for the three years in the period ended June 30,
1996, and for the six months ended December 31, 1996 and 1995, included
elsewhere in this Information Statement. The unaudited pro forma condensed
consolidated statements of income are not necessarily indicative of the
financial results of New Morton that would actually have been obtained had the
Spinoff been consummated on July 1, 1993.
NEW MORTON INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
-------------------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
-------------------------------
<CAPTION>
MORTON ASP NEW
HISTORICAL BUSINESS MORTON
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales........................................................................... $ 1,819.2 $ (732.0) $ 1,087.2
Other income.................................................................... 17.2 3.7 20.9
--------- --------- ---------
Total revenues................................................................ 1,836.4 (728.3) 1,108.1
Cost of sales................................................................... 1,296.0 (561.2) 734.8
Selling, general and administrative expense..................................... 220.2 (43.0) 177.2
Research and development expense................................................ 38.3 (9.1) 29.2
Interest expense................................................................ 12.0 -- 12.0
Amortization of goodwill........................................................ 5.1 -- 5.1
--------- --------- ---------
Total costs and expenses...................................................... 1,571.6 (613.3) 958.3
--------- --------- ---------
Income before income taxes...................................................... 264.8 (115.0) 149.8
Income taxes.................................................................... 98.0 (43.9) 54.1
--------- --------- ---------
Net income...................................................................... $ 166.8 $ (71.1) $ 95.7
--------- --------- ---------
--------- --------- ---------
Net income per share............................................................ $ 1.15 N/A $ .66
--------- --------- ---------
--------- --------- ---------
Shareholders' equity per share.................................................. $ 12.57 $ 13.05
--------- ---------
--------- ---------
Average number of common and common
equivalent shares outstanding................................................. 145.0 145.0
--------- ---------
--------- ---------
Pro forma ratio of earnings to fixed charges (1)................................ 9.0x
---------
---------
</TABLE>
8
<PAGE>
NEW MORTON INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
--------------------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
--------------------------------
<CAPTION>
MORTON ASP NEW
HISTORICAL BUSINESS MORTON
--------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales......................................................................... $ 3,612.5 $ (1,397.5) $ 2,215.0
Other income.................................................................. 73.7 (.5) 73.2
--------- ---------- ---------
Total revenues.............................................................. 3,686.2 1,398.0 2,288.2
Cost of sales................................................................. 2,566.3 (1,048.6) 1,517.7
Selling, general and administrative expense................................... 436.4 (75.3) 361.1
Research and development expense.............................................. 80.2 (20.0) 60.2
Interest expense.............................................................. 24.6 (.2) 24.4
Amortization of goodwill...................................................... 10.3 -- 10.3
Special charges............................................................... 29.2 -- 29.2
--------- ---------- ---------
Total costs and expenses.................................................... 3,147.0 (1,144.1) 2,002.9
--------- ---------- ---------
Income before income taxes.................................................... 539.2 (253.9) 285.3
Income taxes.................................................................. 205.0 (98.4) 106.6
--------- ---------- ---------
Net income.................................................................... $ 334.2 $ (155.5) $ 178.7
--------- ---------- ---------
--------- ---------- ---------
Net income per share.......................................................... $ 2.24 N/A $ 1.20
--------- ---------- ---------
--------- ---------- ---------
Average number of common and common equivalent shares outstanding............. 149.4 149.4
--------- ---------
--------- ---------
Pro forma ratio of earnings to fixed charges (1).............................. 9.2x
---------
---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
--------------------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
--------------------------------
<CAPTION>
MORTON ASP NEW
HISTORICAL BUSINESS MORTON
--------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales......................................................................... $ 3,325.9 $ (1,226.3) $ 2,099.6
Other income.................................................................. 29.0 (2.7) 26.3
--------- ---------- ---------
Total revenues.............................................................. 3,354.9 (1,229.0) 2,125.9
Cost of sales................................................................. 2,348.8 (924.7) 1,424.1
Selling, general and administrative expense................................... 424.4 (63.0) 361.4
Research and development expense.............................................. 72.5 (14.4) 58.1
Interest expense.............................................................. 28.4 -- 28.4
Amortization of goodwill...................................................... 10.3 -- 10.3
--------- ---------- ---------
Total costs and expenses.................................................... 2,884.4 (1,002.1) 1,882.3
--------- ---------- ---------
Income before income taxes.................................................... 470.5 (226.9) 243.6
Income taxes.................................................................. 176.4 (85.5) 90.9
--------- ---------- ---------
Net income.................................................................... $ 294.1 $ (141.4) $ 152.7
--------- ---------- ---------
--------- ---------- ---------
Net income per share.......................................................... $ 1.96 N/A $ 1.02
--------- ---------- ---------
--------- ---------- ---------
Average number of common and common
equivalent shares outstanding............................................... 150.1 150.1
--------- ---------
--------- ---------
Pro forma ratio of earnings to fixed charges (1).............................. 7.1x
---------
---------
</TABLE>
9
<PAGE>
NEW MORTON INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1994
-------------------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
-------------------------------
<CAPTION>
MORTON ASP NEW
HISTORICAL BUSINESS MORTON
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales........................................................................... $ 2,849.6 $ (938.5) $ 1,911.1
Other income.................................................................... 27.9 (2.8) 25.1
--------- --------- ---------
Total revenues................................................................ 2,877.5 (941.3) 1,936.2
Cost of sales................................................................... 1,981.6 (703.8) 1,277.8
Selling, general and administrative expense..................................... 434.0 (61.0) 373.0
Research and development expense................................................ 66.1 (12.3) 53.8
Interest expense................................................................ 27.8 -- 27.8
Amortization of goodwill........................................................ 10.4 -- 10.4
--------- --------- ---------
Total costs and expenses...................................................... 2,519.9 (777.1) 1,742.8
--------- --------- ---------
Income before income taxes...................................................... 357.6 (164.2) 193.4
Income taxes.................................................................... 131.1 (61.0) 70.1
--------- --------- ---------
Net income...................................................................... $ 226.5 $ (103.2) $ 123.3
--------- --------- ---------
--------- --------- ---------
Net income per share............................................................ $ 1.51 N/A $ .82
--------- --------- ---------
--------- --------- ---------
Average number of common and common
equivalent shares outstanding................................................. 150.1 150.1
--------- ---------
--------- ---------
Pro forma ratio of earnings to fixed charges (1)................................ 6.0x
---------
---------
</TABLE>
(1) The ratio of earnings to fixed charges was computed by dividing earnings
(income before income taxes adjusted for fixed charges) by fixed charges for
the periods indicated. Fixed charges include interest incurred on long-term
debt and other debt, the interest factor deemed to be included in rental
expense and amortization of debt expense.
10
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary selected historical financial
information for New Morton. For financial reporting purposes under federal
securities laws, New Morton will be, following the Merger, a "successor
registrant" to Morton. As a result, the historical financial information of New
Morton set forth below and elsewhere in this Information Statement is the
historical financial information of Morton and includes the results of
operations and financial position of the Specialty Chemicals Business and Salt
Business as well as the ASP Business. Accordingly, the historical financial
information presented below is not indicative of the results of operations or
financial position that would have been obtained if New Morton had been an
independent company during the periods shown or of New Morton's future
performance as an independent company. It is important that you read the section
titled "New Morton Unaudited Pro Forma Consolidated Financial Information" for
reference to what New Morton's results of operations and financial condition
might have been had New Morton been operated as an independent company.
The financial data set forth below has been derived from the consolidated
financial statements of Morton. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Morton and notes
thereto included elsewhere in this Information Statement. The income statement
data for the five years ended June 30, 1996 and the balance sheet data as of the
same dates have been derived from the audited consolidated financial statements
of Morton. The income statement data for the six months ended December 31, 1996
and 1995, and the balance sheet data as of December 31, 1996 and 1995, have been
derived from the unaudited consolidated financial statements of Morton, which,
in the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations for such periods.
Operating results for the six months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
June 30, 1997.
11
<PAGE>
NEW MORTON INTERNATIONAL, INC.
FIVE YEAR AND INTERIM PERIOD FINANCIAL SUMMARY
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1996 1995 1994 1993 1992 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales.................................. $ 3,612.5 $ 3,325.9 $ 2,849.6 $ 2,309.8 $ 2,043.9 $ 1,819.2 $ 1,725.7
Income before other charges, net of income
taxes(1)................................. $ 334.2 $ 294.1 $ 226.5 $ 126.9 $ 144.5 $ 166.8 $ 166.8
Other charges to income(2)................. -- -- -- 94.4 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ 334.2 $ 294.1 $ 226.5 $ 32.5 $ 144.5 $ 166.8 $ 166.8
--------- --------- --------- --------- --------- --------- ---------
Income before other charges per common
share(1)................................. $ 2.24 $ 1.96 $ 1.51 $ .86 $ .98 $ 1.15 $ 1.11
Other charges to income per common
share(2)................................. -- -- -- (.64) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per common share................ $ 2.24 $ 1.96 $ 1.51 $ .22 $ .98 $ 1.15 $ 1.11
--------- --------- --------- --------- --------- --------- ---------
Cash dividends paid per common share....... $ .520 $ .440 $ .373 $ .320 $ .320 $ .300 $ .260
Ratio of earnings to fixed charges (3)..... 15.4x 2.6x 10.1x 5.5x 6.4x 15.1x 15.3x
BALANCE SHEET DATA
Total assets............................... $ 2,771.5 $ 2,756.0 $ 2,462.6 $ 2,238.8 $ 2,110.9 $ 2,937.4 $ 2,868.8
Long-term debt............................. 218.5 218.5 198.6 217.8 222.6 218.5 218.5
Shareholders' equity....................... 1,672.8 1,663.5 1,399.6 1,200.2 1,222.9 1,788.9 1,740.0
Shareholders' equity per common share...... $ 11.75 $ 11.22 $ 9.48 $ 8.20 $ 8.40 $ 12.57 $ 11.83
</TABLE>
- ------------------------
(1) Fiscal 1996 included special charges of $15.8 million or $.11 per share
related to the early adoption of the accounting standard related to
impairment of long-lived assets and $8.1 million or $.05 per share for the
costs related to selected facility rationalizations and employee
terminations resulting from the reorganization of certain of the specialty
chemicals operations. Fiscal 1996 also included $15.1 million or $.10 per
share of income related to the settlement of several environmental insurance
issues and $7.1 million or $.05 per share related to proceeds from the sale
of distribution rights, net of the impact on operations, received in
conjunction with the formation of a joint venture. Fiscal 1993 included
special accruals related to the restructuring of operations including
disposition of facilities and relocation of manufacturing facilities of
$19.1 million or $.13 per share.
(2) 1993 charge was the cumulative effect of change in accounting for
postretirement benefits other than pensions and postemployment benefits.
(3) The ratio of earnings to fixed charges was computed by dividing earnings
(income from operations before income taxes adjusted for fixed charges) by
fixed charges for the periods indicated. Fixed charges include interest
incurred on long-term debt and other debt, the interest factor deemed to be
included in rental expense, and the amortization of debt expense.
12
<PAGE>
WHERE SHAREHOLDERS CAN FIND MORE INFORMATION
Morton files (and New Morton will file) annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). You may read and copy any reports, statements or other
information that Morton or New Morton files at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Morton's and New Morton's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http://www.sec.gov."
New Morton has filed with the SEC a Registration Statement on Form 10 (as
amended, the "New Morton Registration Statement") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), relating to the shares of New
Morton Common Stock to be issued in the Spinoff. This Information Statement,
which forms a part of the New Morton Registration Statement, does not contain
all of the information in the New Morton Registration Statement and the related
exhibits and schedules. Statements in this Information Statement as to the
contents of any contract, agreement or other document are summaries only and are
not necessarily complete. For complete information as to these matters, refer to
the applicable exhibit or schedule to the New Morton Registration Statement. The
New Morton Registration Statement and the related exhibits filed by New Morton
may be inspected at the public reference facilities of the SEC listed above.
The principal office of New Morton is located at 100 North Riverside Plaza,
Chicago, Illinois 60606 (telephone: (312) 807-2000).
Questions concerning Morton, New Morton, the Spinoff or the Combination
should be directed to Shareholder Communications Corporation, 17 State Street,
New York, New York 10004 (telephone: (800) 511-2024).
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
13
<PAGE>
INTRODUCTION
This Information Statement is being furnished to shareholders of Morton in
connection with the contemplated PRO RATA distribution of shares of New Morton
Common Stock to holders of Morton Common Stock in the Spinoff. Morton
shareholders will receive one share of New Morton Common Stock, together with an
associated preferred stock purchase right (a "Right"), with respect to each
share of Morton Common Stock held by such shareholder on the record date for the
Spinoff (the "Distribution Record Date") (references hereinafter to New Morton
Common Stock shall be deemed to include a reference to the associated Rights).
In the Spinoff, 100% of the outstanding shares of New Morton Common Stock will
be distributed to Morton shareholders on a share-for-share basis. At the time of
the Spinoff, New Morton will hold all of Morton's businesses, assets and
liabilities, other than the ASP Business and the assets and liabilities relating
exclusively to the ASP Business, and will be subject to $750 million of debt
used to finance a capital contribution to New Morton. The Spinoff is being
effected by Morton in connection with the Combination. The Spinoff and the
Combination are conditioned upon, among other things, Morton shareholder
approval and the tender of more than 90% of the outstanding shares of Autoliv
common stock pursuant to the Exchange Offer. In the Combination (which will
occur promptly following the Spinoff), (a) Morton ASP will merge with a newly
formed subsidiary of New Autoliv and (b) New Autoliv will acquire over 90% of
the outstanding Autoliv shares in the Exchange Offer. If over 90% of the
outstanding Autoliv shares are acquired by New Autoliv in the Exchange Offer or
otherwise, New Autoliv will acquire any remaining Autoliv shares in a compulsory
acquisition proceeding under Swedish law. After the Merger, Morton will be
renamed "Autoliv ASP, Inc." and New Morton will assume the name "Morton
International, Inc." The Spinoff, the Merger and the Exchange Offer are
collectively referred to in this Information Statement as the "Transactions."
Morton shareholders will pay no cash or other consideration for the shares
of New Morton Common Stock that they will receive in the Spinoff. There is
currently no public trading market for the shares of New Morton Common Stock.
New Morton intends to list the New Morton Common Stock on the New York Stock
Exchange, Inc. (the "NYSE") and on the Chicago Stock Exchange, Inc. (the "CSE"),
where it will be traded under the symbol "MII."
The Transactions have been approved by the Morton Board and are being
submitted for Morton shareholder approval. The Transactions may be abandoned by
the Morton Board at any time prior to the date of their effectiveness in the
event of the termination of the Combination Agreement among Autoliv, New
Autoliv, Morton and ASP Merger Sub Inc., a wholly owned subsidiary of New
Autoliv ("ASP Merger Sub"), dated as of November 25, 1996 (as it may be amended,
supplemented or otherwise modified from time to time, the "Combination
Agreement"), which is attached as Appendix A to the Proxy Statement/
Prospectus/Exchange Offer, and is filed as an exhibit to the New Morton
Registration Statement of which this Information Statement is a part.
The Transactions are conditioned upon, among other things, the continued
effectiveness of the private letter ruling received by Morton (the "Private
Letter Ruling") from the U.S. Internal Revenue Service ("IRS") principally to
the effect that the formation of New Morton and the receipt of New Morton Common
Stock in the Spinoff generally will be tax free to holders of Morton Common
Stock and to Morton for U.S. federal income tax purposes. The Transactions are
also conditioned upon the receipt of an opinion from Wachtell, Lipton, Rosen &
Katz, special outside legal counsel to Morton, principally to the effect that
the receipt of New Autoliv Common Stock in the Merger will be tax free to
Morton's shareholders for U.S. federal income tax purposes, and an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP, special outside legal counsel to
Autoliv, relating to certain tax consequences of the Exchange Offer (each, a
"Tax Opinion" and, collectively, the "Tax Opinions"). See "The Spinoff --Certain
Federal Income Tax Considerations."
14
<PAGE>
The terms below are used throughout this Information Statement with the
following meanings:
<TABLE>
<S> <C>
Specialty Chemicals Business................. New Morton's assets and business consisting
of the specialty chemicals business conducted
by the Adhesives & Chemical Specialities,
Coatings and Electronic Materials groups.
Salt Business................................ New Morton's assets and business consisting
of the manufacture, distribution, and sale of
salt for highway/ice control, human and
animal consumption, water conditioning and
food/chemical processing purposes.
New Morton Businesses........................ The Specialty Chemicals Business, the Salt
Business, and Morton's corporate operations
to be transferred to New Morton.
ASP Business................................. Morton ASP's assets and business consisting
of automotive safety products, which is being
combined with Autoliv pursuant to the
Combination Agreement.
</TABLE>
15
<PAGE>
RISK FACTORS
SHAREHOLDERS SHOULD CAREFULLY REVIEW THE FOLLOWING RISK FACTORS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED HEREIN, IN EVALUATING NEW MORTON AND THE
NEW MORTON BUSINESSES.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY; NO ACCESS TO MORTON ASP'S CASH
FLOW
New Morton was formed on March 11, 1997 for the purpose of effecting the
Spinoff and thereby facilitating the Combination. New Morton, in the form in
which it will exist after the Spinoff, does not have an independent operating
history as a stand-alone public company. In recent years, the ASP Business has
generated funds from operations which were used in part in the New Morton
Businesses and for general corporate purposes such as dividends and share
repurchases. Following the Spinoff, New Morton will not have access to the
future cash flow of the ASP Business, although it will have the $750 million
capital contribution together with a portion of the cash generated by the ASP
Business from July 1, 1996 to the date of the Spinoff.
NO PRIOR MARKET FOR NEW MORTON COMMON STOCK
There has been no prior trading market for the New Morton Common Stock and
there can be no assurance as to the prices at which the New Morton Common Stock
will trade after the Spinoff is effected. Until the New Morton Common Stock is
fully distributed and an orderly market develops, the prices at which the New
Morton Common Stock trades may fluctuate significantly. Prices for the New
Morton Common Stock will be determined in the trading markets and may be
influenced by many factors, including the depth and liquidity of the market for
New Morton Common Stock, the operating performance of New Morton, investor
perceptions of New Morton and the prospects for its businesses, New Morton's
reported financial results, New Morton's dividend policy, and general economic
and market conditions. Applications have been or will be made to list the shares
of New Morton Common Stock on the NYSE and the CSE. There can be no assurance as
to the trading prices or volatility of any such shares that may be experienced
on these exchanges. See "The Spinoff--Listing and Trading of New Morton Common
Stock." The sum of the trading prices of the shares of New Autoliv Common Stock
and New Morton Common Stock held by former Morton shareholders after the
Transactions may be less than, equal to or greater than the trading price of the
shares of Morton Common Stock held by such shareholders prior to the Spinoff.
DIVIDEND POLICY
It is currently anticipated that, following the Spinoff, New Morton will
initially pay quarterly cash dividends at the annual rate of $.48 per share of
New Morton Common Stock. However, the actual amount of such dividends, if any,
may vary, and will depend on New Morton's operating results, financial
requirements and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity and Capital
Resources."
CERTAIN ANTI-TAKEOVER EFFECTS
The Articles of Incorporation of New Morton to be in effect immediately
prior to the Spinoff (the "New Morton Articles"), the bylaws of New Morton to be
in effect immediately prior to the Spinoff (the "New Morton Bylaws"), the
shareholder rights plan expected to be entered into between New Morton and First
Chicago Trust Company of New York ("First Chicago Trust"), as rights agent,
prior to the Spinoff (the "New Morton Rights Agreement"), and the Indiana
Business Corporation Law ("IBCL") contain several provisions that could have the
effect of delaying, deferring or preventing a change of control of New Morton in
a transaction not approved by the Board of Directors of New Morton (the "New
Morton Board"). Morton is an Indiana corporation and the New Morton Articles,
the New Morton Bylaws and the New Morton Rights Agreement are substantially
similar to the existing provisions of the Articles of
16
<PAGE>
Incorporation and Bylaws of Morton and the Rights Agreement, dated as of January
26, 1989, as amended, between Morton and First Chicago Trust, as rights agent
(the "Morton Rights Agreement"). In addition, the Morton Board has adopted, or
Morton has entered into, certain other programs, plans and agreements with its
management and/or employees that will become the obligations of New Morton
following the Spinoff, and which may make a change of control of New Morton more
expensive. Such arrangements are substantially similar to Morton's existing
arrangements. See "--Certain Federal Income Tax Considerations" and
"Anti-Takeover Effects of Certain Provisions." In addition, the potential
corporate tax liability which may arise from an acquisition of New Morton for a
period of time following the Spinoff could have an anti-takeover effect with
respect to any potential acquisition of control of New Morton.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Consummation of the Transactions is conditioned upon, among other things,
the continued effectiveness of the Private Letter Ruling. The Private Letter
Ruling provides, among other things, that the formation of New Morton and the
Spinoff will be tax free under Sections 368(a)(1)(D) and 355 of the Internal
Revenue Code of 1986, as amended (the "Code"). Such rulings, while generally
binding upon the IRS, are subject to certain factual representations and
assumptions, including a representation that the Merger will qualify as a
tax-free reorganization under Section 368(a)(1)(B) of the Code. Morton and New
Morton are not aware of any present facts or circumstances which would cause
such representations and assumptions to be untrue. In addition, in February
1997, the U.S. President proposed to Congress certain changes in the Code,
which, if effected, would cause the Transactions to be taxable to Morton. The
President's proposal would amend the relevant provisions effective on the first
day of Congressional committee action; in its current form, the proposed
legislation contains no "binding contract" or other grandfathering provision
that would permit the Transactions, if not consummated before the date of
Congressional committee action, to be treated as non-taxable to Morton for
federal income tax purposes. Congressional action with respect to the U.S.
President's proposals could delay or prevent the consummation of the
Transactions.
Consummation of the Transactions is also conditioned on Morton's receipt of
the Tax Opinion that the Merger will qualify as a tax-free reorganization under
Section 368(a)(1)(B) of the Code and Autoliv's receipt of the Tax Opinion that
the Exchange Offer (in conjunction with the acquisition of the Morton Common
Stock in the Merger) will be a tax-free transfer of property for U.S. federal
income tax purposes. An opinion of counsel is not binding on the IRS or the
courts. See "The Spinoff--Certain Federal Income Tax Considerations."
New Autoliv has agreed in the Combination Agreement, and New Morton will
agree in the Distribution Agreement, to be entered into between Morton and New
Morton (the "Distribution Agreement"), to certain covenants restricting their
respective future actions for a period of one year following the Transactions to
provide further assurances that the Combination and the Spinoff will be tax free
for U.S. federal income tax purposes.
SEASONALITY; BACKLOG
Sales of highway ice control salt are quite seasonal, and vary with winter
weather conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled by both the salt segment and its
customers in sufficient quantities to meet estimated requirements for the next
season. To the extent that winter weather does not require consumption of
inventories, the Salt Business could experience a downturn.
Sales of products by the Specialty Chemicals Business do not exhibit
significant seasonal fluctuations. As of the date of this Information Statement,
there are no material backlogs in any of the New Morton Businesses.
17
<PAGE>
COMPETITION
Most of the business of the Specialty Chemicals Business is highly
competitive. The Speciality Chemicals Business is a market leader in most of its
product lines and is subject to significant competition from other manufacturers
worldwide. Principal methods of competition include technical service for
specialized customer requirements, price and quality.
All areas in which the Salt Business operates are highly competitive.
Although the Salt Business is a major factor in the salt industry, its market
share varies widely, depending on the geographic area and the type of product
involved. The Salt Business uses price, quality, service, product performance,
and technical, advertising and promotional support as its principal methods of
competition.
RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES
The foreign operations of the New Morton Businesses are subject to the usual
risks inherent in operating abroad, including, but not limited to, risks with
respect to currency exchange rates, economic and political destabilization,
other disruption of markets, restrictive laws and actions by foreign governments
(such as restrictions on transfer of funds, export duties and quotas, foreign
customs and tariffs and unexpected changes in regulatory environments),
difficulty in obtaining distribution and support, nationalization, the laws and
policies of the United States, the European Union and the World Trade
Organization affecting trade, foreign investment and loans, and foreign tax
laws. There can be no assurance that these factors will not have a material
adverse impact on New Morton's ability to increase or maintain its foreign sales
or on its results of operations. For the fiscal year ended June 30, 1996,
approximately 33% of the New Morton Businesses' revenue was derived from sales
outside the United States. See "Summary Selected Historical Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Morton has recently acquired a two-thirds interest
(and has agreed to acquire the remaining one-third interest) in a European-based
salt business and entered into an agreement to acquire a European-based
specialty chemicals business, which acquisition will increase the portion of the
New Morton Businesses' sales outside of the United States. See "Business and
Properties--Recent Developments."
ENVIRONMENTAL AND OTHER POTENTIAL LIABILITIES
Like others in similar businesses, Morton is, and New Morton will be,
subject to extensive federal, state and local environmental laws and
regulations. Although New Morton's environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent regulation could require New Morton to
make additional unforeseen expenditures relating to environmental matters.
Although the level of future expenditures for such matters cannot be determined
with any degree of certainty, based on the facts presently known to it, Morton
management does not believe that such costs will have a material effect on New
Morton's financial position, results of operations, or liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters" and "Business and Properties--Government
Regulations; Environmental Matters."
In addition to those of an environmental nature, there are also judicial and
administrative claims pending or contemplated against Morton relating to the New
Morton Businesses which will become potential liabilities of New Morton
following the Spinoff, and against which New Morton will indemnify Morton ASP.
Morton management believes that the resolution of those claims should not have a
material effect upon New Morton's financial position, results of operations or
liquidity. Various governmental agencies have authority to limit or prohibit
distribution of some of New Morton's products should they finally conclude that
continued distribution is unsafe to the population or the environment. There are
currently no challenges pending, the resolution of which is expected to have a
material effect upon New Morton's operations.
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THE SPINOFF
BACKGROUND AND REASONS FOR THE SPINOFF
Morton was spun off from its former parent, Morton Thiokol, Inc., in 1989,
at a time when the ASP Business represented less than 4% of Morton's combined
sales. Since that time, the ASP Business has developed financial, investment and
operating characteristics different from those of Morton's specialty chemicals
and salt businesses. The automotive safety industry is characterized by
automobile manufacturers demanding that their key suppliers increase their size,
presence, cost efficiency, and research, development and engineering activities.
In addition, car manufacturers are seeking "Tier I suppliers" that can provide
integrated systems and subsystems directly to the manufacturer. In the case of
automotive safety systems suppliers, these systems and subsystems are comprised
of seat belts and airbags, among other products, with airbags often
pre-installed in steering wheels. Due to the combined effects of these and other
factors, the Morton Board and Morton's management determined to investigate
alternatives for the ASP Business, including a spinoff of the ASP Business as a
stand-alone entity and a strategic combination with another industry
participant. After reviewing these alternatives, and considering the benefits of
combining the ASP Business with Autoliv to create a leading automotive safety
systems supplier with a strong presence in all major regions of the world, the
Morton Board concluded that the Spinoff and the Combination offered greater
potential for increasing Morton shareholder value.
The Morton Board also considered the benefits to New Morton from the
Spinoff, including enhancing New Morton management's ability to focus on, and to
develop from within, the Specialty Chemicals Business and Salt Business, and
thereby assisting New Morton in expanding its business and product lines through
an active acquisition program, making planned capital expenditures and
continuing its ongoing share acquisition program. In addition, Goldman, Sachs &
Co. ("Goldman Sachs") has given its opinion to the Morton Board that, as of the
date of the Combination Agreement, the consideration to be received by Morton
shareholders in the Spinoff and the Merger, taken as a whole, is fair to Morton
shareholders. See "Opinions of Financial Advisors--Opinion of Goldman Sachs" in
the Proxy Statement/Prospectus/ Exchange Offer and the full text of the opinion
of Goldman Sachs included as Appendix C to the Proxy
Statement/Prospectus/Exchange Offer. Morton and Autoliv have structured the
Transactions as the Spinoff followed by the Combination in order to achieve the
strategic benefits of the Combination in a tax-free manner. Neither Autoliv nor
Morton was interested in a transaction that would combine Autoliv with all of
Morton's businesses.
The Transactions will afford holders of Morton Common Stock the opportunity
to continue their investment in either (or both) the automotive safety products
company and the New Morton specialty chemicals and salt company.
MANNER OF EFFECTING THE SPINOFF
The Spinoff is expected to occur shortly prior to the effective time of the
Merger. (The date on which the Spinoff occurs is referred to as the
"Distribution Date.") Promptly following the Spinoff, the New Morton Common
Stock will be delivered to First Chicago Trust (the "Distribution Agent"). As
soon as practicable thereafter, the Distribution Agent will begin mailing
account statements reflecting ownership of shares of New Morton Common Stock to
holders of Morton Common Stock as of the close of business on the Distribution
Record Date on the basis of one share of New Morton Common Stock for every share
of Morton Common Stock held on the Distribution Record Date. New Morton shares
will be recorded in book-entry form rather than distributed in certificate form.
However, if at any time following the Spinoff shareholders wish to receive
certificates representing all or a portion of such shares, they may do so by
requesting such certificate from the Distribution Agent by calling the
Distribution Agent toll-free at 1-800-446-2617. A certificate will be mailed
within 48 hours of the Distribution Agent's receipt of such a request. All
shares of New Morton Common Stock to be issued in connection with the Spinoff
will be fully paid, non-assessable and free of preemptive rights. New Morton is
expected to enter into the New Morton
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Rights Agreement, pursuant to which the New Morton Board will declare a
distribution of one Right for each outstanding share of New Morton Common Stock,
which Rights will initially be evidenced by the outstanding New Morton Common
Stock distributed pursuant to the Spinoff. Each Right, among other things, could
allow shareholders to purchase additional shares of New Morton Common Stock upon
the occurrence of certain takeover related events. See "Description of New
Morton Capital Stock--New Morton Rights."
NO HOLDER OF MORTON COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF NEW MORTON COMMON STOCK TO BE RECEIVED IN THE
SPINOFF OR TO SURRENDER OR EXCHANGE SHARES OF MORTON COMMON STOCK (OTHER THAN IN
CONNECTION WITH THE MERGER AS DESCRIBED IN THE PROXY STATEMENT/
PROSPECTUS/EXCHANGE OFFER).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
To read a description of the material U.S. federal income tax consequences
of the Transactions to Morton and Morton's shareholders, please refer to
"Certain Tax Consequences of the Transactions" in the Proxy
Statement/Prospectus/Exchange Offer. In addition to describing U.S. federal
income tax consequences of the Transactions, that section of the Proxy
Statement/Prospectus/Exchange Offer also describes certain U.S. legislative
initiatives which could have an effect on the Transactions.
ACCOUNTING TREATMENT OF THE TRANSACTIONS
The Merger will be accounted for as a purchase for financial accounting
purposes in accordance with U.S. generally accepted accounting principles, with
Autoliv treated as the acquiror of the ASP Business. For New Morton's financial
accounting purposes, the Spinoff will be accounted for as if the ASP Business
were being spun off from Morton and discontinued.
RELATIONSHIPS AFTER THE SPINOFF
Historically, the ASP Business and the New Morton Businesses have been
operated substantially as separate divisions, except for matters relating to
corporate overhead and to certain financial and legal services, including patent
and trademark, corporate secretarial, insurance, and treasury services.
The Distribution Agreement provides that, for up to 12 months following the
Spinoff, New Morton will make certain employee benefits, tax preparation,
intellectual property and other services available to Morton ASP, and that
Morton ASP will pay for such services at a formula rate that will include the
direct and indirect costs of providing such services plus a 5% surcharge. The
Distribution Agreement also provides that Morton ASP and New Morton will have
access to certain records and information in the possession of the other
following the Spinoff. Following the Spinoff, New Morton will lease a portion of
the shared Rochester Hills, Michigan technical center (which will remain with
the ASP Business) under a two-year renewable lease. See "Agreements Among
Morton, Autoliv and New Morton."
LISTING AND TRADING OF NEW MORTON COMMON STOCK
The New Morton Common Stock is expected to be listed on the NYSE and the CSE
under the symbol "MII." There is currently no public trading market for New
Morton Common Stock. Prices at which New Morton Common Stock may trade prior to
or following the Spinoff cannot be predicted. See "Risk Factors--No Prior Market
for New Morton Common Stock," "--Dividend Policy" and "--Certain Anti-Takeover
Effects."
New Morton expects to have approximately 10,700 shareholders of record as of
the Distribution Record Date. The transfer agent and registrar for the New
Morton Common Stock will be First Chicago Trust. As of December 31, 1996,
approximately 5.8 million options to acquire shares of Morton Common
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Stock, which will be converted into options to acquire shares of New Morton
Common Stock in connection with the Spinoff, were held by current or former
employees of Morton.
Shares of New Morton Common Stock distributed to Morton shareholders in the
Spinoff will be freely transferable, except for shares received by persons who
may be deemed to be "affiliates" of New Morton under the Securities Act of 1933,
as amended (the "Securities Act"). Persons who may be deemed to be affiliates of
New Morton generally include individuals or entities that control, are
controlled by, or are under common control with, New Morton, and may include
certain officers and directors of New Morton as well as principal shareholders
of New Morton, if any. Persons who are affiliates of New Morton may sell their
shares of New Morton Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemptions afforded by Section
4(2) of the Securities Act and Rule 144 thereunder.
DIVIDEND POLICY AND SHARE REPURCHASES
The payment and amount of cash dividends, if any, by New Morton after the
Spinoff will be at the discretion of the New Morton Board, taking into
consideration the earnings, cash flow and financial requirements of New Morton.
It is currently anticipated that, following the Spinoff, New Morton will
initially pay quarterly cash dividends at the annual rate of $.48 per share. See
"Risk Factors--Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
In the Spinoff, Morton will contribute the Capital Contribution to New
Morton. New Morton may use some or all of this cash to repurchase New Morton
Common Stock, make strategic acquisitions, expand existing businesses or product
lines, or for other corporate purposes. See "Business and Properties-- Recent
Developments." There can be no assurances, however, as to the timing or amount
of any future uses of such cash.
REGULATORY MATTERS
Other than as described in the Proxy Statement/Prospectus/Exchange Offer, no
material U.S. federal or state or non-U.S. regulatory approvals are required in
connection with the Spinoff which have not been obtained. For a discussion of
U.S. and European regulatory approvals with respect to the Transactions, please
refer to "Regulatory Matters" in the Proxy Statement/Prospectus/Exchange Offer.
The Combination Agreement requires Morton and Autoliv to use reasonable
efforts promptly to make any filings, enter into negotiations, sell or dispose
of assets or businesses, or take other actions necessary to obtain required
governmental approvals, except that neither Morton nor Autoliv or any of their
affiliates will be required to take any action that would be, or is reasonably
likely to be, materially adverse to the business, properties, financial
condition or results of operations of the business to be retained by Morton or
Autoliv, as the case may be, after taking into account the transactions contem-
plated by the Combination Agreement, the Distribution Agreement and the Related
Agreements (as defined below).
In addition, the Distribution Agreement provides that the parties to the
Distribution Agreement will cooperate to obtain all necessary consents and
approvals, and to make all necessary filings and applications which may be
required for the consummation of the transactions contemplated by the
Distribution Agreement, including, without limitation, all applicable regulatory
filings or consents under federal or state environmental laws.
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AGREEMENTS AMONG MORTON, AUTOLIV AND NEW MORTON
For the purpose of effecting the Spinoff and governing certain of the
relationships among Morton ASP, New Autoliv and New Morton after the Spinoff,
Morton, Autoliv, New Autoliv, New Morton and ASP Merger Sub have entered into or
will enter into the various agreements described in the Proxy
Statement/Prospectus/Exchange Offer. These agreements include the Distribution
Agreement, the Benefits Agreement (as defined below) and the Tax Sharing
Agreement (as defined below). For a discussion of these agreements, see
"Pre-Merger Transactions" in the Proxy Statement/Prospectus/Exchange Offer. The
agreements summarized therein have been filed as exhibits to the New Morton
Registration Statement. The descriptions contained in the Proxy
Statement/Prospectus/Exchange Offer do not purport to be complete and are
qualified in their entirety by reference to such agreements.
The Distribution Agreement, in addition to determining the manner of
effecting the Spinoff, also governs the Capital Contribution and other matters
relating to the assumption of liabilities, indemnity, non-competition, the use
of the Morton name, and transitional arrangements.
The Employee Benefits Allocation Agreement to be entered into between Morton
and New Morton prior to the Spinoff (the "Benefits Agreement") provides that,
effective as of the Spinoff, New Morton (or a subsidiary) will assume or retain
all liabilities of Morton under employee benefit plans, policies, arrangements,
contracts and agreements, including under collective bargaining agreements, with
respect to employees who on or after the Spinoff will be employees of New
Morton, including employees of Morton's corporate operations ("New Morton
Employees") and with respect to former employees of any business that is part of
New Morton and related discontinued operations. The Benefits Agreement also
provides that Morton ASP generally will retain all liabilities relating to
employees or former employees of the ASP Business and related discontinued
operations ("ASP Employees") under employee benefit plans, policies,
arrangements, contracts and agreements maintained by Morton prior to the
Spinoff.
Under the Tax Sharing Agreement to be entered into between Morton and New
Morton prior to the Spinoff (the "Tax Sharing Agreement," and, together with the
Benefits Agreement, the "Related Agreements"), for all taxable periods ending on
or before the Spinoff, the results of Morton's specialty chemicals and salt
operations will continue to be included in Morton's consolidated U.S. federal
income tax returns. The Tax Sharing Agreement provides for the allocation of
U.S. federal, state, local and non-U.S. tax liabilities arising in connection
with all taxable periods ending on or before the Distribution Date or ending
thereafter but including the Distribution Date. In general, the Tax Sharing
Agreement provides that New Morton will be liable for all such tax liabilities,
including liabilities resulting from the audit or other adjustment to previously
filed tax returns, which are attributable to the assets or businesses being
transferred to New Morton, and that Morton ASP will be responsible for taxes and
adjustments attributable to the ASP Business being retained by Morton ASP.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For financial reporting purposes, New Morton is a "successor registrant" to
Morton and, as such, all financial information of New Morton included in this
discussion and in the historical financial statements beginning on page F-2
represent the historical financial information of Morton. Therefore, references
to the "Company" in this discussion and in the related historical financial
statements are references to Morton, without giving effect to the Spinoff or the
Merger.
Morton operates in three business segments, the "Specialty Chemicals"
segment, comprised of the adhesives and chemical specialties, coatings, and
electronic materials businesses, the "Salt" segment, and the "ASP" segment,
consisting of the automotive safety products business (the ASP Business).
The following is a discussion of the Company's operating results comparing
the first six months of fiscal 1997 to the first six months of fiscal 1996;
operating results comparing fiscal years 1996 to 1995 and 1995 to 1994;
liquidity and capital resources; and the impact of inflation.
OVERVIEW
Morton manufactures and markets quality products to meet the needs of its
salt, specialty chemicals and airbag customers.
On November 25, 1996, the Company, New Autoliv, Autoliv and ASP Merger Sub
entered into the Combination Agreement, pursuant to which Morton, operating only
the ASP Business, will become a wholly owned subsidiary of New Autoliv (the
Merger) and New Autoliv will acquire at least 90% of the outstanding capital of
Autoliv pursuant to the Exchange Offer. The transaction is intended to be a
merger of equals in which, if the Exchange Offer is fully subscribed, the
Company's shareholders will exchange their interest in the ASP Business for
46.5% of New Autoliv, and Autoliv's shareholders will exchange their Autoliv
shares for 53.5% of the equity of New Autoliv.
Immediately prior to the business combination, the Company will contribute
all of its businesses other than the ASP Business to a new company, New Morton,
and will spin off New Morton to the Company's shareholders in a tax-free
distribution (the Spinoff). Each shareholder of Morton Common Stock will receive
one share of New Morton Common Stock for each share of Morton Common Stock owned
prior to the Spinoff. In addition, in conjunction with the Spinoff, the Company
will make the Capital Contribution.
The transactions described above are subject to, among other things,
approval by the Company's shareholders, acceptance by holders of at least 90% of
Autoliv's outstanding shares of the Exchange Offer, receipt by the Company of
the Private Letter Ruling and certain regulatory approvals. See "Risk Factors--
Certain Federal Income Tax Considerations" and "Regulatory Matters."
COMPARISON: FIRST SIX MONTHS OF FISCAL 1997 TO FIRST SIX MONTHS OF FISCAL 1996
For the six months ended December 31, 1996, sales were $1.8 billion, up 5%
over the same period in the prior year. Gross profit margins as a percentage of
net sales remained relatively flat from year-to-year at 29%. Selling,
administrative and general expenses were approximately the same percentage of
net sales for the six months ended December 31, 1996 and 1995. Net income for
the first six months of fiscal 1997 was $166.8 million, the same as fiscal 1996.
However, fiscal 1996 earnings included $24.1 million of unusual, non-operating,
pretax income ($15.1 million or $.10 per share after tax) relating to
environmental insurance settlements going back more than a decade. Excluding the
impact of the environmental insurance settlements from fiscal 1996, net income
and earnings per share grew 10% and 14%, respectively. A lower effective tax
rate and fewer common shares outstanding contributed $.04 to per share earnings
in the first half of fiscal year 1997. The decrease in the common shares
outstanding is due to the share repurchase program begun in fiscal 1996.
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The Specialty Chemicals segment saw strong profit growth despite flat sales
growth. Airbag sales exceeded expectations in the first six months of fiscal
1997 as side-impact airbags and additional business captured by Morton offset
sizable price declines. Airbag profits, however, were below fiscal 1996 as
higher freight and manufacturing costs to meet the additional demand reduced
operating margins. The Salt segment's results improved, despite tough
comparisons with the prior year for the ice control business, due to excellent
results for non-ice control products. Early season snowfall resulted in strong
ice control sales in the second quarter of fiscal 1996.
SPECIALTY CHEMICALS
Specialty Chemical segment sales for the first six months of fiscal 1997
were $799.8 million, up 2%, and operating profits were $123.0 million, up 16%,
over the same period in fiscal 1996. The growth in sales year-over-year was
largely attributable to plastics additives, industrial coatings, automotive
coatings (after adjusting for the transfer of sales to a joint venture set up
last year), powder coatings, thermoplastic polyurethanes, and waterbased
polymers. Performance chemicals, plastics additives, industrial coatings,
automotive coatings, and powder coatings accounted for 52% of year-to-date
earnings and approximately 74% of the increase from the same period in fiscal
1996. Partially offsetting these sales and earnings increases were unfavorable
comparisons with the prior year in the extrudable specialties portion of
packaging adhesives and electronic materials. Sales and earnings were down year
over year in extrudable specialties due to the discontinuance of a product line.
Earnings grew faster than sales for the six months ended December 31, 1996,
as earnings reflected the impact of higher volumes and lower raw material prices
on operating margins. Earnings for the first six months of fiscal 1997 also
included a $2.4 million gain on the sale of the Lytron product line.
Year-to-date chemical sales and earnings were negatively impacted by the effects
of foreign exchange translation of $7.8 million and $.9 million, respectively.
SALT
The Salt segment sales for the first six months of fiscal 1997 were $287.4
million, an increase of 3%, and operating earnings were $63.1 million, a 10%
increase over the six months ended December 31, 1995. Earnings increased faster
than sales as a result of higher production levels to prepare for the fiscal
1997 ice control season and continued tight control of costs.
The year-over-year sales increase for the Salt Business was attributable to
excellent performances from all non-ice control salt product lines, and was
primarily generated by shipments to the U.S. food processing and chemical
industries. Partially offsetting these favorable results were lower ice control
sales, down 5% from the same period in fiscal 1996. While the Salt Business
benefited from customers replenishing depleted ice control salt inventories
after the record-breaking winter in fiscal 1996, the mild weather in December
1996 meant ice control salt sales for the second quarter of fiscal 1997 were 7%
below the prior year's strong second quarter ice control salt sales.
AUTOMOTIVE SAFETY PRODUCTS
ASP segment sales for the six months ended December 31, 1996 were $732.0
million, an 11% improvement over the same period in the prior year. The sales
increase for the first six months of fiscal 1997 was primarily generated by
growth in all product lines of the inflator business, and reflected healthy car
production levels, new product launches and business which developed as a result
of problems competitors had meeting initial customer requirements.
Unit volume continued to increase during the six months ended December 31,
1996, up 34%. The increase was primarily generated by Asian customers purchasing
significantly greater numbers of driver-side and passenger-side inflators.
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For the first six months of fiscal 1997, pre-tax earnings decreased 3% from
the same period in fiscal 1996 to $118.2 million. Average selling prices were
significantly lower than the first six months of fiscal 1996, down 14%. However,
successful implementation of manufacturing process improvements coupled with
vertical integration efforts have permitted the ASP segment to substantially
offset the impact of selling price reductions. Lower earnings resulted mainly
from higher freight and certain other costs, unfavorable performance of a
Japanese joint venture which was impacted by the weakening of the yen, and
losses from disposal of certain fixed assets.
CORPORATE
Morton's corporate administrative and other costs were below last year's
first six months; however, because of the income from the environmental
insurance settlements received in the second quarter of fiscal 1996, overall
corporate expense comparisons were negative. Excluding the impact of the
environmental insurance settlements from the prior year's results, corporate
expenses were 14% below the first six months of fiscal 1996. Lower corporate
administrative costs, net interest expense and environmental expenses were the
main reasons for the lower corporate and other costs. Net interest expense
decreased from $9.9 million in the first six months of fiscal 1996 to $8.8
million for the same period in fiscal 1997 primarily due to the higher level of
cash balances outstanding during most of the current period.
The cumulative shares repurchased by the Company in fiscal 1996 and in the
first half of fiscal 1997 were 7.3 million (out of a 10 million share
authorization) at an average share price of $36.34.
RECENT DEVELOPMENTS
In December 1996, Morton signed a definitive agreement to acquire all of the
stock of Salins du Midi, and in March 1997 completed the initial acquisition
with respect to two-thirds of the stock for $180 million. Morton expects to make
a public cash tender offer in France for the remaining shares. The acquisition
has a total value of approximately $275 million. Salins du Midi is the leading
independent salt producer in Europe, with estimated 1996 sales of almost $270
million. Salins du Midi, based in Paris, supplies salt for food and agricultural
products, water treatment and ice/snow and industrial applications, and markets
its products under the "La Baleine" label. Salins du Midi produces solar, rock
and vacuum-processed salt at nine sites in France and at four sites in Spain.
In December 1996, Morton also announced plans to purchase Pulverlac, an
Italian powder coatings maker, for an undisclosed sum. Pulverlac is a leader in
the European powder coatings industry, with estimated 1996 sales of $75 million.
COMPARISON: FISCAL 1996 TO FISCAL 1995
The Company continued its trend of record sales and earnings in fiscal 1996.
Sales grew 9% during fiscal 1996 to $3.61 billion from $3.33 billion in fiscal
1995. Gross margin profitability eroded slightly during fiscal 1996 as rising
raw material costs, principally in the Specialty Chemicals segment, could not be
entirely offset by increased selling prices. In fiscal 1996, general and
administrative expenses as a percentage of sales were down slightly due to the
tight control of period costs. Earnings per share of $2.24, after special
charges, were up 14% from fiscal 1995 earnings per share of $1.96. Before the
special charges, fiscal 1996 earnings per share were $2.40, up 22% over fiscal
1995. Included in fiscal 1996 earnings were $24.1 million pretax income ($15.1
million after tax or $.10 per share) related to the settlement of several
environmental insurance issues and $11.2 million pretax income ($7.1 million
after tax or $.05 per share) related to proceeds received from the formation of
a joint venture, net of the impact on operations.
Fiscal 1996 included special charges of $29.2 million pretax ($23.9 million
after tax or $.16 per share) recorded in the fourth quarter. A portion of these
charges was for costs related to the closure of three chemical manufacturing
facilities as an initial phase of a broader facility consolidation and product
line
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rationalization program, and certain organizational changes. These actions, when
completed, are expected to result in annual savings to the Company of more than
$8.5 million. Also included in the special charges was the impact of the early
adoption of the new accounting standard related to the impairment of long-lived
assets.
SPECIALTY CHEMICALS
For the fiscal year ended June 30, 1996, sales of the chemical business rose
3% to $1.61 billion, and operating earnings were down 1% to $222.0 million from
$223.5 million in fiscal 1995.
Fiscal 1996 results included special charges of $27.1 million, as well as
the $15.0 million gain recorded in the third quarter for the formation of a
joint venture, Morton Nippon Coatings.
The special charges were made up of $11.3 million related primarily to the
announced closing of the Seabrook, New Hampshire, Stamford, Connecticut, and
Dixon, California, facilities; and $15.8 million related to the write-down of
certain assets of the defense-related chemical vapor deposition product line as
required by Financial Accounting Standards Board ("FASB") Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." As these three plants are closed over the next 12 to 18 months,
the production at these facilities will be moved to other Morton facilities,
resulting in better asset utilization and lower overall costs. Excluding these
special charges, operating earnings increased 11% for fiscal 1996.
The formation of the Morton Nippon Coatings joint venture, which produces
plastic substrate coatings for Japanese transplant car companies in the United
States, resulted in reduced sales for the fiscal 1996 fourth quarter and total
year by approximately $7.0 million and $14.5 million respectively, and reduced
earnings from operations in these same two periods by approximately $2.8 million
and $3.8 million, respectively.
The year-over-year sales increase for the Specialty Chemicals segment was a
combination of improved volume, pricing, and product mix. Offsetting this
improvement were higher raw material costs. Although many raw material costs
decreased in the fourth quarter of fiscal 1996, the chemical segment experienced
overall raw material cost increases during the year which had an unfavorable
impact of approximately $11.0 million. The effect on operating profits of the
raw material cost increases was mitigated by improved pricing and product mix,
the reengineering of manufacturing processes to improve efficiency, tight period
cost control, and higher volumes.
Those product lines which had strong year-over-year performances included
European industrial activities, performance chemicals, metalorganics, polymer
systems and electronic materials. These product lines combined contributed
$468.7 million or 29% of Specialty Chemicals segment sales in 1996. These same
product lines contributed 36% of the segment's operating profit. Compared with
fiscal 1995, sales of these product lines increased 10% and earnings increased
35%. Earnings growth outpaced sales growth due to favorable mix, lower operating
costs and tight control over period costs, leveraged against higher volumes.
Two product lines, plastics additives and dyes, ended fiscal 1996 with sales
and profits below their fiscal 1995 level. The combined sales of these lines in
fiscal 1996 were $158.5 million, 18% lower than fiscal 1995. Operating profits
for these businesses ended the current fiscal year 10% below fiscal 1995.
Tougher competitive pricing adversely affected the dyes business for the second
consecutive year, while adverse market conditions in the building industry hurt
plastics additives' performance. Continued control over operating costs
partially offset the negative impact of reduced sales on earnings.
The translation impact of changes in foreign currency rates had a minimal
favorable impact, less than 1%, on sales and earnings in fiscal 1996.
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SALT
Fiscal 1996 salt sales reached a record $603.3 million, up 13%. The Salt
segment's operating earnings, also a record, were up 6%, ending the year at
$124.7 million. While all product lines did well, ice control salt sales were up
32% over fiscal 1995 and were primarily responsible for the strong salt
performance for the year. Severe winter storms during the third quarter of
fiscal year 1996, particularly in the northeastern United States, increased the
demand for ice control salt in several key markets.
Sales of non-ice control salt increased 4% over fiscal 1995. The sales
increase was primarily due to improved results for water conditioning and solar
products. Pellet sales increased 6% mainly due to increased shipments to a major
customer. The increase in solar products was mainly due to volume growth of 7%.
Salt's earnings did not increase at the same rate as sales largely due to
the higher mix of the lower margin ice control business.
AUTOMOTIVE SAFETY PRODUCTS
As in the past several years, sales of driver- and passenger-side airbag
inflators and modules increased in fiscal 1996 as car companies around the world
continued to provide airbag protection as standard equipment in their cars and
trucks. For fiscal 1996, ASP Business sales were up 14% to $1.40 billion. Units
shipped increased 19% over fiscal 1995. Operating earnings increased 13% to
$255.6 million. Customers whose sales were up strongly in the year included
Toyota, Nissan, Ford, and Isuzu. The strong airbag performance was achieved
despite the negative impact on sales and earnings of General Motors' strike and
continued price reductions to our customers.
As in fiscal 1995, downward pricing pressure continued as overall average
selling prices decreased 5%, with the largest decrease in the passenger inflator
product line. To offset these market conditions, the business group has
continued to implement cost reduction initiatives and reengineer its
manufacturing processes to improve efficiency. These savings enabled this
business to continue to deliver attractive returns.
CORPORATE
In October 1995, the Morton Board authorized the repurchase of 10 million
shares of Morton Common Stock. As of June 30, 1996, Morton had repurchased a
total of 6.7 million shares. The weighted average cost per share for the shares
repurchased was approximately $36.
For the year June 30, 1996, total corporate costs decreased 35%. This
decrease was due primarily to the receipt of $24.1 million in the second quarter
of fiscal 1996 related to the settlement of several environmental insurance
issues (included in sundry income), as well as to tight control of
administrative costs and lower net interest expense due to higher levels of
invested funds. Included in corporate costs was a special charge of $2.1 million
to reflect the current estimated value of certain assets held for disposition.
The Company's effective tax rate increased in fiscal 1996 to 38.0% compared
with 37.5% in fiscal 1995. This increase results from the $15.8 million charge
related to the adoption of FASB Statement No. 121 described above, for which no
tax benefit was recorded, partially offset by the effect of a decrease in
foreign effective tax rates.
COMPARISON: FISCAL 1995 TO FISCAL 1994
Fiscal 1995 net income per share of $1.96 was 30% higher than fiscal 1994.
Net sales of $3.33 billion were up 17% from fiscal 1994 sales of $2.85 billion.
Gross margins decreased from 30.5 percent in fiscal 1994 to 29.4 percent in
fiscal 1995. This decrease was primarily due to raw material cost increases in
the Specialty Chemicals segment. Selling, administrative and general expenses
were down in fiscal year 1995 as
27
<PAGE>
fiscal 1994 included higher levels of accruals related to incentive payments as
well as accruals for tax obligations related to certain of the Company's stock
options caused by changes in income tax rates.
SPECIALTY CHEMICALS
Specialty Chemicals segment sales and profits grew in fiscal 1995 as both
the U.S. and European economies expanded. Sales reached $1.56 billion, an
increase of 14% over fiscal 1994 sales of $1.37 billion. Profits increased 15%
to $223.5 million from $193.6 million in fiscal 1994.
Sales and profits were also favorably affected by foreign currency
translation. Year-to-year exchange fluctuations increased sales by $42.5 million
and pretax profits by $6.2 million over fiscal 1994. Currencies primarily
responsible for the translation impact were the German deutsche mark and the
Dutch guilder.
Improved volumes accounted for approximately 73% of the year-over-year
increase in sales. Raw material cost increases compressed specialty chemicals'
operating results by approximately $14.0 million. The effect of these increases,
however, was offset by operating efficiencies in certain product lines, improved
pricing and sales mix, and higher volumes.
Product lines that showed double-digit sales growth over fiscal 1994 results
were adhesives, thermoplastic polyurethanes, performance chemicals, plastics
additives, automotive coatings, powder coatings and electronic materials. These
product lines accounted for approximately 73% of fiscal 1995 Specialty Chemicals
segment sales and approximately 89% of the year-to-year increase.
Profits for these product lines grew 27%, well above the sales growth of
18%. Product lines mainly contributing to the faster profit growth were
thermoplastic polyurethanes, performance chemicals, plastics additives,
automotive coatings, powder coatings and electronic materials. Although
adhesives experienced good sales growth, earnings were constrained by raw
material price increases.
Dyes and waterbased polymers showed an unfavorable year-to-year profit
comparison. Combined profits in fiscal 1995 were down $12.2 million. Dyes'
product line results were hurt by increased price competition; waterbased
polymers' results were hampered by raw material price increases, primarily for
styrene.
SALT
Sales and earnings were both adversely affected by the mild winter weather
experienced in fiscal 1995. This was partially offset by a carryover effect from
fiscal 1994's severe winter weather. The significant snowfall, which contributed
to fiscal 1994's record results, depleted customer inventories and led to strong
early season orders for ice control salt in fiscal 1995.
Salt segment sales fell by 1% to $534.9 million in fiscal 1995. Earnings
were down only 2% compared to fiscal 1994's record. Ice control sales for fiscal
1995 finished 8% below fiscal 1994's record results.
Continued growth in non-ice control product lines, particularly water
conditioning products with sales up over 7%, also helped to offset the
unfavorable impact of the mild winter weather. In addition, careful cost
controls helped Salt achieve operating margins at the same level as fiscal 1994.
AUTOMOTIVE SAFETY PRODUCTS
Sales of driver- and passenger-side airbag inflators and modules steadily
increased as automakers in the United States, Europe and Japan accelerated the
introduction of inflatable restraint systems into passenger cars, trucks and
vans. For the second year in a row, the Company increased its share of the
module market, which contributed to the improved sales results.
Morton's ASP Business fiscal 1995 sales were $1.23 billion, 31% over fiscal
1994. Profits increased 38% to $226.5 million.
28
<PAGE>
Included in fiscal 1995 profits was a $2.4 million pretax charge for the
elimination of 324 administrative and technical support positions. Before such
charge, profits increased 40% over fiscal 1994. Fiscal 1995 pretax profits were
also adversely affected by approximately $5.0 million related to the start-up of
the European airbag manufacturing operations.
Downward pricing pressure continued in fiscal 1995 as overall average
selling prices decreased 5%. Continued implementation of cost reductions and
operational efficiencies offset these pricing pressures and resulted in improved
operating margins of 19% (versus 18% in fiscal 1994).
CORPORATE
As a result of tight controls on administrative expense, lower net interest
costs and lower accruals related to certain employee stock options, total
corporate costs declined by 19% during fiscal 1995. Net interest cost was lower
in fiscal 1995 as all three business segments continued to generate cash.
Fiscal 1994 included an accrual related to certain employee stock options
that reduced total fiscal 1994 earnings per share by $.07. This was primarily
attributable to costs related to the impact of tax rate changes effective in
fiscal 1994.
The effective tax rate in fiscal 1995 was 37.5% versus 36.7% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During each of the three fiscal years in the period ended June 30, 1996,
operating activities were the principal source of funds for the Company,
providing $501.2 million, $358.0 million and $331.3 million, respectively.
Net income provided $334.2 million of funds in fiscal 1996 compared to
$294.1 million in 1995 and $226.5 million in 1994. Depreciation and amortization
of $175.5 million in 1996 was higher than 1995 and 1994 by $14.2 million and
$37.9 million, respectively, the increase due principally to the higher level of
capital spending at the airbag facilities in Utah and Europe in recent years. In
the fourth quarter of fiscal 1996, $29.2 million of special charges were
recorded which were described above.
Changes in operating assets and liabilities resulted in a $42.5 million use
of funds in fiscal 1996 compared to a use of funds of $97.6 million in 1995 and
$30.1 million in 1994.
The increase in operating assets net of liabilities in fiscal 1996 over 1995
was largely driven by higher receivables at Morton ASP due to increased sales
activity. Partially offsetting the higher receivables balance were reductions in
inventory levels by all three business segments and an increase in current
liabilities at Morton ASP.
Operating activities were the principal source of cash in the six-month
period ended December 31, 1996, providing $167.8 million, compared to the same
period in the prior year when operations provided $137.2 million. The increase
is largely attributable to the changes in operating assets and liabilities which
resulted in a $91.9 million use of funds this year compared to a $118.0 million
use of funds during the first six months of fiscal 1996. This decrease in the
use of funds is primarily attributable to improved working capital management,
principally related to accounts receivable and inventory. Net income provided
$166.8 million in the first six months of fiscal year 1997, unchanged from the
prior year. Depreciation and amortization was $3.4 million higher in the first
six months of fiscal 1997. This increase is primarily the result of the high
level of capital spending at the airbag facilities in Utah in recent years.
29
<PAGE>
INVESTING ACTIVITIES
Net investing activities for fiscal 1996 required $214.5 million of cash
compared with $263.9 million and $213.9 million in fiscal 1995 and 1994,
respectively. Investing activities in the first six months of fiscal 1997
required $182.2 million of cash compared with $99.1 million in the first six
months of fiscal 1996. Capital spending was the major component of investing
activities in all periods.
The reduction in capital spending from fiscal 1995 primarily reflects the
decline in capital expenditures at the airbag facilities in Utah, an overall
decrease in capital spending levels compared with fiscal 1995 and the timing of
expenditures. Capital spending in the first six months of 1997 was higher than
the same period in 1996, the increase attributable to the ramp-up for
side-impact inflators, as well as to other new technologies, at the airbag
facilities in Utah and Europe.
Expansion related to certain chemical products as well as to basic upkeep of
the salt and chemical facilities were also significant areas of capital
spending.
In fiscal 1996, 1995 and 1994, investing activities included $.6 million,
$12.7 million and $7.0 million, respectively, of cash invested in businesses
acquired. For the first six months of fiscal 1997, cash invested in businesses
acquired was $65.0 million (primarily related to the acquisition of a
controlling block of stock in Pulverlac) versus $.6 million in the same period
of fiscal 1996. Investing activities in fiscal 1996 also reflected $4.4 million
of proceeds from property and other asset disposals compared to $2.4 million in
fiscal 1995 and $16.4 million in fiscal 1994, which was largely from the sale of
the semiconductor photoresist business. In the first six months of fiscal 1997,
proceeds from property and other asset disposals generated $5.3 million of cash,
primarily related to the sale of the Lytron product line, compared with $1.5
million generated in the first six months of fiscal 1996.
FINANCING ACTIVITIES
Financing activities for fiscal 1996, 1995 and 1994 used funds of $307.8
million, $72.4 million, and $107.5 million, respectively. Financing activities
for the six months ended December 31, 1996, were a $12.4 million source of funds
compared to a $65.2 million use of funds in the six months ended December 31,
1996. Dividend payments for the three fiscal years were $76.3 million, $65.1
million and $54.9 million, respectively, and increased to $42.8 million in the
first six months of fiscal 1997 from $38.6 million in the same period in fiscal
1996. Increases in dividends primarily reflected the increase in dividends paid
per share, offset in fiscal 1997 and 1996 by the reduction in shares outstanding
due to the share repurchase program.
During fiscal 1996, the Company repurchased 6.7 million shares of Morton
Common Stock for $242.3 million under the share buyback program authorized by
the Morton Board in the second quarter of fiscal 1996. Through December 31,
1996, the Company had repurchased approximately 7.3 million shares of Morton
Common Stock; the shares repurchased in the first six months of fiscal 1997 were
purchased for approximately $21.6 million.
Short-term notes payable decreased $1.1 million, $10.4 million and $59.0
million in 1996, 1995 and 1994, respectively. This reflected the lower level of
short-term borrowing required as cash generated from operations increased. For
the six months ended December 31, 1996, short-term notes payable increased $71.6
million compared with a $21.7 million increase during the same period in fiscal
1996. This change reflects the higher level of incremental borrowing required in
fiscal 1997 as cash generated from operations increased but was not sufficient
to offset the higher level of capital spending and acquisitions.
OTHER
The Company's current ratio was 2.1 at December 31, 1996, the same as June
30, 1996 and 1995. Total debt as a percentage of total capitalization was 15.1%
at December 31, 1996, compared to 12.9% at June 30, 1996, and 13.2% at June 30,
1995.
30
<PAGE>
As of December 31, 1996, the Company had unexpended authorizations for fixed
asset and maintenance projects totaling $209.1 million. The authorizations
related primarily to the expansion of the airbag business, at a reduced level,
as well as a general facility expansion, product improvements and maintenance
Company-wide.
Estimated cash flow from operations and current financial resources,
including financing capacity, are expected to be adequate to fund the Company's
anticipated working capital requirements, fixed asset spending, dividend
payments, and share repurchase program in the foreseeable future. In addition,
pursuant to the Distribution Agreement, prior to the Spinoff, Morton will
contribute $750 million in cash to New Morton (less any amounts used to repay
intercompany indebtedness outstanding prior to the Spinoff), with Morton ASP
retaining the obligation under the related credit facility.
IMPACT OF INFLATION
Inflation generally has not had a significant impact upon the results of the
Company's operations in recent years due to the relatively low rate of inflation
as well as to efforts by the Company to reduce the effects of inflation on its
business. In periods of increasing prices, to the extent permitted by
competition, the Company has adjusted its selling prices to compensate for
increased costs.
An ongoing cost control program implemented throughout the Company has also
contributed to reducing the influence of inflationary costs. Further, a
continuing program of investment in new and more efficient facilities,
production processes, and productivity enhancements has made a significant
contribution in offsetting inflation.
The Company uses the LIFO method of accounting for its domestic inventories
of the Specialty Chemicals and Salt Segments. Under this method the cost of
products sold, as reported in the financial statements, approximates current
costs.
ENVIRONMENTAL MATTERS
For a detailed discussion, see "Environmental Matters" in the Morton
International, Inc. Notes to Consolidated Financial Statements (see "Index to
Financial Statements" on page F-1).
31
<PAGE>
BUSINESS SEGMENT INFORMATION
Summarized financial information by business segment for the three years
ended June 30, 1996 is set forth below.
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
<TABLE>
<CAPTION>
PROFIT AS A
PERCENT
OF AVERAGE
IDENTIFIABLE
SALES(1) PROFIT(2) ASSETS
OPERATIONS IN DIFFERENT BUSINESSES ------------------------------- ------------------------------- -----------
SALES AND PROFITS 1996 1995 1994 1996 1995 1994 1996
--------- --------- --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals(3).................... $ 1,611.7 $ 1,564.7 $ 1,369.6 $ 222.0 $ 223.5 $ 193.6 15.4%
Salt...................................... 603.3 534.9 541.5 124.7 117.4 119.3 32.9
Automotive Safety Products................ 1,397.5 1,226.3 938.5 255.6 226.5 164.0 34.6
--------- --------- --------- --------- --------- ---------
Business totals........................... 3,612.5 3,325.9 2,849.6 602.3 567.4 476.9 23.5
General Corporate expense--net(4)......... -- -- -- (63.1) (96.9) (119.3)
--------- --------- --------- --------- --------- ---------
Consolidated totals....................... $ 3,612.5 $ 3,325.9 $ 2,849.6 $ 539.2 $ 470.5 $ 357.6
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
OPERATIONS IN DIFFERENT BUSINESSES
SALES AND PROFITS 1995 1994
----- -----
<S> <C> <C>
Specialty Chemicals(3).................... 15.8% 14.7%
Salt...................................... 34.0 37.8
Automotive Safety Products................ 34.8 30.5
Business totals........................... 23.5 21.9
General Corporate expense--net(4).........
Consolidated totals.......................
</TABLE>
<TABLE>
<CAPTION>
YEAR-END CAPITAL DEPRECIATION AND
ASSETS, CAPITAL EXPENDITURES, IDENTIFIABLE ASSETS EXPENDITURES AMORTIZATION
DEPRECIATION AND ------------------------------- ------------------------------- --------------------
AMORTIZATION 1996 1995 1994 1996 1995 1994 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals....................... $ 1,427.8 $ 1,459.3 $ 1,370.2 $ 86.8 $ 83.0 $ 87.5 $ 66.8 $ 63.1
Salt...................................... 385.3 371.9 319.2 35.8 42.1 35.7 32.6 30.8
Automotive Safety Products................ 768.2 709.7 593.6 91.8 125.8 94.3 72.1 63.5
--------- --------- --------- --------- --------- --------- --------- ---------
Business totals........................... 2,581.3 2,540.9 2,283.0 214.4 250.9 217.5 171.5 157.4
General Corporate(5)...................... 190.2 215.1 179.6 2.0 1.3 2.4 4.0 3.9
--------- --------- --------- --------- --------- --------- --------- ---------
Consolidated totals....................... $ 2,771.5 $ 2,756.0 $ 2,462.6 $ 216.4 $ 252.2 $ 219.9 $ 175.5 $ 161.3
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
ASSETS, CAPITAL EXPENDITURES,
DEPRECIATION AND
AMORTIZATION 1994
---------
<S> <C>
Specialty Chemicals....................... $ 57.9
Salt...................................... 30.1
Automotive Safety Products................ 45.7
---------
Business totals........................... 133.7
General Corporate(5)...................... 3.9
---------
Consolidated totals....................... $ 137.6
---------
---------
</TABLE>
<TABLE>
<CAPTION>
YEAR-END
SALES(1) PROFIT(2) IDENTIFIABLE ASSETS
OPERATIONS IN DIFFERENT GEOGRAPHIC ------------------------------- ------------------------------- --------------------
AREAS 1996 1995 1994 1996 1995 1994 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States......................... $ 2,819.6 $ 2,645.7 $ 2,280.5 $ 502.9 $ 467.2 $ 384.3 $ 1,934.9 $ 1,909.9
Foreign Areas--
Canada and Bahamas.................. 194.1 185.3 197.6 41.0 35.1 45.9 161.5 153.4
Europe.............................. 567.8 465.0 341.2 54.8 61.7 43.7 462.3 452.3
Others.............................. 31.0 29.9 30.3 3.6 3.4 3.0 22.6 25.3
--------- --------- --------- --------- --------- --------- --------- ---------
$ 3,612.5 $ 3,325.9 $ 2,849.6 $ 602.3 $ 567.4 $ 476.9 $ 2,581.3 $ 2,540.9
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
OPERATIONS IN DIFFERENT GEOGRAPHIC
AREAS 1994
---------
<S> <C>
United States......................... $ 1,775.7
Foreign Areas--
Canada and Bahamas.................. 148.2
Europe.............................. 328.6
Others.............................. 30.5
---------
$ 2,283.0
---------
---------
</TABLE>
- ------------------------
(1) Export sales from the United States in fiscal 1996 were 17% of sales to
unaffiliated customers, primarily to Canada, Europe and Japan, while in
fiscal 1995 and 1994, such sales were 18% and 16%, respectively.
Intersegment and intergeographic area sales and transfers were
insignificant. No country within the European grouping contributed or
represented 10% or more of sales, profit or identifiable assets. During
fiscal 1996, 1995 and 1994, a customer of the ASP segment accounted for
approximately 12%, 13% and 10%, respectively, of total sales.
(2) Business segment profit is before income taxes, interest income, interest
expense and allocation of certain corporate administrative expenses, but
included foreign exchange gains (losses) of $.7 million, $.5 million and
$(2.9) million in 1996, 1995 and 1994, respectively.
(3) Fiscal 1996 profit included special charges of $27.1 million. Refer to
Special Charges footnote on page F-7. Fiscal 1996 profit also included $11.2
million related to proceeds received, net of the impact on operations, for
the formation of a joint venture.
(4) Fiscal 1996 included $24.1 million income related to the settlement of
several environmental insurance issues. Fiscal 1996 also included special
charges of $2.1 million. Refer to Special Charges footnote on page F-7.
(5) Corporate assets are principally cash and cash equivalents, deferred income
tax benefits, prepaid expenses and property, plant and equipment.
32
<PAGE>
BUSINESS AND PROPERTIES
EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS SECTION ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE
TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING, CHANGING MARKET CONDITIONS, AND THE OTHER RISKS DETAILED
THROUGHOUT THIS INFORMATION STATEMENT. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE PROJECTED. THESE FORWARD-LOOKING STATEMENTS REPRESENT NEW MORTON'S
JUDGMENT AS OF THE FILING DATE OF THE NEW MORTON REGISTRATION STATEMENT OF WHICH
THIS INFORMATION STATEMENT IS A PART. NEW MORTON DISCLAIMS, HOWEVER, ANY INTENT
OR OBLIGATION TO UPDATE SUCH STATEMENTS.
OVERVIEW
The New Morton Businesses operate in two business segments, Specialty
Chemicals and Salt, which manufacture and market a wide range of products for
industrial and consumer use in the United States and abroad. The New Morton
Businesses' international operations are subject to those risks inherent in
carrying on business outside of the United States. See "Risk Factors--Risks of
Doing Business Outside of the United States."
RECENT DEVELOPMENTS
In December 1996, Morton signed a definitive agreement to acquire all of the
stock of Salins du Midi, and in March 1997 completed the initial acquisition
with respect to two-thirds of the stock for $180 million. Morton expects to make
a public cash tender offer in France for the remaining shares. The acquisition
has a total value of approximately $275 million. Salins du Midi is the leading
independent salt producer in Europe, with estimated 1996 sales of almost $270
million. Salins du Midi, based in Paris, supplies salt for food and agricultural
products, water treatment and ice/snow and industrial applications, and markets
its products under the "La Baleine" label. Salins du Midi produces solar, rock
and vacuum-processed salt at nine sites in France and at four sites in Spain.
Morton management believes that the acquisition will offer opportunities for
synergies, including sharing common expertise in mining, solar salt and
evaporated salt production methods, as well as marketing and distribution.
In December 1996, Morton also announced plans to purchase Pulverlac, an
Italian powder coatings maker, for an undisclosed sum. Pulverlac is a leader in
the European powder coatings industry, with estimated 1996 sales of $75 million.
SPECIALTY CHEMICALS
The Specialty Chemicals Business manufactures a wide variety of high
technology and specialized chemical products for a multitude of customer
applications. It conducts chemical operations directly and through direct or
indirect subsidiaries and joint venture arrangements. Specialty chemical
products are marketed throughout the world directly to customers and indirectly
through distributors and agents. Although Western Europe and North America are
the major geographic markets served, activity in Southeast Asia is growing. In
fiscal 1996, the Specialty Chemicals Business, which had previously consisted of
four product groups, was reorganized into the three groups described below.
ADHESIVES & CHEMICAL SPECIALTIES
A major product line for this group is adhesives used for flexible
packaging, extrudable specialties and industrial applications. Laminating
adhesives are used primarily in food packaging to bond paper, film or foil.
Extrudable specialty products are used in the coextrusion process to manufacture
multi-layer plastic film, sheet and bottles. Industrial adhesives are used for
bonding rigid substrates, such as rubber to metal or panels used in
construction.
33
<PAGE>
In addition, this group manufactures liquid dyes to color petroleum products
for identification purposes and other dyes and coloring products used in
printing and writing inks; sodium borohydride, a reducing agent used principally
as a bleaching chemical in paper manufacturing; polysulfide polymers used in the
production of sealants, rubber products, coatings and solid rocket fuel; heat
stabilizers and lubricants used in rigid polyvinyl chloride ("PVC") applications
in the construction industry, principally for pipe and siding; industrial
biocides for the protection of plastic products; and metalorganics used in the
semiconductor industry.
Other major product lines manufactured by this group include thermoplastic
polyurethanes, waterbased polymers, and automotive adhesives. CVD Incorporated,
referred to as "Morton Advanced Materials," a subsidiary, employs the chemical
vapor deposition process to manufacture crystalline substrates for lenses used
in lasers and optical devices, as well as for silicon carbide for semiconductor
processing equipment, wear parts, reflective optics and computer hard drive
heads and disks.
COATINGS
This group manufactures and markets a wide range of automotive, commercial,
and industrial coatings products, including customized performance liquid
coatings, principally used on plastic components and parts in automotive
markets; protective and decorative powder coatings employed on metal substrates
in commercial and automotive markets; coil coatings, extrusion coatings and
other general industrial coatings for application to aluminum and steel
substrates; and conventional and durable highway marking coatings products and
application equipment.
ELECTRONIC MATERIALS
This group manufactures chemicals for the electronics market, principally
dry film photoresists sold to printed circuit board manufacturers and used to
create circuit patterns on copper-clad laminate by means of a photoimaging
process. Electronic Materials also makes both dry film and liquid photoimageable
solder masks to protect finished circuit boards, as well as a broad line of
ancillary process chemicals and equipment.
SALT
The Salt Business produces and sells salt, principally in the United States
and Canada, under the MORTON and WINDSOR trademarks, respectively, for human and
animal consumption, water conditioning and highway ice melting, as well as for
industrial and chemical uses. Sales are made through a direct sales force, as
well as through independent distributors, agents and brokers.
Table salt is sold under the MORTON and WINDSOR brands and under private
labels. Sales of MORTON brand table salt in the United States are approximately
equal to the aggregate sales of all other table salts. Salt for water
conditioning is sold principally for residential use, and, to a lesser extent,
for municipal and industrial use. Salt is also sold for use in food and meat
processing, and in a wide variety of chemical and general industrial
applications. Salt for ice melting on streets and highways is sold primarily to
government agencies, with some ice melting salt being sold for domestic use
under the SAFE-T-SALT brand.
COMPETITION
Most of the business of the Specialty Chemicals Business is highly
competitive. The Specialty Chemicals Business is a market leader in most of its
product lines and is subject to significant competition from other manufacturers
worldwide. Principal methods of competition include technical service for
specialized customer requirements, price and quality.
34
<PAGE>
All areas in which the Salt Business operates are highly competitive.
Although the Salt Business is a major factor in the salt industry, its market
share varies widely, depending on the geographic area and the type of product
involved. This business uses price, quality, service, product performance and
technical, advertising and promotional support as its principal methods of
competition.
GOVERNMENT REGULATIONS; ENVIRONMENTAL MATTERS
Federal, state and local environmental laws and regulations are increasing
in number, complexity and stringency. Public perception of risk to health,
safety and the environment has become the driving force behind many new
regulations. It is Morton's policy to comply with these requirements, and Morton
believes that as a general matter its policies, practices and procedures are
properly designed to prevent unreasonable risk of environmental damage, and of
resulting financial liability, in connection with its businesses. Some risk of
environmental damage is, however, inherent in particular operations and products
of the New Morton Businesses, as it is with other companies engaged in similar
businesses. In addition, some risk of financial liability can result from rare
instances of aberrant environmental conduct at the plant level. See
"--Litigation and Regulation--EPA Inquiry--Moss Point Plant." Morton recently
took measures to improve its environmental auditing and oversight procedures.
The New Morton Businesses are engaged in the handling, manufacture, use and
disposal of many substances which are classified as hazardous or toxic by one or
more regulatory agencies. Morton believes that the New Morton Businesses'
handling, manufacture, use and disposal of such substances have generally been
in accord with environmental laws and regulations. It is possible, however, that
future knowledge or other developments, such as improved capability to detect
substances in the environment, increasingly strict environmental laws and
standards, and enforcement policies thereunder, could bring into question New
Morton's handling, manufacture, use or disposal of such substances.
Among other environmental requirements, the New Morton Businesses are
subject to the federal Superfund law, and similar state laws, under which Morton
has been named a potentially responsible party and under which it may be liable
for cleanup costs associated with approximately 60 inactive waste disposal
sites. Morton's cleanup expenditures totaled approximately $6.8 million in
fiscal 1996. Although, under some court interpretations of these laws, there is
a possibility that a responsible party might have to bear more than its
proportional share of the cleanup costs if it is unable to obtain appropriate
contribution from other responsible parties, Morton has not had to bear
significantly more than its proportionate share, taken as a whole, in multiparty
situations.
Although the level of future expenditures for environmental matters cannot
be determined with any degree of certainty, based on the facts presently known
to it, management does not believe that such costs will have a material effect
on New Morton's financial position, results of operations or liquidity. Capital
expenditures related to environmental matters with respect to the New Morton
Businesses were $12.2 million for fiscal 1996 and are estimated to be $7.7
million for fiscal 1997.
RESEARCH AND DEVELOPMENT
Expenses incurred for research and development activities related to the New
Morton Businesses were $60.2 million, $58.1 million, and $53.8 million for
fiscal 1996, 1995 and 1994, respectively.
EMPLOYEES
The number of employees of the New Morton Businesses at June 30, 1996 was
approximately 8,700, compared to 8,800 at June 30, 1995.
35
<PAGE>
RAW MATERIALS
The New Morton Businesses use many raw materials in the manufacture of their
products, nearly all of which are generally available from a large number of
qualified suppliers. Peaks in worldwide demand have had an impact on raw
material costs and availability, particularly with single or sole-sourced
supplies. The New Morton Businesses, however, have not experienced significant
or long-term difficulty in obtaining raw materials.
SEASONALITY; BACKLOG
Sales of highway ice control salt are quite seasonal, and vary with winter
weather conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled both by the Salt segment and by its
customers in sufficient quantities to meet estimated requirements for the next
season.
Sales of products by the Specialty Chemicals segment do not exhibit
significant seasonal fluctuations. As of the date of this Information Statement,
there are no material backlogs in the New Morton Businesses.
PATENTS AND TRADEMARKS
The New Morton Businesses conduct comprehensive research and development
programs to enable them to maintain their competitive position. Morton owns
approximately 1,800 patents and patent applications relating to the New Morton
Businesses, which patents and patent applications expire on varying dates
through the year 2016.
The New Morton Businesses are engaged in research and development and own
patents and patent applications in the fields of photochemicals for the printed
circuit board industry, sodium borohydride reducing and bleach generating agents
and other products, industrial biocides, heat stabilizers for PVC, asphalt
additives, chemically vapor deposited lenses, polysulfide polymers, sealants and
other polymers, specialty and powder coatings, adhesives, dyes, and salt and
brine products. Morton believes that the New Morton Businesses' present
commercial position in these fields is enhanced by the patents it owns as well
as from the technical expertise, know-how and trade secrets it has developed.
Morton owns approximately 2,300 U.S. and foreign trademarks and trademark
applications relating to the New Morton Businesses which are generally renewable
while the marks remain in use.
CUSTOMERS
Neither the Specialty Chemicals Business nor the Salt Business is dependent
upon any single customer, or any single group of customers, the loss of any one
of which would have a material adverse effect on such business.
PROPERTIES
Morton leases its corporate headquarters in Chicago, Illinois, which
facility will become New Morton's headquarters following the Spinoff. The
principal properties of the New Morton Businesses include manufacturing, mining,
office, research and warehousing facilities, most of which are owned and the
remainder leased, at the following domestic and foreign locations:
36
<PAGE>
<TABLE>
<CAPTION>
UNITED WESTERN
STATES EUROPE CANADA JAPAN
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Specialty Chemicals
Adhesives & Chemical Specialties Group............................... 26 14 1 2
Coatings Group....................................................... 21 1 1 1
Electronic Materials Group........................................... 4 5 -- 1
Salt................................................................... 14 -- 7 --
<CAPTION>
OTHER TOTAL
----------- -----
<S> <C> <C>
Specialty Chemicals
Adhesives & Chemical Specialties Group............................... 3 46
Coatings Group....................................................... 2 26
Electronic Materials Group........................................... 4 14
Salt................................................................... 2 23
</TABLE>
The acquisition of Salins du Midi and Pulverlac would add 14 production
facilities to New Morton properties in Europe. See "Business and
Properties--Recent Developments."
Morton considers the facilities utilized by the New Morton Businesses to be
generally well maintained and suitably equipped in accordance with the
requirements of each of its businesses.
The Company's plants and facilities, together with expansions of and
additions to such plants and facilities for which commitments have already been
made, are regarded as adequate for current and expected requirements for the
next several years.
With respect to the Salt Business, total salt production in fiscal 1996 was
approximately 11.2 million tons.
Rock salt and brine well reserves vary, but all salt production locations
have sufficient reserves to satisfy anticipated production requirements for the
foreseeable future. Salt reserves for solar evaporation facilities are regarded
as unlimited.
LITIGATION AND REGULATION
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. VENTRON CORPORATION, ET
AL., Superior Court of Bergen County, New Jersey, filed on March 31, 1976. After
a 55-day trial held in 1979 and unsuccessful appeals to the Appellate Division
and to the Supreme Court of New Jersey, Ventron Corporation (a corporate
predecessor of Morton) and its co-defendant, Velsicol Chemical Corporation
("Velsicol"), were each held jointly and severally liable for the cost of
remediation necessary to correct mercury-related environmental problems
associated with a former mercury processing plant located adjacent to Berry's
Creek in Wood-Ridge, New Jersey. Subsequent to the liability holding, Morton,
Velsicol and the New Jersey Department of Environmental Protection ("NJDEP")
entered into a judicial consent order under which Morton and Velsicol agreed,
subject to certain conditions and limitations, to share the costs of technical
studies to determine the appropriate remedy for environmental problems
associated with the former Wood-Ridge operation. Under the terms of the judicial
consent order, a Berry's Creek/Wood-Ridge Site Action Committee was established
and thereafter adopted resolutions under which NJDEP authorized Morton and
Velsicol to perform a remedial investigation/feasibility study ("RI/FS") of the
Wood-Ridge plant site. The resolutions also confirmed that a separate and
coordinated basin-wide, multiparty approach would be taken to address the
multiple sources of contamination in Berry's Creek in which Morton, Velsicol and
other parties responsible for the contamination would participate. The Wood-
Ridge plant site RI/FS began in early fiscal 1997 and is scheduled to take
approximately 42 months to complete. The Berry's Creek RI/FS is expected to
proceed on a timetable yet to be determined. Pursuant to the Distribution
Agreement, New Morton will assume all of Morton's liabilities relating to this
matter. Because of the absence of site-specific data, the unique nature of
mercury plant wastes, and the complex characteristics of the Wood-Ridge plant
site and Berry's Creek, no reliable estimate can be made of New Morton's
liability (or range of exposure) until information sufficient to permit such
determination is available from the investigations and studies referred to
above. New Morton's ultimate exposure will also depend upon the continued
participation of Velsicol and on the results of both formal and informal
attempts to spread liability to others believed to share responsibility. In this
vein, Morton and Velsicol filed suit in the United States District Court for the
District of New Jersey in July, 1996 alleging that the defendants, numbering in
excess of 100, were additionally responsible at least in part for the costs of
37
<PAGE>
technical studies and any remedial actions that may be required. Defendants are
present and former owners or operators of neighboring industrial facilities and
waste disposal sites, former toll-processing customers of the mercury plant, and
others believed to share responsibility for environmental problems attributed to
Morton and Velsicol. With respect to Berry's Creek, it is also anticipated that
New Jersey authorities will employ administrative enforcement mechanisms to
influence potentially responsible parties to join in a coordinated, basin-wide
multiparty RI/FS. The New Morton Businesses are not entitled to indemnity under
insurance policies for environmental cleanup and related expenses resulting from
operation of the mercury plant.
EPA INQUIRY--MOSS POINT PLANT. In April 1996, U.S. Environmental Protection
Agency Region 4 ("EPA") notified Morton that irregularities had been discovered
in water discharge monitoring reports ("DMRs") filed by Morton's Moss Point,
Mississippi, chemicals plant for the months of January and March 1995, and in
related internal summary reports for February 1995. An outside law firm
specially retained by Morton confirmed that DMRs and supporting information for
the January-March 1995 period had in fact been falsified, and discovered that
similar falsifications had occurred both before and after that period. In each
case, the erroneous DMRs appeared to misrepresent the results of testing
performed by an outside laboratory on samples of effluent discharged by the
plant pursuant to its National Pollutant Discharge Elimination System permit.
Other possible environmental violations at Moss Point were discovered during the
review process, each of which has been investigated through an expansion of the
original investigation. Morton is cooperating with the EPA and the Mississippi
state agency, both of which it has kept informed on a continuing basis. The
plant's environmental coordinator, who admitted responsibility for the
falsifications, was discharged. Pursuant to the Distribution Agreement, New
Morton will assume all of Morton's liabilities relating to this matter. As a
result of the foregoing, New Morton may be exposed to fines, penalties and
remedial expenses, the amounts of which cannot presently be determined. No
administrative or judicial enforcement proceedings have been instituted, but
Morton has been served with federal grand jury subpoenas seeking documents
related to waste water discharge at Moss Point and has furnished the requested
documents.
MISCELLANEOUS. Morton is involved in a number of additional pending legal
and administrative proceedings with respect to the New Morton Businesses, which
will become the responsibility of New Morton pursuant to the Distribution
Agreement, but are not expected, individually or in the aggregate, to be
material to its business or financial position. Certain governmental agencies
have authority to limit or prohibit distribution of some of the New Morton
Businesses' products should they formally conclude that continued distribution
is unsafe to the population or the environment. There are currently no
challenges pending, the resolution of which would have a material effect upon
New Morton's operations.
38
<PAGE>
MANAGEMENT
DIRECTORS OF NEW MORTON
Pursuant to the New Morton Articles and the New Morton Bylaws, the New
Morton Board will consist of the number of directors duly authorized from time
to time by the New Morton Board, divided into three approximately equal classes
with each class serving a three-year term. Initially, following the Spinoff, the
New Morton Board will consist of the 12 individuals who currently comprise the
Morton Board. Set forth below is certain information as to the individuals who
will serve as directors of New Morton following the Spinoff, their class
membership and their original terms (the directors' ages are as of December 31,
1996). The New Morton Bylaws provide that no individual may stand for election
or reelection as a director after having attained the age of 70. S. Jay
Stewart, the current Chairman of the Morton Board, will serve as the initial
Chairman of the New Morton Board.
RALPH M. BARFORD, age 67, is President of Valleydene Corp. Ltd., an
investment company. He is also Chairman of GSW, Inc., a manufacturer of consumer
products, and a director of Bank of Montreal, Bell Canada, BCE Inc., Hollinger,
Inc. and Northern Telecom Inc. Mr. Barford has been a director of Morton since
1989. He holds a Bachelor of Commerce degree from the University of Toronto and
an M.B.A. degree from Harvard University. His term will expire in October 1997.
JAMES R. CANTALUPO, age 53, was elected a director of Morton in January
1996. He is President (since 1987) and Chief Executive Officer--International
(since 1991) and a director (since 1987) of McDonald's Corporation, a global
foodservice retailer. Mr. Cantalupo joined McDonald's Corporation as Controller
in 1974 and subsequently served in several senior executive capacities before
being promoted to his present position. He is a graduate of the University of
Illinois as well as a certified public accountant. His term will expire in
October 1997.
WILLIAM T. CRESON, age 67, retired in 1986 from Crown Zellerbach
Corporation, a forest products and paper manufacturer, where he had served as
President, Chief Executive Officer and Chairman of the Board. Mr. Creson has
been a director of Morton since 1989. He holds a B.S. degree in Mechanical
Engineering from Purdue University and an M.B.A. degree from the University of
Pennsylvania. His term will expire in October 1997.
W. JAMES FARRELL, age 54, was elected a director of Morton in June 1996
effective in August 1996. He is Chairman (since May 1996) and Chief Executive
Officer and a director (since 1995) of Illinois Tool Works Inc., a multinational
manufacturer of fasteners, components, assemblies and systems. Mr. Farrell
joined Illinois Tool Works, Inc. in 1965, and, since 1972, he has served in
numerous senior executive capacities before election to his present positions.
In addition, he is a director of Hon Industries Inc., Premark International and
Private Bancorp, Inc. He holds a degree in Electrical Engineering from the
University of Detroit. His term will expire in October 1998.
DENNIS C. FILL, age 67, is (since June 1992) Chairman and Chief Executive
Officer of Advanced Technology Laboratories, Inc., formerly named Westmark
International Incorporated, a medical electronics systems manufacturer, where he
held corresponding offices beginning in 1986. Mr. Fill has been a director of
Morton since 1989. He is also a director of Beckman Instruments, Inc., Cytran,
Inc. and Spacelabs Medical, Inc. Mr. Fill attended Ealing College, the Institute
of Export and the Borough Polytechnic branch of London University. He also
served in the Royal Air Force. His term will expire in July 1999, upon his
reaching the age of 70.
WILLIAM E. JOHNSTON, age 56, was elected a director of Morton in January
1996. He is President and Chief Operating Officer of Morton (since October
1995), prior to which he was its Executive Vice President, Administration (from
1993 to 1996) and President of the Salt segment of Morton (from 1981 until
1993). Mr. Johnston holds a B.A. degree from St. Joseph's College and an M.B.A.
degree from the University of Chicago. His term will expire in October 1999.
39
<PAGE>
RICHARD L. KEYSER, age 54, is President (since 1994), Chief Executive
Officer (since March 1995), a member of the office of the Chairman, and a
director (since 1992) of W. W. Grainger, Inc., a distributor of maintenance,
repair and operating supplies. He joined W.W. Grainger, Inc. in 1986 as a Vice
President, and subsequently served in several senior executive capacities before
assuming his present positions. He has been a Morton director since January
1995. In addition, he is a director of Evanston Hospital Corporation and the
Lake Forest Graduate School of Management. He has a B.S. in Nuclear Science from
the U.S. Naval Academy and an M.B.A. from Harvard University. His term will
expire in October 1998.
FRANK W. LUERSSEN, age 69, retired on August 31, 1992, as Chairman and Chief
Executive Officer (since 1986) of Inland Steel Industries, Inc. He has been a
director of Morton since 1989. Mr. Luerssen holds the following degrees: B.S. in
Physics from Pennsylvania State University; Master of Science, Metallurgical
Engineering from Lehigh University; Honorary Doctor of Laws from Calumet
College; and Honorary Doctor of Public Service from St. Xavier University. His
term will expire in August 1997, upon his reaching the age of 70.
EDWARD J. MOONEY, age 55, is Chairman (since July 1994), Chief Executive
Officer (since April 1994), President (since 1990) and a director (since 1988)
of Nalco Chemical Company, a producer of specialty chemicals and services for
water and industrial process treatment. Mr. Mooney was Chief Operating Officer
of Nalco Chemical Company from 1992 to 1994. He has been a director of Morton
since August 1995. In addition, he is a director of Northern Trust Corporation
and its subsidiary The Northern Trust Company. He has a B.S. in Chemical
Engineering and a J.D. degree from the University of Texas. His term will expire
in October 1999.
GEORGE A. SCHAEFER, age 68, is a director (since 1983) of Caterpillar Inc.,
a manufacturer of construction, earthmoving and material handling machines and
engines. He retired in 1990 as Chairman and Chief Executive Officer of
Caterpillar Inc., positions he had held since 1985. Mr. Schaefer has been a
director of Morton since 1990. He is also a director of Aon Corporation,
Helmerich & Payne, Inc. and McDonnell Douglas Corporation. Mr. Schaefer is a
graduate of St. Louis University. His term will expire in June 1998, upon his
reaching the age of 70.
S. JAY STEWART, age 58, is Chairman and Chief Executive Officer of Morton
(since April 1994). He has been a director of Morton since 1989, and was
President and Chief Operating Officer (from 1989 through March 1994). In
addition, he is a director of Household International, Inc. Mr. Stewart holds a
B.S. degree in Chemical Engineering from the University of Cincinnati and an
M.B.A. degree from West Virginia University. His term will expire in October
1997.
ROGER W. STONE, age 62, is Chairman of the Board (since 1983), President
(since 1975), and Chief Executive Officer (since 1979) of Stone Container
Corporation, a multinational producer and marketer of pulp, paper, and packaging
products. He has been a director of Morton since 1989. Mr. Stone is also a
director of McDonald's Corporation and Option Care, Inc. He is a graduate of the
University of Pennsylvania Wharton School of Finance. His term will expire in
October 1998.
DIRECTORS' MEETINGS, FEES AND COMMITTEES
The New Morton Board expects to have six regularly scheduled meetings per
year (with one immediately following each annual meeting of shareholders (an
"Annual Meeting")), and will hold such special meetings as it deems advisable to
review significant matters affecting New Morton and to act upon matters
requiring New Morton Board approval. Non-management directors will receive an
annual retainer of $28,000 and will also be paid $1,500 for attending each
regular or special board meeting and for each telephonic meeting and consent to
action without a meeting.
In addition, non-management directors who are chairmen of the New Morton
Audit Committee (described below) and New Morton Compensation Committee
(described below) (the "New Morton
40
<PAGE>
Compensation Committee") will each receive additional annual retainers of
$2,500; the chairman of the New Morton Nominating & Organization Committee
(described below) will receive an additional annual retainer of $1,500; and all
committee chairmen and members will receive $750 for attendance at each meeting
of their particular committees.
Non-employee directors who are elected or continuing as such at Annual
Meetings will also receive grants of 500 shares of New Morton Common Stock as of
the date of each such meeting. The value of the 500 shares of Morton Common
Stock received by each director as of the October 1996 Annual Meeting of Morton
was $20,375.
New Morton expects to have a non-employee directors deferred compensation
plan, under which participants may elect to defer all or a portion of their cash
(but not stock) compensation. This plan will utilize phantom New Morton stock,
plus amounts equivalent to dividends paid thereon, to value deferred balances,
which are expected to fluctuate from time to time in accordance with the stock's
market performance. Distributions of plan balances will be made in cash
following a participant's death or termination of service as a director, in
amounts based on the stock's market value at the time of the particular
distribution.
Prior to the Spinoff, the New Morton Board is expected to establish and
designate specific functions and areas of oversight to an Audit Committee, a
Compensation Committee, an Executive Committee, and a Nominating & Organization
Committee. A director who is also an employee or officer of New Morton will not
be permitted to serve on the Audit Committee, the Compensation Committee, or the
Nominating & Organization Committee. A description of these standing committees
and the identity of their expected members follows.
AUDIT COMMITTEE
The New Morton Audit Committee will recommend to the New Morton Board the
independent auditors to be selected to audit New Morton's annual financial
statements, and will review the fees charged for such audits and for any special
assignments given such auditors. The Audit Committee will also review the annual
audit and its scope, including the independent auditor's letter of comments and
management's responses thereto; possible violations of New Morton's business
ethics and conflicts of interest policies; any major accounting changes made or
contemplated; and the effectiveness and efficiency of New Morton's internal
audit staff. In addition, the Audit Committee will confirm that no restrictions
have been imposed by New Morton personnel on the scope of independent auditors'
examinations. Members of the Audit Committee will be Messrs. Luerssen
(Chairman), Cantalupo, Creson, Keyser, Mooney and Schaefer.
COMPENSATION COMMITTEE
The New Morton Compensation Committee will annually review and report to the
New Morton Board on pension plan investment performance, and will make
recommendations to the New Morton Board with respect to the creation and
amendment of pension and welfare plans of New Morton and its subsidiaries. The
New Morton Compensation Committee will also approve senior officers' salaries
and administer New Morton's employee cash and stock incentive compensation plan.
Members of the New Morton Compensation Committee will be Messrs. Stone
(Chairman), Barford, Fill, Keyser and Mooney.
EXECUTIVE COMMITTEE
The New Morton Executive Committee may exercise all the powers and authority
of the New Morton Board in the management of its business and affairs, except
that the Executive Committee will not have the power to amend the New Morton
Bylaws or the New Morton Articles (except to fix the designations, preferences
and other terms of any of its preferred stock), authorize the issuance of stock,
authorize distributions (other than pursuant to a formula set by the New Morton
Board), adopt an agreement of merger or consolidation, approve a plan of merger
that does not require a vote of shareholders under the
41
<PAGE>
IBCL, fill vacancies on the New Morton Board or Executive Committee or recommend
to shareholders action that the IBCL requires be approved by shareholders.
Members of the Executive Committee will be Messrs. Stewart (Chairman),
Cantalupo, Farrell, Johnston, Luerssen and Stone.
NOMINATING & ORGANIZATION COMMITTEE
The New Morton Nominating & Organization Committee will identify and
evaluate individuals for potential directorships and will make recommendations
accordingly to the New Morton Board to fill vacancies or new positions on the
New Morton Board, and will recommend to the New Morton Board the management
slate of nominees for election as directors at Annual Meetings. The Nominating &
Organization Committee will also make recommendations to the New Morton Board
regarding the size and composition of the New Morton Board and New Morton Board
committees; compensation of non-employee directors; and management succession.
In addition, the Nominating & Organization Committee will review the development
of the management organization structure. Members of the Nominating &
Organization Committee will be Messrs. Barford (Chairman), Creson, Farrell, Fill
and Schaefer.
Written nominations by shareholders for directors will be considered by the
Nominating & Organization Committee provided they are received by the Corporate
Secretary of New Morton at its principal executive offices pursuant to timely
advance written notice in accordance with the New Morton Bylaws and provided
they contain all information specified in the New Morton Bylaws. For the 1997
Annual Meeting, any such nominations must be received by New Morton between July
18 and August 18, 1997.
EXECUTIVE OFFICERS OF NEW MORTON
New Morton's senior management team (the "Executive Officers") will consist
primarily of those individuals currently responsible for the management of the
New Morton Businesses as conducted by Morton.
Generally, following the Spinoff, officers will be elected by the New Morton
Board at its first meeting following the Annual Meeting, and will serve for the
succeeding year until the next such meeting or until their successors are
elected and qualify. The first Annual Meeting of New Morton shareholders is
expected to be held on October 23, 1997.
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Listed below are those individuals expected to be the Executive Officers as
of the date of the Spinoff. Ages shown are as of December 31, 1996.
<TABLE>
<CAPTION>
NAME AND AGE POSITION*
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
S. Jay Stewart (58)..................................... Chairman of the Board, Chief Executive Officer and
Director
William E. Johnston (56)................................ President, Chief Operating Officer and Director
Walter W. Becky II (53)................................. Group Vice President and President, Salt Group
Daniel D. Feinberg (53)................................. Group Vice President and President, Electronic Materials
Group
James J. Fuerholzer (60)................................ Group Vice President and President, Adhesives & Chemical
Specialties Group
Stephen A. Gerow (54)................................... Group Vice President and President, Coatings Group
Raymond P. Buschmann (52)............................... Vice President for Legal Affairs and General Counsel
Nancy A. Hobor (50)..................................... Vice President, Communications and Investor Relations
Christopher K. Julsrud (49)............................. Vice President, Human Resources
Thomas F. McDevitt (57)................................. Vice President Finance and Chief Financial Officer
P. Michael Phelps (63).................................. Vice President and Secretary
Bruce G. Wolfe (54)..................................... Treasurer
Lewis N. Liszt (54)..................................... Controller
</TABLE>
- ------------------------
* All of the Executive Officers listed above have held senior management or
professional positions with Morton for more than the past five years.
43
<PAGE>
EXECUTIVE COMPENSATION
INTRODUCTION AND SUMMARY
All direct and indirect remuneration of certain Executive Officers and other
executives will be approved by the New Morton Compensation Committee. The New
Morton Compensation Committee will consist entirely of non-management directors
free from interlocking or other relationships that might be considered a
conflict of interest. It is anticipated that compensation for such Executive
Officers and other executives will consist principally of base salary, annual
cash bonus, long-term incentive bonus and stock option grants.
The following tables and narrative text discuss the compensation paid by
Morton in fiscal year 1996 to the "Named Executive Officers," I.E., New Morton's
Chairman and Chief Executive Officer and the four other most highly compensated
Executive Officers listed above.
The Summary Compensation Table set forth below summarizes compensation
received from Morton for the fiscal years 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------- ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1) (#) (#)(2) ($)(3)
- ------------------------------- ----------- ---------- ---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
S. JAY STEWART................. 1996 $ 660,833 $ 654,528 $ 174,365 57,200 $ 1,070,000 $ 19,825
Chairman and Chief 1995 633,333 720,000 -0- 61,000 1,000,000 19,000
Executive Officer(4) 1994 512,500 551,250 2,277,011 122,400 567,405 15,375
WILLIAM E. JOHNSTON............ 1996 $ 396,000 $ 299,992 $ 153,861 50,800 $ 500,000 $ 11,880
President and Chief 1995 326,750 310,500 181,117 22,200 340,000 9,802
Operating Officer(5) 1994 302,167 310,500 1,014,704 22,140 236,060 9,315
STEPHEN A. GEROW............... 1996 $ 248,167 $ 162,791 $ -0- 11,400 $ 360,000 $ 7,445
President, Coatings 1995 236,667 185,288 -0- 12,200 340,000 7,100
Group 1994 222,833 202,500 -0- 12,150 304,000 6,685
WALTER W. BECKY................ 1996 $ 205,000 $ 153,004 $ -0- 11,400 $ 73,632 $ 6,150
President, Salt 1995 192,000 107,528 -0- 12,200 89,496 5,738
Group 1994 177,000 148,547 -0- 12,150 88,236 5,310
JAMES J. FUERHOLZER............ 1996 $ 247,167 $ 104,397 $ -0- 21,400 $ 154,500 $ 7,415
President, Adhesives 1995 202,500 139,365 -0- 12,200 -0- 6,075
& Chemical Specialities 1994 187,833 147,915 -0- 12,150 34,933 5,635
Group
</TABLE>
- ------------------------
(1) Amounts in this column consist of cash payments to the indicated
individuals, pursuant to pre-fiscal 1991 stock option agreement provisions
for reimbursement of their income tax liability upon exercise of the related
options (for a detailed description of such payments, see footnote (2) to
the option exercise table below).
(2) Amounts in this column consist of long-term incentive program ("LTIP")
awards earned during three-year performance periods ending on the last day
of the indicated fiscal years and paid out approximately two months
thereafter.
(3) Amounts in this column consist of Morton contributions to the named
individuals' accounts in Morton's basic and supplemental employee savings
and investment (defined contribution) plans.
(4) Mr. Stewart's compensation for the nine months of fiscal 1994 was paid to
him as President and Chief Operating Officer of Morton.
(5) Mr. Johnston's compensation for fiscal 1994, fiscal 1995 and for the first
four months of fiscal 1996 was paid to him as Executive Vice President
Administration of Morton.
44
<PAGE>
COMPENSATION COMMITTEE REPORT. The New Morton Compensation Committee will
approve certain Executive Officers' salaries and administer New Morton's cash
and stock incentive compensation plan. The purpose of this plan and the
objectives of the New Morton Compensation Committee will be to:
--pay for performance, motivating both long-term and short-term
performance on behalf of New Morton shareholders;
--provide competitive compensation programs so as to be able to attract,
retain and motivate top management talent;
--place greater emphasis on at-risk incentive compensation than on fixed
salaries, particularly for senior executives;
--base the incentive compensation of business unit executives in large
part on the performance of their operations, while including a component
which recognizes overall New Morton performance as well; and
--most importantly, join shareholder and management interests.
To further these objectives, the compensation of certain Executive Officers
is expected to include four components: (i) base salaries, (ii) annual bonus
programs, (iii) a long-term incentive program and (iv) stock options.
Periodically, the New Morton Compensation Committee may be expected to
arrange for studies by independent compensation consulting firms comparing total
compensation of Executive Officers with compensation of executives in similarly
sized companies. The last such study by Morton, which was performed in August
1996, confirmed that Morton's base salaries are somewhat lower than the averages
in the study group. The study also showed that Morton continues to place
emphasis on performance based compensation, so that total compensation is above
such averages when goals are exceeded.
BASE SALARIES
The New Morton Compensation Committee will approve salary changes for
certain Executive Officers in accordance with New Morton's written salary
administration policy. New Morton's policy is expected to be based upon a
long-standing Morton policy designed and periodically reviewed in consultation
with external compensation consultants. Salary ranges are expected to be
established for various positions through job evaluation and comparison with
competitive salary data. Within the ranges, adjustments are expected to be
recommended on the basis of position within the range, individual performance
and a corporate merit salary percentage factor. Consistent with Morton's overall
objectives, which objectives are expected to be adopted by New Morton, these
adjustments, combined with bonuses as outlined below, will emphasize payment for
performance.
ANNUAL BONUS PROGRAMS
Following fiscal 1996 (which ended on June 30, 1996), the Compensation
Committee of Morton (the "Morton Compensation Committee") considered annual
bonus payments based on performance during that year. Under the annual bonus
program applicable to certain executive officers, award levels may range from
zero to 120% of their base salaries as of the beginning of the performance
period, depending on salary grade and attainment of Morton and applicable
business unit profit targets as approved by the Morton Compensation Committee.
Based on these factors and the terms of such annual bonus program, the Morton
Compensation Committee approved bonus payments to certain executive officers
ranging from 39% to 98% of their salaries. New Morton may be expected to
continue Morton's annual bonus programs.
45
<PAGE>
LONG-TERM INCENTIVE PROGRAM
Also following fiscal 1996, the Morton Compensation Committee considered
LTIP payments to certain executive officers based on performance during the
three-year period from fiscal 1994 through fiscal 1996. LTIP participants are
selected by the Morton Compensation Committee annually prior to the beginning of
each particular three-year performance period. Depending on the participant's
salary grade, possible award levels range from zero if less than 5% compound
annual growth in Morton or applicable business unit profit goals as approved by
the Morton Compensation Committee is realized over the three-year period to a
maximum 240% of base salary if 20% or greater compound annual growth is
realized. Based on the terms of the LTIP for fiscal 1994 through fiscal 1996,
the Morton Compensation Committee approved LTIP payments to eight of the nine
participating executive officers ranging from 87% to 232% of their annual base
salaries as of the beginning of the performance period.
The following table summarizes LTIP awards made during the last fiscal year.
LTIP--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OTHER PERIOD NON-STOCK
UNTIL PRICE-BASED PROGRAM
MATURATION OR ------------------------------------
NAME PAYOUT THRESHOLD TARGET MAXIMUM
- ----------------------------------------------- ----------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mr. Stewart.................................... 3 years $ 332,500 $ 665,000 $ 1,330,000
Mr. Johnston................................... 3 years 212,500 425,000 850,000
Mr. Gerow...................................... 3 years 100,000 200,000 400,000
Mr. Becky...................................... 3 years 83,000 166,000 332,000
Mr. Fuerholzer................................. 3 years 106,000 212,000 424,000
</TABLE>
Individual target incentive awards under the LTIP are percentages of
participants' salaries ranging from 60% to 100%, depending on their salary
grades, subject to 20% plus or minus adjustments authorized prior to the
beginning of the applicable performance period by the Morton Compensation
Committee. The target awards reported in the foregoing table require a 10%
compound annual growth in Morton or applicable business unit profits and the
achievement of return on net assets ("RONA") goals over the three-year
performance period beginning on July 1, 1996, and ending on June 30, 1999.
Maximum awards can be up to two times target award levels to reflect 20% or
greater compound earnings growth and full achievement of RONA goals over the
performance period, but are zero if compound earnings growth is less than the 5%
threshold level and minimum RONA goal levels are not achieved.
Upon the occurrence of a change in control of Morton (as defined in the
LTIP), the performance periods with respect to all outstanding incentive awards
will terminate and the related incentive awards will be payable. The amount
payable with respect to any award will be equal to the percent of target based
upon the greater of (a) 100% or (b) the weighted average of (i) the percent of
target earned to the most recent fiscal quarter prior to the change of control
("Measurement Date") and (ii) 100% of target from the Measurement Date to the
end of the performance period.
New Morton expects to establish an LTIP substantially the same as Morton's
current program.
46
<PAGE>
STOCK OPTIONS
In addition, the Morton Compensation Committee authorizes, and the New
Morton Compensation Committee may authorize, stock option grants to selected
employees, currently including all Executive Officers, at approximate one-year
intervals. Morton's stock option guidelines, which will be adopted by New
Morton, were designed and have been revised periodically with the assistance of
external compensation consultants.
These guidelines provide for a specific number of options, the value of
which is derived from the midpoint of the salary range for each specific salary
grade, as periodically adjusted by means of a formula that utilizes the stock's
average market value during the last month of the most recent fiscal year. The
formula does not, however, consider an individual's previous option grants. All
options granted to executive officers in fiscal 1996 are for 10-year terms, with
an exercise price equal to the stock's market value on the date of grant, and
become exercisable after one year of continued employment following the grant
date. Executive Officers received grants in August 1995 (fiscal 1996) ranging
from 5,800 shares to 57,200 shares.
The following tables summarize option grants made by Morton in the last
fiscal year and aggregated option exercises in the last fiscal year and fiscal
year end option values.
47
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------- --------------------------------------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS EMPLOYEES IN (PER EXPIRATION
NAME(1) GRANTED(#) FISCAL YEAR SHARE)(2) DATE 0% 5%($)(3) 10%($)(3)
- ------------------------ ----------- ------------- ------------- ---------- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Stewart............. 57,200 7.4% $ 32.00 8/24/05 -0- $ 1,151,129 $ 2,917,186
Mr. Johnston............ 20,800 2.7% 32.00 8/24/05 -0- 418,592 1,060,795
30,000 3.9% 30.06 10/26/05 -0- 567,259 1,437,431
Mr. Gerow............... 11,400 1.5% 32.00 8/24/05 -0- 229,421 581,397
Mr. Becky............... 11,400 1.5% 32.00 8/24/05 -0- 229,421 581,397
Mr. Fuerholzer.......... 11,400 1.5% 32.00 8/24/05 -0- 229,421 581,397
10,000 1.3% 30.06 10/26/05 -0- 189,086 479,144
All Shareholders........ N/A N/A N/A N/A -0- 2,857,947,324 7,242,599,642
All Optionees........... 777,835 100% 31.91 various(4) -0- 15,599,580 39,532,399
Optionee Gain as % of
All Shareholders'
Gain................... N/A N/A N/A N/A N/A 0.5% 0.5%
</TABLE>
- ------------------------
(1) All options held by the named individuals include limited stock appreciation
rights ("LSARs"), which are issued in tandem with stock options. LSARs give
the holders thereof the right to receive cash in an amount equal to the
spread between the exercise price of the related options and the stock's
fair market value during the 90-day period following a change in control of
Morton (as such term may be defined from time to time by the Morton
Compensation Committee) in lieu of exercising the related options, which are
cancelled upon exercise of LSARs.
(2) The exercise price shown for individual optionees is the fair market value
of Morton Common Stock on the date of grant (calculated as the average of
its high and low sales prices on that date reported on the NYSE Composite
Tape). The exercise price shown for all optionees is the weighted average of
all options granted in fiscal 1996. Options become exercisable one year
following the dates of grant, and exercise prices may be paid in cash or
previously owned shares of Morton Common Stock.
(3) The amounts shown in these two columns represent potential realizable values
using the options granted and the exercise prices. The assumed rates of
stock price appreciation are set by SEC rules and are not intended to
forecast the future appreciation of Morton Common Stock.
(4) The expiration dates of options granted during fiscal 1996 are August 24,
2005, October 26, 2005, January 25, 2006, and June 27, 2006.
48
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
YEAR END(#) YEAR END($)
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
- ----------------------------- ----------------- ------------- ------------- ------------- ------------- -------------
Mr. Stewart.................. 8,709 $ 221,470 613,705 57,200 $ 10,700,045 $ 293,150
Mr. Johnston................. 7,839 195,426 242,892 50,800 4,758,808 318,550
Mr. Gerow.................... -0- N/A 102,200 11,400 1,852,532 58,425
Mr. Becky.................... 3,514 84,729 73,258 11,400 1,278,479 58,425
Mr. Fuerholzer............... -0- N/A 63,548 21,400 1,011,742 129,075
</TABLE>
- ------------------------
(1) The average of Morton Common Stock's high and low sales prices reported on
the NYSE Composite Tape for the particular exercise dates, minus the
applicable exercise prices, multiplied by the number of option shares
exercised.
(2) Options in this column that were granted to the named individuals prior to
fiscal 1991 (provided they were executive officers on the grant dates)
include supplemental cash payment rights, pursuant to which payments are
made to optionees upon exercise of such options or the related LSARs
described in note (1) to the Option Grants in last Fiscal Year table above
in reimbursement of their income tax liability from such exercises and
payments.
(3) The average of Morton Common Stock's high and low trading prices (calculated
as in note (1) above) on the last trading day of fiscal 1996 ($37.13 per
share), minus the applicable exercise prices, multiplied by the number of
option shares held. Such values do not include the supplemental cash payment
rights de-scribed in note (2) above.
EMPLOYMENT AGREEMENTS
All Named Executive Officers, except for Mr. Stewart, have change of control
employment agreements with Morton ("Agreements") which are effective for
three-year periods and are automatically extended annually for additional
one-year periods unless notice to the contrary is given. Pursuant to the
Benefits Agreement, these Agreements will be assumed by New Morton as of the
Distribution Date. The Agreements are otherwise terminable during their periods
of effectiveness only by termination of the executives' employment. Such
termination in connection with a change in control will entitle an executive to
benefits under the Agreements. The Agreements require continued employment of
the executive following a change of control on an equivalent basis to employment
immediately before such change of control. In the event that, during the
three-year period following a change of control, the executive terminates the
executive's employment for good reason (as defined in the Agreements) or, during
the 30-day period commencing one year after the change of control, for any
reason, or Morton terminates the executive's employment without cause (as
defined in the Agreements), the executive would be entitled to receive an
immediate lump sum payment in an amount equal to three times the sum of such
executive's then current salary, average long-term bonus and highest annual
bonus plus service and earnings credits under any Morton retirement plan which
would have been earned over, and the continuance of fringe benefits during, the
three years after such termination (except as reduced by payments under
long-term bonus plans made to an executive upon a change of control which relate
to performance periods subsequent to such termination). The Agreements provide
that executives are to be made whole on an after-tax basis with respect to
excise taxes payable under Section 4999 of the Code as a consequence of any
payments made to them (whether or not under the agreements) being classified as
"parachute payments" as defined in Section 280G of the Code.
49
<PAGE>
Mr. Stewart has an employment agreement with Morton, to be assumed by New
Morton pursuant to the Benefits Agreement, that has a term ending March 31,
2000, provided three years' advance notice of termination is given by Morton.
Unless and until such notice is given, the employment agreement will continue on
a year-to-year basis through September 30, 2003 (Mr. Stewart's normal retirement
date). Mr. Stewart's agreement provides that, in the event of his voluntary or
involuntary termination without cause following a change in control of Morton,
he would be entitled to receive an immediate payment of salary and bonuses plus
credits and benefits similar to those described in the preceding paragraph
through the then-current term of his agreement.
BENEFIT PLANS
New Morton is expected to adopt additional benefit plans which will be
substantially the same as those of Morton described below.
SURVIVOR INCOME BENEFITS PLAN
All Named Executive Officers participate in this plan, under which benefits
are payable to participants' surviving spouses (or dependent children if there
is no spouse) if a participant dies prior to age 65 while employed by Morton.
The benefit is approximately 50% of the participant's base pay at death and
continues until the participant would have attained age 65. Accruals were made
in fiscal 1996 for aggregate potential benefits payable under this plan, but no
specific amounts for individual participants were calculated.
POST-RETIREMENT LIFE INSURANCE PLAN
Two of the Named Executive Officers (Messrs. Stewart and Johnston)
participate in this plan, under which life insurance after retirement is
provided at no cost to retirees in amounts equal to their base salaries at
retirement. Such coverage is in addition to that provided under Morton's regular
life insurance program. Accruals were made in fiscal 1996 for aggregate
potential benefits payable under all Morton life insurance plans, but no
specific amounts for individual participants were calculated.
PENSION PLANS
The following table contains estimated annual retirement benefits payable
under Morton's basic and excess defined benefit pension plans.
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- --------------------------------------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
$ 200,000.......................................... $ 48,749 $ 64,999 $ 81,249 $ 97,513 $ 115,013
400,000.......................................... 101,248 134,997 168,747 202,511 237,511
600,000.......................................... 153,749 204,998 256,248 307,512 360,012
800,000.......................................... 206,249 274,999 343,749 412,513 482,513
1,000,000......................................... 258,748 344,997 431,247 517,511 605,011
1,200,000......................................... 311,249 414,998 518,748 622,512 727,512
1,400,000......................................... 363,749 484,999 606,249 727,513 850,013
1,600,000......................................... 416,248 554,997 693,747 832,511 972,511
1,800,000......................................... 468,749 624,998 781,248 937,512 1,095,012
</TABLE>
All Named Executive Officers participate in Morton's pension plans. The
number of full years of credited service at June 30, 1996, for each is as
follows: Mr. Stewart, 23 years; Mr. Johnston, 19 years; Mr. Gerow, 6 years; Mr.
Becky, 21 years; and Mr. Fuerholzer, 38 years.
Upon reaching age 65, pension plan participants are eligible to receive
annual retirement income, on a straight-life annuity basis, in monthly
installments for life equal to 1.75% of salary plus annual bonus (as
50
<PAGE>
reported in the Summary Compensation Table), averaged over the five consecutive
calendar years during which such compensation was highest out of the last 10
years completed before age 65, for each year of credited service, less 1.67% of
primary social security for each year of credited service (up to 30 years).
One of the Named Executive Officers, Mr. Stewart, participated in a
predecessor company's pension plan prior to 1984. Upon retirement, he will
receive 2% of compensation (calculated as described in the preceding paragraph),
less 1.67% of primary social security, for each year of credited service prior
to 1984. For subsequent credited service, he will receive benefits as described
in the preceding paragraph. Consequently, Mr. Stewart's benefits will slightly
exceed those in the above table in amounts varying with the extent of his
pre-1984 credited service.
One of the Named Executive Officers, Mr. Johnston, participates in a
supplemental executive retirement program (the "SERP"). Under the SERP,
participants are entitled, upon normal or approved early retirement, to receive
amounts which, together with standard Morton pensions (including pensions of
prior employers), equal 50% of their average compensation (salary plus standard
annual bonus) with respect to the five consecutive highest earnings years out of
the final 10 years' service prior to retirement. Consequently, unless reduced as
described below, the estimated total annual pension benefits of a SERP
participant will approximate those shown in the column of the foregoing pension
table which sets forth benefits for employees with 30 years of credited service.
If approved early retirement occurs prior to age 62, the SERP pension is
reduced by 0.33% for each full month from the early retirement date to age 62.
If a change in control of Morton occurs and thereafter the employment of the
SERP participant is terminated by Morton (other than for cause) or the
individual's status as a SERP participant is terminated, the SERP pension vests
as though the individual had retired early with approval on the date of such
termination.
In addition, SERP participants' rights under the agreements concerning
pension benefits following a change of control are preserved.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Morton Compensation Committee is, and the New Morton Compensation
Committee will be, comprised exclusively of directors who are not and have never
been Morton or New Morton employees. No Morton or New Morton executive officer
serves on the Morton Compensation Committee, or will serve on the New Morton
Compensation Committee, or serves as a director of another company for which any
member of either compensation committee serves as a director or executive
officer.
51
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS OF MORTON COMMON STOCK
On February 25, 1997, there were 140,644,645 shares of Morton Common Stock
outstanding, each entitled to one vote.
The following table shows the shares of Morton Common Stock beneficially
owned as of February 25, 1997, by each present director and each Named Executive
Officer; and by all present directors and executive officers of Morton who are
expected to remain as directors and officers of New Morton, as a group. As of
February 25, 1997, there was no known beneficial owner of more than 5% of Morton
Common Stock. Each Named Executive Officer has sole voting and investment power
with respect to the shares shown (except for the shares identified in footnote
(2) below). If the Transactions had been consummated as of February 25, 1997,
the beneficial ownership of New Morton Common Stock of such persons would have
been the same as set forth below for Morton Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS OWNED(1)
- --------------------------------------------------------------------------- -----------------
<S> <C>
Ralph M. Barford........................................................... 101,500
Walter W. Becky............................................................ 94,472
James R. Cantalupo......................................................... 2,500
William T. Creson.......................................................... 4,500
W. James Farrell........................................................... 500
Dennis C. Fill............................................................. 13,400
James J. Fuerholzer........................................................ 96,359
Stephen A. Gerow........................................................... 115,630
William E. Johnston........................................................ 360,883
Richard L. Keyser.......................................................... 4,444(2)
Frank W. Luerssen.......................................................... 4,500
Edward J. Mooney........................................................... 1,400
George A. Schaefer......................................................... 7,500
S. Jay Stewart............................................................. 812,311
Roger W. Stone............................................................. 7,099(2)
All directors, nominees and executive officers as a group (22 individuals
including those named)................................................... 1,989,814
</TABLE>
Note: The largest individual beneficial holding shown above represents less
than 1% of the outstanding shares; the holdings of the group represent less than
2% of the outstanding shares.
- ------------------------
(1) Shares in this column include shares which the individuals have only the
right to acquire through the exercise of stock options which are exercisable
presently or within 60 days: Mr. Stewart (611,469 shares), Mr. Johnston
(293,692 shares), Mr. Gerow (113,600 shares), Mr. Becky (81,658 shares), Mr.
Fuerholzer (80,418 shares), and all directors and executive officers as a
group (1,444,837 shares).
(2) The total shares owned by Messrs. Keyser and Stone include, respectively,
2,444 and 2,599 shares of phantom stock credited as of December 31, 1996, to
their accounts under Morton's Non-Employee Directors Deferred Compensation
Plan.
52
<PAGE>
DESCRIPTION OF NEW MORTON CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
New Morton's authorized capital stock following the Spinoff will consist of
525,000,000 shares, of which 25,000,000 are shares of preferred stock, par value
$1.00 per share ("New Morton Preferred Stock"), and 500,000,000 are shares of
New Morton Common Stock. All of the shares of New Morton Common Stock to be
issued in the Spinoff will be validly issued, fully paid and non-assessable.
NEW MORTON COMMON STOCK
The holders of New Morton Common Stock will be entitled to one vote for each
share on all matters voted on by shareholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the New Morton Board with respect to any series of New Morton Preferred
Stock, the holders of such shares will exclusively possess all voting power. The
New Morton Articles do not provide for cumulative voting for the election of
directors. Subject to any preferential rights of any outstanding series of New
Morton Preferred Stock designated by the New Morton Board from time to time, the
holders of New Morton Common Stock are entitled to such dividends as may be
declared from time to time by the New Morton Board from funds available
therefor, and upon liquidation will be entitled to receive PRO RATA all assets
of New Morton available for distribution to such holders.
NEW MORTON PREFERRED STOCK
The New Morton Board will be authorized to provide for the issuance of
shares of New Morton Preferred Stock, in one or more series, and to fix for each
such series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the New
Morton Board providing for the issuance of such series and as are permitted by
the IBCL. See "Anti-takeover Effects of Certain Provisions--New Morton Preferred
Stock." In connection with the New Morton Rights Agreement, the New Morton Board
will designate a series of 1,600,000 shares of New Morton Preferred Stock. For a
description of the terms of the shares of New Morton Preferred Stock, see "--New
Morton Rights."
NEW MORTON RIGHTS
The New Morton Board will adopt and cause New Morton to enter into the New
Morton Rights Agreement, and cause one Right to be issued with each share of New
Morton Common Stock issued in the Spinoff. Each Right will entitle the
registered holder to purchase from New Morton one one-hundredth of a share of
New Morton Preferred Stock at a price to be established by the New Morton Board
(the "Purchase Price"), subject to adjustment. The terms of the Rights will be
set forth in the New Morton Rights Agreement. The Rights will operate in
substantially the same manner as Morton's preferred share purchase rights (the
"Morton Rights") issued pursuant to the Morton Rights Agreement.
Until the earlier to occur of (a) 10 days following a public announcement
that a person or group of affiliated or associated persons have acquired
beneficial ownership of 20% or more of the outstanding New Morton Common Stock
(an "Acquiring Person") or (b) 10 business days (or such later date as may be
determined by action of the New Morton Board prior to such time as any person or
group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of such outstanding New Morton Common Stock (the earlier of
such dates being called the "Rights Separation Date"), the Rights will be
evidenced by the book-entry account credits representing shares of New Morton
Common Stock.
The New Morton Rights Agreement will provide that, until the Rights
Separation Date, the Rights will be transferred with and only with the New
Morton Common Stock. Any certificates representing
53
<PAGE>
shares of New Morton Common Stock requested by shareholders and issued after the
Rights Separation Date will contain a notation incorporating the New Morton
Rights Agreement by reference. As soon as practicable following the Rights
Separation Date, a separate book-entry notation evidencing the Rights (the
"Right Notation") will be made to the share accounts of holders of record of the
New Morton Common Stock as of the close of business on the Rights Separation
Date and such separate Right Notations alone will evidence the Rights.
The Rights will not be exercisable until the Rights Separation Date.
Assuming the closing of the Transactions occurs on April 30, 1997, the Rights
will expire on April 30, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by New
Morton, in each case, as described below.
The Purchase Price payable, and the number of shares of New Morton Preferred
Stock or other securities or property issuable, upon exercise of the Rights will
be subject to adjustment from time to time to prevent dilution (a) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the shares of New Morton Preferred Stock, (b) upon the grant to holders of the
shares of New Morton Preferred Stock of certain rights or warrants to subscribe
for or purchase shares of New Morton Preferred Stock at a price, or securities
convertible into shares of New Morton Preferred Stock with a conversion price,
less than the then current market price of the shares of New Morton Preferred
Stock or (c) upon the distribution to holders of the shares of New Morton
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in shares of New Morton Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of New Morton Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the New Morton
Common Stock or a stock dividend on the New Morton Common Stock payable in New
Morton Common Stock or subdivisions, consolidations or combinations of the New
Morton Common Stock occurring, in any such case, prior to the Rights Separation
Date.
Shares of New Morton Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of New Morton Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1 per share
but will be entitled to an aggregate dividend of 100 times the dividend declared
per share of New Morton Common Stock. In the event of liquidation, the holders
of shares of New Morton Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of New Morton Common
Stock. Each share of New Morton Preferred Stock will have 100 votes, voting
together with the New Morton Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which New Morton Common Stock is
exchanged, each share of New Morton Preferred Stock will be entitled to receive
100 times the amount received per share of New Morton Common Stock. These rights
will be protected by customary antidilution provisions.
Because of the nature of their dividend, liquidation and voting rights, the
value of the one one-hundredth interest in a share of New Morton Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of New Morton Common Stock.
In the event that, after the Rights Separation Date, New Morton is acquired
in a merger or other business combination transaction, or if 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right. In the event that any person or group of affiliated or associated persons
becomes the beneficial owner of 20% or more of the outstanding New Morton Common
Stock, proper provision shall be made so that each holder of a Right, other than
Rights beneficially owned by the
54
<PAGE>
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of shares of New Morton Common Stock having
a market value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding New
Morton Common Stock and prior to the acquisition by such person or group of 50%
or more of the outstanding New Morton Common Stock, the New Morton Board may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one share of New
Morton Common Stock, or one one-hundredth of a share of New Morton Preferred
Stock (or of a share of a class or series of New Morton Preferred Stock having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of New Morton Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of New Morton Preferred Stock, which may, at the election of New
Morton, be evidenced by depositary receipts) and in lieu thereof, an adjustment
in cash will be made based on the market price of the shares of New Morton
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding New
Morton Common Stock, the New Morton Board may redeem the Rights in whole, but
not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the New Morton Board, in its sole discretion, may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the New Morton Board without the
consent of the holders of the Rights, including an amendment to lower certain
thresholds described above to not less than the greater of (a) any percentage
greater than the largest percentage of the outstanding New Morton Common Stock
then known to New Morton to be beneficially owned by any person or group of
affiliated or associated persons and (b) 10%, except that, from and after such
time as any person becomes an Acquiring Person, no such amendment may adversely
affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of New Morton, including, without limitation, the right to vote
or to receive dividends.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire New Morton on
terms not approved by the New Morton Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the New
Morton Board since the Rights may be redeemed by New Morton at the Redemption
Price prior to the time that a person or group has acquired beneficial ownership
of 20% or more of the New Morton Common Stock.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the New Morton Rights Agreement, a form of which is
filed as an exhibit to the New Morton Registration Statement.
PREEMPTIVE RIGHTS
No holder of any stock of New Morton of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of New Morton of any kind or class.
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ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
GENERAL
New Morton is a corporation organized under Indiana law, as is Morton.
Pursuant to the IBCL, the New Morton Articles contain several provisions that
will make difficult the acquisition of control of New Morton by means of a
tender offer, open market purchases, a proxy fight or otherwise that is not
approved by the New Morton Board. The New Morton Bylaws also contain provisions
that could have an anti-takeover effect. The New Morton Articles and the New
Morton Bylaws contain substantially the same provisions as the Articles of
Incorporation and Bylaws of Morton.
The purposes of the relevant provisions of the New Morton Articles and the
New Morton Bylaws are to discourage certain types of transactions, described
below, which may involve an actual or threatened change of control of New
Morton, and to encourage persons seeking to acquire control of New Morton to
consult first with the New Morton Board to negotiate the terms of any proposed
business combination or offer. The provisions are designed to reduce the
vulnerability of New Morton to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all outstanding shares or is otherwise unfair
to shareholders of New Morton, or an unsolicited proposal for the restructuring
or sale of all or part of New Morton. New Morton believes that, as a general
rule, such proposals would not be in the best interests of New Morton and its
shareholders.
In some cases, third parties have accumulated substantial stock positions in
public companies as a prelude to proposing a takeover or a restructuring or sale
of all or part of the company or another similar extraordinary corporate action.
Such actions are often undertaken by the third party without advance notice to,
or consultation with, the management or board of directors of, the company. In
many cases, the purchaser seeks representation on the company's board of
directors in order to increase the likelihood that its proposal will be
implemented by the company. If the company resists the efforts of the purchaser
to obtain representation on the company's board of directors, the purchaser may
commence a proxy contest to have its nominees elected to the board in place of
certain directors or the entire board. In some cases, the purchaser may not
truly be interested in taking over the company, but may use the threat of a
proxy fight and/or a bid to take over the company as a means of forcing the
company to repurchase its equity position at a substantial premium over market
price.
New Morton believes that the imminent threat of removal of New Morton's
management or the New Morton Board in such situations would severely curtail the
ability of New Morton's management or the New Morton Board to negotiate
effectively with such purchasers. New Morton's management or the New Morton
Board would be deprived of the time and information necessary to evaluate the
takeover proposal, to study alternative proposals and to help ensure that the
best price is obtained in any transaction involving New Morton which may
ultimately be undertaken. If the real purpose of a takeover bid were to force
New Morton to repurchase an accumulated stock interest at a premium price, New
Morton's management or the New Morton Board would face the risk that, if it did
not repurchase the purchaser's stock interest, New Morton's business and
management would be disrupted, perhaps irreparably.
Certain provisions of the New Morton Articles and New Morton Bylaws, in the
view of New Morton, will help ensure that the New Morton Board, if confronted by
a surprise proposal from a third party which has acquired a block of stock, will
have sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of the
shareholders. In addition, certain other provisions of the New Morton Articles
are designed to prevent a purchaser from utilizing two-tier pricing and similar
inequitable tactics in the event of an attempt to take over New Morton.
The New Morton Articles expressly authorize the New Morton Board to take
such actions as they consider to be reasonably necessary or desirable (a) to
encourage persons seeking a change of control of New Morton to negotiate with
the New Morton Board and (b) to contest or oppose any transaction which may
result in a change of control on terms which the New Morton Board determines to
be unfair, abusive
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or otherwise undesirable, and, in that connection, they explicitly authorize the
New Morton Board to issue rights, options or other securities for this purpose.
See "Description of New Morton Capital Stock--New Morton Rights." In addition,
the New Morton Articles authorize the New Morton Board to take into account the
interests of creditors, customers, employees and the communities in which the
companies do business as well as the long-term interests of shareholders in
considering various corporate actions.
These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight not supported by the New Morton
Board, even if such transaction or occurrence may be favorable to the interests
of the shareholders, and may delay or frustrate the assumption of control by a
holder of a large block of New Morton stock and the removal of incumbent
management, even if such removal might be beneficial to shareholders.
Furthermore, these provisions may deter or could be utilized to frustrate a
future takeover attempt which is not approved by the incumbent New Morton Board,
but which the holders of a majority of the shares may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
stock over prevailing market prices of such stock. By discouraging takeover
attempts, these provisions might have the incidental effect of inhibiting
certain changes in management (some or all of the members of which might be
replaced in the course of a change of control) and also the temporary
fluctuations in the market price of the stock which often result from actual or
rumored takeover attempts.
Set forth below is a description of such provisions in the New Morton
Articles and New Morton Bylaws. Such description is intended as a summary only
and is qualified in its entirety by reference to the New Morton Articles and New
Morton Bylaws, which are filed as exhibits to the New Morton Registration
Statement of which this Information Statement is a part.
CLASSIFIED BOARD OF DIRECTORS
The New Morton Articles provide for the New Morton Board to be divided into
three classes serving staggered terms so that directors' initial terms will
expire either at the 1997, 1998 or 1999 Annual Meeting. Starting with the 1997
Annual Meeting, one class of directors will be elected each year for three-year
terms. See "Management--Directors of New Morton."
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the New Morton Board in
a relatively short period of time. At least two Annual Meetings, instead of one,
will generally be required to effect a change in a majority of the New Morton
Board. Such a delay may help ensure that the New Morton Board, if confronted by
a holder attempting to force a stock repurchase at a premium above market
prices, a proxy contest or an extraordinary corporate transaction, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what they believe are the best interests of the
shareholders.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
New Morton, even though such an attempt might be beneficial to New Morton and
its shareholders. The classified board provision could thus increase the
likelihood that incumbent directors will retain their positions. In addition,
since the classified board provision is designed to discourage accumulations of
large blocks of New Morton's stock by purchasers whose objective is to have such
stock repurchased by New Morton at a premium, the classified board provision
could tend to reduce the temporary fluctuations in the market price of New
Morton's stock that could be caused by accumulations of large blocks of such
stock. Accordingly, shareholders could be deprived of certain opportunities to
sell their stock at a temporarily higher market price.
New Morton believes that a classified board of directors will help to assure
the continuity and stability of the New Morton Board and New Morton's business
strategies and policies as determined by the New Morton Board because generally
a majority of the directors at any given time will have had prior experience as
directors of New Morton. The classified board provision will also help assure
that the New Morton Board, if confronted with an unsolicited proposal from a
third party that has acquired a block of
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the voting stock of New Morton, will have sufficient time to review the proposal
and appropriate alternatives and to seek the best available result for all
shareholders and other corporate constituencies.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The New Morton Articles provide that the number of directors will be fixed
from time to time, in each case, exclusively by the New Morton Board. In
addition, the New Morton Articles provide that, subject to any rights of the
holders of New Morton Preferred Stock, only a majority of the New Morton Board
then in office shall have the authority to fill any vacancies on the New Morton
Board. Accordingly, the New Morton Board could prevent any shareholder from
obtaining majority representation on the New Morton Board by enlarging the New
Morton Board and filling the new directorships with its own nominees. The New
Morton Bylaws provide that the number of directors shall be fixed from time to
time and any vacancy filled by a majority of New Morton's directors, but such
provisions could be amended by an 80% vote of shareholders.
Moreover, the New Morton Articles provide that directors may be removed only
for cause and only by the affirmative vote of holders of at least 80% of the
voting power of all the then outstanding shares of the capital stock entitled to
vote generally in the election of directors ("Voting Stock"), voting together as
a single class. This provision, when coupled with the provision of the New
Morton Articles authorizing only the New Morton Board to fill vacant
directorships, will preclude shareholders from removing incumbent directors
without cause and filling the vacancies created by such removal with their own
nominees.
LIMITATIONS ON SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The New Morton Articles and the New Morton Bylaws each provide that
shareholders may act by written consent only if all shareholders entitled to
vote on the action consent to such action. The New Morton Articles and the New
Morton Bylaws provide that, subject to the rights of holders of any series of
New Morton Preferred Stock, special meetings of shareholders can be called only
by the Chairman of the Board or a majority of the total number of directors
which the New Morton Board would have if there were no vacancies (the "Whole
Board"). Shareholders are not permitted to call a special meeting or to require
that the New Morton Board call a special meeting of shareholders. Moreover, the
business permitted to be conducted at any special meeting of shareholders is
limited to the business brought before the meeting by or at the direction of the
New Morton Board.
The provisions of the New Morton Articles and New Morton Bylaws restricting
shareholder action by written consent may have the effect of delaying
consideration of a shareholder proposal until the next Annual Meeting unless a
special meeting is called by a majority of the Whole Board. These provisions
would also prevent the holders of a majority of the voting power of the Voting
Stock from using the written consent procedure to take shareholder action and
from taking action by consent without giving all the shareholders of New Morton
entitled to vote on a proposed action the opportunity to participate in
determining such proposed action. Moreover, a shareholder could not force
shareholder consideration of a proposal over the opposition of the New Morton
Board by calling a special meeting of shareholders prior to the time the Board
believed such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS
OF DIRECTORS
The New Morton Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the New Morton Board, of
candidates for election as directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an Annual Meeting (the "Business
Procedure"). The Nomination Procedure and Business Procedure are substantially
the same as certain procedures currently contained in Morton's Bylaws.
The Nomination Procedure provides that only individuals who are nominated
by, or at the direction of, the New Morton Board or by a shareholder who has
given timely prior written notice to the Secretary of
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New Morton prior to the meeting at which directors are to be elected, will be
eligible for election as directors. The Business Procedure provides that at an
Annual Meeting, and subject to any other applicable requirements, only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the New Morton Board or by a shareholder who has given timely
prior written notice to the Secretary of New Morton of such shareholder's
intention to bring such business before the meeting. In all cases, to be timely,
notice must be received by New Morton not less than 60 days prior to the meeting
(or if fewer than 70 days' notice or prior public disclosure of the meeting date
is given or made to shareholders, not later than the 10th day following the day
on which such notice was mailed or such public disclosure was made).
Under the Nomination Procedure, notice to New Morton from a shareholder who
proposes to nominate an individual at a meeting for election as a director must
contain certain information about that individual, including age, business and
residence addresses, principal occupation, the class and number of shares of New
Morton stock beneficially owned, the consent to be nominated and such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee, and certain information about
the shareholder proposing to nominate that individual. New Morton may, under the
Nomination Procedure, require any individual nominated by the New Morton Board
to furnish the information that would be required to be set forth in a
shareholder's notice of nomination with respect to such nominee. Under the
Business Procedure, notice relating to the conduct of business other than the
nomination of directors at an Annual Meeting must contain certain information
about such business and about the shareholder who proposes to bring the business
before the meeting, including a brief description of the business the
shareholder proposes to bring before the meeting, the reasons for conducting
such business at such meeting, the class and number of shares of New Morton
stock, beneficially owned by such shareholder, and any material interest of such
shareholder in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated in
accordance with the Nomination Procedure, such individual will not be eligible
for election as a director, or if he or she determines that other business was
not properly brought before such meeting in accordance with the Business
Procedure, such business will not be conducted at such meeting. Nothing in the
Nomination Procedure or the Business Procedure will preclude discussion by any
shareholder of any nomination or business properly made or brought before the
Annual Meeting in accordance with the above-mentioned procedures.
The purpose of the Nomination Procedure is, by requiring advance notice of
nominations by shareholders, to afford the New Morton Board a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the New Morton Board, to inform
shareholders about such qualifications. The purpose of the Business Procedure
is, by requiring advance notice of proposed business, to provide a more orderly
procedure for conducting Annual Meetings, and, to the extent deemed necessary or
desirable by the New Morton Board, to provide the New Morton Board with a
meaningful opportunity to inform shareholders, prior to such meetings, of any
business proposed to be conducted at such meetings, together with any
recommendation as to the New Morton Board's position or belief as to action to
be taken with respect to such business, so as to enable shareholders better to
determine whether they desire to attend such meeting or grant a proxy to the New
Morton Board as to the disposition of any such business. Although the New Morton
Bylaws do not give the New Morton Board any power to approve or disapprove
shareholder nominations for the election of directors or of any other business
desired by shareholders to be conducted at an Annual Meeting, the New Morton
Bylaws may have the effect of precluding a nomination for the election of
directors or precluding the conducting of business at a particular Annual
Meeting if the proper procedures are not followed, and may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of New Morton, even if the
conduct of such solicitation or such attempt might be beneficial to New Morton
and its shareholders.
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NEW MORTON PREFERRED STOCK
The New Morton Articles authorize the New Morton Board to establish series
of preferred stock and to determine, with respect to any series of preferred
stock, the voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof as are
stated in the resolutions of the New Morton Board providing for such series. As
of the Distribution Date, the number of authorized shares of New Morton
Preferred Stock will be 25,000,000.
New Morton believes that the availability of the New Morton Preferred Stock
will provide New Morton with increased flexibility in structuring possible
future financings and acquisitions, and in meeting other corporate needs which
might arise. Having such authorized shares available for issuance will allow New
Morton to issue shares of preferred stock without the expense and delay of a
special shareholders' meeting. The authorized shares of preferred stock, as well
as the authorized shares of common stock, will be available for issuance without
further action by shareholders, unless such action is required by applicable law
or the rules of any stock exchange on which New Morton securities may be listed.
Although the New Morton Board has no intention at the present time of doing so,
it could issue a series of New Morton Preferred Stock that could, subject to
certain limitations imposed by the securities laws and stock exchange rules,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt. For instance, such series of preferred stock
might impede a business combination by including class voting rights that would
enable the holder to block such a transaction. The New Morton Board will make
any determination to issue such shares based on their judgment as to the best
interests of its then existing shareholders. The New Morton Board, in so acting,
could issue preferred stock having terms which could discourage an acquisition
attempt or other transaction that some, or a majority, of the shareholders might
believe to be in their best interests or in which shareholders might receive a
premium for their stock over the then market price of such stock. The New Morton
Rights Agreement expected to be adopted by New Morton exemplifies the use of
such preferred stock and has terms designed to protect against the adverse
consequences to shareholders of partial takeovers, inadequate takeover bids and
other abusive takeover tactics. The authorized and unissued preferred stock, as
well as the authorized and unissued common stock, would be available, and the
New Morton Articles explicitly authorize use of their capital stock, for the
above purposes. See "--Other Provisions."
NEW MORTON COMMON STOCK
The New Morton Articles authorize the New Morton Board to issue up to
500,000,000 shares of New Morton Common Stock.
The increased number of authorized shares of New Morton Common Stock will
provide New Morton with the ability to meet future capital needs and to provide
shares for possible acquisitions and stock dividends or stock splits. The New
Morton Board would have the ability, in the event of a proposed merger, tender
offer or other attempt to gain control of New Morton that was not approved by
the New Morton Board, to issue additional common stock that would dilute the
stock ownership of the acquiror. New Morton does not presently contemplate any
issuance of common stock that might be deemed to have an anti-takeover purpose.
The New Morton Board will make any determination to issue such shares based on
their judgment as to the best interests of New Morton and its shareholders.
FAIR PRICE PROVISION
DEFINITIONS. Article Eighth of the New Morton Articles ("Article Eighth")
confers upon a majority of the Whole Board, or, if a majority of the Whole Board
does not consist of Continuing Directors (as defined below), a majority of the
then Continuing Directors, the power and duty to determine, on the basis
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of information known after reasonable inquiry, the applicability of certain
defined terms used in Article Eighth as well as all other facts necessary to
determine compliance with Article Eighth. A summary of the definitions of
certain of these terms follows.
An "Interested Stockholder" is any person (other than New Morton or a
subsidiary) who or which is (a) the beneficial owner (as defined below) of more
than 10% of the voting power of the outstanding Voting Stock, or (b) an
Affiliate (as defined in Article Eighth) of New Morton and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner of 10% or more of the voting power of the then outstanding Voting Stock,
or (c) an assignee of or has otherwise succeeded to any shares of Voting Stock
which were at any time within the two-year period immediately prior to the date
in question Beneficially Owned (as defined below) by a person described in (a)
or (b) above (other than shares acquired through a public offering).
A person is the "beneficial owner" of, or "Beneficially Owns," any shares of
Voting Stock which such person or any of its Affiliates or Associates (as
defined in Article Eighth) directly or indirectly owns or has the right to
acquire or vote or which are beneficially owned by any member of any group of
such persons having any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares of Voting Stock.
A "Business Combination" includes the following transactions: (a) a merger
or consolidation of New Morton or any of its subsidiaries with an Interested
Stockholder or any corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an Affiliate of such
Interested Stockholder; (b) the sale or other disposition (in one transaction or
a series of transactions) by New Morton or any of its subsidiaries of assets
having an aggregate Fair Market Value (as defined in Article Eighth) of $10
million or more if an Interested Stockholder or any Affiliate or Associate of an
Interested Stockholder is a party to the transaction; (c) the issuance or
transfer (in one transaction or a series of transactions) of any securities of
New Morton or of any of its subsidiaries to an Interested Stockholder or any
Affiliate or Associate of an Interested Stockholder in exchange for cash or
property (including stock or other securities) having an aggregate Fair Market
Value of $10 million or more; (d) the adoption of any plan or proposal for the
liquidation or dissolution of New Morton proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder; (e) any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding stock of
any class of the company or any of its subsidiaries Beneficially Owned by an
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder.
A "Continuing Director" is any member of New Morton Board who is not
affiliated with the Interested Stockholder in question and was a director of New
Morton prior to the time such Interested Stockholder became an Interested
Stockholder, and any director who is thereafter appointed to fill any vacancy on
New Morton Board or who is elected and who, in either event, is not affiliated
with an Interested Stockholder and in connection with his or her initial
assumption of office was recommended by a majority of the Continuing Directors
then on the New Morton Board.
SHAREHOLDER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. Article Eighth
requires the approval of the holders of 80% of the voting power of all of the
then outstanding shares of the Voting Stock, voting together as a single class,
as a condition to Business Combinations, except in cases in which one of the two
alternatives described under "--Exceptions to Higher Vote Requirement" were
applicable and were satisfied. In the event that either of such alternatives
were applicable and satisfied with respect to the particular Business
Combination, the affirmative vote otherwise required by the IBCL, as the case
may be, and the other provisions of the New Morton Articles and by the terms of
any class or series of New Morton stock which might be outstanding at the time
of the Business Combination would apply. See "--Other Applicable Shareholder
Voting Requirements." (Although the New Morton Articles authorize 25,000,000
shares of New Morton Preferred Stock, no such shares will be outstanding
immediately after the Spinoff. If
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any authorized preferred stock were in the future issued, its terms might be
such as to require the approval of a Business Combination by its holders, voting
as a series or class. That requirement would be in addition to, and would not be
affected by, Article Eighth.) Thus, depending upon the circumstances, Article
Eighth may require an 80% shareholder vote for a Business Combination in cases
in which either a majority vote or no vote would presently be required under the
IBCL.
Even if an Interested Stockholder could obtain an 80% affirmative
shareholder vote in favor of a Business Combination--so that neither the
approval of such Business Combination by a majority of the Continuing Directors
nor the satisfaction of the form of consideration, minimum price and procedural
requirements set forth in Article Eighth (or the IBCL, which will govern New
Morton) would be necessary to effect such Business Combination, such Business
Combination may nevertheless (depending upon its nature) require approval by the
New Morton Board prior to its submission to a shareholder vote (such would be
the case, for instance, with respect to a merger or consolidation involving New
Morton). In that case, the Interested Stockholder could not effect such Business
Combination, regardless of its ability to assure an 80% shareholder vote,
without New Morton Board action. Further, even were an Interested Stockholder
able to obtain votes sufficient to effect a repeal of such provisions, it could
not, under the New Morton Articles, exercise its power by written consent or
compel the New Morton Board to call a special meeting of shareholders for the
purpose of voting on such repeal. As discussed above, as a result of the
classified board provisions in the New Morton Articles, an interested
shareholder could not be assured of gaining control of the New Morton Board
until at least two Annual Meetings had been held. In addition, Section 23-1-43-1
ET SEQ. of the IBCL ("Section 23-1-43"), which restricts second-step mergers
with Interested Stockholders (and are described more fully below), might also
operate to prevent the ability of an Interested Stockholder to effect a Business
Combination. See "--Other Applicable Shareholder Voting Requirements--Section
23-1-43 of the IBCL."
EXCEPTIONS TO HIGHER VOTE REQUIREMENT. In the case of a Business
Combination that involved the receipt of cash or other consideration by New
Morton shareholders, solely in their capacity as shareholders, the 80%
affirmative shareholder vote requirement would not apply if either (a) the
Business Combination were approved by a majority of the Continuing Directors (in
order for this condition to be satisfied there must be at least three Continuing
Directors), or (b) all of the requirements described in paragraphs (a), (b) and
(c) below were satisfied.
If the Business Combination did not involve the receipt of consideration by
New Morton's shareholders solely as shareholders (E.G., because it took the form
of a sale of assets or an original issuance of the company's securities to an
Interested Shareholder), only approval by a majority of the Continuing Directors
would avoid the requirement for such 80% shareholder vote, although, as noted
above (see "-- Shareholder Vote Required for Certain Business Combinations"),
such Business Combination might, depending upon the circumstances, otherwise
require a lesser or no shareholder vote. If there were fewer than three
Continuing Directors, such Business Combination would necessarily require such
80% shareholder vote. On the other hand, approval by a majority of the
Continuing Directors would, with respect to any Business Combination, avoid both
the 80% shareholder vote requirement and the need to satisfy all of the
requirements described below.
As noted above, under the IBCL a particular Business Combination may,
depending upon its nature, require approval of the New Morton Board and/or
less-than-80% shareholder approval. Neither the approval of such Business
Combination by a majority of the Continuing Directors nor the satisfaction of
the form of consideration, minimum price and procedural requirements of Article
Eighth with respect to such Business Combination would supersede those
requirements of the IBCL or any class voting requirements with respect to any
series or class of New Morton stock then outstanding. It also would not
supersede the requirements of Section 23-1-43, which are discussed below.
Rather, such approval or satisfaction of such form of consideration, minimum
price and procedural requirements would eliminate only the requirement for the
80% shareholder vote otherwise required by Article Eighth. In order to avoid the
requirement of an 80% shareholder vote or approval by a majority of the
Continuing Directors in the
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case of a Business Combination that involved the receipt of cash or other
consideration by New Morton shareholders, the following conditions must be met:
(a) FORM OF CONSIDERATION REQUIREMENT. The consideration to be
received by holders of a particular class (or series) of capital stock in
the Business Combination would be required to be either cash or the same
type of consideration used by the Interested Stockholder and its Affiliates
in acquiring the largest portion of their interest in such class (or series)
of capital stock. If the Interested Stockholder and its Affiliates have not
previously purchased any shares of such class (or series) of capital stock,
the consideration paid to holders of shares of that class (or series) in the
Business Combination would be required to be cash.
(b) MINIMUM PRICE REQUIREMENTS. The aggregate of (i) the cash and (ii)
the Fair Market Value, as of the date of consummation of the Business
Combination (the "Consummation Date"), of any consideration other than cash
to be received per share by holders of New Morton Common Stock, in the
Business Combination would have to be at least equal to the higher of (A)
the highest per share price paid by the Interested Stockholder or any of its
Affiliates in acquiring any shares of the company's Common Stock during the
two years immediately prior to the date of the first public announcement of
the proposal of the Business Combination (the "Announcement Date") or in any
transaction in which the Interested Stockholder became an Interested
Stockholder (whichever is higher), PLUS interest compounded annually from
the first date on which the Interested Stockholder became an Interested
Stockholder (the "Determination Date") through the Consummation Date at the
publicly announced base rate of interest of The First National Bank of
Chicago or such other major bank headquartered in the City of Chicago, as
may be selected by the Continuing Directors, from time to time in effect in
the City of Chicago, LESS the aggregate dividends paid on each share of New
Morton Common Stock from the Determination Date through the Consummation
Date up to but not exceeding the amount of interest so payable per share of
New Morton Common Stock, and (B) the Fair Market Value per share of New
Morton Common Stock on the Announcement Date or the Determination Date, as
the case may be, whichever is higher.
The higher of (A) and (B) above would have to be paid in respect of all
outstanding shares of New Morton's Common Stock, whether or not the
Interested Stockholder or any of its Affiliates had previously acquired any
shares of New Morton Common Stock. If the Interested Stockholder and its
Affiliates did not purchase any shares of New Morton Common Stock, as the
case may be, during the two-year period prior to the Announcement Date or in
the transaction in which the Interested Stockholder became an Interested
Stockholder (E.G., if the Interested Stockholder became an Interested
Stockholder by purchasing shares of any then outstanding class of voting New
Morton Preferred Stock), the minimum price would be as determined under (B).
Under (A), interest and dividends would be computed from the Determination
Date whether the highest price during the two-year period prior to the
Announcement Date were higher than the price paid in the transaction on the
Determination Date or VICE VERSA and whether the Determination Date occurred
before or after the beginning of such two-year period. Thus, for instance,
if the highest price per share paid by the Interested Stockholder and its
Affiliates during such two-year period was higher than the price paid in the
transaction on the Determination Date and the Determination Date occurred
before the beginning of such two-year period, interest and dividends would
nevertheless be required to be computed on such highest price from the
Determination Date. Since (B) does not include an interest factor, if (B)
exceeded (A) no interest would be included in computing the per share amount
required to be paid in the Business Combination.
As indicated above, none of the New Morton Preferred Stock will be
outstanding immediately after the Spinoff. If any series of the New Morton
Preferred Stock were in the future issued with voting rights and were
outstanding at the time of consummation of the Business Combination, then,
unless such series were excluded from the provisions of Article Eighth by
the terms of the resolution authorizing such series, the payments to holders
of shares of such series of New Morton Preferred
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Stock would have to be at least equal to the higher of (a) the highest per
share price determined with respect to such series in the same manner as
described above with respect to New Morton Common Stock, and (b) the highest
preferential amount per share to which the holders of such class or series
of New Morton Preferred Stock would be entitled in the event of a voluntary
or involuntary liquidation, dissolution or winding up of New Morton. The
minimum price requirement would have to be met with respect to each class or
series of outstanding Voting Stock whether or not the Interested Stockholder
was a beneficial owner of shares of that class or series prior to the
Business Combination.
Under the minimum price requirements, the Fair Market Value of non-cash
consideration to be received by holders of shares of any class of Voting
Stock in a Business Combination is to be determined as of the Consummation
Date. Where the definitive terms of such non-cash consideration were
established in advance of the Consummation Date, intervening adverse
developments, either in the economy or the market generally or in the
financial condition or business of the Interested Stockholder, could result
in a decline in the originally anticipated Fair Market Value of such
consideration, so that, on the date scheduled for its consummation, the
Business Combination, which had theretofore been considered as not requiring
an 80% shareholder vote or approval by a majority of the Continuing
Directors (I.E., because it was expected to satisfy the minimum price
requirements and it satisfied the form of consideration and procedural
requirements), could not be consummated because it had not received such
vote or approval (even if it had received any less-than-80% shareholder vote
required by or the IBCL, as the case may be, and any separate class vote
required by the terms of any class or series of then-outstanding New Morton
stock) and did not, in fact, meet the minimum price requirements on such
date. However, an Interested Stockholder could avoid such a situation by
establishing, in advance, terms for the Business Combination whereby the
non-cash consideration was to be finalized by reference to its Fair Market
Value on the Consummation Date. Such an approach, which has in fact been
used in connection with mergers and similar second-step transactions in the
past, would assure that the Interested Stockholder would bear the risk of a
decline in the Fair Market Value of the offered consideration prior to the
consummation of the Business Combination. Article Eighth uses the
Consummation Date as the determination date of the Fair Market Value of
non-cash consideration to be paid in a Business Combination in order to
ensure that the Interested Stockholder uses this approach so that the
Interested Stockholder, and not the other shareholders, would bear this
risk.
In addition, since the minimum price requirements call for a
determination to be made with respect to interest at the base rate
compounded, and dividends per share paid, through the Consummation Date, in
a particular case it might not be possible to determine with certainty
whether, at the time a Business Combination was submitted for shareholder
approval, it would ultimately satisfy the minimum price requirements on the
Consummation Date. Accordingly, it might not be possible to determine with
certainty whether the Business Combination would require an 80% shareholder
vote or the lesser vote otherwise applicable under the IBCL, and, until the
Consummation Date, there might be uncertainty as to whether the Business
Combination, if it in fact received less than an 80% affirmative shareholder
vote, could be consummated under Article Eighth. This uncertainty could
deter an Interested Stockholder who did not own (and was not assured of
obtaining the affirmative votes of) 80% of the voting power of the Voting
Stock from going forward with a Business Combination that had not been
approved by a majority of the Continuing Directors. However, New Morton
considers that it is appropriate, for the reasons indicated above, to use
the Consummation Date as the determination date with respect to the minimum
price requirements of Article Eighth and that this will benefit shareholders
by encouraging the Interested Stockholder to negotiate with the Continuing
Directors (and to refrain from taking action which would result in there
being fewer than three Continuing Directors) and obtain their approval of
the Business Combination, since such approval would avoid the applicability
of both the 80% shareholder approval requirement and the minimum price
requirement.
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(c) PROCEDURAL REQUIREMENTS. In order to avoid the requirement of an
80% affirmative shareholder vote or approval by a majority of the Continuing
Directors, after an Interested Stockholder became an Interested Stockholder
and prior to the consummation of a Business Combination, all of the
following procedural requirements, as well as the form of consideration and
minimum price requirements, must be complied with.
The first procedural requirement would be that New Morton, after the
Determination Date, not have failed to pay full quarterly dividends on any
then outstanding New Morton Preferred Stock and not have reduced the rate of
dividends paid on New Morton Common Stock, unless such failure or reduction
was approved by a majority of the Continuing Directors. This provision is
designed to prevent an Interested Stockholder from attempting to depress the
market price of the Voting Stock prior to proposing a Business Combination
by reducing dividends thereon, and thereby reducing the consideration
required to be paid pursuant to the minimum price requirements of Article
Eighth.
The second procedural requirement would be that the Interested
Stockholder and its Affiliates not have acquired any additional shares of
the Voting Stock, directly from New Morton, or otherwise, in any transaction
subsequent to the transaction pursuant to which the Interested Stockholder
became an Interested Stockholder. This provision is intended to prevent an
Interested Stockholder from purchasing additional shares of Voting Stock at
prices which are lower than those set by the minimum price requirements of
Article Eighth. Since all of the form of consideration, minimum price and
procedural requirements must be satisfied in order for the Interested
Stockholder to avoid the need for either an 80% affirmative shareholder vote
or the approval of a majority of any Continuing Directors, an effect of this
provision, where the Interested Stockholder or any of its Affiliates
acquired additional shares of Voting Stock after the Interested Stockholder
became an Interested Stockholder, is that the Interested Stockholder could
only acquire all of the Voting Stock by means of a Business Combination if
such Business Combination either satisfied the 80% shareholder approval
requirement or were approved by a majority of the Continuing Directors.
Thus, for instance, in the context of a three-step transaction involving
open-market purchases of shares which would represent 20% of the voting
power of the Voting Stock, a cash tender offer for an additional 25% of such
voting power and a Business Combination as the final step, the Business
Combination would require such 80% shareholder approval or the approval of a
majority of the Continuing Directors because the Interested Stockholder
would have become an Interested Stockholder through the open-market
purchases and the tender offer would have constituted additional purchases
prior to the consummation of the Business Combination. (This example should
be contrasted with the example given in paragraph (b) ("--Minimum Price
Requirements"), where only 4.9% of the outstanding Voting Stock was acquired
by open-market purchases and the Interested Stockholder became such as an
immediate result of the tender offer.)
The third procedural requirement would be that the Interested
Stockholder and its Affiliates not have received, at any time after the
Interested Stockholder became an Interested Stockholder, whether in
connection with the Business Combination or otherwise, the benefit of any
loans or other financial assistance or tax advantages provided by New
Morton, as the case may be (other than proportionately, solely in its
capacity as a shareholder). This provision is intended to deter an
Interested Stockholder from self-dealing or otherwise taking advantage of
its equity position in New Morton by using New Morton's resources to finance
the Business Combination or otherwise for its own purposes in a manner not
proportionately available to all shareholders.
The fourth procedural requirement would be that a proxy or information
statement disclosing the terms and conditions of the Business Combination
and complying with the requirements of the proxy rules promulgated under the
Exchange Act, or any replacement legislation be mailed to all shareholders
of New Morton at least 30 days prior to the consummation of the Business
Combination, whether or not such proxy or information statement is required
to be mailed pursuant to the Exchange Act or any such replacement
legislation. This provision is intended to ensure that shareholders will be
fully
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informed of the terms and conditions of the Business Combination even if the
Interested Stockholder were not otherwise required by law to disclose such
information to shareholders.
The final procedural requirement would be that the Interested
Stockholder have supplied New Morton with all information requested by the
Continuing Directors pursuant to Article Eighth. Under Section E of Article
Eighth, the Continuing Directors have the right to request information as to
the beneficial ownership of stock by the Interested Stockholder and other
factual matters relating to the applicability and effect of Article Eighth.
OTHER APPLICABLE SHAREHOLDER VOTING REQUIREMENTS
As stated above, if the approval of a majority of the Continuing Directors
is obtained or all of the minimum price and procedural conditions specified in
proposed Article Eighth are satisfied, the Business Combination would be subject
only to the applicable voting requirements, if any, specified under the IBCL,
and the rules of the NYSE or other applicable stock exchange. In general, under
current provisions of the IBCL, most mergers and consolidations, the sale of
substantially all of the assets (such sales out of the ordinary course of
business) and any reclassification of securities or plan for the dissolution of
the company must be approved by the board of directors and by the vote of the
holders of a majority of the outstanding shares entitled to vote thereon. Under
the New Morton Articles, the holder of each currently outstanding share of New
Morton Common Stock is entitled to one vote per share on all such matters. Under
the rules of the NYSE, issuances of shares in connection with acquisition from
substantial security holders or the issuance of additional shares of common
stock aggregating 20% or more of the outstanding shares of common stock (other
than in public offerings for cash) require the approval of the holders of a
majority of the shares voting thereon. Other transactions do not require
shareholder approval.
SECTION 23-1-43 OF THE IBCL. Section 23-1-43 generally prohibits a
"resident domestic corporation" of Indiana, such as New Morton, from engaging in
any Business Combination (as defined below) with any "Interested Shareholder"
(defined generally as any person that, individually or with or through any of
its Affiliates or Associates, beneficially owns 10% or more of the outstanding
voting securities of the corporation) for a period of five years after the date
the person becomes an Interested Shareholder unless, before such person became
an Interested Shareholder, the board of directors of the corporation approved
either the Business Combination or the purchase of more than 10% of the
corporation's voting securities by the Interested Shareholder. Section 23-1-43
also provides that a resident domestic corporation may not engage in a merger or
other Business Combination with an Interested Shareholder at any time after such
five-year period unless (a) certain "fair price" criteria are satisfied
(including a requirement that the Interested Shareholder and its Affiliates and
Associates have not purchased any additional shares after first acquiring 10% of
the corporation's voting securities) or (b) the Business Combination is approved
by a majority of the "disinterested" voting securities of the corporation.
A "Business Combination" is defined in Section 23-1-43 as (a) any merger of
a resident domestic corporation or any of its subsidiaries with (i) an
Interested Shareholder or (ii) any other corporation which is, or after a merger
or consolidation would be, an affiliate or associate of an Interested
Shareholder, (b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with an
Interested Shareholder or any of its Affiliates or Associates of assets of a
resident domestic corporation or any of its subsidiaries (i) having an aggregate
market value equal to 10% or more of the aggregate market value of all assets,
determined on a consolidated basis, of the resident domestic corporation, (ii)
having an aggregate market value equal to 10% or more of the aggregate market
value of all the outstanding shares of the resident domestic corporation, or
(iii) representing 10% or more of the earning power or net income, determined on
a consolidated basis, of the resident domestic corporation, (c) the issuance or
transfer by a resident domestic corporation or any of its subsidiaries (in one
transaction or a series of transactions) of any shares of the resident domestic
corporation or any of its subsidiaries which has an aggregate market value equal
to 5% or more of the aggregate market value of all the outstanding shares of the
resident domestic corporation to an Interested Shareholder or any of its
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Affiliates or Associates, except pursuant to the exercise of warrants or rights
to purchase shares offered, or a dividend or distribution paid or made, pro rata
to all shareholders of the resident domestic corporation, (d) the adoption of a
plan of liquidation or dissolution of a resident domestic corporation proposed
by, or pursuant to any agreement, arrangement or understanding with, an
Interested Shareholder or any of its Affiliates or Associates, (e) any
reclassification of securities (including, without limitation, any share split,
share dividend or other distribution of shares in respect of shares, or any
reverse share split), or recapitalization of a resident domestic corporation, or
any merger or consolidation of a resident domestic corporation with any of its
subsidiaries, or any other transaction (whether or not with or into or otherwise
involving an Interested Shareholder), proposed by, or pursuant to any agreement,
arrangement or understanding with, an Interested Shareholder or any of its
Affiliates or Associates, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class or
series of voting shares or securities convertible into voting shares of a
resident domestic corporation or any of its subsidiaries which is directly or
indirectly owned by the Interested Shareholder or any of its Affiliates or
Associates (except as a result of immaterial changes due to fractional share
adjustments), or (f) any receipt by an Interested Shareholder or any of its
Affiliates or Associates, directly or indirectly (except proportionately as a
shareholder of the resident domestic corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or tax
advantages provided by or through the resident domestic corporation.
OTHER PROVISIONS
Article Tenth of the New Morton Articles ("Article Tenth") generally
provides that, in determining whether to take or refrain from taking corporate
action on any matter, the New Morton Board may take into account the interests
of creditors, customers, employees and other constituencies of New Morton and
each of its subsidiaries and the effect upon communities in which the company
and its subsidiaries do business, as well as the long-term interests of
shareholders in addition to any other considerations which the New Morton Board
may lawfully take into account. The purpose of the proposed Article Tenth is to
specifically authorize the New Morton Board to consider the interests of various
constituencies of the company and its subsidiaries, in addition to the interests
of shareholders, including their long-term interests. This authorization applies
to the entire range of New Morton Board actions and decisions, including, but
not limited to, takeover-related matters. In deciding to include Article Tenth
in the New Morton Articles, New Morton considered that, under a number of
circumstances, certain shareholder interests may conflict with the interests of
other constituencies of the company and its subsidiaries. However, New Morton
concluded that Article Tenth is desirable to emphasize the New Morton Board's
authority to act to maintain and protect New Morton as an enterprise. In
addition, the IBCL specifically authorizes such considerations and the New
Morton Articles conform to such provisions of the IBCL.
Article Eleventh of the New Morton Articles ("Article Eleventh") expressly
authorizes the Board to take such action as it may determine to be reasonably
necessary or desirable to encourage any person or entity to enter into
negotiations with the New Morton Board and management respecting any transaction
which may result in a change of control of New Morton, and to contest or oppose
any such transaction which the New Morton Board determines to be unfair, abusive
or otherwise undesirable to the company, its businesses or shareholders. In this
connection, Article Eleventh specifically permits the New Morton Board to adopt
plans or to issue securities of the company (including New Morton Common Stock
or New Morton Preferred Stock, rights or debt securities), which securities may
be exchangeable or convertible into cash or other securities on such terms as
the New Morton Board determines and may provide for differential and unequal
treatment of different holders or classes of shareholders. Article Eleventh of
the New Morton Articles provides that such issuances may or may not be PRO RATA
to shareholders. See "Description of New Morton Capital Stock--New Morton
Rights." The existence of this authority or the actions which may be taken by
New Morton Board pursuant thereto may deter potential acquirors from proposing
unsolicited transactions not approved by the New Morton Board and might enable
the New Morton Board to hinder or frustrate such a transaction if proposed.
Article Eleventh is included in the
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New Morton Articles to confirm and support the authority of the New Morton Board
to take the various actions authorized thereby, including, but not limited to,
adoption of the New Morton Rights Agreement. It is also designed to enable the
New Morton Board to utilize such other tactics or mechanisms as are developed in
the future to carry out the general authorization set forth therein.
AMENDMENT OF THE NEW MORTON ARTICLES AND NEW MORTON BYLAWS
The New Morton Articles contain provisions requiring the affirmative vote of
the holders of at least 80% of the Voting Power of the Voting Stock to amend
certain provisions of such Articles (including the provisions discussed under
"Anti-takeover Effects of Certain Provisions"). The New Morton Articles provide
that only the New Morton Board (and not the shareholders) can amend any
provision of the New Morton Bylaws. These provisions will make it more difficult
for shareholders to make changes in the New Morton Articles and New Morton
Bylaws, including changes designed to facilitate the exercise of control over
New Morton. In addition, the requirement for approval by at least an 80%
shareholder vote will enable the holders of a minority of New Morton's capital
stock to prevent holders of a less-than-80% majority from amending such
provisions of the New Morton Articles.
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LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF NEW MORTON
GENERAL
Article Ninth of the New Morton Articles ("Article Ninth") limits the
personal liability of New Morton directors to New Morton or its shareholders for
monetary damages for breach of fiduciary duty. Article Ninth also defines and
clarifies the rights of certain individuals, including New Morton directors and
officers, to indemnification by New Morton in the event of personal liability or
expenses incurred by them as a result of certain litigation against them. The
New Morton Articles are consistent with (a) Section 23-1-35-1(e) of the IBCL,
which is designed, among other things, to encourage qualified individuals to
serve as directors by permitting Indiana corporations to include in their
articles of incorporation a provision limiting or eliminating directors'
liability for monetary damages, and (b) with other existing Indiana provisions
permitting indemnification of certain individuals, including directors and
officers. The limitations of liability in the New Morton Articles may not affect
claims arising under the federal securities laws.
In performing their duties, directors of an Indiana corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determine in good faith, after appropriate consideration, to be
the best interests of the corporation and its shareholders. Decisions made on
that basis are protected by the so-called "business judgment rule." The business
judgment rule is designed to protect directors from personal liability to the
corporation or its shareholders when business decisions are subsequently
challenged. However, the expense of defending lawsuits, the frequency with which
unwarranted litigation is brought against directors and the inevitable
uncertainties with respect to the outcome of applying the business judgment rule
to particular facts and circumstances mean that, as a practical matter,
directors and officers of a corporation rely on indemnity from, and insurance
procured by, the corporation they serve as a financial backstop in the event of
such expenses or unforeseen liability. The Indiana legislature had recognized
that adequate insurance and indemnity provisions are often a condition of an
individual's willingness to serve as director of an Indiana corporation. The
IBCL has for some time specifically permitted corporations to provide indemnity
and procure insurance for its directors and officers.
Changes in the market for directors and officers liability insurance
sometimes have resulted in the unavailability for directors and officers of many
corporations of any meaningful liability insurance coverage. Insurance carriers
have in certain cases declined to renew existing directors' and officers'
liability policies, or have increased premiums to such an extent that the cost
of obtaining such insurance becomes prohibitive. Moreover, current policies
often exclude coverage for areas where the service of qualified independent
directors is most needed. For example, many policies do not cover liabilities or
expenses arising from directors' and officers' activities in response to
attempts to take over a corporation. Such limitations on the scope of insurance
coverage, along with high deductibles and low limits of liability, have
undermined meaningful directors and officers liability insurance coverage.
The unavailability of meaningful directors' and officers' liability
insurance is attributable to a number of factors, many of which are affecting
the liability insurance industry generally, including granting of unprecedented
damages awards and reduced investment income on insurance company investments.
According to published sources, the inability of corporations to provide
meaningful director and officer liability insurance has had a damaging effect on
the ability of public corporations to recruit and retain corporate directors.
Although New Morton has not experienced this problem, New Morton believes that
it should take every possible step to ensure that New Morton will be able to
attract the best possible officers and directors.
Article Ninth will be approved, along with the rest of the New Morton
Articles, by Morton, as sole shareholder of New Morton prior to the Distribution
Date.
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Set forth below is a description of Article Ninth. Such description is
intended as a summary only and is qualified in its entirety by reference to the
New Morton Articles.
NEW MORTON ARTICLE NINTH
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. Article Ninth sets forth
the limits of the liability of directors, officers, employees and agents
(collectively, "Corporate Persons") in accordance with the IBCL. Corporate
Persons will not be liable for any loss or damage suffered on account of any
action taken or omitted to be taken if (a) such person (i) acted in good faith,
(ii) with the care an ordinarily prudent person in a like position would have
exercised under similar circumstances, and (iii) in a manner such person
reasonably believed was in the best interests of New Morton or (b) such person's
breach of or failure to act in accordance with the standards of conduct set
forth in (a) did not constitute willful misconduct or recklessness (the
"Standards of Conduct"). In addition, Corporate Persons will be deemed to have
complied with the Standards of Conduct if, in good faith, they relied upon
corporate records, information prepared by other Corporate Persons, legal
counsel, public accountants and the New Morton Board if that Corporate Person is
not a director and if such Corporate Person reasonably believed the records or
persons upon whom such person relied merited confidence. The elimination of
liability of Corporate Persons for monetary damages in the circumstances
described above may deter persons from bringing third-party or derivative
actions against Corporate Persons to the extent such actions seek monetary
damages.
INDEMNIFICATION AND INSURANCE. Article Ninth provides for indemnification
and insurance on behalf of Corporate Persons (and certain others acting on
behalf of New Morton or its affiliates in accordance with the IBCL. Mandatory
indemnification is provided for Corporate Persons to the extent such person is
successful in defending any action, suit or proceeding, whether civil or
criminal, administrative or investigative, formal or informal (an "Action")
against any expenses, including attorneys' fees. In all other situations, unless
ordered by a court, any indemnification of a Corporate Person under Article
Ninth shall be made by New Morton only as authorized in the specific case upon a
determination that indemnification of such person is proper in the circumstances
because such person met the Indemnification Standards. The "Indemnification
Standards" are as follows: the Corporate Person (a) acted in good faith, (b)
acted in a manner such Corporate Person reasonably believed (i) with respect to
actions as a Corporate Person, to be in the best interests of New Morton or (ii)
with respect to actions while serving, at the request of New Morton, as a
Corporate Person, partner, trustee or member or in another authorized capacity
of or for another entity, was not opposed to the best interests of New Morton,
and (c) with respect to any criminal Action, either (i) had reasonable cause to
believe such Corporate Person's conduct was lawful or (ii) had no reasonable
cause to believe such Corporate Person's conduct was unlawful.
The determination that the Indemnification Standards were met will be made
(a) by the New Morton Board, by a majority vote of a quorum consisting of
directors who are not at the time parties to the Action involved, (b) if a
quorum cannot be so obtained, by a majority vote of a committee duly designated
by the New Morton Board, consisting solely of two or more directors who are not
at the time parties, (c) by written opinion of legal counsel or (d) by the
shareholders who are not at the time parties, voting together as a single class.
Also, Article Ninth provides for the advancement of expenses if the
Corporate Person furnishes a written affirmation of such Corporate Person's good
faith belief that such Corporate Person has met the Indemnification Standards
(and an agreement to repay such advance if it is ultimately determined that such
Corporate Person did not meet the Indemnification Standards), and a
determination is made that, based upon the facts then known, indemnification as
set forth above would not be precluded. The rights granted under Article Ninth
are deemed not to be the exclusive indemnification rights, and additional
indemnification may be provided by law or by action of directors or
shareholders. New Morton may purchase insurance for any Corporate Person against
any liability asserted against and incurred by such
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Corporate Person in any such capacity, or arising out of such Corporate Person's
status as such, whether or not New Morton would have the power to indemnify such
Corporate Person.
INDEPENDENT AUDITORS
The consolidated financial statements of Morton International, Inc. at June
30, 1996 and 1995, and for each of the three years in the period ended June 30,
1996, included in this Information Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein.
SHAREHOLDER PROPOSALS
Section 2.8 of the New Morton Bylaws, filed as an exhibit to the New Morton
Registration Statement of which this Information Statement is a part, sets forth
advance notice requirements applicable to shareholders desiring to nominate
candidates for directors or to present a proposal or bring other business before
a New Morton shareholders meeting. In each case, the notice must be given to the
Secretary of New Morton whose address is 100 North Riverside Plaza, Chicago,
Illinois 60606. The 1997 Annual Meeting is expected to be held on October 23,
1997. For the 1997 Annual Meeting, any nominations of candidates for directors
must be received by the Corporate Secretary of New Morton at its principal
executive offices between July 18 and August 18, 1997, and shareholder proposals
must be received no later than May 20, 1997. To be included in New Morton's
proxy statement and form of proxy for that meeting, any such nomination or
proposal must also comply in all respects with the rules and regulations of the
SEC.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- --------------------------------------------- ---------
<S> <C>
Acquiring Person............................. 53
Action....................................... 70
Agreements................................... 49
Announcement Date............................ 63
Annual Meeting............................... 40
Article Eighth............................... 60
Article Eleventh............................. 67
Article Ninth................................ 69
Article Tenth................................ 67
ASP Business................................. 2
ASP Employees................................ 22
ASP Merger Sub............................... 14
Autoliv...................................... 2
beneficial owner............................. 61
Beneficially Owns............................ 61
Benefits Agreement........................... 22
Business Combination......................... 61
Business Procedure........................... 58
Capital Contribution......................... 3
Code......................................... 17
Combination.................................. 2
Combination Agreement........................ 14
Company...................................... 23
Compulsory Acquisition....................... 2
Consummation Date............................ 63
Continuing Director.......................... 61
Corporate Persons............................ 70
CSE.......................................... 14
Determination Date........................... 63
Distribution Agent........................... 19
Distribution Agreement....................... 17
Distribution Date............................ 19
Distribution Record Date..................... 14
DMRs......................................... 38
EPA.......................................... 38
Exchange Act................................. 13
Exchange Offer............................... 2
Executive Officers........................... 42
FASB......................................... 26
Final Expiration Date........................ 54
First Chicago Trust.......................... 16
Goldman Sachs................................ 19
IBCL......................................... 16
Indemnification Standards.................... 70
Information Statement........................ 2
Interested Shareholder....................... 66
Interested Stockholder....................... 61
<CAPTION>
DESCRIPTION PAGE
- --------------------------------------------- ---------
<S> <C>
IRS.......................................... 14
LSARs........................................ 48
LTIP......................................... 44
Measurement Date............................. 46
Merger....................................... 2
Morton....................................... 2
Morton ASP................................... 2
Morton Board................................. 3
Morton Common Stock.......................... 2
Morton Compensation Committee................ 45
Morton Rights................................ 53
Morton Rights Agreement...................... 17
Named Executive Officers..................... 44
New Autoliv.................................. 2
New Autoliv Common Stock..................... 2
New Morton................................... 2
New Morton Articles.......................... 16
New Morton Board............................. 16
New Morton Businesses........................ 3
New Morton Bylaws............................ 16
New Morton Common Stock...................... 3
New Morton Compensation Committee............ 40
New Morton Employees......................... 22
New Morton Preferred Stock................... 53
New Morton Registration Statement............ 13
New Morton Rights Agreement.................. 16
NJDEP........................................ 37
Nomination Procedure......................... 58
NYSE......................................... 14
Private Letter Ruling........................ 14
Proxy Statement/Prospectus/Exchange Offer.... 2
Pulverlac.................................... 3
Purchase Price............................... 53
PVC.......................................... 34
Redemption Price............................. 55
Related Agreements........................... 22
RI/FS........................................ 37
Right........................................ 14
Right Notation............................... 54
Rights Separation Date....................... 53
RONA......................................... 46
Salins du Midi............................... 3
Salt Business................................ 3
SEC.......................................... 13
Section 23-1-43.............................. 62
Securities Act............................... 21
</TABLE>
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<TABLE>
<CAPTION>
DESCRIPTION PAGE
- --------------------------------------------- ---------
<S> <C>
SERP......................................... 51
Specialty Chemicals Business................. 3
Spinoff...................................... 2
Standards of Conduct......................... 70
Swedish Sub.................................. 2
Tax Opinion.................................. 14
<CAPTION>
DESCRIPTION PAGE
- --------------------------------------------- ---------
<S> <C>
Tax Opinions................................. 14
Tax Sharing Agreement........................ 22
Transactions................................. 14
Velsicol..................................... 37
Voting Stock................................. 58
Whole Board.................................. 58
</TABLE>
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INDEX TO FINANCIAL STATEMENTS OF
MORTON INTERNATIONAL, INC.*
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements
Report of Independent Auditors........................................................................... F-2
Consolidated Statements of Income........................................................................ F-3
Consolidated Balance Sheets.............................................................................. F-4
Consolidated Statements of Cash Flows.................................................................... F-5
Notes to Consolidated Financial Statements............................................................... F-6
Quarterly Financial Highlights (Unaudited)............................................................... F-18
Unaudited Consolidated Interim Financial Statements
Consolidated Statements of Income and Retained Earnings (Unaudited)...................................... F-19
Consolidated Balance Sheet (Unaudited)................................................................... F-20
Consolidated Statements of Cash Flows (Unaudited)........................................................ F-21
Notes to Consolidated Financial Statements (Unaudited)................................................... F-22
</TABLE>
- ------------------------
* For financial reporting purposes under the federal securities laws, New
Morton International, Inc. will be the "successor registrant" to Morton
International, Inc.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and
Board of Directors
Morton International, Inc.
We have audited the accompanying consolidated balance sheets of Morton
International, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
company's management. Our reponsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 consolidated financial position of Morton
International, Inc. at June 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," in 1996.
ERNST & YOUNG LLP
Chicago, Illinois
July 31, 1996
F-2
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales...................................................................... $ 3,612.5 $ 3,325.9 $ 2,849.6
Interest, royalties and sundry income.......................................... 73.7 29.0 27.9
--------- --------- ---------
3,686.2 3,354.9 2,877.5
Deductions from income:
Cost of products sold.......................................................... 2,566.3 2,348.8 1,981.6
Selling, administrative and general expense.................................... 436.4 424.4 434.0
Research and development expense............................................... 80.2 72.5 66.1
Interest expense............................................................... 24.6 28.4 27.8
Amortization of goodwill....................................................... 10.3 10.3 10.4
Special charges................................................................ 29.2 -- --
--------- --------- ---------
3,147.0 2,884.4 2,519.9
--------- --------- ---------
Income before income taxes..................................................... 539.2 470.5 357.6
Income taxes................................................................... 205.0 176.4 131.1
--------- --------- ---------
Net income..................................................................... $ 334.2 $ 294.1 $ 226.5
--------- --------- ---------
--------- --------- ---------
Net income per share........................................................... $ 2.24 $ 1.96 $ 1.51
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................................ $ 71.1 $ 88.3
Receivables, less allowances of $10.8 and $13.3.......................................... 624.6 561.5
Deferred income tax benefits............................................................. 23.6 24.3
Inventories.............................................................................. 364.5 397.2
Prepaid expenses......................................................................... 112.4 96.9
--------- ---------
Total Current Assets................................................................. 1,196.2 1,168.2
--------- ---------
OTHER ASSETS
Cost in excess of net assets of businesses acquired, less amortization................... 296.3 324.1
Investments in affiliates................................................................ 70.7 79.2
Miscellaneous............................................................................ 62.5 65.0
--------- ---------
429.5 468.3
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land..................................................................................... 35.7 36.7
Buildings and improvements............................................................... 588.9 554.9
Machinery and equipment.................................................................. 1,360.9 1,219.9
Construction in progress................................................................. 165.8 194.5
--------- ---------
2,151.3 2,006.0
Less allowances for depreciation......................................................... 1,005.5 886.5
--------- ---------
1,145.8 1,119.5
--------- ---------
$ 2,771.5 $ 2,756.0
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt...................................... $ 37.2 $ 42.3
Accounts payable......................................................................... 296.6 284.1
Accrued salaries, wages and other compensation........................................... 67.6 66.1
Other accrued expenses................................................................... 122.3 131.7
Income taxes............................................................................. 33.6 29.9
--------- ---------
Total Current Liabilities............................................................ 557.3 554.1
--------- ---------
NONCURRENT LIABILITIES
Long-term debt, less current portion..................................................... 218.5 218.5
Deferred income taxes.................................................................... 53.4 54.5
Accrued postretirement benefits other than pensions...................................... 155.2 152.1
Other noncurrent liabilities............................................................. 114.3 113.3
--------- ---------
Total Noncurrent Liabilities......................................................... 541.4 538.4
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock (par value $1.00 per share) Authorized--25.0 shares, none issued
Common stock (par value $1.00 per share) Authorized--300.0 shares........................
Issued--148.4 shares and 148.3 shares in 1996 and 1995................................. 148.4 148.3
Additional paid-in capital............................................................... 55.9 62.2
Retained earnings........................................................................ 1,675.5 1,417.6
Foreign currency translation adjustment and other........................................ 11.0 35.4
--------- ---------
1,890.8 1,663.5
Less cost of common stock in treasury--6.0 shares........................................ 218.0 --
--------- ---------
Total Shareholders' Equity........................................................... 1,672.8 1,663.5
--------- ---------
$ 2,771.5 $ 2,756.0
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CASH PROVIDED (USED)
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 334.2 $ 294.1 $ 226.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 175.5 161.3 137.6
Deferred income taxes............................................................ 7.3 5.7 5.3
Undistributed earnings of affiliates............................................. (2.5) (5.5) (8.0)
Special charges.................................................................. 29.2 -- --
Changes in operating assets and liabilities net of effects of businesses
acquired:
Receivables.................................................................... (69.2) (67.6) (93.6)
Inventories.................................................................... 12.1 (55.0) (25.4)
Accounts payable and accrued expenses.......................................... 9.0 14.2 58.4
Income taxes................................................................... 6.8 3.9 24.8
Other-net...................................................................... (1.2) 6.9 5.7
--------- --------- ---------
Net cash provided by operating activities.................................... 501.2 358.0 331.3
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment.......................................... (216.4) (252.2) (219.9)
Proceeds from property and other asset disposals................................... 4.4 2.4 16.4
Cash invested in businesses acquired............................................... (.6) (12.7) (7.0)
Other.............................................................................. (1.9) (1.4) (3.4)
--------- --------- ---------
Net cash used for investing activities....................................... (214.5) (263.9) (213.9)
--------- --------- ---------
FINANCING ACTIVITIES
Purchase of common stock for treasury.............................................. (242.3) -- --
Net repayment of short-term borrowings............................................. (1.1) (10.4) (59.0)
Repayment of long-term debt........................................................ -- (22.2) (2.6)
Long-term borrowings............................................................... -- 19.9 --
Stock option transactions.......................................................... 11.9 5.4 9.0
Dividends paid..................................................................... (76.3) (65.1) (54.9)
--------- --------- ---------
Net cash used for financing activities....................................... (307.8) (72.4) (107.5)
--------- --------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents................. 3.9 7.9 3.5
--------- --------- ---------
(Decrease) increase in cash and cash equivalents..................................... (17.2) 29.6 13.4
Cash and cash equivalents at beginning of year....................................... 88.3 58.7 45.3
--------- --------- ---------
Cash and cash equivalents at end of year............................................. $ 71.1 $ 88.3 $ 58.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
Morton International, Inc. is an international organization engaged in the
manufacture and marketing of specialty chemicals, automotive inflatable
restraint systems and salt. Specialty Chemicals is the largest segment,
accounting for 44 percent of 1996 sales. Its major markets include general
industrial, packaging, construction, automotive, electronics, paper and
printing, textiles, and petroleum, primarily in North America, Europe and Japan
but with growing activity in Southeast Asia. The Salt segment contributed 17
percent of 1996 sales. It serves all major North American salt markets with a
complete line of salt products. Automotive Safety Products represented 39
percent of 1996 sales and produces airbag inflators and modules for all major
U.S., European and Asian automobile manufacturers.
Over 40 percent of the company's revenues are generated by sales to the
automotive industry, which is made up of a relatively small number of end
customers. Although the company manufactures a number of products for this
industry, a significant disruption in the industry, a significant change in
demand or pricing, or a dramatic change in technology could have a material
effect on the company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Investments in 50 percent or less owned companies and joint ventures, where
the company does not effectively control the entity, are carried on the equity
basis. All intercompany accounts and transactions have been eliminated from the
consolidated financial statements.
CASH EQUIVALENTS
The company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of domestic
inventories for the Specialty Chemicals and Salt segments (54 percent and 55
percent of consolidated inventories at June 30, 1996 and 1995) is determined by
the last-in, first-out (LIFO) method, while the cost of foreign inventories and
the Automotive Safety Products inventories is determined by the first-in,
first-out (FIFO) method. If the FIFO method, which approximates replacement
cost, had been used for all inventories, the total amount for inventories would
have been increased by $36.8 million and $36.2 million at June 30, 1996 and
1995.
INTANGIBLE ASSETS
Cost in excess of net assets of businesses acquired and other intangibles
are being amortized on a straight-line basis over periods not exceeding 40
years. The amount of accumulated amortization related to intangibles, primarily
goodwill, recorded as of June 30, 1996 and 1995, was $131.9 million and $118.7
million.
PROPERTY, PLANT AND EQUIPMENT
The company provides for depreciation of property, plant and equipment, all
of which are recorded at cost, by annual charges to income, computed in part
under the straight-line method and in part under accelerated methods.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities in the balance sheet of foreign subsidiaries
whose functional currency is other than the U.S. dollar are translated at
year-end exchange rates except shareholders' equity which is
F-6
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
translated at historical rates. Translation gains and losses are accumulated as
a separate component of shareholders' equity. Foreign currency transaction gains
and losses are included in determining net income.
FOREIGN EXCHANGE CONTRACTS
The company uses forward foreign exchange contracts primarily to offset the
effects of foreign currency fluctuations related to firm and anticipated foreign
denominated receivables and payables transactions, intercompany financing
transactions and dividends from subsidiaries. The company may also use forward
foreign exchange contracts to offset the currency fluctuation related to foreign
currency denominated debt. The company nets its exposures before entering into
hedge transactions. Generally, contracts do not exceed one year. Gains or losses
on forward foreign exchange contracts which hedge an identifiable foreign
currency commitment or exposure are deferred and recognized as the related
transactions are settled. Gains or losses on all other forward foreign exchange
contracts are recognized in determining net income as incurred. Exchange gains
(losses) recorded on these forward contracts in 1996, 1995 and 1994 were $1.6
million, $(2.2) million and $(2.9) million. Outstanding forward foreign exchange
contracts at June 30, 1996, were valued at year-end foreign exchange rates, with
the changes in valuations reflected directly in net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
SPECIAL CHARGES
During the fourth quarter of fiscal 1996, the company recorded special
pretax charges of $29.2 million ($23.9 million after tax or $.16 per share). The
charges included amounts related to the early adoption of the accounting
standard related to impairment of long-lived assets and the costs related to
selected facility rationalizations and employee terminations resulting from the
reorganization of the specialty chemicals operations.
During fiscal 1996, the company adopted Financial Accounting Standards Board
(FASB) Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement requires impairment
losses to be recognized for long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. Statement
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed.
In applying the criteria of FASB Statement No. 121, the company determined
that the significant reduction in the defense-related business of its chemical
vapor deposition product line and the resulting negative impact on income in
recent years were indicators of potential impairment. Accordingly, the company
evaluated the ongoing value of long-lived assets associated with this product
line in accordance with the provisions of FASB Statement No. 121. Based on this
evaluation, the company determined that an impairment did exist and recorded an
impairment loss of $15.8 million to write these assets down to their fair value.
Fair value was based on estimated future cash flows to be generated by this
product line, discounted at a rate commensurate with the risk involved. No tax
benefit was recorded related to this charge.
During the second quarter of fiscal 1996, the company consolidated two of
its chemical groups to concentrate resources, streamline operations and better
position itself to achieve its strategic growth objectives.
F-7
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Related to this action, the company recorded a pretax charge of $11.3
million in the fourth quarter for the planned closure of three domestic chemical
facilities and a European sales office as well as the elimination of certain
duplicate management and administrative positions. Operations at the facilities
to be exited will be transferred to other existing facilities. Components of the
one-time charge include $3.0 million related to the disposal of the facilities
mentioned above, $4.9 million related to the write-down to net realizable value
of certain manufacturing equipment, and $3.4 million related to employee
termination costs. These actions are expected to take place over the next 12 to
18 months and, when completed, are expected to generate estimated annual savings
of $8.5 million.
In addition, the company recorded a pretax charge of $2.1 million to write
down to current estimated realizable value certain corporate assets held for
sale.
INVENTORIES
Components of inventories were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Finished products and work-in-process...................................... $ 261.3 $ 287.0
Materials and supplies..................................................... 103.2 110.2
--------- ---------
$ 364.5 $ 397.2
--------- ---------
--------- ---------
</TABLE>
FINANCING ARRANGEMENTS
The company has committed credit agreements with banks which will expire in
December 1996 and January 2001. In addition, lines of credit are available from
domestic and foreign banks which generally do not have termination dates but are
reviewed annually for renewal. Under these arrangements, the company may borrow
upon such terms and conditions as the company and the banks may mutually agree.
At June 30, 1996, such credit facilities amounted to approximately $541.4
million, and the unused portions thereof were approximately $504.3 million.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Credit Sensitive Debentures (net of unamortized discount of $1.4).......... $ 198.6 $ 198.6
Other...................................................................... 20.0 20.0
--------- ---------
218.6 218.6
Less current portion....................................................... .1 .1
--------- ---------
$ 218.5 $ 218.5
--------- ---------
--------- ---------
</TABLE>
The Credit Sensitive Debentures (Debentures) due June 1, 2020, are unsecured
obligations of the company. The Debentures had an initial effective interest
rate of 9.335 percent, subject to adjustment on the calendar day that certain
changes in the debt rating of the Debentures occur as determined by Standard &
Poor's Corporation or Moody's Investors Service, Inc. No adjustment of the
initial effective interest rate has occurred.
The aggregate maturities of long-term debt through June 30, 2001, total $.2
million. Interest paid on borrowings in 1996, 1995 and 1994 was $24.1 million,
$28.2 million and $28.4 million.
Notes payable at June 30, 1996 and 1995, reflected borrowings from banks at
average interest rates of 3.8 percent and 5.9 percent.
F-8
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods were used by the company to estimate its fair value
disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
SHORT- AND LONG-TERM DEBT
The carrying amount of the company's borrowings in the form of notes payable
approximates its fair value. The fair value of the company's long-term debt is
estimated using discounted cash flow analyses, based on the company's current
incremental borrowing rates for similar types of borrowing arrangements.
FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign exchange contracts which hedge foreign currency exposures or
transactions are valued at current foreign exchange rates.
The carrying or notional amounts and fair values of the company's financial
instruments at June 30, 1996, were as follows:
<TABLE>
<CAPTION>
CARRYING OR
NOTIONAL FAIR
AMOUNT VALUE
----------- ---------
<S> <C> <C>
(IN MILLIONS)
Short-term debt........................................................ $ 37.1 $ 37.1
Long-term debt......................................................... 218.6 258.1
Forward foreign exchange contracts..................................... 87.9 88.5
</TABLE>
INCOME TAXES
The provisions for income taxes were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Current:
Federal............................................................................ $ 137.6 $ 111.6 $ 77.1
State.............................................................................. 27.2 20.9 14.4
Foreign............................................................................ 32.9 38.2 34.3
--------- --------- ---------
197.7 170.7 125.8
--------- --------- ---------
Deferred:
Federal............................................................................ 5.3 4.6 3.9
State.............................................................................. 1.7 1.0 .3
Foreign............................................................................ .3 .1 1.1
--------- --------- ---------
7.3 5.7 5.3
--------- --------- ---------
$ 205.0 $ 176.4 $ 131.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-9
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the United States statutory rate to the effective income
tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate.............................................................................. 35.0% 35.0% 35.0%
Effect of:
State tax, net of federal tax benefit..................................................... 3.5 3.0 2.7
Depletion................................................................................. (1.1) (1.2) (1.4)
Net foreign items......................................................................... (1.0) (.2) (.7)
Other..................................................................................... 1.6 .9 1.1
--- --- ---
Effective rate.............................................................................. 38.0% 37.5% 36.7%
--- --- ---
--- --- ---
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the valuation of assets and liabilities for financial reporting and their tax
bases. Significant components of the company's deferred tax balances were as
follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Deferred tax benefits related to:
Postretirement and postemployment benefits..................................................... $ 64.3 $ 62.8
Other.......................................................................................... 88.5 90.9
--------- ---------
152.8 153.7
--------- ---------
Deferred tax liabilities related to:
Tax over book depreciation..................................................................... 98.0 94.7
Pension........................................................................................ 33.5 29.4
Other.......................................................................................... 64.3 67.7
--------- ---------
195.8 191.8
--------- ---------
Net deferred tax liability..................................................................... $ 43.0 $ 38.1
--------- ---------
--------- ---------
</TABLE>
No individual item included in other deferred tax benefits or deferred tax
liabilities above is material. Deferred income tax benefits at June 30, 1996 and
1995, included $13.2 million and $7.9 million of refundable income taxes.
Total income tax payments during fiscal 1996, 1995 and 1994 were $189.2
million, $165.0 million and $104.4 million.
Components of the company's income before income taxes were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Domestic............................................................................. $ 442.3 $ 373.4 $ 267.0
Foreign.............................................................................. 96.9 97.1 90.6
--------- --------- ---------
$ 539.2 $ 470.5 $ 357.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Internal Revenue Service has completed its examination of the company's
federal income tax returns through fiscal 1989, and has issued notices of
deficiency on certain issues, no one of which is
F-10
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
significant. The company disagrees with the proposed adjustments and is taking
appropriate action to contest such deficiency notices. Management believes the
ultimate resolution of these matters will not have a material effect upon the
company's financial position, results of operations, or liquidity.
SHAREHOLDERS' EQUITY
Changes in shareholders' equity are summarized below:
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
COMMON STOCK ADDITIONAL TRANSLATION
---------------------- PAID-IN RETAINED ADJUSTMENT TREASURY
SHARES AMOUNT CAPITAL EARNINGS AND OTHER STOCK
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance June 30, 1993.................................... 48.8 $ 48.8 $ 32.7 $ 1,115.4 $ 3.3 $ --
Net income............................................. -- -- -- 226.5 -- --
Cash dividends paid, $1.12(1) per share................ -- -- -- (54.9) -- --
Exercise of stock options and related income tax
benefits............................................. .4 .4 20.3 -- -- --
Translation adjustment................................. -- -- -- -- 6.7 --
3-for-1 stock split 98.4 98.4 -- (98.4) -- --
Other.................................................. -- -- -- -- .4 --
----- --------- ----- --------- ----------- ---------
Balance June 30, 1994.................................... 147.6 147.6 53.0 1,188.6 10.4 --
Net income............................................. -- -- -- 294.1 -- --
Cash dividends paid, $.44 per share.................... -- -- -- (65.1) -- --
Exercise of stock options and related income tax
benefits............................................. .7 .7 8.7 -- -- --
Translation adjustment................................. -- -- -- -- 25.1 --
Other.................................................. -- -- .5 -- (.1) --
----- --------- ----- --------- ----------- ---------
Balance June 30, 1995.................................... 148.3 148.3 62.2 1,417.6 35.4 --
Net income............................................. -- -- -- 334.2 -- --
Cash dividends paid, $.52 per share.................... -- -- -- (76.3) -- --
Exercise of stock options and related income tax
benefits............................................. .1 .1 (6.3) -- -- 24.3
Translation adjustment................................. -- -- -- -- (24.6) --
Purchase of common stock for treasury.................. -- -- -- -- -- (242.3)
Other.................................................. -- -- -- -- .2 --
----- --------- ----- --------- ----------- ---------
Balance June 30, 1996.................................... 148.4 $ 148.4 $ 55.9 $ 1,675.5 $ 11.0 $ (218.0)
----- --------- ----- --------- ----------- ---------
----- --------- ----- --------- ----------- ---------
</TABLE>
- ------------------------
(1) On a pre-split basis.
In October 1995, the company's Board of Directors authorized the repurchase
of up to 10 million shares of the company's common stock on the open market.
During fiscal 1996, the company repurchased approximately 6.7 million shares.
On June 23, 1994, the company declared a 3-for-1 stock split of its common
stock. The stock split was in the form of a 200 percent stock dividend, payable
on August 17, 1994, to shareholders of record on August 3, 1994.
In June 1989, the company declared a dividend distribution of one Preferred
Share Purchase Right (a Right) for each outstanding common share. Until
exercisable, the Rights will not be transferable apart from the company's common
stock. When exercisable, each Right will entitle its holder to buy one three-
hundredths of a share of the company's new series of preferred stock at an
exercise price of $58.33 1/3 until July 1, 1999. The Rights will only become
exercisable if a person or group acquires or makes an offer to acquire 20
percent or more of the company's common stock. In the event the company is
acquired in a
F-11
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
merger, each Right entitles the holder to purchase common stock of the surviving
company having a market value of twice the exercise price of the Rights. In the
event any person or group acquires 20 percent or more of the company's common
stock (reducible to 15 percent under certain circumstances), each Right entitles
the holder (other than such acquiror) to purchase common stock of the company
having a market value of twice the exercise price of the Right. The Rights may
be redeemed by the company at the price of 1/3 cent per Right prior to the
acquisition of 20 percent of the outstanding shares of the company's common
stock. At June 30, 1996, 0.6 million shares of preferred stock were reserved for
future exercises of Rights.
BENEFIT PLANS
PENSIONS
The company has noncontributory defined benefit pension plans covering
employees at most domestic operations. The benefits are based on an average of
the employee's earnings in the years preceding retirement and on credited
service. Certain supplemental unfunded plan arrangements also provide retirement
benefits to specified groups of participants. Most international subsidiaries
also have retirement plans.
The company's funding policy for the domestic plans is to contribute amounts
sufficient to meet the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, as amended, plus any additional amounts which the
company may determine to be appropriate.
The net pension expense for company-sponsored pension plans consisted of the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Service cost--benefits earned during the year........ $ 17.7 $ 15.7 $ 13.9
Interest cost on projected benefit obligation........ 37.4 34.5 30.9
Return on plan assets:
Actual............................................. $ (82.7) $ (59.8) $ (18.1)
Deferred portion................................... 40.0 20.5 (20.1)
--------- --------- ---------
Expected return.................................. (42.7) (39.3) (38.2)
Net amortization..................................... 3.1 1.6 (1.4)
--------- ------ ---------
Net pension expense.................................. $ 15.5 $ 12.5 $ 5.2
--------- ------ ---------
--------- ------ ---------
</TABLE>
F-12
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of the funded status of pension plans was as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
PLANS IN PLANS IN
PLANS IN WHICH PLANS IN WHICH
WHICH ASSETS ACCUMULATED WHICH ASSETS ACCUMULATED
EXCEED BENEFIT EXCEED BENEFIT
ACCUMULATED OBLIGATION ACCUMULATED OBLIGATION
BENEFIT EXCEEDS BENEFIT EXCEEDS
OBLIGATION ASSETS OBLIGATION ASSETS
------------- ------------- ------------- -------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Plan assets at fair value.................................. $ 542.4 $ -- $ 459.1 $ 3.7
------ ------ ------ ------
Actuarial present value of projected benefit obligations:
Accumulated benefit obligation
Vested............................................... 395.6 21.3 367.7 25.5
Non-vested........................................... 24.8 .1 23.3 --
Provision for future salary increases.................. 80.2 6.3 81.4 5.1
------ ------ ------ ------
500.6 27.7 472.4 30.6
------ ------ ------ ------
Plan assets in excess of (less than) projected benefit
obligation............................................... 41.8 (27.7) (13.3) (26.9)
Unrecognized net experience loss since July 1, 1986........ 59.9 11.9 109.6 14.4
Prior service cost not yet recognized in net pension
cost..................................................... (.7) 2.3 (1.0) 2.6
Unrecognized net (asset) obligation at July 1, 1986........ (23.4) .8 (27.0) .7
Adjustment to recognize minimum liability.................. -- (8.7) -- (12.6)
------ ------ ------ ------
Net pension asset (liability) recognized in the
consolidated balance sheets.............................. $ 77.6 $ (21.4) $ 68.3 $ (21.8)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The weighted averages of assumptions used in the determination of the
projected benefit obligation were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rate................................................................................ 7.8% 7.6% 7.8%
Rate of increases in compensation level...................................................... 4.9% 4.9% 5.2%
Expected long-term rate of return on assets.................................................. 9.5% 9.5% 9.5%
</TABLE>
The assets of the company-sponsored plans are invested primarily in equities
and bonds.
Certain pension plans contain restrictions on the use of excess pension plan
assets in the event of a change in control of the company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company currently provides postretirement health care and life insurance
benefits to most U.S. and Canadian retirees. In general, U.S. employees who
retire after attaining age 55 with five years of service are eligible for
continued health care and life insurance coverage. Dependent health care and
life insurance coverage are also available. Most retirees contribute toward the
cost of health care coverage, with the contributions generally varying based on
service. In June 1993, the company adopted a provision which caps the level of
company subsidy at the amount in effect as of the year 2000 for most U.S.
F-13
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employees who retire after December 31, 1992. In general, most Canadian
employees who retire after attaining age 55 and are entitled to a pension
benefit are eligible for continued retiree health and life insurance coverage.
Dependent health insurance is also generally available. The benefits are
provided on a noncontributory basis.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Service cost--benefits earned during the year............................................ $ 2.5 $ 2.2 $ 2.3
Interest cost on accumulated postretirement benefit obligation........................... 10.9 11.1 11.9
Net amortization......................................................................... (.9) (.9) (.7)
--------- --------- ---------
Net periodic postretirement benefit cost................................................. $ 12.5 $ 12.4 $ 13.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
At present, there is no prefunding of the postretirement benefits recognized
under FASB Statement No. 106. The following table presents the status of the
plans reconciled with amounts recognized in the consolidated balance sheets for
the company's postretirement benefits:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents.................................................................... $ 95.1 $ 102.7
Fully eligible active plan participants.................................................... 11.2 9.6
Other active plan participants............................................................. 39.8 36.7
--------- ---------
146.1 149.0
Unrecognized prior period gain................................................................. 5.2 2.3
Unamortized plan amendment..................................................................... 12.9 9.4
--------- ---------
Postretirement benefit liability recognized in the consolidated balance sheets................. $ 164.2 $ 160.7
--------- ---------
--------- ---------
</TABLE>
For measurement purposes, the assumed weighted average annual rate of
increase per capita cost of health care benefits was 9.5 percent for 1997 and
assumed to decrease one percent per year to 5.5 percent in 2001 and remain
constant thereafter. As noted above, for U.S. employees retiring after December
31, 1992, the company's policy is to increase retiree contributions so that the
company's annual per capita cost contribution remains constant at the level
incurred in the year 2000. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 7.8 percent at
June 30, 1996, and 7.6 percent at June 30, 1995. The rate of increase on
compensation levels assumed was 4.8 percent at June 30, 1996 and 1995.
A one percent increase in the annual health care cost trend rates would have
increased the accumulated postretirement benefit obligation at June 30, 1996, by
approximately $8.2 million and increased postretirement benefit expense for
fiscal 1996 by approximately $.9 million.
OTHER
The company contributes to savings plans for eligible domestic employees.
Company contributions to the savings plans were $8.4 million, $8.3 million and
$7.7 million in 1996, 1995 and 1994.
F-14
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCENTIVE PLAN
Under the company's 1989 Incentive Plan (formerly, the 1989 Stock Awards
Plan), grants may be made to key employees of stock options, stock appreciation
rights, shares of restricted stock, other awards valued by reference to the
company's common stock and cash. Under the 1982 Key Employees Stock Option and
Performance Unit Plan, grants could be made to key employees of stock options,
stock options with alternative appreciation rights and appreciation rights not
related to any option. In addition, certain outstanding options provide for
supplemental cash payments to optionees upon exercise for the purpose of
reimbursing them for the income tax liability incurred as a result of such
exercises. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
----------- ------------------
<S> <C> <C>
Options outstanding at
June 30, 1994................................................................. 6,070,266 $ 9.53 to $35.13
Granted....................................................................... 895,870 28.56 to 30.06
Lapsed........................................................................ (27,100) 28.29 to 29.63
Exercised..................................................................... (785,474) 9.53 to 28.29
-----------
Options outstanding at
June 30, 1995................................................................. 6,153,562 10.30 to 35.13
Granted....................................................................... 852,110 30.06 to 36.31
Lapsed........................................................................ (74,370) 29.63 to 32.00
Exercised..................................................................... (1,042,926) 10.57 to 29.63
-----------
Options outstanding at
June 30, 1996 (5,096,361 exercisable shares).................................. 5,888,376 10.30 to 36.31
-----------
-----------
</TABLE>
Options outstanding at June 30, 1996, had expiration dates ranging from
October 23, 1996, to June 27, 2006. All stock options granted have an option
price equal to the stock's fair market value at date of grant and the number of
options is fixed. Therefore, the granting of such options does not result in a
charge against earnings. In addition, limited appreciation rights were
outstanding covering 2,899,583 option shares. Limited appreciation rights are
paid in cash in lieu of the related options upon a change in control of the
company, at which time a charge to earnings would be recorded. As of June 30,
1996, supplemental cash payment rights were outstanding with respect to 852,709
option shares, payable upon exercise of options or limited appreciation rights.
Supplemental cash payment rights outstanding have been accrued based on the
current fair market value of the company's stock and current income tax rates.
Under the terms of the 1989 Incentive Plan, restricted stock award shares
have been granted to certain employees at no cost. The outstanding restricted
stock award shares vest from one to five years subsequent to their award dates.
The cost of restricted stock awards, based on the stock's fair market value at
the award dates, is charged to shareholders' equity and subsequently amortized
against earnings over the vesting period. At June 30, 1996, common stock shares
of 31,251 were outstanding under restricted stock awards.
At June 30, 1996, common stock shares of 7,882,724 were reserved for both
outstanding and future grants of options and payment of appreciation rights and
other stock-based awards.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This standard establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The company will adopt this standard in fiscal 1997 by disclosing
the pro
F-15
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
forma net income and earnings per share amounts assuming the fair value method
had been used. Compensation cost for stock options and awards will continue to
be measured based on intrinsic value under Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees."
ENVIRONMENTAL MATTERS
The company, like others in similar businesses, is subject to extensive
federal, state and local environmental laws and regulations. Although company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the company to make additional unforeseen environmental
expenditures.
Environmental accruals are routinely reviewed on an interim basis as events
and developments warrant and are subjected to a comprehensive review annually
during the fiscal fourth quarter.
The company has been named a potentially responsible party at approximately
60 inactive waste disposal sites where cleanup costs have been or may be
incurred under the Federal Comprehensive Environmental Response, Compensation
and Liability Act and similar state statutes. The company's potential exposure
has been evaluated on a site-by-site basis, and an accrual reflecting the
company's best estimate of the liability has been established to the extent
sufficient information is available to reasonably estimate costs which may be
incurred. However, at certain of these sites, the company is unable, due to a
variety of factors, to assess and quantify the ultimate extent of its
responsibility for study and remediation costs. The most significant of these
sites is located in Wood-Ridge, New Jersey, where, at present, the company and
one other party have been held jointly and severally liable for the cost of
remediation necessary to correct mercury-related environmental problems
associated with a former mercury processing plant. Although the company has
accrued for expected site study costs and some remedial effort, no reliable
estimate can presently be made of the company's range of liability due to the
absence of site-specific data, the unique nature of mercury plant wastes and the
complex characteristics of the plant site and adjacent areas. An estimate of the
range of liability at Wood-Ridge is not reasonably possible until technical
studies are sufficiently completed to permit such a determination. The
Wood-Ridge plant site study will commence in early fiscal 1997, and is estimated
to take approximately 42 months to complete. Study of the surrounding area is
expected to begin after commencement of the plant site study on a timetable yet
to be determined. The company's ultimate exposure will also depend upon the
continued participation of the other party held liable and on the results of
both formal and informal attempts to spread liability to others believed to
share responsibility.
Where appropriate, the analysis to determine the company's liability, if
any, with respect to remedial costs at the above sites reflects an assessment of
the likelihood and extent of participation of other potentially responsible
parties. The possibility of recoveries from insurance carriers (in addition to
recoveries previously made) is factored into accrual determinations only when
the company is reasonably assured that such additional recoveries are probable
of realization.
During the second quarter of fiscal 1996, the company received approximately
$24.1 million related to settlement of substantially all claims against the
company's former insurance carriers for cleanup expenses at chemical waste
disposal sites located throughout the country. These settlements involved
policies written by various insurance companies from the 1940's through the mid
1980's. Due to the age of these issues, related expenses had previously been
charged to earnings either through actual expenditures for remediation or
through the establishment of environmental accruals. As such, the settlement
payments received were included in sundry income.
F-16
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the fourth quarter of fiscal 1996, the U.S. Environmental Protection
Agency notified the company of possible irregularities in water discharge
monitoring reports filed by the Moss Point, Mississippi, plant in early 1995.
The company retained an outside law firm to investigate, and it was confirmed
that such reports had been falsified over a period of years. Other possible
environmental violations at the plant were also identified, and the
investigation has been expanded to address the additional issues. As a result of
these irregularities and possible violations, the company may be exposed to
fines, penalties and remedial expenses. Since the matter is in its early stages,
the company is unable to quantify the extent of its exposure to liability, if
any. The company intends to cooperate fully with environmental authorities and
is keeping them informed on a continuing basis.
The company's cleanup expenditures totaled approximately $6.8 million, $3.0
million and $7.8 million for 1996, 1995 and 1994. Amounts accrued as of June 30,
1996, are generally expected to be paid out over a period of up to 15 years.
Although the level of future expenditures for environmental matters cannot
be determined with any degree of certainty, based on the facts presently known
to it, management does not believe that such costs will have a material effect
on the company's financial position, results of operations, or liquidity.
LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against
the company in addition to those of an environmental nature discussed in the
Environmental Matters note above. Management believes that the resolution of
those claims should not have a material effect upon the company's financial
position, results of operations, or liquidity.
Various governmental agencies have authority to limit or prohibit
distribution of some of the company's products should they formally conclude
that continued distribution is unsafe to the population or the environment.
There are currently no challenges pending, the resolution of which would have a
material effect upon the company's operations.
LEASE COMMITMENTS
The company has commitments under operating leases primarily for building
and office space, railroad equipment and real estate. Rental expense charged in
1996, 1995 and 1994 was $38.4 million, $36.3 million and $34.6 million,
including insignificant amounts for contingent rentals and sublease income.
Renewal and purchase options are available on certain of these leases.
Future minimum rental commitments under operating leases having initial or
remaining non-cancelable terms in excess of one year as of June 30, 1996, were
as follows (in millions): 1997--$26.4; 1998-- $16.9; 1999--$13.8; 2000--$11.9;
2001--$9.5; thereafter--$306.8.
BUSINESS SEGMENT INFORMATION
See page 32 of this Information Statement.
F-17
<PAGE>
MORTON INTERNATIONAL, INC.
QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995
---------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED THREE MONTHS ENDED
---------------------------------------------------- -----------------------------------
<CAPTION>
JUNE 30(3) MARCH 31(4) DEC. 31(5) SEPT. 30 JUNE 30 MARCH 31 DEC. 31
----------- ------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 888.4 $ 998.4 $ 916.1 $ 809.6 $ 828.5 $ 921.0 $ 830.9
Gross profit......................... 257.1 289.0 270.9 229.2 233.8 274.0 244.8
Income before income taxes........... 100.0 172.3 159.2 107.7 111.3 143.8 116.3
Net income........................... 59.7 107.7 99.5 67.3 69.6 89.9 72.7
Net income per share (1)............. .41 .72 .66 .45 .46 .60 .49
Cash dividends per share............. .13 .13 .13 .13 .11 .11 .11
Market price of common stock(2)
High............................... 39 3/4 40 1/4 36 1/8 34 32 30 7/8 29 1/2
Low................................ 34 3/8 34 29 5/8 28 1/8 26 1/4 26 1/4 25 3/4
<CAPTION>
<S> <C>
SEPT. 30
-----------
<S> <C>
Net sales............................ $ 745.5
Gross profit......................... 224.5
Income before income taxes........... 99.1
Net income........................... 61.9
Net income per share (1)............. .41
Cash dividends per share............. .11
Market price of common stock(2)
High............................... 30 1/4
Low................................ 25 7/8
</TABLE>
- ------------------------
(1) Net income per share has been calculated based on the average number of
common and common equivalent shares outstanding for the company.
(2) The principal market is the New York Stock Exchange and prices are based on
the Composite Tape (ticker symbol "MII").
(3) Includes special charges of $29.2 million pretax ($23.9 million after tax or
$.16 per share). Refer to Special Charges footnote on page F-7.
(4) Includes $15.0 million proceeds ($9.4 million after tax or $.06 per share)
related to the formation of a joint venture.
(5) Includes $24.1 million pretax income ($15.1 million after tax or $.10 per
share) related to the settlement of several environmental insurance issues.
F-18
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
Net sales................................................................................. $ 1,819.2 $ 1,725.7
Interest, royalties and sundry income..................................................... 17.2 39.1
---------- ----------
1,836.4 1,764.8
Deductions from income:
Cost of products sold................................................................... 1,296.0 1,225.6
Selling, administrative and general expense............................................. 220.2 213.3
Research and development expense........................................................ 38.3 41.5
Interest expense........................................................................ 12.0 12.4
Amortization of goodwill................................................................ 5.1 5.1
---------- ----------
1,571.6 1,497.9
---------- ----------
Income before income taxes................................................................ 264.8 266.9
Income taxes.............................................................................. 98.0 100.1
---------- ----------
Net income................................................................................ 166.8 166.8
Retained earnings at beginning of period.................................................. 1,675.5 1,417.6
Cash dividends: $.30 and $.26 per share for 1996 and 1995, respectively................... (42.8) (38.6)
---------- ----------
Retained earnings at end of period........................................................ $ 1,799.5 $ 1,545.8
---------- ----------
---------- ----------
Net income per share...................................................................... $ 1.15 $ 1.11
---------- ----------
---------- ----------
Shares used in computation (in thousands)........................................... 145,001 150,452
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
(IN
MILLIONS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................................... $ 71.3
Receivables....................................................................................... 660.1
Deferred income tax benefits...................................................................... 15.5
Inventories....................................................................................... 392.0
Prepaid expenses.................................................................................. 131.5
------------
Total current assets............................................................................ 1,270.4
OTHER ASSETS
Cost in excess of net assets of businesses acquired, less amortization............................ 291.2
Investments in affiliates......................................................................... 137.3
Miscellaneous..................................................................................... 60.0
------------
488.5
PROPERTY, PLANT AND EQUIPMENT, AT COST.............................................................. 2,251.4
Less allowances for depreciation.................................................................. 1,072.9
------------
1,178.5
------------
$ 2,937.4
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt............................................... $ 108.2
Accounts payable.................................................................................. 279.1
Accrued salaries, wages and other compensation.................................................... 59.3
Other accrued expenses............................................................................ 125.1
Income taxes...................................................................................... 31.9
------------
Total current liabilities....................................................................... 603.6
------------
NONCURRENT LIABILITIES
Long-term debt, less current portion.............................................................. 218.5
Deferred income taxes............................................................................. 54.4
Accrued postretirement benefits other than pensions............................................... 156.7
Other noncurrent liabilities...................................................................... 115.3
------------
Total noncurrent liabilities.................................................................... 544.9
------------
SHAREHOLDERS' EQUITY
Preferred stock (par value $1.00 per share)
Authorized--25.0 shares, none issued
Common stock (par value $1.00 per share)
Authorized--300.0 shares
Issued-148.4 shares........................................................................... 148.4
Additional paid-in capital........................................................................ 50.8
Retained earnings................................................................................. 1,799.5
Foreign currency translation adjustment and other................................................. 15.8
------------
2,014.5
Less cost of common stock in treasury--6.1 shares................................................... 225.6
------------
Total shareholders' equity...................................................................... 1,788.9
------------
$ 2,937.4
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
CASH PROVIDED (USED)
SIX MONTHS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
(IN MILLIONS)
OPERATING ACTIVITIES
Net income....................................................................... $ 166.8 $ 166.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 94.2 90.8
Deferred income taxes.......................................................... .2 .2
Undistributed earnings of affiliates........................................... (1.5) (2.6)
Changes in operating assets and liabilities:
Receivables.................................................................. (34.6) (96.5)
Inventories and prepaid expenses............................................. (46.0) (42.5)
Accounts payable and accrued expenses........................................ (24.1) (5.0)
Accrued income taxes......................................................... 9.6 22.3
Other--net................................................................... 3.2 3.7
--------- ---------
Net cash provided by operating activities.................................. 167.8 137.2
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment........................................ (122.5) (100.0)
Proceeds from property and other asset disposals................................. 5.3 1.5
Cash invested in businesses acquired............................................. (65.0) (.6)
--------- ---------
Net cash used for investing activities..................................... (182.2) (99.1)
--------- ---------
FINANCING ACTIVITIES
Purchase of common stock for treasury............................................ (21.6) (52.8)
Net increase in notes payable.................................................... 71.6 21.7
Repayment of long-term debt...................................................... (.1) (.1)
Stock option transactions........................................................ 5.3 4.6
Dividends paid................................................................... (42.8) (38.6)
--------- ---------
Net cash provided by (used for) financing activities....................... 12.4 (65.2)
--------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents............... 2.2 1.0
--------- ---------
Increase (decrease) in cash and cash equivalents................................... .2 (26.1)
Cash and cash equivalents at beginning of year..................................... 71.1 88.3
--------- ---------
Cash and cash equivalents at end of period......................................... $ 71.3 $ 62.2
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1:
The consolidated interim financial statements and notes thereto do not
include all disclosures required by generally accepted accounting principles
and, therefore, should be read in conjunction with the Consolidated Financial
Statements and Notes thereto for the three year period ended June 30, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
results for the interim periods. The current period's results are not
necessarily indicative of results to be expected for a full year.
NOTE 2:
Inventories are stated at lower of cost (principally last-in, first-out
method) or market. Components of inventories are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Finished products and work-in-process........................................... $ 263.8
Materials and supplies.......................................................... 128.2
------
$ 392.0
------
------
</TABLE>
NOTE 3:
On November 25, 1996, Morton International, Inc. (the Company), Autoliv,
Inc., Autoliv AB and ASP Merger Sub Inc. entered into the Combination Agreement,
pursuant to which the Company's Automotive Safety Products Group (ASP) will
become a wholly owned subsidiary of Autoliv, Inc. and Autoliv, Inc. will acquire
at least 90 percent of the outstanding capital of Autoliv AB (the Combination).
The Combination, which will be tax free, is intended to be a merger of equals in
which, if the Exchange Offer which is a part of the transaction is fully
accepted, the Company's shareholders will exchange their interest in ASP for
46.5 percent of Autoliv, Inc. and Autoliv AB's shareholders will exchange their
Autoliv AB shares for 53.5 percent of the equity of Autoliv, Inc.
Immediately prior to the business combination, the Company will contribute
all of its businesses other than ASP to a new company, New Morton International,
Inc. (New Morton), and will spin off New Morton to the Company's shareholders in
a tax free distribution (the Distribution). Each shareholder of the Company's
common stock will receive one share of New Morton common stock for each share of
the Company's stock owned prior to the combination. In addition, in conjunction
with the spin-off, the Company will contribute $750 million in cash to New
Morton to be funded by debt to be retained by ASP. The Company will also
distribute to New Morton a portion of the cash generated by the ASP business
since July 1, 1996, in an amount equal to $50.0 million plus $7.2 million per
month after March 31, 1997, until the consummation of the Distribution.
In substance, the Company is combining its ASP business with the businesses
of Autoliv AB, which will together be conducted by Autoliv, Inc.
For the purposes of governing certain relationships among the Company, New
Morton and Autoliv, Inc., as well as to help in the orderly separation and
transition of the ASP business, the Company, New Morton, Autoliv, Inc. and
Autoliv AB have entered or will enter into numerous agreements, including the
Combination Agreement, Tax Sharing Agreement, Employee Benefits Allocation
Agreement and other
F-22
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3: (CONTINUED)
agreements. These agreements deal with many operational issues, including (a)
the separation of the ASP business from the remaining businesses; (b)
transitional services to be provided by New Morton to the ASP business after the
Combination; (c) the sharing of certain facilities for a limited time by the ASP
business and New Morton; and (d) the allocation of certain tax, employee
benefits and other liabilities among New Morton, Autoliv, Inc. and the Company.
The transactions described above are subject to, among other things,
approval by the Company's shareholders, acceptance by holders of at least 90
percent of Autoliv AB's outstanding shares of an exchange offer for Autoliv,
Inc. shares, receipt by the Company of a ruling from the U.S. Internal Revenue
Service regarding certain tax aspects of the transactions, and certain
regulatory approvals.
In December 1996, Morton signed a definitive agreement to acquire all of the
stock of Compagnie des Salins du Midi et Salines du I'Etat (Salins du Midi), and
in March 1997 completed the initial acquisition with respect to two-thirds of
the stock for $180 million. Morton expects to make a public cash tender offer in
France for the remaining shares. The acquisition has a total value of
approximately $275 million. Salins du Midi is the leading independent salt
producer in Europe, with estimated 1996 sales of almost $270 million. Salins du
Midi, based in Paris, supplies salt for food and agricultural products, water
treatment and ice/snow and industrial applications, and markets its products
under the "La Baleine" label. Salins du Midi produces solar, rock and
vacuum-processed salt at nine sites in France and at four sites in Spain.
In December 1996, Morton also announced plans to purchase Pulverlac SpA, an
Italian powder coatings maker, for an undisclosed sum. Pulverlac SpA is a leader
in the European powder coatings industry with estimated 1996 sales of $75
million.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW MORTON INTERNATIONAL, INC.
By: /s/ RAYMOND P. BUSCHMANN
-----------------------------------------
Raymond P. Buschmann
Vice President for Legal Affairs
and General Counsel
March 24, 1997
<PAGE>
EXHIBIT INDEX
Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Form of Distribution Agreement, by and between Morton International, Inc. ("Morton") and New Morton
International, Inc. ("New Morton"). The Registrant hereby agrees to furnish supplementally a copy of
any omitted exhibit or schedule to the Commission upon request.
2.2 Combination Agreement, dated as of November 25, 1996, among Autoliv AB, Morton, Autoliv, Inc. and ASP
Merger Sub Inc. The Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or
schedule to the Commission upon request.
3.1 New Morton Articles of Incorporation.
3.2 New Morton By-Laws.
4.1 Form of Rights Agreement, by and between New Morton and First Chicago Trust Company of New York.
10.1 Form of Employee Benefits Allocation Agreement, by and between Morton and New Morton.
10.2 Form of Tax Sharing Agreement, by and between Morton and New Morton.
21.1 List of Subsidiaries of New Morton.
</TABLE>
<PAGE>
Exhibit 2.1
Form of Agreement
DISTRIBUTION AGREEMENT
dated as of [ ], 1997
by and between
MORTON INTERNATIONAL, INC.,
an Indiana corporation
(to be renamed "[ ]")
and
NEW MORTON INTERNATIONAL, INC.,
an Indiana corporation
(to be renamed "MORTON INTERNATIONAL, INC.")
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I
DEFINITIONS
Section 1.01 General........................................................ 2
Section 1.02 Exhibits, Etc..................................................11
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
Section 2.01 Financing......................................................12
Section 2.02 Transfer of New Morton Assets..................................16
Section 2.03 Transfers Not Effected Prior to
the Distribution; Transfers Deemed
Effective as of the Distribution Date.........................16
Section 2.04 No Representations or Warranties;
Consents....................................................16
Section 2.05 Assumption and Satisfaction of New
Morton Liabilities; Retention of
Safety Liabilities.............................................17
Section 2.06 Financial Representations and Warranties.......................17
Section 2.07 Conveyancing and Assumption Instruments........................18
Section 2.08 Certificate of Incorporation; By-laws;
Share Purchase Rights Plan..................................18
Section 2.09 New Morton Capitalization......................................18
Section 2.10 Certain Pre-Distribution Transactions..........................18
ARTICLE III
THE DISTRIBUTION
Section 3.01 Cooperation Prior to the Distribution..........................19
Section 3.02 Company Board Action; Distribution
Procedures...................................................20
Section 3.03 Conditions Precedent to the
Distribution.................................................20
Section 3.04 The Distribution.............................................22
ARTICLE IV
SERVICES
Section 4.01 Provision of Management Services.............................. 22
Section 4.02 Fee for Services; Expenses.....................................23
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Page
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Section 4.03 Independent Contractor Status..................................23
Section 4.04 Disclaimer; Limited Liability..................................23
ARTICLE V
INDEMNIFICATION
Section 5.01 Indemnification by Safety......................................24
Section 5.02 Indemnification by New Morton..................................25
Section 5.03 Limitations on Indemnification
Obligations..................................................25
Section 5.04 Procedure for Indemnification..................................26
Section 5.05 Remedies Cumulative............................................29
Section 5.06 Survival of Indemnities........................................29
Section 5.07 Right of Inquiry...............................................30
ARTICLE VI
CERTAIN ADDITIONAL MATTERS AND COVENANTS
Section 6.01 The New Morton Board...........................................31
Section 6.02 Resignations; Safety Board.....................................31
Section 6.03 Certain Post-Distribution Transactions.........................32
Section 6.04 Use of Names...................................................33
Section 6.05 Restrictions on Hiring of Other Party's
Employees.....................................................34
Section 6.06 Further Assurances; Cooperation................................34
Section 6.07 Guarantees.....................................................34
Section 6.08 Shared Facilities..............................................35
Section 6.09 Thiokol-Morton Spinoff.........................................36
Section 6.10 Non-Competition................................................36
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.01 Provision of Corporate Records.................................37
Section 7.02 Access to Information..........................................38
Section 7.03 Production of Witnesses........................................40
Section 7.04 Reimbursement..................................................41
Section 7.05 Retention of Records...........................................41
Section 7.06 Confidentiality................................................41
ARTICLE VIII
INSURANCE
Section 8.01 Policies and Rights............................................42
Section 8.02 Post-Distribution Date Claims..................................42
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Page
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Section 8.03 Administration and Reserves....................................43
Section 8.04 Agreement for Waiver of Conflict and
Shared Defense.............................................44
Section 8.05 Cooperation with Respect
to Insurance...............................................44
ARTICLE IX
MISCELLANEOUS
Section 9.01 Complete Agreement; Construction...............................45
Section 9.02 Survival of Agreements.........................................45
Section 9.03 Expenses ...................................................45
Section 9.04 Governing Law..................................................45
Section 9.05 Notices ...................................................46
Section 9.06 Amendments ...................................................46
Section 9.07 Successors and Assigns.........................................47
Section 9.08 Counterparts.................................................. 47
Section 9.09 Subsidiaries...................................................47
Section 9.10 Third Party Beneficiaries......................................47
Section 9.11 Titles and Headings............................................47
Section 9.12 Exhibits and Schedules.........................................47
Section 9.13 Legal Enforceability...........................................47
Section 9.14 Consent to Jurisdiction .......................................48
Schedules and Exhibits
Schedule 1.01(a) Safety Business, Retained Subsidiary
and Other Safety Interests and Investments
Schedule 1.01(b) Safety Liabilities
Schedule 1.01(c)(1) Company Policies
Schedule 1.01(c)(2) New Morton Policies
Schedule 1.01(c)(3) Safety Policies
Schedule 1.01(d)(1) New Morton Real Property
Schedule 1.01(d)(2) Safety Real Property
Schedule 1.01(e) New Morton Businesses, New Morton
Subsidiaries and Other New Morton
Interests and Investments
Schedule 1.01(f) New Morton Liabilities
Schedule 1.01(g)(1) New Morton Intellectual Property
Schedule 1.01(g)(2) Safety Intellectual Property
Schedule 4.02 Rates for Services - Formula Format
Schedule 6.08 Terms of Rochester Hills Shared Usage
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<PAGE>
Exhibit A Form of Employee Benefits Allocation
Agreement
Exhibit B New Morton By-Laws (to be provided
prior to signing)
Exhibit C New Morton Articles of Incorporation
(to be provided prior to signing)
Exhibit D Form of Tax Sharing Agreement
Exhibit E Form of New Morton Share Purchase
Rights Plan (to be provided prior to
signing)
Exhibit F Records Retention Policy
-iv-
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of [________],
1997, by and between MORTON INTERNATIONAL, INC., an Indiana corporation (the
"Company") and NEW MORTON INTERNATIONAL, INC., an Indiana corporation and a
wholly owned subsidiary of the Company ("New Morton").
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to separate the Company and its subsidiaries into two
companies by consolidating its Specialty Chemicals and Salt businesses in New
Morton and distributing to the holders of shares of common stock, $1 par value
per share, of the Company ("Company Common Stock"), all outstanding shares of
common stock $1 par value per share, of New Morton ("New Morton Common Stock"),
together with the associated preferred share purchase rights ("New Morton
Rights");
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to enter into the Combination Agreement, dated as of
November 25, 1996 (the "Combination Agreement"), by and among the Company,
Autoliv AB, a corporation organized under the laws of the Kingdom of Sweden
("Autoliv"), Autoliv, Inc., a Delaware corporation ("Newco"), and ASP Merger Sub
Inc., a Delaware corporation and a wholly owned subsidiary of Newco ("Newco
Sub"), pursuant to which, among other things, Newco Sub will be merged with and
into the Company (the "Merger") and Newco will offer to acquire all of the
outstanding capital stock of Autoliv pursuant to the Exchange Offer (as defined
in the Combination Agreement, and, together with the other transactions
contemplated thereby, the "Transactions");
WHEREAS, immediately prior to the Effective Time (as defined in
Section 1.2 of the Combination Agreement) of the Merger, the Company's Board of
Directors (the "Company Board"), subject to the approval of the Company's
stockholders and the other conditions set forth in Section 3.03 of this
Agreement, expects to distribute to the holders of Company Common Stock, other
than shares held in the treasury of the Company, on a pro rata basis, all of the
issued and outstanding shares of New Morton Common Stock (the "Distribution");
WHEREAS, immediately prior to the Distribution, the Company Board,
subject to the approval of the Company's stockholders and the other conditions
set forth in Section 3.03 of this Agreement, expects to cause (i) the Company to
contribute the New Morton Assets (as defined below) to New Morton or another
wholly-owned subsidiary of the Company as a capital
<PAGE>
contribution or in exchange for shares of such subsidiary's stock, (ii) the
Company to contribute to New Morton the New Morton Capital Contribution (as
defined herein), the Safety Supplemental Distribution (as defined herein) as
well as the stock of the New Morton Subsidiaries (as defined herein) and certain
other assets to New Morton as a capital contribution and (iii) New Morton to
assume the New Morton Liabilities (as defined below), all as more specifically
provided herein (the transactions described in clauses (i), (ii) and (iii) are
referred to collectively as the "Contribution");
WHEREAS, the purpose of the Distribution is to make possible the
Merger by divesting the Company of the businesses and operations to be conducted
by New Morton and its subsidiaries, which Newco and Autoliv have required as a
condition to their willingness to consummate the Transactions;
WHEREAS, it is the intention of the parties to this Agreement that the
Contribution and the Distribution will qualify as transactions described in
Sections 351 and Section 355 of the Internal Revenue Code of 1986, as amended
(the "Code") and/or a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code; and
WHEREAS, this Agreement sets forth or provides for certain agreements
by and among the Company and New Morton in consideration of the separation of
the ownership of the Company and New Morton.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Action: any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
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<PAGE>
Affiliate: as defined in Rule 12b-2 promulgated by the Commission
under the Exchange Act, as such Regulation is in effect on the date hereof.
Agent: the distribution agent appointed by the Company to distribute
shares of New Morton Common Stock pursuant to the Distribution.
Ancillary Agreements: all of the written agreements, instruments,
understandings, assignments or other arrangements entered into in connection
with the Transactions contemplated hereby, including, without limitation, the
Combination Agreement, the Conveyancing and Assumption Instruments, the Benefits
Agreement, the Safety Credit Agreement and the Tax Sharing Agreement.
Assets: any and all assets, properties and rights, whether tangible or
intangible, whether real, personal or mixed, whether fixed, contingent or
otherwise, and wherever located, including, without limitation, the following:
(a) real property interests (including leases), land, plants,
buildings and improvements;
(b) machinery, equipment, tooling, vehicles, furniture and fixtures,
leasehold improvements, repair parts, tools, plant, laboratory and office
equipment and other tangible personal property, together with any rights or
claims arising out of the breach of any express or implied warranty by the
manufacturers or sellers of any of such assets or any component part
thereof;
(c) inventories, including raw materials, work-in-process, finished
goods, parts, accessories and supplies;
(d) cash, bank accounts, notes, loans and accounts receivable (whether
current or not current), interests as beneficiary under letters of credit,
advances and performance and surety bonds;
(e) certificates of deposit, banker's acceptances, shares of stock,
bonds, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral trust certificates,
pre-organization certificates or subscriptions, transferable shares,
investment contracts, voting-trust certificates, interests in partnerships
and other entities (including joint ventures), puts, calls, straddles,
options, swaps, collars, caps and other securities or hedging arrangements
of any kind;
-3-
<PAGE>
(f) financial, accounting and operating data and records including,
without limitation, books, records, notes, sales and sales promotional
data, advertising materials, credit information, cost and pricing
information, customer and supplier lists, reference catalogs, payroll and
personnel records, minute books, stock ledgers, stock transfer records and
other similar property, rights and information;
(g) patents, patent applications, trademarks, trademark applications
and registrations, trade names, service marks, service names, copyrights
and copyright applications and registrations, commercial and technical
information including engineering, production and other designs, drawings,
specifications, formulae, technology, computer and electronic data
processing programs and software, inventions, processes, trade secrets,
know-how, confidential information and other proprietary property, rights
and interests;
(h) agreements, leases, contracts, sale orders, purchase orders, open
bids and other commitments and all rights therein;
(i) prepaid expenses, deposits and retentions held by third parties;
(j) claims, causes of action, choses in action, rights under insurance
policies, rights under express or implied warranties, rights of recovery,
rights of set-off, rights of subrogation and all other rights of any kind;
(k) licenses, franchises, permits, authorizations and approvals; and
(l) goodwill and going concern value.
Benefits Agreement: the Employee Benefits Allocation Agreement, dated
as of the date of this Agreement, between the Company and New Morton, the form
of which is attached hereto as Exhibit A.
Claims Administration: the processing of claims made under the
Policies, including the reporting of claims to the insurance carrier, management
and defense of claims and providing for appropriate releases upon settlement of
claims.
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
-4-
<PAGE>
Commission: the Securities and Exchange Commission.
Company Policies: all Policies, current or past, which are owned or
maintained by or on behalf of the Company or any of its predecessors which
relate to both the Safety Business and the New Morton Businesses, including
without limitation the Policies identified on Schedule 1.01(c)(1).
Conveyancing and Assumption Instruments: collectively, the various
agreements, instruments and other documents to be entered into to effect the
transfer of assets and the assumption of Liabilities in the manner contemplated
by this Agreement and the Ancillary Agreements.
Corporate Assets: the Assets of the Company relating to the Corporate
Operations.
Corporate Operations: the activities and operations of the Company's
corporate administrative group and the senior executive management of the
Company, which activities and operations do not primarily relate to or primarily
arise from the Safety Business.
Distribution Date: the date determined by the Company Board as of
which the Distribution shall be effected, which is presently contemplated to be
March 31, 1997.
Distribution Record Date: the date to be determined by the Company
Board as the record date for the Distribution.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Foreign Exchange Rate: with respect to any currency other than United
States dollars as of any date of determination, the average of the opening bid
and asked rates on such date at which such currency may be exchanged for United
States dollars as quoted by Bank of America Illinois except that, with respect
to any Indemnifiable Loss (as defined in Section 5.01) covered by insurance, the
Foreign Exchange Rate for such currency shall be as set forth in Section
5.03(b)(ii).
Form S-4: The registration statement on Form S-4 to be filed by New
Morton with the Commission to effect the registration of the New Morton Common
Stock and the New Morton Rights pursuant to the Securities Act.
Insurance Administration: with respect to each Policy, the accounting
for premiums, retrospectively-rated premiums, defense costs, indemnity payments,
deductibles and
-5-
<PAGE>
retentions as appropriate under the terms and conditions of each of the
Policies; and the reporting to excess insurance carriers of any losses or claims
which may cause the per-occurrence or aggregate limits of any policy to be
exceeded, and the distribution of Insurance Proceeds as contemplated by this
Agreement.
Insurance Proceeds: those monies (a) received by an insured from an
insurance carrier or (b) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, co-insurance,
retrospectively-rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
Insured Claims: those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
IRS: the Internal Revenue Service.
Liabilities: any and all debts, liabilities, commitments and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under any law,
rule, regulation, Action, threatened Action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
New Morton Assets: collectively, all of the rights and Assets of the
Company and its subsidiaries other than the Safety Assets, including without
limitation: (a) the assets included on the consolidated balance sheet of New
Morton as of June 30, 1996 and any assets acquired by the Company or New Morton
other than Safety Assets from July 1, 1996 to the Distribution Date (other than,
in each case, assets sold or otherwise disposed of on or prior to the
Distribution Date); (b) the real property, owned or leased, listed on Schedule
1.01(d)(1); (c) any recoveries under the liabilities listed on Schedule 1.01(f)
or the litigation not included in the Safety Liabilities; (d) subject to Section
6.04 hereof, the patents, trademarks, trade names, copyrights (including
applications for any of the foregoing), and invention records of the Company
other than the Safety Assets, including without limitation the patents,
trademarks and copyrights listed on Schedule 1.01(g)(1);
-6-
<PAGE>
(e) the Company's books and records to the extent set forth in Section 7.01(a);
(f) all of the outstanding capital stock or other interests of the Company in
the New Morton Subsidiaries and in the partnerships, joint ventures and
investments listed on Schedule 1.01(e); (g) the New Morton Capital Contribution,
the Safety Supplemental Distribution and all domestic and foreign cash bank
balances and short-term investments other than (i) cash generated from the
operations of the Safety Business from July 1, 1996 through the Distribution
Date in excess of the sum of (x) the cash used by the Safety Business from July
1, 1996 through the Distribution Date, (y) the Safety Supplemental Distribution
and (z) $15 million of expenses incurred by the Company in connection with the
transactions contemplated by the Combination Agreement and (ii) petty checking
and cash accounts with respect to the Safety Business not maintained, in the
ordinary course of business, on the central company cash management system,
including without limitation to the extent set forth in Section 2.01(f) of this
Agreement; (h) the New Morton Policies and the rights under the Company Policies
to the extent set forth in Article VIII of this Agreement; and (i) the Company's
rights under Sections 8.3(b), 8.6, 8.13(c) and 8.22 of the Combination Agreement
that survive the Effective Time (as defined in the Combination Agreement), and
New Morton's rights and Assets under the other Ancillary Agreements.
New Morton Board: the Board of Directors of New Morton.
New Morton Businesses: all assets, businesses and operations of the
Company other than those included in the Safety Business, including without
limitation the New Morton Assets and the businesses and operations of the
Adhesives & Chemical Specialties Group, the Coatings Group, the Electronic
Materials Group, the Salt Group and the Corporate Operations, as heretofore,
currently or hereafter conducted, including without limitation the businesses
listed on Schedule 1.01(e) and all assets, businesses or operations managed or
operated by, or otherwise operationally related to, any of such businesses,
which have been sold or otherwise disposed of or discontinued prior to the
Distribution Date but which shall not include the Safety Business.
New Morton By-Laws: the By-Laws of New Morton, substantially in the
form of Exhibit B, to be in effect on the Distribution Date.
New Morton Capital Contribution: the capital contribution or repayment
in cash of intercompany indebtedness (including as provided in Section 2.10(b)
of this Agreement) in
-7-
<PAGE>
the aggregate amount of $750,000,000 to be contributed by the Company to New
Morton on or immediately prior to the Distribution Date.
New Morton Charter: the Articles of Incorporation of New Morton,
substantially in the form of Exhibit C, to be in effect on the Distribution
Date.
New Morton Employee: any individual who, on or prior to the
Distribution Date, was employed by the Company or any of its subsidiaries and
who, on or after the Distribution Date, or otherwise in connection with the
Distribution, is intended by the parties hereto to be employed by New Morton or
a New Morton Subsidiary or in a New Morton Business on an on-going basis.
New Morton Liabilities: collectively, all of the Liabilities of the
Company and its subsidiaries incurred on or prior to the Distribution Date
(other than Safety Liabilities) including without limitation: all of (i) the
Liabilities of New Morton under this Agreement or any of the Ancillary
Agreements, (ii) the Liabilities arising out of or relating to any of the New
Morton Businesses or the New Morton Assets and (iii) the Liabilities specified
on Schedule 1.01(f).
New Morton Policies: all Policies, current or past, which are owned or
maintained by or on behalf of the Company or any of its predecessors which
relate to the New Morton Businesses but do not relate to the Safety Business,
including without limitation the Policies identified on Schedule 1.01(c)(2).
New Morton Subsidiaries: all of the subsidiaries of the Company other
than the Retained Subsidiaries, including without limitation those listed on
Schedule 1.01(e), and any other subsidiary of New Morton which hereafter may be
organized or acquired, all of which subsidiaries will become subsidiaries of New
Morton.
NYSE: New York Stock Exchange, Inc.
Policies: insurance policies and insurance contracts of any kind,
including without limitation primary and excess policies, comprehensive general
liability policies, automobile, aircraft and workers' compensation insurance
policies, life insurance and other employee benefit insurance policies, and
self-insurance and captive insurance company arrangements, together with the
rights, benefits and privileges thereunder.
Proxy Statement: the proxy statement/prospectus/offer to purchase to
be sent to the holders of shares of
-8-
<PAGE>
Company Common Stock in connection with the Special Meeting and to the holders
of Autoliv common stock in connection with the Exchange Offer.
Retained Subsidiaries: the subsidiaries of the Company listed on
Schedule 1.01(a).
Rights Agreement: the Rights Agreement, dated as of [ ], by and
between New Morton and The First National Bank of Chicago, as Rights Agent,
substantially in the form of Exhibit E hereto.
Ruling Request: the private letter ruling request to be filed by the
Company with the IRS, as supplemented and amended from time to time, with
respect to certain tax aspects of the Distribution and the Merger.
Safety: [Name to come], the surviving corporation of the Merger (as
defined in the Combination Agreement), which shall occur pursuant to the
Combination Agreement immediately subsequent to the Distribution.
Safety Assets: collectively, the following rights and Assets of the
Company and its subsidiaries: (a) the assets included on the consolidated
balance sheet of the Safety Business as of June 30, 1996 and any assets acquired
by the Company exclusively relating to the Safety Business from July 1, 1996 to
the Distribution Date (other than, in each case, assets sold or otherwise
disposed of on or prior to the Distribution Date); (b) the real property owned
or leased listed on Schedule 1.01(d)(2); (c) any recoveries under the litigation
listed on Schedule 1.01(b); (d) other than with respect to the "Morton" and
"Morton International" names and related trademarks and trade names (but subject
to Section 6.04 hereof), the patents, trademarks, trade names, copyrights
(including applications for any of the foregoing), and invention records of the
Company relating primarily to the Safety Business, including without limitation
the patents, trademarks and copyrights listed on Schedule 1.01(g)(2); (e) the
Company's books and records to the extent set forth in Section 7.01(b); (f) all
of the outstanding capital stock or other interests of the Company in the
Retained Subsidiaries and in the partnerships, joint ventures and investments
listed on Schedule 1.01(a); (g) petty checking and cash accounts with respect to
the Safety Business not maintained, in the ordinary course of business, on the
central company cash management system; (h) cash generated from the operations
of the Safety Business from July 1, 1996 through the Distribution Date in excess
of the sum of (x) cash used by the Safety Business, (y) the Safety Supplemental
Distribution and
-9-
<PAGE>
(z) $15 million of expenses incurred by the Company in connection with the
transactions contemplated by the Combination Agreement; (i) the Safety Policies
and the rights under the Company Policies to the extent set forth in Article
VIII of this Agreement; (j) the rights and Assets of Safety under the Ancillary
Agreements; and (k) any other rights and Assets of the Company and its
subsidiaries exclusively relating to the Safety Business, provided that the
Safety Assets shall not include (1) cash and cash equivalents, except as set
forth in clause (g) or (h) above, and (2) assets associated with the Corporate
Operations.
Safety Business: the Safety Assets and the assets, business and
operations of the Company's Automotive Safety Products Group, as heretofore,
currently or hereafter conducted, including without limitation the businesses
listed on Schedule 1.01(a) and all businesses or operations predominantly
managed or operated by, or otherwise operationally related to, the Company's
Automotive Safety Products Group which have been sold or otherwise disposed of
or discontinued prior to the Distribution Date but shall not include any of the
New Morton Businesses.
Safety Credit Agreement: the credit agreement or other financing
agreements or arrangements to be entered into by the Company prior to the
Distribution Date to provide Safety with working capital, to fund the New Morton
Capital Contribution and, if necessary, to repay certain intercompany
indebtedness pursuant to Section 2.10(b) hereof.
Safety Employee: any individual who, on or prior to the Distribution
Date, was employed by the Company or any of its subsidiaries and who, on or
after the Distribution Date, or otherwise in connection with the Distribution,
is intended by the parties hereto to be employed by Safety or a Safety
subsidiary or parent company or in the Safety Business (including the business
of Newco and its subsidiaries) on an on-going basis.
Safety Liabilities: collectively, all of (i) the Liabilities assigned
to or assumed by the Company under this Agreement or any of the Ancillary
Agreements, except as otherwise expressly provided herein or therein; (ii) all
of the Liabilities (or portion thereof) relating exclusively to or arising
exclusively from the Safety Business or the Safety Assets; (iii) the Liabilities
listed on Schedule 1.01(b); (iv) Liabilities on the balance sheet of the Safety
Business as of June 30, 1996 (or reflected in the notes thereto), and
Liabilities incurred by the Safety Business on or after July 1, 1996, excluding,
in each case, Liabilities paid or otherwise
-10-
<PAGE>
satisfied on or prior to the Distribution Date; and (v) the liabilities of the
Company under the Safety Credit Agreement.
Safety Policies: all Policies, current or past, which are owned or
maintained by or on behalf of the Company or any of its predecessors which
relate to the Safety Business but do not relate to the New Morton Businesses,
including without limitation the Policies identified on Schedule 1.01(c)(3).
Safety Supplemental Distribution: an amount in cash equal to
$50,000,000 (subject to adjustment pursuant to Sections 2.01(a) and 2.10(a))
plus, if the Distribution Date occurs after March 31, 1997, an additional amount
in cash equal to the product of $7,200,000 times the number of months (or
fraction thereof) between March 31, 1997 and the Distribution Date, such amounts
to be contributed by the Company to New Morton on or prior to the Distribution
Date.
Securities Act: the Securities Act of 1933, as amended.
Special Meeting: the Special Meeting of Stockholders of the Company to
consider the Distribution, the Merger and certain related matters.
Special Meeting Record Date: the record date for stockholders of the
Company entitled to vote at the Special Meeting.
Subsidiaries: the term "subsidiaries" as used herein with respect to
any entity shall, unless otherwise indicated, be deemed to refer to both direct
and indirect subsidiaries of such entity and any other entity at least 45% of
the stock or other voting interests of which are owned by such entity.
Tax Sharing Agreement: the Tax Sharing Agreement, dated as of the date
hereof, between New Morton and the Company, the form of which is attached hereto
as Exhibit D.
Section 1.02 Exhibits, Etc. References to an "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
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ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
Section 2.01 Financing.
(a) Safety Credit Agreement; New Morton Capital Contribution; Safety
Supplemental Distribution. On or immediately prior to the Distribution Date, the
Company shall enter into the Safety Credit Agreement, on terms reasonably
acceptable to Autoliv and the Company, and shall contribute the New Morton
Capital Contribution to New Morton. New Morton shall have no obligations or
Liabilities with respect to the Safety Credit Agreement. On or prior to the
Distribution Date, the Company shall contribute the Safety Supplemental
Distribution to New Morton to the extent not previously paid under Section
2.01(c) of this Agreement; provided that if the estimated retained earnings
(exclusive of any costs and expenses to be paid by Safety pursuant to Section
9.03 of this Agreement relating to the transactions contemplated by this
Agreement and the Combination Agreement and prior to giving effect to the Safety
Supplemental Distribution) of the Safety Business from July 1, 1996 through the
Distribution Date (or through the most recent date prior to the Distribution
Date for which such estimate can reasonably be made), based solely upon the
Company's accounting principles, practices, policies and procedures consistently
applied, as set forth in a certificate of the Chief Financial Officer of the
Company dated the Distribution Date (the "CFO Certificate"), are less than the
amount of the Safety Supplemental Distribution as otherwise determined, the
amount of the Safety Supplemental Distribution shall be adjusted (without
interest) to equal such lesser amount as set forth in such certificate. The CFO
Certificate shall be prepared in good faith, shall be final and binding upon the
parties, and each party hereby waives and releases any claim or remedy it might
otherwise have with respect thereto.
(b) Credit Sensitive Debentures. Prior to the Distribution Date, New
Morton shall enter into a supplemental indenture or other instrument to the
extent required by the indenture pursuant to which the Company's Credit
Sensitive Debentures due June 1, 2020 have been issued, which supplemental
indenture or instrument will provide that, as of the Distribution Date and
pursuant to Sections 801 and 802 of such indenture, the obligations of the
Company thereunder shall become obligations of New Morton, and the Company shall
have no remaining obligations thereunder.
(c) Operation of the Safety Business Prior to the Distribution Date.
The Company and New Morton shall, to the
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fullest extent reasonably practicable, treat, solely for the purposes of this
Agreement, the Safety Business as if it were a stand-alone, self-financed entity
from July 1, 1996 through the Distribution Date. Accordingly, for the period
from July 1, 1996 through the Distribution Date (i) the Safety Business shall be
treated as retaining all cash generated from the operations of the Safety
Business in excess of the sum of (x) the cash used by the Safety Business, (y)
the Safety Supplemental Distribution, which shall be deemed to be made on the
last day of each month on a prorated basis and (z) $15 million of expenses
incurred by the Company in connection with the transactions contemplated by the
Combination Agreement, which shall be the responsibility of the Safety Business,
to the extent not theretofore charged to the Safety Business; (ii) the Safety
Business shall be credited with interest on its positive cash balances and
charged for interest on any negative cash balances funded by the New Morton
Businesses at a per annum interest rate equal to the average interest rate
earned on the Company's cash balances during such period, with any intercompany
borrowings to fund the operations of the Safety Business in excess of the amount
reflected on the audited balance sheet of the Safety Business as of June 30,
1996 treated as a payable to New Morton from the Company; (iii) any payments by
the Safety Business in connection with the New Morton Businesses or the New
Morton Employees (including, without limitation, any such payments in respect of
New Morton Liabilities) shall be treated as a payable to the Safety Business
from New Morton, and any payments by the New Morton Businesses in connection
with the Safety Business or the Safety Employees (including, without limitation,
any such payments in respect of Safety Liabilities) shall be treated as a
payable to New Morton from the Safety Business; (iv) the Safety Business and the
New Morton Businesses shall make adjustments for late deposits, checks returned
for insufficient funds and other similar transactions occurring on or after July
1, 1996 as shall be reasonable under the circumstances consistent with the
purpose and intent of this Agreement; and (v) the net balance due to the Safety
Business or the New Morton Businesses, as the case may be, in respect of the
aggregate amounts of clauses (i) through (iv) shall be paid by New Morton or
Safety, as appropriate, as promptly as practicable following each month end. For
purposes of this Section 2.01(c), the parties contemplate that the Safety
Business, including but not limited to the administration of accounts payable
and accounts receivable, will be conducted in the normal course consistent with
the covenants contained in Section 7.1 of the Combination Agreement and that the
Safety Business will not be charged for general administrative services provided
by the Corporate Operations, including legal, tax compliance, risk management
and other similar corporate services, in a manner consistent with the Company's
practice in preparing the audited
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balance sheet of the Safety Business dated as of June 30, 1996. All transactions
contemplated by this Section 2.01(c) shall be subject to review by the parties,
and any dispute thereunder shall be resolved by Ernst & Young LLP (or another
"Big Six" accounting firm acceptable to the parties), whose decision shall be
final and unappealable.
(d) Consents. Each of the Company and New Morton agrees that it shall
use reasonable efforts to obtain, prior to the Distribution Date, all necessary
consents, waivers or amendments to each bank credit agreement, debt security or
other financing facility to which it or its respective subsidiaries is a party
or by which it or any of its respective subsidiaries is bound, or to refinance
such agreement, security or facility, in each case on terms satisfactory to the
Company and New Morton and to the extent necessary to permit the Distribution to
be consummated without any material breach of the terms of such agreement,
security or facility. To the extent Safety determines, in its reasonable
judgment, that such consents, waivers or amendments would reasonably be expected
to create Safety Liabilities, such terms shall also be reasonably satisfactory
to Safety. From the date hereof until there no longer remain any such material
consents, waivers or amendments to be obtained in connection with the
Distribution pursuant to the terms of this Agreement and the Ancillary
Agreements, New Morton shall inform Safety regularly, but not less than on a
monthly basis, of its progress in obtaining such consents, waivers and
amendments.
(e) Intercompany Accounts. All agreements, contracts, arrangements and
commitments between the New Morton Businesses, on the one hand, and the Safety
Business, on the other hand, entered into prior to the Distribution Date for the
purchase or sale of goods or services ("Intercompany Arrangements"), which
intercompany arrangements shall be subject to the reasonable approval of a
senior executive of the Safety Business, shall remain in effect on and after the
Closing Date. All amounts under such Intercompany Arrangements which are
unbilled as of the Distribution Date shall be billed and payable on and after
the Distribution Date in accordance with the terms thereof. Subject to Sections
2.01(c) and 2.10 of this Agreement, on or before the Distribution Date, the
Company shall cause all intercompany indebtedness (which shall include payables
and receivables but which shall not include unbilled amounts under Intercompany
Arrangements) between the New Morton Businesses, on the one hand, and the Safety
Business, on the other hand, to be settled or otherwise eliminated.
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(f) Cash Management and Intercompany Accounts After the Distribution
Date. The Company and New Morton shall establish and maintain a separate cash
management system and accounting records with respect to the New Morton
Businesses effective as of immediately prior to the Distribution Date;
thereafter, (i) any payments by the Company or a Remaining Subsidiary to or on
behalf of New Morton or a New Morton Subsidiary or otherwise, in connection with
the New Morton Businesses or the New Morton Employees (including, without
limitation, any such payments in respect of New Morton Liabilities) shall be
recorded in the accounts of New Morton as a payable to the Company from New
Morton; any payments by New Morton or a New Morton Subsidiary to or on behalf of
the Company or a Remaining Subsidiary or otherwise, in connection with the
Safety Business or in connection with Safety Employees (including, without
limitation, any such payments in respect of Safety Liabilities) shall be
recorded in the accounts of the Company as a payable to New Morton from the
Company; (ii) other than petty checking and cash accounts with respect to the
Safety Business not maintained, in the ordinary course of business, on the
central Company cash management system, and the accounts listed on Schedule
1.01(a), which petty cash, checking and other accounts (but not the balances
therein, except as provided by Section 2.01(c) and the definition of Safety
Assets) the Company shall retain, New Morton shall be entitled to all domestic
and international cash bank balances and short-term investments as of the
Distribution Date per the books of the Company (other than cash which
constitutes a Safety Asset) including, without limitation, such cash balances
(other than cash which constitutes a Safety Asset) representing deposited checks
or drafts for which only a provisional credit has been allowed, in the
depository accounts of the Company or any of its subsidiaries; any such cash
balances as of the Distribution Date which have not been transferred to New
Morton shall be recorded as a payable to New Morton from Safety in the accounts
of Safety; (iii) New Morton and the Company shall make adjustments for late
deposits, checks returned for not sufficient funds and other post-Distribution
Date transactions as shall be reasonable under the circumstances consistent with
the purpose and intent of this Agreement; and (iv) the net balance due to the
Company or New Morton, as the case may be, in respect of the aggregate amounts
of clauses (i), (ii) and (iii) shall be paid by New Morton or Safety, as
appropriate, as promptly as practicable. For purposes of this Section 2.01(f),
the parties contemplate that the Safety Business and the New Morton Businesses,
including but not limited to the administration of accounts payable and accounts
receivable, will be conducted in the normal course. All transactions
contemplated in this Section 2.01(f) shall be subject to review by the parties,
and any dispute thereunder shall be resolved by Ernst & Young LLP (or
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another "Big Six" accounting firm acceptable to the parties), whose decision
shall be final and unappealable.
Section 2.02 Transfer of New Morton Assets. The Company shall transfer
to New Morton or, at New Morton's option, to a New Morton Subsidiary effective
as of the Distribution Date all of the Company's right, title and interest in
the New Morton Assets.
Section 2.03 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers contemplated by this Article II shall not have been consummated on the
Distribution Date, the parties shall cooperate to effect such transfers as
promptly following the Distribution Date as shall be practicable. Nothing herein
shall be deemed to require the transfer of any Assets or the assumption of any
Liabilities which by their terms or operation of law cannot be transferred or
assumed; provided, however, that the Company and New Morton and their respective
subsidiaries shall cooperate to seek to obtain any necessary consents or
approvals for the transfer of all Assets and Liabilities contemplated to be
transferred pursuant to this Article II. In the event that any such transfer of
Assets or Liabilities has not been consummated, effective as of and after the
Distribution Date, the party retaining such Asset or Liability shall thereafter
hold such Asset in trust for the use and benefit of the party entitled thereto
(at the expense of the party entitled thereto) and retain such Liability for the
account of the party by whom such Liability is to be assumed pursuant hereto,
and take such other action as may be reasonably requested by the party to which
such Asset is to be transferred, or by whom such Liability is to be assumed, as
the case may be, in order to place such party, insofar as reasonably possible,
in the same position as would have existed had such Asset or Liability been
transferred as contemplated hereby. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith. The parties
agree that, as of the Distribution Date, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all of the Assets,
together with all rights, powers and privileges incident thereto, and shall be
deemed to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident thereto,
which such party is entitled to acquire or required to assume pursuant to the
terms of this Agreement.
Section 2.04 No Representations or Warranties; Consents. Except as
otherwise contemplated in Section 2.06 or in connection with any Conveyancing
and Assumption Instruments
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related to real estate, as to which the Company shall transfer to New Morton
with "special warranty" or equivalent deeds, each of the parties hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way (i) as to the value or freedom from
encumbrance of, or any other matter concerning, any Assets of such party or (ii)
as to the legal sufficiency to convey title to any Asset of the execution,
delivery and filing of this Agreement or any Ancillary Agreement, including,
without limitation, any Conveyancing and Assumption Instruments. It is also
agreed and understood that all Assets either transferred to or retained by the
parties, as the case may be, shall be "as is, where is" and that the party to
which such Assets are to be transferred hereunder shall bear the economic and
legal risk that any conveyances of such Assets shall prove to be insufficient or
that such party's or any of its subsidiaries' title to any such Assets shall be
other than good and marketable and free from encumbrances. The parties shall use
their best efforts to obtain all consents and approvals, to enter into all
amendatory agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal, state or foreign environmental laws.
Section 2.05 Assumption and Satisfaction of New Morton Liabilities;
Retention of Safety Liabilities. Except as set forth in the Benefits Agreement
or the Tax Sharing Agreement, effective as of and after the Distribution Date,
(a) New Morton shall, or shall cause its subsidiaries to, assume, pay, perform,
and discharge in due course all of the New Morton Liabilities and (b) Safety
shall, or shall cause its subsidiaries to, pay, perform and discharge in due
course all of the Safety Liabilities.
Section 2.06 Financial Representations and Warranties. New Morton
hereby represents and warrants to the Company that:
(a) Safety Assets. The Safety Assets as of the Distribution Date shall
include all Assets then owned or held by the Company and its subsidiaries which
are exclusively used in the operation of the Safety Business as such business is
conducted as of such date, including cash and cash equivalents as provided in
clauses (g) and (h) of the definition of Safety Assets.
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(b) Financial Liabilities. The interest-bearing indebtedness
(excluding hedging or similar contracts and letters or lines of credit in the
ordinary course) of the Safety Business as of the Distribution Date will not
exceed $750,000,000 plus the outstanding amount of the municipal financing, not
to exceed $1,100,000.
The representations contained in this Section 2.06 shall survive the
Distribution Date until March 31, 1998.
Section 2.07 Conveyancing and Assumption Instruments. In connection
with the transfers of Assets other than capital stock and the assumptions of
Liabilities contemplated by this Agreement, the parties shall execute or cause
to be executed by the appropriate entities the Conveyancing and Assumption
Instruments in such forms as the parties shall reasonably agree, including the
transfer of real property with special warranty or equivalent deeds. The
transfer of capital stock shall be effected by means of delivery of stock
certificates and executed stock powers and notation in the stock record books of
the corporation or other legal entities involved and, to the extent required by
applicable law, by notation on public registries.
Section 2.08 Certificate of Incorporation; By-laws; Share Purchase
Rights Plan. Prior to the Distribution Date, the Company and New Morton shall
take all action necessary so that, at the Distribution Date, the New Morton
Charter, the New Morton By-laws and the Rights Agreement shall be in effect,
with such changes as New Morton may approve.
Section 2.09 New Morton Capitalization. Prior to the Distribution
Date, the Company and New Morton shall take all steps necessary to increase the
outstanding shares of New Morton Common Stock so that, except as otherwise
contemplated by this Agreement or the Benefits Agreement, immediately prior to
the Distribution Date the number of shares of New Morton Common Stock
outstanding and held by the Company shall equal the number of shares of Company
Common Stock outstanding on the Distribution Record Date.
Section 2.10 Certain Pre-Distribution Transactions. (a) Prior to the
Distribution, the Company shall use its reasonable best efforts to form a
registered German limited liability corporation (GmbH) ("Safety GmbH"). Prior to
the Distribution, Safety GmbH shall purchase or assume, and the Company shall
cause Morton International GmbH ("Morton GmbH"), a limited liability corporation
under the laws of Germany, to sell or assign, the Safety Assets and Safety
Liabilities owned or held by Morton GmbH for the fair market value thereof,
which
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amount shall be determined by mutual agreement of the Company and New Morton.
The Safety Supplemental Distribution shall be reduced by the amount of any such
cash payment, with any such cash payment in excess of such amount to be credited
against the New Morton Capital Contribution.
(b) Prior to the Distribution Date, Morton Manufacturing B.V., a
limited liability corporation under the laws of the Netherlands ("Safety B.V."),
shall repay in cash intercompany indebtedness owed by Safety B.V. to each of
Morton International B.V. and Morton Service B.V. ("Morton B.V."), each a
limited liability corporation under the laws of the Netherlands, with such
repayment funded by an intercompany loan from the Safety Business pursuant to
its borrowing under the Safety Credit Agreement. After such repayment and prior
to the Distribution, Morton B.V. shall transfer to the Company all of the
outstanding capital stock of Safety B.V. as a distribution in respect of the
shares of Morton B.V. held by the Company. Any such cash payments by Safety B.V.
to repay such intercompany indebtedness, up to $51,648,000 (representing the
amount of such intercompany indebtedness as of June 30, 1996), shall be credited
against the New Morton Capital Contribution.
ARTICLE III
THE DISTRIBUTION
Section 3.01 Cooperation Prior to the Distribution. Subject to the
terms of the Combination Agreement, the Company and New Morton shall take the
following actions:
(a) the Company and New Morton shall prepare, and the Company shall
mail to the holders of shares of Company Common Stock as of the Special
Meeting Record Date, the Proxy Statement, which shall set forth appropriate
disclosure concerning Newco, Autoliv, the Company, New Morton, Safety, the
Merger, the Distribution, the Transactions and other matters. The Company
and New Morton shall also prepare, and New Morton shall file with the
Commission, the Form S-4, which shall include the Proxy Statement. The
Company and New Morton shall use their best efforts to cause the Form S-4
to become effective under the Securities Act;
(b) the Company and New Morton shall cooperate in preparing, filing
with the Commission and causing to become effective any registration
statements or amendments thereof which are appropriate to reflect the
establishment
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of, or amendments to, any employee benefit and other plans contemplated by
the Combination Agreement, the Benefits Agreement or this Agreement;
(c) the Company and New Morton shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements;
(d) the Company and New Morton shall prepare, and New Morton shall
file and seek to make effective, subject to official notice of issuance, an
application to permit the listing of New Morton Common Stock on the NYSE;
and
(e) the Company and New Morton shall use their best efforts to obtain
the rulings contemplated by the Ruling Request in form and substance
satisfactory to the Company Board as advised by counsel.
Section 3.02 Company Board Action; Distribution Procedures. Subject to
the terms of the Combination Agreement, and the satisfaction or waiver of the
conditions set forth in Section 3.03 hereof, the Company Board shall, in its
discretion, establish the Distribution Record Date and the Distribution Date and
any appropriate procedures in connection with the Distribution. Prior to the
Distribution Date, the Company shall enter into an agreement with the Agent
providing for, among other things, the payment of the Distribution to the
holders of Company Common Stock in accordance with this Article III.
Section 3.03 Conditions Precedent to the Distribution. In no event
shall the Distribution occur (a) if at the Distribution Date the Ruling Request
shall not have been granted in form and substance satisfactory to the Company in
its sole discretion and be in full force and effect, or (b) prior to such time
as the following conditions shall have been satisfied or, to the extent
permitted, waived:
(i) all third party consents and governmental approvals required in
connection with the transactions contemplated hereby shall have been
received, except where the failure to obtain such consents or approvals
would not have a material adverse effect on either (i) the ability of the
parties to consummate the transactions contemplated by this Agreement or
(ii) the business, financial condition or results of operations of Safety
or New Morton;
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(ii) the Distribution, the Combination Agreement and the related
transactions (including the Merger) shall have been approved by the holders
of a majority of the outstanding shares of Company Common Stock at the
Special Meeting;
(iii) the transactions contemplated by Sections 2.01, 2.02, 2.05,
2.08, 2.09 and 2.10 shall have been consummated in all material respects,
to the extent required to be consummated prior to the Distribution;
(iv) the New Morton Common Stock shall have been authorized for
listing on the NYSE, subject to official notice of issuance;
(v) the New Morton Board, composed as contemplated by Section 6.01,
shall have been elected by the Company, as sole stockholder of New Morton;
(vi) the Form S-4 shall have been declared effective under the
Securities Act by the Commission and no stop order suspending the
effectiveness of the Form S-4 shall have been issued by the Commission and,
to the knowledge of the Company and New Morton, no proceeding for that
purpose shall have been instituted by the Commission;
(vii) the applicable parties shall have entered into each of the
Ancillary Agreements;
(viii) each condition to the Closing of the Merger and the Exchange
Offer set forth in Article IX of the Combination Agreement, other than with
respect to consummation of the Distribution and the transactions set forth
in Article II hereof, shall have been fulfilled or waived by the party for
whose benefit such condition exists;
(ix) the Company Board shall be reasonably satisfied that, after
giving effect to the transactions set forth in Article II hereof, (A) the
Company will not be insolvent and will not have unreasonably small capital
with which to engage in its businesses and (B) the Company's surplus would
be sufficient to permit the Distribution without violation of Section
23-1-28-3 of the Indiana Business Corporation Law; and
(x) the representations and warranties contained in Section 2.06 shall
be true and correct.
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Neither the Company nor New Morton shall waive any condition contained in this
Section 3.03 without the consent of Autoliv, which consent shall not be
unreasonably withheld.
Section 3.04 The Distribution. On the Distribution Date, subject to
the conditions and rights of termination set forth in this Agreement, the
Company shall deliver to the Agent a share certificate representing all of the
then outstanding shares of New Morton Common Stock owned by the Company and
shall instruct the Agent to distribute, on or as soon as practicable following
the Distribution Date, such New Morton Common Stock to holders of record of
shares of Company Common Stock on the Distribution Record Date. New Morton
agrees to provide all share certificates and any information that the Agent
shall require in order to effect the Distribution. All shares of New Morton
Common Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
ARTICLE IV
SERVICES
Section 4.01 Provision of Management Services. From the Distribution
Date through not later than the first anniversary thereof (the "Services
Period"), New Morton shall make available to Safety the following services
(collectively, the "Services"):
(a) Legal, tax, accounting, patent and other intellectual property,
payroll and payroll tax, real estate, human resources (including pension
administration), environmental, corporate secretarial, insurance, treasury
and management information services, in each case including reasonable
access to New Morton's systems and resources; and
(b) Such other personnel of New Morton whose services the parties
agree would be necessary and desirable to permit Safety and its
subsidiaries to operate its business in the ordinary course and to
facilitate the orderly transition of Safety and Newco to an independent and
self-sufficient company in a reasonable and timely manner.
It is understood that Services provided to Safety and its subsidiaries
hereunder will be performed by those employees of New Morton who perform
equivalent services for New Morton in the normal course of their employment.
Accordingly, New Morton shall not be obligated to make available any services to
the
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extent that doing so would unreasonably interfere with the performance by any
New Morton Employee of services for New Morton or otherwise cause unreasonable
burden to New Morton, in light of the purposes of this Agreement.
Notwithstanding the other provisions of this Article IV to the contrary, Safety
shall be obligated to obtain from New Morton, and New Morton shall agree to
provide to Safety, Services related to the preparation, filing and auditing of
tax returns for periods ended on or before the Distribution Date, subject to the
provisions of the Tax Sharing Agreement.
Section 4.02 Fee for Services; Expenses. Subject to applicable law,
Safety shall pay for all Services provided under Section 4.01 of this Agreement
(including tax, audit, employee benefits and other Services contemplated to be
provided by the Tax Sharing Agreement or the Benefits Agreement) pursuant to the
formula set forth on Schedule 4.02 or as otherwise agreed by the parties,
together with reimbursement of out-of-pocket expenses. Such payments shall be
due and payable by Safety 30 days after receipt of invoices therefor.
Section 4.03 Independent Contractor Status. New Morton shall render
and perform the Services as an independent contractor in accordance with its own
standards, subject to its compliance with the provisions of this Agreement and
with all applicable laws, ordinances and regulations.
Section 4.04 Disclaimer; Limited Liability.
(a) New Morton makes no express or implied representations,
warranties, or guarantees relating to the Services or the quality or results of
Services to be performed under this Agreement; provided, however, that New
Morton shall use reasonable efforts to provide the Services in a manner at least
comparable to the quality of such services provided to the Safety Business as of
and prior to the date hereof in all material respects.
(b) New Morton shall not be liable to Safety for any expense, claim
(for malpractice or otherwise), loss or damage, including, without limitation,
indirect, special, consequential or exemplary damages in performing the Services
pursuant to this Article IV; provided, however, that this Section 4.04(b) shall
not apply to any expense, claim (for malpractice or otherwise), loss or damage
resulting from the failure of New Morton to comply with the covenant contained
in the proviso in paragraph (a) above.
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(c) New Morton shall not be liable to Safety for the consequences of
any failure or delay to perform any of its obligations under this Agreement
other than for damages arising from New Morton's willful or reckless misconduct;
provided, that it shall provide reasonably prompt notice to Safety of such
inability and the reasons therefor.
ARTICLE V
INDEMNIFICATION
Section 5.01 Indemnification by Safety.
(a) Except with respect to the matters governed by the indemnification
provisions set forth in the Tax Sharing Agreement (which shall be governed by
those provisions), Safety shall indemnify, defend and hold harmless New Morton,
each of its directors, officers, employees and agents and each Affiliate of New
Morton and each of the heirs, executors, successors and assigns of any of the
foregoing (the "New Morton Indemnitees") from and against the Safety Liabilities
and any and all losses, claims and Liabilities (including, without limitation,
the costs and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions) (collectively, "Indemnifiable Losses" and, individually, an
"Indemnifiable Loss") of the New Morton Indemnitees arising out of or due to the
failure or alleged failure of Safety or any of its Affiliates to pay, perform or
otherwise discharge in due course any of the Safety Liabilities.
(b) Safety shall indemnify, defend and hold harmless each of the New
Morton Indemnitees from and against any and all Indemnifiable Losses of the New
Morton Indemnitees arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any portion of the Proxy
Statement (including any preliminary filings related thereto or any amendments
thereof) to be supplied by, or containing information relating to, Autoliv or
its subsidiaries, or the omission or alleged omission to state in any such
portion a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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Section 5.02 Indemnification by New Morton.
(a) Except with respect to the matters governed by the indemnification
provisions set forth in the Tax Sharing Agreement (which shall be governed by
those provisions), New Morton shall indemnify, defend and hold harmless each of
the Company and Newco, each of the directors, officers, employees and agents of
each of the Company and Newco and each Affiliate of each of the Company and
Newco and each of the heirs, executors, successors and assigns of any of the
foregoing (the "Safety Indemnitees") from and against the New Morton Liabilities
and any and all Indemnifiable Losses of the Safety Indemnitees arising out of or
due to the failure or alleged failure of New Morton or any of its Affiliates to
pay, perform or otherwise discharge in due course any of the New Morton
Liabilities.
(b) New Morton shall indemnify, defend and hold harmless each of the
Safety Indemnitees from and against any and all Indemnifiable Losses of the
Safety Indemnitees arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any portion of the Proxy
Statement (including any preliminary filing related thereto or any amendments
thereof) to be supplied by, or containing information relating to, any of New
Morton, the New Morton Subsidiaries or Safety, or the omission or alleged
omission to state in any such portion a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Section 5.03 Limitations on Indemnification Obligations.
(a) Insurance Proceeds. The amount which any party (an "Indemnifying
Party") is or may be required to pay to any other party (an "Indemnitee")
pursuant to Section 5.01 or Section 5.02 shall be reduced (including, without
limitation, retroactively) by any Insurance Proceeds or other amounts actually
recovered by or on behalf of such Indemnitee, in reduction of the related
Indemnifiable Loss. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss
and shall subsequently actually receive Insurance Proceeds or other amounts in
respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received.
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(b) Foreign Currency Adjustments. In the event that any
indemnification payment required to be made hereunder or under any Ancillary
Agreement shall be denominated in a currency other than United States dollars,
the amount of such payment shall be translated into United States dollars using
the Foreign Exchange Rate for such currency determined in accordance with the
following rules:
(i) with respect to an Indemnifiable Loss arising from payment by a
financial institution under a guarantee, comfort letter, letter of credit,
foreign exchange contract or similar instrument, the Foreign Exchange Rate
for such currency shall be determined as of the date on which such
financial institution shall have been reimbursed;
(ii) with respect to an Indemnifiable Loss covered by insurance, the
Foreign Exchange Rate for such currency shall be the Foreign Exchange Rate
employed by the insurance company providing such insurance in settling such
Indemnifiable Loss with the Indemnifying Party; and
(iii) with respect to an Indemnifiable Loss not covered by clause (i)
or (ii) above, the indemnification payment shall be paid in the applicable
local currency without any translation into United States dollars.
Section 5.04 Procedure for Indemnification.
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion by a person (including, without limitation, any governmental entity)
who is not a party to this Agreement or to any of the Ancillary Agreements of
any claim or of the commencement by any such person of any Action (a "Third
Party Claim") with respect to which an Indemnifying Party may be obligated to
provide indemnification pursuant to this Agreement, such Indemnitee shall give
such Indemnifying Party written notice thereof promptly after becoming aware of
such Third Party Claim; provided, that the failure of any Indemnitee to give
notice as provided in this Section 5.04 (the "Notice") shall not relieve the
related Indemnifying Party of its obligations under this Article V, except to
the extent that such Indemnifying Party is prejudiced by such failure to give
Notice. Such Notice shall describe the Third Party Claim in reasonable detail,
and shall indicate the amount (to the extent practicable) of the Indemnifiable
Loss that has been or may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third
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Party Claim by delivering to the Indemnitee, within 30 days of receipt of Notice
(or sooner (but in no event less than 10 days after the receipt of Notice), if
the nature of such Third Party Claim so requires), the written acknowledgment
(the "Acknowledgment") of its indemnification obligation under this Agreement
with respect to the Third Party Claim. The Acknowledgment may specify
reservations and exceptions to the extent reasonably acceptable to the
Indemnitee or consistent with the terms of this Agreement and the Ancillary
Agreements, and such Indemnitee shall cooperate in the defense or settlement or
compromise of such Third Party Claim. If the Indemnifying Party elects to assume
responsibility for defending such Third Party Claim, the Indemnifying Party
shall also notify the claimant or plaintiff asserting such Third Party Claim of
such election and request that all communications in relation to the Third Party
Claim be made, delivered or addressed to the Indemnifying Party, instead of the
Indemnitee. If it is later determined that the defendants to the Third Party
Claim include both the Indemnifying Party and the Indemnitee, the Indemnitee
shall thereupon notify the claimant or plaintiff asserting such Third Party
Claim that all communications in relation to the Third Party Claim should also
be made, delivered or addressed to the Indemnitee. After notice from an
Indemnifying Party to an Indemnitee of its election to assume the defense of a
Third Party Claim, such Indemnifying Party shall not be liable to such
Indemnitee under this Article V for any legal or other expenses (except expenses
approved in advance by the Indemnifying Party) subsequently incurred by such
Indemnitee in connection with the defense thereof; provided, that, if the
defendants in any such claim include both the Indemnifying Party and one or more
Indemnitees and in such Indemnitees' reasonable judgment a conflict of interest
between such Indemnitees and such Indemnifying Party exists in respect of such
claim or if the Indemnifying Party shall assume responsibility for such claim
with such reservations or exceptions to the extent reasonably acceptable to the
Indemnitee or consistent with the terms of this Agreement and the Ancillary
Agreements, such Indemnitees shall have the right to employ separate counsel to
represent such Indemnitees and in that event the reasonable fees and expenses of
such separate counsel (but not more than one separate counsel reasonably
satisfactory to the Indemnifying Party) shall be paid by such Indemnifying
Party.
If an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim (which election may be made only in the event of a
good faith dispute that a claim was inappropriately tendered under Section 5.01
or 5.02, as the case may be) such Indemnitee may defend or (subject to the
following sentence) seek to compromise or settle such Third Party Claim.
Notwithstanding the foregoing, an Indemnitee may not
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settle or compromise any claim without prior written notice to the Indemnifying
Party, which shall have the option within ten days following the receipt of such
notice (i) to disapprove the settlement and assume all past and future
responsibility for the claim, including reimbursing the Indemnitee for prior
expenditures in connection with the claim, or (ii) to disapprove the settlement
and continue to refrain from participation in the defense of the claim, in which
event the Indemnifying Party shall have no further right to contest the amount
or reasonableness of the settlement if the Indemnitee elects to proceed
therewith, or (iii) to approve the amount of the settlement, reserving the
Indemnifying Party's right to contest the Indemnitee's right to indemnity, or
(iv) to approve and agree to pay the settlement. In the event the Indemnifying
Party makes no response to such written notice from the Indemnitee, the
Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third Party Claim, the related Indemnitee shall make available to
such Indemnifying Party any personnel or any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by the claimant or plaintiff asserting such Third Party Claim
to the Indemnitee of a written release from all liability in respect of such
Third Party Claim. In the event the Indemnitee shall notify the Indemnifying
Party in writing that such Indemnitee declines to accept any such settlement or
compromise, such Indemnitee may continue to contest such Third Party Claim, free
of any participation by such Indemnifying Party, at such Indemnitee's sole
expense. In such event, the obligation of such Indemnifying Party to such
Indemnitee with respect to such Third Party Claim shall be equal to (i) the
costs and expenses of such Indemnitee prior to the date such Indemnifying Party
notifies such Indemnitee of the offer to settle or compromise (to the extent
such costs and expenses are otherwise indemnifiable hereunder) plus (ii) the
lesser of (A) the amount of any offer of settlement or compromise which such
Indemnitee declined to accept and (B) the actual out-of-pocket amount such
Indemnitee is obligated to pay subsequent to such date as a result of such
Indemnitee's continuing to pursue such Third Party Claim.
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(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third Party Claim shall be asserted by written notice given by the
Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have
a period of 30 days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility
to make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party, under applicable law
or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
(h) In the event Safety shall determine in its reasonable judgment
that it is likely that it will be named as a potentially responsible party in
any Superfund or other environmental litigation or investigation with respect to
a New Morton Liability, if requested to do so by Safety, New Morton shall notify
the potential claimant(s) in such potential litigation of its indemnification
obligation in favor of Safety under this Agreement.
Section 5.05 Remedies Cumulative. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 5.06 Survival of Indemnities. The obligations of New Morton
and the Company under this Article V, shall
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survive the Distribution Date and the sale or other transfer by it of any Assets
or businesses or the assignment by it of any Liabilities, with respect to any
Indemnifiable Loss of the other related to such Assets, businesses or
Liabilities. Such obligations shall be binding upon the successors and assigns
of the Safety Business or the New Morton Businesses, as the case may be, and
upon any transferee of all or substantially all of the assets (in one
transaction or a series of related transactions) of the Safety Business or the
New Morton Businesses, which transferee shall assume in writing such
obligations. If 25% or more of the Assets of the Safety Business or the New
Morton Businesses, as the case may be, are spun off to the respective
stockholders of Safety or New Morton, such spun-off entity shall assume in
writing a proportionate share of the indemnity obligation contained herein of
Safety or New Morton, as the case may be, based upon the relative assets of such
spun-off entity and the remaining assets in its parent, and thereafter Safety or
New Morton, as the case may be, shall be released from the proportionate share
so assumed. The assumption of obligations of a transferee or spun-off entity
shall not apply with respect to any transaction consummated after the twentieth
anniversary of this Agreement.
Section 5.07 Right of Inquiry.
(a) In the event of a material adverse change after the Distribution
Date in the financial condition of New Morton or Safety, which change creates a
substantial likelihood that New Morton or Safety, as the case may be, will not
be able to satisfy or otherwise settle, when due, its indemnification
obligations to Safety or New Morton, respectively, under this Article V, Safety
or New Morton, as the case may be, shall have the right, subject to entering
into an agreement with the other party to preserve confidentiality and any
applicable privilege for the benefit of such other party, upon consultation with
such party, to have limited access on reasonable prior notice to such party's
personnel in order to monitor the status of pending and anticipated litigation
and governmental investigations or proceedings for which Safety or New Morton,
as the case may be, could be contingently liable. Such right of inquiry shall
terminate at such time as there is no longer a substantial likelihood that the
applicable party will not be able to satisfy its indemnification obligations
under this Agreement and the Ancillary Agreements. The reasonable attorneys'
fees and out-of-pocket costs incurred in connection with a party's inquiry
pursuant to this Section 5.07 shall be treated as Indemnifiable Losses pursuant
to this Article V.
(b) In addition to the provisions of paragraph (a) above, each of
Safety and New Morton shall have the right on an
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annual basis and subject to reasonable prior notice to meet with the General
Counsel of the other party (or such corporate officer or employee designated by
such General Counsel) and receive an oral report, in a forum in which the
requesting party may ask reasonable questions regarding the status of material
pending and threatened litigation and material governmental investigations or
proceedings for which the requesting party may be contingently liable. For the
avoidance of doubt, no such right shall require Safety or New Morton, as the
case may be, to (i) provide non-public written information, (ii) provide
confidential information, (iii) jeopardize the benefit of any applicable
privilege or (iv) engage in lengthy or burdensome meetings or discussions. In
addition, each of Safety and New Morton shall have the further right to request
one additional meeting per year in connection with the public disclosure by the
other party during such year of a material adverse development in any pending or
threatened litigation or governmental investigation or proceeding for which the
requesting party may be contingently liable, such meeting otherwise to be on the
same terms as set forth in this Section 5.07(b). Each of Safety and New Morton
shall bear its own cost of attendance at such meetings, which shall be held at
the corporate offices of the non-requesting party.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS AND COVENANTS
Section 6.01 The New Morton Board. New Morton and the Company shall
take all actions which may be required to elect or otherwise appoint, as of the
Distribution Date, each of the directors of the Company Board as a director of
New Morton.
Section 6.02 Resignations; Safety Board.
(a) The Company shall cause all of its directors and New Morton
Employees to resign, effective as of the Distribution Date, from all boards of
directors or similar governing bodies of Safety or the Retained Subsidiaries on
which they serve, and from all positions as officers of Safety or the Retained
Subsidiaries in which they serve. The Company shall cause all of the Safety
Employees to resign from all boards of directors or similar governing bodies of
New Morton or any New Morton Subsidiary on which they serve, and from all
positions as officers of New Morton or any New Morton Subsidiary in which they
serve.
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(b) The Company shall take all actions which may be required to elect
or otherwise appoint to the Company Board and the board of directors of each
Remaining Subsidiary, as of the Effective Time, such officers of Newco or the
Company as the Company may designate prior to the Effective Time.
Section 6.03 Certain Post-Distribution Transactions.
(a) New Morton. (i) New Morton shall, and shall cause each New Morton
Subsidiary to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by the Company and New Morton acting together, from any such taxing
authority with respect to any transaction contemplated by this Agreement.
(ii) Neither New Morton nor any New Morton Subsidiary shall for a
period of one year following the Distribution Date engage or agree to engage in
any of the following transactions, unless (X) an opinion in form and substance
reasonably satisfactory to Safety is obtained from nationally recognized tax
counsel to New Morton and/or (Y) a supplemental ruling is obtained from the IRS,
in either case to the effect that such transaction(s) would not adversely affect
the tax consequences of the contributions, transfers, assumptions, Merger and
Distribution described in Articles II and III of this Agreement to the Company,
any Retained Subsidiary, or any shareholder or former shareholder of the
Company. The transactions subject to this provision are: (A) ceasing to engage
in an active trade or business within the meaning of Section 355(b) of the Code,
whether by means of a disposition or distribution of stock or assets, or
otherwise; (B) repurchasing more than 20% of the New Morton Common Stock
outstanding immediately after the Distribution; (C) issuing an amount of New
Morton capital stock that would cause the Distribution to fail to satisfy the
requirement that the Company have been in control of New Morton within the
meaning of Section 368(c) of the Code immediately prior to the Distribution or
that the New Morton shareholders be in control of New Morton immediately after
the Distribution within the meaning of Section 368(a)(1)(D) of the Code; or (D)
liquidating or merging with or into any other entity (including a New Morton
Subsidiary). New Morton hereby represents and warrants that neither New Morton
nor any New Morton Subsidiary has any plan or intention to undertake any of the
transactions set forth in (A), (B), (C), or (D) above. Notwithstanding the
foregoing, any act or transaction that is consistent with the representations
contained in (x) the request for rulings and any supplement thereto filed with
the IRS in connection with the Distribution or (y) the tax certificates
described in Section 9.1(g)(ii) of the Combination Agreement relating to the
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opinions of counsel to be rendered in connection with the Distribution and
the Merger, shall not be subject to the provisions of this Section 6.03(a)(ii).
(b) The Company. The Company shall, and shall cause each Remaining
Subsidiary to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by the Company and New Morton acting together, from any such taxing
authority with respect to any transaction contemplated by this Agreement.
Section 6.04 Use of Names.
(a) Any existing printed material showing any affiliation or
connection of Safety or the Retained Subsidiaries with New Morton, including any
names using "Morton" or a derivative thereof, may be used by Safety or the
Retained Subsidiaries only for a period ending eight months after the
Distribution Date. On and after the Distribution Date, Safety shall not
otherwise represent to third parties that it is presently affiliated with New
Morton.
(b) From and after the Effective Time, New Morton shall have all
rights in and use of the names "Morton" and "Morton International" and all other
names, marks, scripts, type fonts, forms, styles, logos, designs, devices, trade
dress, symbols and other forms of trade identity constituting New Morton Assets
(collectively, the "Morton Name Rights"), and all derivatives thereof. The
Company acknowledges that New Morton has all such rights and that the Company
will not use the New Morton Rights, or names, marks or other material
confusingly similar therewith except as permitted by this Agreement. Prior to or
promptly after the Effective Time, the Company shall change its name and the
name of any Subsidiary or other person under its control to eliminate therefrom
the names "Morton" and "Morton International" and all derivatives thereof. For a
period of eight months after the Distribution Date, the Company may use the
names "Morton" and "Morton International" only to the extent that it is not
practical to change such names or as permitted by Section 6.04(a), including in
connection with any signs, letterhead, business cards, invoices or other printed
forms, telephone directory listings or promotional material, and products in
inventory as of the Distribution Date and shall cause the Company and its
subsidiaries to maintain the same standards of quality with respect to such
names, logos and marks as previously exercised.
(c) Nothing in this Section 6.04 shall obligate Safety to replace any
tooling or other equipment used in the
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manufacturing process, provided that Safety uses all reasonable efforts to
comply with the requirements of paragraphs (a) and (b) with respect to such
tooling and equipment by, for example, affixing labels thereto or providing
other appropriate signage.
(d) As of the date of this Agreement, New Morton intends to use
"Morton International, Inc." as its corporate name following the Effective Time,
although nothing herein shall preclude New Morton from changing such name in the
future.
Section 6.05 Restrictions on Hiring of Other Party's Employees. For a
period of two years after the Distribution Date, each of Safety and New Morton
agrees that, without the prior written consent of the other, it will not, and it
will cause its Affiliates not to, solicit the employment of or employ any New
Morton Employee or Safety Employee, respectively.
Section 6.06 Further Assurances; Cooperation. Each of the parties
hereto promptly shall execute such documents and other instruments and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and to consummate the transactions contemplated hereby. The
parties shall cooperate with each other in all reasonable respects to ensure the
transfer to New Morton or a New Morton Subsidiary of the New Morton Assets, New
Morton Liabilities and the businesses related thereto, and the retention by the
Company of the Safety Business, including, without limitation, (i) allocating
rights and obligations under contracts, agreements and other arrangements, if
any, of the Company that relate to both the Safety Business and the New Morton
Businesses, (ii) determining whether to enter into any service or other sharing
agreements on a mutually acceptable arm's-length basis that may be necessary to
assure a smooth and orderly transition, and (iii) obtaining any reasonably
necessary or appropriate third-party consents, licenses and permits in
connection with the Distribution. In case at any time after the Distribution
Date any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary or desirable action.
Section 6.07 Guarantees.
(a) Safety and New Morton shall cooperate, and shall cause their
respective Affiliates to cooperate, to terminate, or to cause Safety or one of
its Affiliates to be substituted in all respects for New Morton or its
Affiliates in respect of, all obligations of New Morton and its Affiliates under
any
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loan, financing, lease, contract, or other obligation in existence as of the
Distribution Date pertaining to the Safety Business for which New Morton or an
Affiliate of New Morton may be liable, as guarantor, original tenant, primary
obligor or otherwise. If such a termination or substitution is not effected by
the Distribution Date, (i) Safety shall indemnify and hold harmless the New
Morton Indemnitees for any Indemnifiable Loss arising from or relating thereto,
and (ii) without the prior written consent of the Chief Financial Officer of New
Morton, from and after the Distribution Date, Safety shall not, and shall not
permit any of its Affiliates to, renew or extend the term of, increase its
obligations under, or transfer to a third party, any loan, lease, contract or
other obligation for which New Morton or any of its Affiliates is or may be
liable unless all obligations of New Morton and its Affiliates with respect
thereto are thereupon terminated by documentation reasonably satisfactory in
form and substance to the Chief Financial Officer of New Morton.
(b) Safety and New Morton shall cooperate, and shall cause their
respective Affiliates to cooperate, to terminate, or to cause New Morton or one
of its Affiliates to be substituted in all respects for Safety and its
Affiliates in respect of, all obligations of Safety and its Affiliates under any
loan, financing, lease, contract or other obligation in existence as of the
Distribution Date pertaining to the New Morton Businesses for which Safety or
its Affiliates may be liable, as guarantor, original tenant, primary obligor or
otherwise. If such a termination or substitution is not effected by the
Distribution Date, (i) New Morton shall indemnify and hold harmless the Company
Indemnitees for any Indemnifiable Loss arising from or relating thereto, and
(ii) without the prior written consent of the Chief Financial Officer of Safety
or Newco, from and after the Distribution Date, New Morton shall not, and shall
not permit any of its Affiliates to, renew or extend the term of, increase its
obligations under, or transfer to a third party, any loan, lease, contract or
other obligation for which Safety or its Affiliates is or may be liable unless
all obligations of Safety and its Affiliates with respect thereto are thereupon
terminated by documentation reasonably satisfactory in form and substance to the
Chief Financial Officer of Safety or Newco.
(c) Safety and New Morton shall provide Newco with information and
documentation relating to the actions to be taken pursuant to this Section 6.07.
Section 6.08 Shared Facilities. From and after the Distribution Date,
New Morton shall have access to the facilities specified in Schedule 6.08 on the
terms set forth thereon.
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Section 6.09 Thiokol-Morton Spinoff. Safety agrees that, at New
Morton's request and expense and subject to New Morton's obligation to indemnify
Safety for such actions, Safety shall act as agent for New Morton in making any
claim against Morton Thiokol, Inc. (now named Thiokol Corporation) in connection
with New Morton's indemnification and similar rights pursuant to the agreements
entered into between Thiokol and Morton International, Inc. in connection with
the 1989 distribution of the capital stock of Morton International, Inc. Safety
shall not knowingly waive any such rights of New Morton without New Morton's
consent. Notwithstanding the foregoing, Safety shall not be obligated to take
any actions in furtherance of its obligations under this Section 6.09 if Safety
determines, in its reasonable judgment, that taking such actions would entail an
undue level of risk to Safety or involve Safety in a substantial controversy or
dispute.
Section 6.10 Non-Competition. (a) For a period of four years from and
after the Distribution Date, New Morton will not engage, directly or through any
subsidiary or other entity controlled by New Morton, in the automotive safety
restraint business (as such business is conducted by Newco and its subsidiaries
immediately following the Effective Time (as defined in the Contribution
Agreement)); provided, however, that this Section 6.10 shall not prevent New
Morton from:
(i) acquiring no more than 10% of the outstanding stock, partnership
or other equity interests in any corporation, partnership,
limited liability company or other person or entity ("Person");
(ii) acquiring more than 10% of the outstanding capital stock,
partnership or other equity interests in any Person for which the
annual revenues derived from the business of such Person that
competes with the automotive safety restraint business (as such
business is conducted by Newco and its subsidiaries immediately
following the Effective Time) are not more than 10% of such
Person's total annual revenues;
(iii) acquiring more than 50% of the outstanding capital stock,
partnership or other equity interests in any Person (or any
lesser percentage if, pursuant to contractual or other
arrangements, New Morton has the right to cause such Person to
take the actions specified in the following proviso) for which
the annual revenues derived from the business of such Person that
competes with the automotive safety restraint business (as
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such business is conducted by Newco and its subsidiaries
immediately following the Effective Time) are more than 10% (or,
in the event such revenues represent less than 10% of such
Person's total annual revenues, constitute a stand-alone business
that can be divested without materially affecting the remaining
businesses or operations of such Person) but less than 40% of
such Person's total annual revenues; provided, however, that New
Morton shall use all commercially reasonable efforts to divest
that portion of such Person that competes with the automotive
safety restraint business (as such business is conducted by Newco
and its subsidiaries immediately following the Effective Time) on
commercially reasonable terms as soon as practicable after
acquisition of such ownership or interest; or
(iv) engaging in any investment activities with respect to any pension
plan, trust for the benefit of employees or retirees, employee
savings or stock ownership plan or other employee benefit,
retirement or welfare plan or program.
(b) Notwithstanding anything to the contrary in Section 6.10(a), for a
period of ten years from and after the Distribution Date, New Morton will not
engage, directly or through any subsidiary or other entity controlled by New
Morton, in the automotive safety restraint business using as its trade name any
name containing the words "Morton" or "MI".
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.01 Provision of Corporate Records.
(a) New Morton Assets shall include the original corporate minute
books, stock ledgers and certificates and corporate seals of each New Morton
Subsidiary, all licenses, leases, agreements, litigation files and filings with
foreign governments primarily relating to the New Morton Businesses and all
other such material that does not relate exclusively to the Safety Business.
Safety shall arrange as soon as practicable following the Distribution Date for
the transportation to New Morton of existing corporate records in its possession
primarily relating to the New Morton Businesses, except to the extent such items
are already in the possession of New Morton or
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a New Morton Subsidiary or located at the Company's present principal executive
offices or on premises included in the New Morton Assets. Such records shall be
the property of New Morton, but shall be available to Safety for review and
duplication and shall otherwise be subject to Section 7.05 of this Agreement.
(b) Safety Assets shall include the original corporate minute books,
stock ledgers and certificates and corporate seals of the Company and the
Retained Subsidiaries and all licenses, leases, agreements, litigation files and
filings exclusively relating to the Safety Business. New Morton shall arrange as
soon as practicable following the Distribution Date, to the extent not
previously delivered in connection with the transactions contemplated in Article
II, for the transportation to Safety of existing corporate records (excluding
accounting, tax, and financial records and original Policies except as otherwise
agreed by the parties) in its possession or located at the Company's principal
executive offices exclusively relating to Safety and the Retained Subsidiaries,
except to the extent such items are already in the possession of Safety. Such
records shall be the property of Safety, but shall be available to New Morton
for review and duplication and shall otherwise be subject to Section 7.05 of
this Agreement.
Section 7.02 Access to Information.
(a) From and after the Distribution Date, Safety shall afford to New
Morton and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information (collectively, "Information") within
Safety's possession insofar as such access is reasonably required by New Morton,
subject to appropriate restrictions for classified information. Similarly, New
Morton shall afford to Safety and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to Information within New Morton's
possession, insofar as such access is reasonably required by Safety. Information
may be requested under this Article VII for, without limitation, audit,
accounting, claims, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations and for performing this
Agreement and the transactions contemplated hereby.
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(b) For a period of five years following the Distribution Date, each
of New Morton and Safety shall provide to the other, promptly following such
time at which such documents shall be filed with the Commission, all documents
which shall be filed by it or any of its subsidiaries with the Commission
pursuant to the periodic and interim reporting requirements of the Exchange Act
and the rules and regulations of the Commission promulgated thereunder.
(c) In furtherance of the rights and obligations of the parties set
forth in subsections (a) and (b) of this Section 7.02:
(i) Each party hereto acknowledges that (A) each of Safety and the
Retained Subsidiaries (the "Safety Group") on the one hand, and New Morton
and the New Morton Subsidiaries (the "New Morton Group") on the other hand,
has or may obtain Information regarding a member of the other Group, or any
of its operations, employees, Assets or Liabilities (whether in documents
or stored in any other form or known to its employees or agents) that is or
may be protected from disclosure pursuant to the attorney-client privilege,
the work product doctrine or other applicable privileges ("Privileged
Information"); (B) there are a number of actual, threatened or future
litigations, investigations, proceedings (including arbitration
proceedings), claims or other legal matters that have been or may be
asserted by or against, or otherwise affect, each or both of Safety and New
Morton (or members of either Group) ("Litigation Matters"); (C) Safety and
New Morton have a common legal interest in Litigation Matters, in the
Privileged Information, and in the preservation of the confidential status
of the Privileged Information, in each case relating to the Safety Business
or the New Morton Businesses as it or they existed prior to the
Distribution Date or relating to or arising in connection with the
relationship between the constituent elements of the Groups on or prior to
the Distribution Date; and (D) the Company, Safety and New Morton intend
that the transactions contemplated by this Agreement and the Ancillary
Agreements and any transfer of Privileged Information in connection
herewith or therewith shall not operate as a waiver of any potentially
applicable privilege.
(ii) Each of the Company, Safety and New Morton agrees, on behalf of
itself and each member of the Group of which it is a member, not to
disclose or otherwise waive any privilege attaching to any Privileged
Information relating to the New Morton Businesses or the Safety Business as
they or it existed prior to the Distribution
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Date, respectively, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date,
without providing prompt written notice to and obtaining the prior written
consent of the other, which consent shall not be unreasonably withheld and
shall not be withheld if the other party certifies that such disclosure is
to be made in response to a likely threat of suspension or debarment or
similar action; provided, however, that Safety and New Morton may make such
disclosure or waiver with respect to Privileged Information if such
Privileged Information relates, in the case of Safety, solely to the Safety
Business as it existed prior to the Distribution Date or, in the case of
New Morton, solely to the New Morton Businesses as they existed prior to
the Distribution Date. In the event of a disagreement between any member of
the Safety Group and any member of the New Morton Group concerning the
reasonableness of withholding such consent, no disclosure shall be made
prior to a final, nonappealable resolution of such disagreement by a court
of competent jurisdiction.
(iii) Upon any member of the Safety Group or any member of the New
Morton Group receiving any subpoena or other compulsory disclosure notice
from a court, other governmental agency or otherwise which requests
disclosure of Privileged Information, in each case relating to the New
Morton Businesses or the Safety Business, respectively, as they or it
existed prior to the Distribution Date or relating to or arising in
connection with the relationship between the constituent elements of the
Groups on or prior to the Distribution Date, the recipient of the notice
shall promptly provide to Safety, in the case of receipt by a member of the
New Morton Group, or New Morton, in the case of receipt by a member of the
Safety Group, a copy of such notice, the intended response, and all
materials or information relating to the other Group that might be
disclosed. In the event of a disagreement as to the intended response or
disclosure, unless and until the disagreement is resolved as provided in
paragraph (ii) above, Safety and New Morton shall cooperate to assert all
defenses to disclosure claimed by either Group, at the cost and expense of
the Group claiming such defense to disclosure, and shall not disclose any
disputed documents or information until all legal defenses and claims of
privilege have been finally determined.
Section 7.03 Production of Witnesses. At all times from and after the
Distribution Date, each of New Morton and Safety shall use reasonable efforts to
make available to the other upon written request, its and its subsidiaries'
officers,
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directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
Section 7.04 Reimbursement. Except to the extent otherwise
contemplated by Article IV hereof or any Ancillary Agreement, a party providing
Information or witness services to the other party under this Article VII shall
be entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements and
other out-of-pocket expenses and direct and indirect costs of employees who are
witnesses, as may be reasonably incurred in providing such Information or
witness services.
Section 7.05 Retention of Records. Except as otherwise required by law
or agreed to in writing, each of Safety and New Morton may destroy or otherwise
dispose of any of the Information in accordance with the records retention
policy of the Company at the date of this Agreement as set forth on Exhibit F,
provided that, prior to destruction or disposal of Information relating in any
material respect to the New Morton Business or the Safety Business,
respectively, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested at the expense of the party requesting such Information.
Section 7.06 Confidentiality. Each of Safety and the Retained
Subsidiaries on the one hand, and New Morton and the New Morton Subsidiaries on
the other hand, shall hold, and shall cause its consultants and advisors to
hold, in strict confidence, all Information concerning the other in its
possession or furnished by the other or the other's representatives pursuant to
this Agreement (except to the extent that such Information has been (a) in the
public domain through no fault of such party or (b) later lawfully acquired from
other sources by such party), and each party shall not release or disclose such
Information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors, unless compelled to
disclose by judicial or administrative process or, as advised by its counsel, by
other requirements of law.
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ARTICLE VIII
INSURANCE
Section 8.01 Policies and Rights.
(a) New Morton Assets. Without limiting the generality of the
definition of New Morton Assets set forth in Section 1.01 or the effect of
Section 2.02, the New Morton Assets shall include (i) any and all rights of an
insured party under each of the Company Policies, specifically including rights
of indemnity and the right to be defended by or at the expense of the insurer,
with respect to all injuries, losses, Liabilities, damages and expenses incurred
or claimed to have been incurred prior to the Distribution Date by any party in
or in connection with the conduct of the New Morton Businesses or, to the extent
any claim is made against New Morton or any of its subsidiaries, the Safety
Business and which injuries, losses, Liabilities, damages and expenses may arise
out of insured or insurable occurrences or events under one or more of the
Company Policies; provided, however, that nothing in this clause shall be deemed
to constitute (or to reflect) the assignment of the Company Policies, or any of
them, to New Morton; and (ii) the New Morton Policies.
(b) Safety Assets. Without limiting the generality of the definition
of Safety Assets set forth in Section 1.01, the Safety Assets shall include (i)
any and all rights of an insured party under each of the Company Policies,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer, other than the rights under the Company Policies
included in New Morton Assets pursuant to Section 8.01(a); and (ii) the Safety
Policies.
(c) No Further Indemnity. Nothing in this Article VIII shall be deemed
to constitute an indemnity of New Morton by Safety or an indemnity of Safety by
New Morton.
Section 8.02 Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person, corporation, firm or entity shall assert a claim
against New Morton or any New Morton Subsidiary with respect to any injury,
loss, liability, damage or expense incurred or claimed to have been incurred
prior to the Distribution Date in or in connection with the conduct of the New
Morton Businesses or, to the extent any claim is made against New Morton or any
of its subsidiaries, the Safety Business, or any of them, and which injury,
loss, liability, damage or expense may arise out of insured or
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insurable occurrences or events under one or more of the Company Policies, the
Company shall at the time such claim is asserted be deemed to assign, without
need of further documentation, to New Morton any and all rights of an insured
party under the applicable Company Policy with respect to such asserted claim,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer; provided, however, that nothing in this sentence
shall be deemed to constitute (or to reflect) the assignment of the Company
Policies, or any of them, to New Morton.
Section 8.03 Administration and Reserves.
(a) Notwithstanding the provisions of Article III, from and after the
Distribution Date:
(i) New Morton shall be responsible for the (A) Insurance
Administration of the Company Policies and the New Morton Policies, and (B)
Claims Administration with respect to the New Morton Liabilities; provided,
that the retention of the Company Policies and the New Morton Policies by
New Morton is in no way intended to limit, inhibit, or preclude any right
to insurance coverage for any Insured Claim of a named insured under the
Company Policies and the New Morton Policies, including but not limited to
Safety and any of its operations, subsidiaries and Affiliates;
(ii) Unless otherwise agreed pursuant to Article IV hereof, Safety
shall be responsible for the (A) Insurance Administration of the Safety
Policies and (B) Claims Administration with respect to the Safety
Liabilities; provided that the retention of the Safety Policies by Safety
is in no way intended to limit, inhibit, or preclude any right to insurance
coverage for any Insured Claim of a named insured under the Safety
Policies;
(iii) New Morton shall be entitled to reserves established by the
Company or any of its subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the New Morton Liabilities; and
(iv) Safety shall be entitled to reserves established by the Company
or any of its subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Safety Liabilities.
(b) Insurance Premiums. New Morton shall have the right but not the
obligation to pay the premiums, to the extent
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that Safety does not pay premiums with respect to Safety Liabilities
(retrospectively-rated or otherwise), with respect to the Company Policies and
the New Morton Policies, as required under the terms and conditions of the
respective Policies, whereupon Safety shall forthwith reimburse New Morton for
that portion of such premiums paid by New Morton as are attributable to the
Safety Liabilities. Unless otherwise agreed by the parties hereto, Safety shall
purchase (subject to a 50% reimbursement by New Morton within 15 days of notice
of such purchase) continued coverage under its director and officer liability
insurance policy for claims made prior to the sixth anniversary of the
Distribution Date based upon acts or omissions occurring on or prior to the
Distribution Date.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to New
Morton with respect to the New Morton Liabilities and to Safety with respect to
the Safety Liabilities. Payment of the allocable portions of indemnity costs of
Insurance Proceeds resulting from the Policies will be made to the appropriate
party upon receipt from the insurance carrier. In the event that the aggregate
limits on any Company Policies are exceeded, the parties agree to provide an
equitable allocation of Insurance Proceeds based upon their respective bona fide
claims. The parties agree to use their best efforts to cooperate with respect to
insurance matters.
Section 8.04 Agreement for Waiver of Conflict and Shared Defense. In
the event that Insured Claims of both New Morton and Safety exist relating to
the same occurrence, New Morton and Safety agree to jointly defend and to waive
any conflict of interest necessary to the conduct of that joint defense. Nothing
in this paragraph shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
Section 8.05 Cooperation with Respect to Insurance. New Morton shall
provide all reasonable cooperation in order to assist Safety during the
transition period in obtaining such continuous insurance coverage as Safety
shall request, provided, that New Morton shall not be obligated to pay any
premiums or other costs in connection therewith.
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ARTICLE IX
MISCELLANEOUS
Section 9.01 Complete Agreement; Construction. This Agreement,
including the Schedules and Exhibits and the Ancillary Agreements and other
agreements and documents referred to herein, shall (to the extent each party
hereto is a party thereto) constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Notwithstanding any other provisions in this Agreement to the contrary, in the
event and to the extent that there shall be a conflict between the provisions of
this Agreement (or any Conveyancing and Assumption Instrument or other
instrument of assumption) and the provisions of the Benefits Agreement or the
Tax Sharing Agreement, the provisions of the Benefits Agreement or the Tax
Sharing Agreement, as the case may be, shall control.
Section 9.02 Survival of Agreements. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
Section 9.03 Expenses. Safety Liabilities shall include $15 million of
expenses incurred by the Company in connection with the transactions
contemplated by the Combination Agreement to the extent not previously paid by
Safety prior to the Distribution Date, together with all costs, including
financing costs, and expenses (except as provided in the next succeeding
sentence) in connection with the Safety Credit Agreement, with New Morton
responsible for any additional expenses incurred by the Company on or prior to
the Distribution Date in connection therewith, including the costs and expenses
incurred by the Company or New Morton on or prior to the Distribution Date in
connection with the preparation, execution, delivery and implementation of this
Agreement. New Morton shall be responsible, up to a maximum of $500,000, for
fifty percent of the costs, including financing costs, and expenses incurred in
connection with the Safety Credit Agreement.
Section 9.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
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Section 9.05 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To the Company or Safety:
[Name to come]
[3350 Airport Road]
[Ogden, Utah 84409]
Attention: Corporate Secretary
with a copy to:
Autoliv, Inc.
[Address To Come]
Attention: Corporate Secretary
and
Skadden, Arps, Slate, Meagher & Flom
25 Bucklersbury
London EC4N 8DA, England
Attention: Scott V. Simpson, Sr., Esq.
To New Morton or any New Morton Subsidiary which is a party
hereto:
Morton International, Inc.
100 North Riverside Plaza
Chicago, Illinois 60606
Attention: Corporate Secretary
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Eric S. Robinson, Esq.
Section 9.06 Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the respective duly authorized
representatives of the parties.
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Section 9.07 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 9.08 Counterparts. This Agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an
original instrument, and all such counterparts shall together constitute the
same agreement.
Section 9.09 Subsidiaries. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any subsidiary of such party
which is contemplated to be a subsidiary of such party on and after the
Distribution Date.
Section 9.10 Third Party Beneficiaries. Except for the provisions of
Article V relating to Indemnitees, which shall be for the benefit of such
Indemnitees, and for Newco, which shall be a third-party beneficiary of the
Company's rights under this Agreement, this Agreement is solely for the benefit
of the parties hereto and their respective subsidiaries and Affiliates and
should not be deemed to confer upon third parties any remedy, claim, Liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
Section 9.11 Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 9.12 Exhibits and Schedules. The Exhibits and Schedules shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
Section 9.13 Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
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the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 9.14 Consent to Jurisdiction. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of any state or federal court
in the State of Delaware for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby
(and agrees not to commence any action, suit or proceeding relating hereto
except in such courts). Each of the parties hereto further agrees that service
of any process, summons, notice or document hand delivered or sent by registered
mail to such party's respective address set forth in Section 9.05 will be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction as set forth in
the immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in any state or federal court in the State of Delaware, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
MORTON INTERNATIONAL, INC.
By: ________________________________
Name:
Title:
NEW MORTON INTERNATIONAL, INC.
By: ________________________________
Name:
Title:
<PAGE>
Exhibit 2.2
================================================================================
Conformed Copy
COMBINATION AGREEMENT
AMONG
AUTOLIV AB,
MORTON INTERNATIONAL, INC.,
AUTOLIV, INC.
AND
ASP MERGER SUB INC.
Dated as of November 25, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER............................. 3
Section 1.1 The Merger ................................................. 3
Section 1.2 Effective Time; Closing .................................... 4
Section 1.3 Effect of the Merger ....................................... 4
Section 1.4 Certificate of Incorporation; By-Laws; Corporate Name ...... 4
Section 1.5 Directors and Officers of the Surviving Corporation ........ 4
ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER................ 5
Section 2.1 Conversion of Capital Stock ................................ 5
Section 2.2 Exchange of Certificates ................................... 5
Section 2.3 Stock Transfer Books ....................................... 9
Section 2.4 Employee/Director Stock Options ............................ 9
ARTICLE III
ADDITIONAL TRANSACTIONS...................... 10
Section 3.1 The Exchange Offer ......................................... 10
Section 3.2 Depositary ................................................. 11
Section 3.3 Compulsory Acquisition ..................................... 12
Section 3.4 Spinoff .................................................... 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MORTON............. 12
Section 4.1 Organization and Qualification; Subsidiaries ............... 12
Section 4.2 Certificate of Incorporation and By-Laws ................... 13
Section 4.3 Capitalization ............................................. 13
Section 4.4 Authority Relative to this Agreement ....................... 14
Section 4.5 No Conflict; Required Filings and Consents ................. 15
Section 4.6 Permits; Compliance ........................................ 16
Section 4.7 SEC Filings; Financial Statements .......................... 17
Section 4.8 Absence of Certain Changes or Events ....................... 18
Section 4.9 Employee Benefit Plans; Labor Matters ...................... 19
Section 4.10 Tax Matters ................................................ 23
Section 4.11 Contracts; Debt Instruments ................................ 25
Section 4.12 Litigation ................................................. 25
Section 4.13 Environmental Matters ...................................... 26
Section 4.14 Trademarks, Patents and Copyrights ......................... 27
Section 4.15 No Violation of Spinco Representations ..................... 27
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Section 4.16 Rights Agreement ........................................... 27
Section 4.17 Opinion of Financial Advisor ............................... 28
Section 4.18 Brokers .................................................... 28
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTOLIV............ 28
Section 5.1 Organization and Qualification; Subsidiaries ............... 28
Section 5.2 Corporate Organization Documents ........................... 29
Section 5.3 Capitalization ............................................. 29
Section 5.4 Authority Relative to this Agreement ....................... 29
Section 5.5 No Conflict; Required Filings and Consents ................. 30
Section 5.6 Permits; Compliance ........................................ 31
Section 5.7 Stock Exchange and SEC Filings; Financial Statements ....... 31
Section 5.8 Absence of Certain Changes or Events ....................... 32
Section 5.9 Employee Benefit Plans; Labor Matters ...................... 33
Section 5.10 Tax Matters ................................................ 37
Section 5.11 Contracts; Debt Instruments ................................ 38
Section 5.12 Litigation ................................................. 38
Section 5.13 Environmental Matters ...................................... 39
Section 5.14 Trademarks, Patents and Copyrights ......................... 39
Section 5.15 Opinions of Financial Advisors ............................. 40
Section 5.16 Brokers .................................................... 40
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO AND NEWCO SUB....... 40
Section 6.1 Organization and Qualification; Subsidiaries ............... 40
Section 6.2 Certificate of Incorporation and By-Laws ................... 41
Section 6.3 Capitalization ............................................. 41
Section 6.4 Authority Relative to this Agreement ....................... 42
Section 6.5 No Conflict ................................................ 42
Section 6.6 No Activities .............................................. 42
ARTICLE VII
COVENANTS.............................. 43
Section 7.1 Conduct of Business by Morton Pending the Closing .......... 43
Section 7.2 Conduct of Business by Autoliv Pending the Closing ......... 46
Section 7.3 Cooperation; Liaison Committee ............................. 49
Section 7.4 Notices of Certain Events .................................. 49
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ARTICLE VIII
ADDITIONAL AGREEMENTS........................ 50
Section 8.1 Registration Statements .................................... 50
Section 8.2 Stockholders' Meetings ..................................... 53
Section 8.3 Access to Information; Confidentiality ..................... 54
Section 8.4 No Solicitation of Transactions ............................ 55
Section 8.5 Employee Benefits Matters .................................. 57
Section 8.6 Directors' and Officers' Indemnification and Insurance ..... 57
Section 8.7 Affiliate Letters .......................................... 59
Section 8.8 Letters of Accountants ..................................... 60
Section 8.9 Further Action; Consents; Filings .......................... 60
Section 8.10 Newco Organization ......................................... 62
Section 8.11 Depositary Facility for Newco Common Stock ................. 63
Section 8.12 Plan of Reorganization ..................................... 63
Section 8.13 Ancillary Agreements ....................................... 64
Section 8.14 Year-End Financial Statements .............................. 64
Section 8.15 Public Announcements ....................................... 65
Section 8.16 Obligations of Newco Sub. .................................. 65
Section 8.17 Stock Exchange Listings and De-listings .................... 65
Section 8.18 Maintenance of Certain Facilities; Corporate Headquarters .. 66
Section 8.19 Cancellation of Newco Common Stock Owned by Autoliv and Morton66
Section 8.20 Delivery of Tax Certificates ............................... 66
Section 8.21 Safety Credit Agreement .................................... 66
Section 8.22 Post-Closing Transactions .................................. 66
ARTICLE IX
CONDITIONS TO THE TRANSACTIONS.................... 67
Section 9.1 Conditions to the Obligations of Each Party to Consummate
the Transactions......................................... 67
Section 9.2 Conditions to the Obligations of Morton .................... 69
Section 9.3 Conditions to the Obligations of Autoliv ................... 70
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER................. 71
Section 10.1 Termination ................................................ 71
Section 10.2 Effect of Termination ...................................... 74
Section 10.3 Amendment .................................................. 74
Section 10.4 Waiver ..................................................... 74
Section 10.5 Expenses ................................................... 75
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ARTICLE XI
GENERAL PROVISIONS......................... 77
Section 11.1 Non Survival of Representations, Warranties and Agreements . 77
Section 11.2 Notices .................................................... 77
Section 11.3 Certain Definitions ........................................ 78
Section 11.4 Severability ............................................... 80
Section 11.5 Assignment; Binding Effect; Benefit ........................ 80
Section 11.6 Schedules, Annexes and Exhibits ............................ 80
Section 11.7 Specific Performance ....................................... 80
Section 11.8 Governing Law .............................................. 81
Section 11.9 Submission to Jurisdiction; Venue .......................... 81
Section 11.10 Headings ................................................... 81
Section 11.11 Counterparts ............................................... 82
Section 11.12 Entire Agreement ........................................... 82
ANNEX A Employee Benefits
Exhibit A Form of Distribution Agreement
Exhibit B Form of Certificate of Incorporation of Surviving Corporation
Exhibit C Form of Morton Affiliate Letter
Exhibit D Form of Autoliv Affiliate Letter
Schedule A Morton Disclosure Schedule
Schedule B Autoliv Disclosure Schedule
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INDEX OF DEFINED TERMS FOR COMBINATION AGREEMENT
Defined Term Section
- ------------ -------
ADSs Recitals
Affiliate 8.7(a)
affiliate 11.3(a)
Agreement Recitals
Ancillary Agreements Recitals
Autoliv Recitals
Autoliv Authorized Agent 11.9
Autoliv Disclosure Schedule 5.9(a)
Autoliv ERISA Affiliate 5.9(a)
Autoliv Foreign Benefit Plan 5.9(n)
Autoliv Material Adverse Effect 5.1
Autoliv Permits 5.6
Autoliv Plans 5.9(a)
Autoliv Reports 5.7(a)
Autoliv Securities Recitals
Autoliv Shares Recitals
Autoliv Tax Certificate 9.1(g)(ii)(B)
Autoliv Transaction Recitals
beneficial owner 11.3(b)
Blackstone 5.15
Blue Sky Laws 4.5(b)
business day 11.3 (c)
CERCLA 4.13(d)
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Defined Term Section
- ------------ -------
Certificates 2.2(a)
Code Recitals
Competing Transaction 8.4(d)
Confidentiality Agreements 8.3(b)
Contracting Subsidiary 4.4
control 11.3(d)
controlled by 11.3(d)
Costs 8.6 (d)
Delaware Certificate of Merger 1.2
Delaware Law Recitals
Depositary 3.2
Distribution Agreement Recitals
Effective Time 1.2
Employee Benefits Allocation Agreement Recitals
Enskilda 5.15
Environmental Laws 4.13(d)
Environmental Permits 4.13(d)
Exchange Act 4.5 (b)
Exchange Agent 2.2(a)
Exchange Fund 2.2(a)
Exchange Offer Recitals
Exchange Offer Commencement Date 3.1(a)
Exchange Offer Conditions 3.1(a)
Exchange Offer Ratio 3.1(a)
Exchange Ratio 2.1(a)
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Defined Term Section
- ------------ -------
Executive Management Committee 8.10(b)
Expenses 10.5(b)
Expiration Date 3.1(a)
FSA 3.1(b)
Goldman Sachs 4.17
Governmental Entity 4.5(b)
Hazardous Materials 4.13(d)
HSR Act 4.5 (b)
Indemnified Parties 8.6(d)
Indiana Articles of Merger 1.2
Indiana Law Recitals
International Prospectus 5.15
knowledge 11.3(e)
Law 4.5(a)
Liaison Committee 7.3(b)
Merger Recitals
Minimum Condition 3.1(a)
Morton Recitals
Morton Disclosure Schedule 4.3
Morton ERISA Affiliate 4.9(a)
Morton Foreign Benefit Plan 4.9(n)
Morton Material Adverse Effect 4.1
Morton Material Contract 4.11
Morton Option Plan 2.4
Morton Options 2.4
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Defined Term Section
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Morton Permits 4.6
Morton Plans 4.9(a)
Morton Preferred Stock 4.3
Morton SEC Reports 4.7(a)
Morton Shares Recitals
Morton Stockholder Approval Condition 3.1(a)
Morton Stockholders' Meeting 8.1(a)
Morton Tax Certificate 9.1(g)(ii)(A)
Newco Recitals
Newco Common Stock Recitals
Newco Option Plan 2.4
Newco Sub Recitals
Newco Sub Common Stock 6.3(b)
Newco Registration Statement 8.1(a)
Newco Tax Certificate 9.1(g)(ii)(A)
NYSE 2.2(e)
Order 8.9(b)(ii)
PBGC 4.9(c)
person 11.3(f)
Proxy/Prospectus 8.1(a)
Registration Statements 8.1(a)
Registration Statement Effective Date 8.1(a)
Regulations Recitals
Representatives 8.3(a)(i)
Retained Business 4.1
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Defined Term Section
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Retained Business Balance Sheet 4.7(c)
Retained Business Intellectual Property 4.14
Retained Debt 7.1(e)(ii)
Retained Morton Subsidiaries 4.1
Rights 4.16
Rights Agreement 4.3
SDRs Recitals
SEC 2.4
Securities Act 4.5 (b)
Skadden LLP 9.1(g)(ii)(B)
SPD 4.9 (b)
Spinco Recitals
Spinco Common Stock Recitals
Spinco Registration Statement 8.1(a)
Spinoff Recitals
SSE 3.1(b)
subsidiaries 11.3(g)
subsidiary 11.3(g)
Surviving Corporation 1.1
Swedish Prospectus 3.1(b)
Tax Return 4.10(b)
Tax Sharing Agreement Recitals
Taxes 4.10(b)
Terminating Autoliv Breach 10.1(h)
Terminating Morton Breach 10.1(g)
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Defined Term Section
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Third Party Provisions 11.5
Third-Party Transaction 8.4(c)
Transactions Recitals
under common control with 11.3(d)
U.S. Offer to Purchase 8.1(a)
Wachtell 9.1(g)(ii)(A)
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COMBINATION AGREEMENT
COMBINATION AGREEMENT, dated as of November 25, 1996 (this
"Agreement"), by and among Autoliv AB, a corporation organized under the laws of
the Kingdom of Sweden ("Autoliv"), Morton International, Inc., an Indiana
corporation ("Morton"), Autoliv, Inc., a newly formed Delaware corporation
("Newco"), and ASP Merger Sub Inc., a Delaware corporation and a wholly-owned
subsidiary of Newco ("Newco Sub").
WHEREAS, Autoliv and Morton have entered into a non-binding letter
of intent, dated September 30, 1996, providing for, among other things, the
creation of a new holding company, Newco, to combine Autoliv and the automotive
safety products business of Morton and in which the shareholders of Autoliv and
Morton would receive an equity interest of 53.5% and 46.5%, respectively;
WHEREAS, the Boards of Directors of Autoliv and Morton have
determined that it is in the best interests of their respective companies and
stockholders to combine Autoliv with Morton's automotive safety products
businesses in a "merger of equals" transaction to be effected as set forth in
this Agreement, and the boards of directors of Newco and Newco Sub have
determined that it is also in the respective best interests of their companies
and stockholders to consummate the transactions contemplated by this Agreement;
WHEREAS, the Board of Directors of Morton has approved a
Distribution Agreement in the form attached hereto as Exhibit A (the
"Distribution Agreement"), which will be entered into prior to the Effective
Time (as defined in Section 1.2), pursuant to which and subject to the terms of
which (a) all of the assets of Morton other than the Safety Assets (as defined
in the Distribution Agreement), together with a capital contribution or
repayment in cash of intercompany indebtedness in the aggregate amount of
$750,000,000, and the Safety Supplemental Distribution (as defined in the
Distribution Agreement), subject to adjustment in accordance with Section
2.10(b) of the Distribution Agreement, will be contributed or paid by Morton to
a newly formed, wholly owned subsidiary of Morton ("Spinco") or a subsidiary of
Spinco, (b) all of the liabilities of Morton other than the Safety Liabilities
(as defined in the Distribution Agreement) will be assumed by Spinco, (c) all of
the issued and outstanding shares of common stock, par value $1 per share, of
Spinco (the "Spinco Common Stock"), including associated preferred share
purchase rights of Spinco, will be distributed (the "Spinoff") to the holders of
common stock, par value $1 per share, of Morton (the "Morton Shares"), and (d)
Morton will be divested of all of its businesses and operations other than those
included in the Safety Business (as defined in the Distribution Agreement),
including, without limitation, the Adhesives & Chemical Specialties Group, the
Coatings Group, the Electronic Materials Group, the Salt Group and the Corporate
Operations (as defined in the Distribution Agreement);
WHEREAS, upon the terms and subject to the conditions of this
Agreement, (i) Newco will acquire pursuant to an exchange offer (the "Exchange
Offer") and, if necessary, through compulsory acquisition proceedings in
accordance with the Swedish Companies Act or otherwise (collectively, the
"Autoliv Transaction"), all the issued and outstanding Common Shares, par value
SEK 10 per share, of Autoliv (the "Autoliv Shares") and American Depositary
Shares, each representing one Autoliv Share (the "ADSs" and, collectively with
the Autoliv Shares, the "Autoliv Securities") and (ii) Newco will acquire,
pursuant to the merger (the "Merger", and together with the Autoliv Transaction,
the "Transactions") of Newco Sub with and into Morton in accordance with the
General Corporation Law of the State of Delaware (the "Delaware Law") and the
Indiana Business Corporation Law (the "Indiana Law"), all the issued and
outstanding Morton Shares;
WHEREAS, (a) as a result of the Transactions, Autoliv and Morton
will become, directly or indirectly, wholly owned subsidiaries of Newco, and (b)
the holders of Autoliv Securities (other than Autoliv Securities acquired
through compulsory acquisition proceedings or as otherwise described herein) and
Morton
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Shares will receive either (i) newly issued shares of Common Stock, par
value $.01 per share, of Newco (the "Newco Common Stock") or (ii) if deemed
appropriate by Autoliv, in the case of certain holders of Autoliv Shares,
Swedish Depositary Receipts ("SDRs"), each SDR evidencing one share of Newco
Common Stock;
WHEREAS, as set forth in Section 8.13 hereof, as a condition to and
in consideration of the transactions contemplated hereby and by the Distribution
Agreement, Morton, Spinco and certain other parties are entering or will enter
into (a) a Tax Sharing Agreement in the form attached as Exhibit D to the
Distribution Agreement (the "Tax Sharing Agreement"), (b) an Employee Benefits
Allocation Agreement in the form attached as Exhibit A to the Distribution
Agreement (the "Employee Benefits Allocation Agreement" and, together with the
Distribution Agreement and the Tax Sharing Agreement, here after collectively
referred to as the "Ancillary Agreements");
WHEREAS, for United States federal income tax purposes, the Spinoff
is intended to qualify as a tax-free distribution under the provisions of
Sections 355 and 368(a)(1)(D) of the United States Internal Revenue Code of
1986, as amended (the "Code") and the Treasury Regulations (the "Regulations")
thereunder, the Merger is intended to qualify as a reorganization under the
provisions of Section 368(a) of the Code and Regulations thereunder, and the
Exchange Offer, together with the Merger, is intended to qualify as a transfer
of property described in Section 351(a) of the Code and Regulations thereunder,
and it is further intended that, for Swedish income tax purposes, none of Newco,
Autoliv or the Autoliv stockholders (with certain exceptions) will recognize
taxable income or gain as a result of the Exchange Offer;
WHEREAS, the Board of Directors of Autoliv has approved the Autoliv
Transaction and recommended that all the stockholders of Autoliv tender their
Autoliv Securities into the Exchange Offer;
WHEREAS, the Board of Directors of Morton has adopted this Agreement
and approved the Spinoff and recommended that the stockholders of Morton vote to
approve this Agreement, the Merger and the transactions contemplated by the
Distribution Agreement upon the terms and subject to the conditions contained
herein and therein; and
WHEREAS, this Agreement has been approved by the Boards of Directors
of Newco and Newco Sub, adopted by Autoliv and Morton as the sole stockholders
of Newco, and adopted by Newco as sole stockholder of Newco Sub in accordance
with the Delaware Law.
NOW THEREFORE, in consideration of the foregoing and the Ancillary
Agreements and the mutual covenants and agreements herein contained and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Provided that this Agreement shall not have
been terminated in accordance with Section 10.1, upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with Section 252
of the Delaware Law and Section 23-1-40-7 of the Indiana Law, at the Effective
Time Newco Sub shall be merged with and into Morton. As a result of the Merger,
the separate corporate existence of Newco Sub shall cease and Morton shall be
the surviving corporation of the Merger (the "Surviving Corporation").
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Section 1.2 Effective Time; Closing. Provided that this Agreement
shall not have been terminated in accordance with Section 10.1, as promptly as
practicable after the Spinoff and satisfaction or, if permissible and effected
as provided in Section 10.4, waiver of the Exchange Offer Conditions (as
hereinafter defined) (or such other date as may be agreed to in writing by
Autoliv and Morton), and substantially contemporaneously with the purchase of
Autoliv Securities by Newco pursuant to the Autoliv Transaction, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger (the "Delaware Certificate of Merger") with the Secretary of State of the
State of Delaware in such form as required by, and executed in accordance with,
Section 252 of the Delaware Law, and articles of merger (the "Indiana Articles
of Merger") with the Secretary of State of the State of Indiana in such form as
required by, and executed in accordance with, Section 23-1-40-5 of the Indiana
Law. The Merger shall become effective upon the date (the "Effective Time") on
which the Delaware Certificate of Merger and the Indiana Articles of Merger have
been duly filed with the Secretary of State of the State of Delaware and the
Secretary of State of the State of Indiana, respectively, or at such later date
or time as set forth therein.
Section 1.3 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the Delaware Law and the Indiana Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Retained Business (as defined in Section 4.1) and Newco Sub shall be vested
in the Surviving Corporation, and all debts, liabilities and duties of the
Retained Business and Newco Sub shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 1.4 Certificate of Incorporation; By-Laws; Corporate Name.
At the Effective Time, (a) the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read in the form
attached hereto as Exhibit B with such changes between the date hereof and the
Effective Time as agreed to by the parties hereto, and (b) the By-laws of Newco
Sub, as in effect immediately prior to the Effective Time, shall become the
By-laws of the Surviving Corporation.
Section 1.5 Directors and Officers of the Surviving Corporation. (a)
The directors of Newco Sub at the Effective Time shall, from and after the
Effective Time, become the directors of the Surviving Corporation until their
successors shall have been elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws and (b) the officers of
Morton at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors shall have been
elected or appointed or qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws.
ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER
Section 2.1 Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Morton, Newco Sub,
Newco or the holders of any Morton Shares:
(a) each Morton Share issued and outstanding immediately prior
to the Effective Time (other than any Morton Shares to be cancelled pursuant to
Section 2.1(b)) shall be converted, subject to Section 2.2(e), into the right to
receive a number of shares (the "Exchange Ratio") of Newco Common Stock equal to
the quotient, rounded to the nearest thousandth, or if there shall not be a
nearest thousandth, the next highest thousandth, of (i) 47,803,738 divided by
(ii) the number of Morton Shares issued and outstanding
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immediately prior to the Effective Time (other than any Morton Shares to be
cancelled pursuant to Section 2.1(b));
(b) each Morton Share held in the treasury of Morton and each
Morton Share owned by Autoliv or any direct or indirect wholly owned subsidiary
of Autoliv or of Morton shall be cancelled and extinguished without any
conversion thereof and no payment shall be made with respect thereto; and
(c) each issued and outstanding share of common stock, par
value $.01 per share, of Newco Sub shall be converted into one duly authorized,
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. Newco shall deposit, or shall cause to be
deposited, promptly after the Effective Time with a bank trust company
designated by Morton and reasonably satisfactory to Autoliv (the "Exchange
Agent"), for the benefit of the holders of certificates that immediately prior
to the Effective Time represented outstanding Morton Shares (the
"Certificates"), for exchange in accordance with this Article II through the
Exchange Agent, certificates representing the shares of Newco Common Stock
issuable pursuant to Section 2.1(a) (such certificates for shares of Newco
Common Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund"). Newco shall give the
Exchange Agent irrevocable instructions to deliver the shares of Newco Common
Stock contemplated to be issued pursuant to Section 2.1 out of the Exchange Fund
as promptly as practicable after the Effective Time. Except as contemplated by
Section 2.2(f) hereof, the Exchange Fund shall not be used for any other
purpose. Newco shall pay all charges and expenses, including those of the
Exchange Agent, in connection with the exchange of Certificates for certificates
representing shares of Newco Common Stock and cash as contemplated hereby.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Newco shall cause the Exchange Agent to mail to each registered
holder of a Certificate (i) a letter of transmittal (which shall be in customary
form and shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Newco Common Stock and cash in lieu of any fractional shares. Upon
surrender to the Exchange Agent of a Certificate for exchange, together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Newco Common Stock that such holder has the right to receive in
respect of such Certificate (after taking into account all Morton Shares then
held by such holder), a check in the amount of any cash in lieu of any
fractional shares of Newco Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.2(c), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Morton Shares that is not registered in the transfer records of
Morton, a certificate representing the proper number of shares of Newco Common
Stock, cash in lieu of any fractional shares of Newco Common Stock to which such
holder is entitled pursuant to Section 2.2(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(c) may be
issued to a transferee if the Certificate representing such Morton Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender a certificate or
certificates representing shares of Newco Common Stock, cash in lieu of any
fractional shares of Newco Common
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Stock to which such holder is entitled pursuant to Section 2.2(e) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(c).
(c) Distributions with Respect to Unexchanged Newco Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to the Newco Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Newco Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder pursuant to
Section 2.2(e), until the holder of such Certificate shall surrender such
Certificate. Subject to the effect of escheat, tax or other applicable Laws (as
defined in Section 4.5(a)), following surrender of any such Certificate, there
shall be paid to the holder of the certificate representing whole shares of
Newco Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to a fractional share of Newco
Common Stock to which such holder is entitled pursuant to Section 2.2(e) and the
amount of dividends or other distributions with a record date after the
Effective Time and theretofore declared or made with respect to such whole
shares of Newco Common Stock but unpaid because of such holder's failure to
surrender such Certificate, and (ii) at the appropriate payment date, the amount
of dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of Newco Common Stock.
(d) No Further Rights in Morton Shares. All shares of Newco
Common Stock issued upon conversion of the Morton Shares in accordance with the
terms hereof (and any cash paid pursuant to Section 2.2(c) or (e)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Morton Shares.
(e) No Fractional Shares. No certificates or scrip
representing fractional shares of Newco Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any other rights of a stockholder of
Newco. Each holder of a fractional share interest shall be paid an amount in
cash representing the product of (i) such fractional amount and (ii) the average
for each of the first five trading days beginning immediately following the
Effective Time of the average of the daily high and low trading prices on the
New York Stock Exchange, Inc. ("NYSE") of Newco Common Stock. As soon as
practicable after the determination of the amount of cash, if any, to be paid to
former holders of Morton Shares in lieu of any fractional shares of Newco Common
Stock, Newco shall deposit an estimate of such amount into the Exchange Fund,
and the Exchange Agent shall make available such amounts to such former holders
of Morton Shares without interest. For purposes of paying such cash in lieu of
fractional shares, all Certificates surrendered for exchange on the same letter
of transmittal shall be aggregated, with the holder thereof receiving the
aggregate whole number of shares of Newco Common Stock, and no Morton
stockholder will receive cash in lieu of fractional shares in an amount equal to
or greater than the value of one full share of Newco Common Stock with respect
to such surrendered Certificates. As necessary to provide sufficient funds to
make the payments in lieu of fractional shares described in this paragraph,
Newco shall deposit additional funds into the Exchange Fund so that the Exchange
Agent may promptly deliver such funds to the former holders of Morton Shares.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the former holders of Morton Shares for six
months after the Effective Time shall be delivered to Newco, upon demand, and
any holders of Certificates shall thereafter look only to Newco for Newco Common
Stock, any cash in lieu of fractional shares of Newco Common Stock to which they
are entitled pursuant to Section 2.2(e) and any dividends or other distributions
with respect to the Newco Common Stock to which they are entitled pursuant to
Section 2.2(c). Neither Newco nor the Surviving Corporation shall be liable to
any holder of Morton Shares for any shares of Newco Common Stock (or dividends
or
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distributions with respect thereto) or cash in lieu of fractional shares
delivered to a public official pursuant to any abandoned property, escheat or
similar Law.
(g) Withholding Rights. Each of the Surviving Corporation and
Newco shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Morton Shares such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Surviving Corporation or Newco,
as the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Morton Shares in respect
of which such deduction and withholding was made by the Surviving Corporation or
Newco, as the case may be.
(h) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Newco Common Stock, any cash in lieu of fractional shares of
Newco Common Stock to which the holders thereof are entitled pursuant to Section
2.2(e) and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.2(c).
Section 2.3 Stock Transfer Books. At the Effective Time, the stock
transfer books of Morton shall be closed and there shall be no further
registration of transfers of Morton Shares thereafter on the records of Morton.
From and after the Effective Time, the holders of Certificates representing
Morton Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to Morton Shares represented thereby, except as
otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Newco for any reason shall be
converted into shares of Newco Common Stock, any cash in lieu of fractional
shares of Newco Common Stock to which the holders thereof are entitled pursuant
to Section 2.2(e) and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.2(c).
Section 2.4 Employee/Director Stock Options. Morton and Newco shall
cooperate and take all action necessary (including obtaining the consent of the
holders of options to acquire Morton Shares pursuant to the Morton
International, Inc. 1989 Incentive Plan or any predecessor thereof (such
options, the "Morton Options" and such plan, the "Morton Option Plan"), if
required, and, if deemed necessary or appropriate, seeking a "no-action" letter
or interpretive advice from the Securities and Exchange Commission (the "SEC")
to amend (if necessary) the Morton Option Plan and to adopt an option plan of
Newco (the "Newco Option Plan")) so that as of the Effective Time, each Morton
Option which is outstanding and not exercised prior to the Effective Time and
which is held by a Company Individual (as defined in the Employee Benefits
Allocation Agreement) shall, without any action on the part of the holder
thereof, be converted into an option to purchase shares of Newco Common Stock,
the number of shares of Newco Common Stock subject to, and the exercise price of
such option to be determined in accordance with, the requirements of Section 424
of the Code and the regulations promulgated thereunder, based upon (a) the
average of the daily high and low trading prices on the NYSE for the Morton
Shares for each of the last five trading days prior to the earlier of the
Effective Time and the Distribution Date (as defined in the Distribution
Agreement) (unless, prior thereto, the Morton Shares trade ex-dividend with
respect to either or both the Spinoff and the Merger, in which case the average
shall be based on such prices for each of the last five trading days prior to
the date on which the Morton Shares trade on the NYSE ex-dividend with respect
to either such transaction) and (b) the average of the high and low trading
prices on the NYSE for the Newco Common Stock for each of the first five trading
days following the Effective Time on which the Newco Common Stock is traded
regular way on the NYSE, such option to be subject to substantially similar
terms and conditions as in effect prior to the conversion,
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including, without limitation, to the extent such option to purchase Morton
Shares is exercisable as of the Effective Time, such option to purchase shares
of Newco Common Stock shall be immediately exercisable to the same extent. The
exercise price of any such option shall be rounded to the nearest $.01; the
number of shares subject to any such option shall be rounded to the nearest
share. Any related limited stock appreciation rights or supplemental cash
payment rights held by Company Individuals shall be adjusted in a consistent
manner and shall be assumed by, and become the responsibility of, Newco. Morton
Options held by New Morton Individuals (as defined in the Employee Benefits
Allocation Agreement) shall be adjusted at or prior to the Effective Time to
become options to acquire Spinco Common Stock pursuant to the terms of the
Employee Benefits Allocation Agreement.
ARTICLE III
ADDITIONAL TRANSACTIONS
Section 3.1 The Exchange Offer.
(a) Provided that this Agreement shall not have been
terminated in accordance with Section 10.1, Newco shall commence the Exchange
Offer on or as soon as practicable after the Registration Statement Effective
Date (the "Exchange Offer Commencement Date") as contemplated by the U.S. Offer
to Purchase and the Swedish Prospectus (each as hereinafter defined) and
otherwise in accordance with applicable Laws. Pursuant to the Exchange Offer,
(i) Newco shall offer to exchange for each Autoliv Share, subject to the
conditions set forth below, one share of Newco Common Stock or, if deemed
appropriate by Newco, one SDR and (ii) Newco shall offer to exchange for each
ADS, subject to the conditions set forth below, one share of Newco Common Stock
(the "Exchange Offer Ratio"). The obligation of Newco to exchange Newco Common
Stock for Autoliv Securities tendered pursuant to the Exchange Offer shall be
subject only to this Agreement not having been terminated pursuant to Section
10.1 and the satisfaction or waiver, if permissible and effected as provided in
Section 10.4, of (i) the condition that a number of Autoliv Securities
representing more than 90% of the number of shares and voting power of the then
outstanding Autoliv Securities shall have been validly tendered and not
withdrawn prior to the expiration of the Exchange Offer (the "Minimum
Condition"), (ii) the condition that this Agreement and the transactions
contemplated by the Distribution Agreement shall have been approved by the
holders of a majority of the issued and outstanding Morton Shares in accordance
with the Indiana Law and Morton's Restated Articles of Incorporation and By-Laws
(the "Morton Stockholder Approval Condition") and (iii) the other conditions set
forth in Article IX of this Agreement occurring prior to, or substantially
contemporaneously with, the Effective Time (together with the Minimum Condition
and the Morton Stockholder Approval Condition, the "Exchange Offer Conditions").
The initial expiration date of the Exchange Offer shall be the date which is 20
business days after the Exchange Offer Commencement Date (such date, as it may
be extended from time to time as hereinafter provided, the "Expiration Date").
If on the initial scheduled Expiration Date all the Exchange Offer Conditions
shall not have been satisfied and this Agreement shall not have been terminated
in accordance with Section 10.1, Newco shall, unless Morton and Autoliv
otherwise agree, extend the Expiration Date from time to time thereafter until
such time as all of the Exchange Offer Conditions have been satisfied; provided,
however, that unless a Third-Party Transaction involving Autoliv has theretofore
been proposed, neither party shall unreasonably object if the other party
determines not to extend the Expiration Date if the Minimum Condition has not
been satisfied at such time following (i) the date of the Morton Stockholders'
Meeting and (ii) the satisfaction of the conditions set forth in Section 9.1(e),
(f) and (g)(i). Subject only to the conditions set forth above and applicable
Law, Newco shall accept for exchange and shall exchange all Autoliv Securities
validly tendered and not withdrawn pursuant to the terms of the Exchange Offer
at the earliest practicable time following the Expiration Date.
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(b) Prior to or substantially contemporaneously with the
Exchange Offer Commencement Date, Newco shall file a Swedish language prospectus
(the "Swedish Prospectus") with the Stockholm Stock Exchange (the "SSE") or with
the Financial Supervisory Authority (the "FSA"), as required by the Laws of
Sweden.
Section 3.2 Depositary. Newco shall appoint a bank or trust company
designated by Autoliv and reasonably satisfactory to Morton to act as depositary
for the Exchange Offer (the "Depositary").
Section 3.3 Compulsory Acquisition.
(a) As soon as practicable after the Effective Time, assuming
that the Minimum Condition has been satisfied and not waived, Newco shall take
or cause to be taken (through a Swedish subsidiary), unless the parties mutually
agree that there is a more effective method of achieving the objectives
described in this Section 3.3 (in which case such method shall be used), all
actions necessary and proper under the Swedish Companies Act to commence a
process leading to a compulsory acquisition under the Swedish Companies Act to
acquire all the issued and outstanding Autoliv Securities not acquired by Newco
pursuant to the Exchange Offer or otherwise.
(b) In the event of consummation of the Transactions following
the waiver of the Minimum Condition effected as provided in Section 10.4, Newco
shall, as promptly as practicable following the Effective Time, conduct,
directly or indirectly, such other offers (including, without limitation,
pursuant to open market purchases) as are necessary to obtain, when aggregated
with the number of shares and voting power of Autoliv Securities already owned
by it, more than 90% of the number of shares and voting power of the then
outstanding Autoliv Securities. Thereafter, Newco shall take the actions
described in Section 3.3(a).
Section 3.4 Spinoff. Subject to Section 3.03 of the Distribution
Agreement, Morton shall use reasonable efforts to consummate as promptly as
reasonably practicable the transactions provided for in the Distribution
Agreement, including, without limitation, the Spinoff.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MORTON
Morton hereby represents and warrants to Autoliv that:
Section 4.1 Organization and Qualification; Subsidiaries. Each of
Morton and each subsidiary of Morton that will be owned, directly or indirectly,
by Newco following the Spinoff (the "Retained Morton Subsidiaries") has been
duly organized, and is validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, as the case may be, and
has the requisite power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing or in
good standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, have a Morton Material Adverse Effect
(defined below). Each of Morton and the Retained Morton Subsidiaries is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Morton
Material Adverse Effect. For purposes of this Agreement, "Morton Material
Adverse Effect" means any change in or effect on the business that will be
retained by Morton and the Retained Morton Subsidiaries following the Spinoff
(the "Retained Business"),
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after giving effect to the Transactions and the provisions of the Distribution
Agreement and the other Ancillary Agreements, that is, or is reasonably likely
to be, materially adverse to the business, properties, financial condition or
results of operations of the Retained Business taken as a whole.
Section 4.2 Certificate of Incorporation and By-Laws. The copies of
Morton's Restated Articles of Incorporation and By-Laws that are set forth as
exhibits to Morton's Form 10-K for the year ended June 30, 1996 are complete and
correct copies thereof. Such Restated Articles of Incorporation and By-Laws are
in full force and effect. Morton is not in violation of any of the provisions of
its Restated Articles of Incorporation or By-Laws. Morton has heretofore
delivered or made available to Autoliv accurate and complete copies of the
certificates of incorporation and by-laws or equivalent organizational documents
as currently in effect of each of the Retained Morton Subsidiaries.
Section 4.3 Capitalization. The authorized capital stock of Morton
consists of (a) 300,000,000 Morton Shares and (b) 25,000,000 shares of preferred
stock, par value $1.00 per share. As of October 31, 1996 (i) 142,636,930 Morton
Shares were issued and outstanding, all of which were validly issued, fully paid
and nonassessable, (ii) 6,348,999 Morton Shares were reserved for issuance upon
exercise of outstanding stock options granted pursuant to the Morton Option Plan
and (iii) 600,000 shares of Morton Series A Junior Participating Preferred Stock
("Morton Preferred Stock") were reserved for issuance under the Rights Agreement
(the "Rights Agreement") dated as of June 12, 1989 between Morton and the First
National Bank of Chicago, as amended on January 24, 1991 and as further amended
on August 11, 1994, and November 22, 1996, as more fully described below. As of
the date of this Agreement, no shares of Morton Preferred Stock are issued and
outstanding. Except for the options granted or rights issued pursuant to the
Morton Option Plan, the Rights Agreement or pursuant to agreements or
arrangements described in Section 4.3 of the Disclosure Schedule delivered by
Morton to Autoliv prior to the execution of (and forming part of) this Agreement
(the "Morton Disclosure Schedule"), there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which Morton
is a party or by which Morton is bound relating to the issued or unissued
capital stock of Morton or any Retained Morton Subsidiary or obligating Morton
or any Retained Morton Subsidiary to issue or sell any shares of capital stock
of, or other equity interests in, Morton or any Retained Morton Subsidiary. All
Morton Shares subject to issuance as aforesaid upon issuance prior to the
Effective Time on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Section 4.3 of the Morton Disclosure
Schedule, there are no outstanding contractual obligations of Morton or any
Retained Morton Subsidiary to repurchase, redeem or otherwise acquire any Morton
Shares or any capital stock of any Retained Morton Subsidiary. Each outstanding
share of capital stock of each Retained Morton Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and each such share of a Retained
Morton Subsidiary owned by Morton or another Retained Morton Subsidiary is free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on Morton's or such other Retained Morton
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except in connection with the Retained Debt (as defined below) or
where failure to own such shares free and clear would not, individually or in
the aggregate, have a Morton Material Adverse Effect. Except as set forth in
Section 4.3 of the Morton Disclosure Schedule, there are no material outstanding
contractual obligations of Morton or any Retained Morton Subsidiary to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Retained Morton Subsidiary or any other person with respect
to the Retained Business, other than guarantees by Morton of any indebtedness of
any Retained Morton Subsidiary.
Section 4.4 Authority Relative to this Agreement. Each of Morton and
each subsidiary of Morton which is a party to any of the Ancillary Agreements
(each such subsidiary, a "Contracting Subsidiary") has all necessary corporate
power and authority to execute and deliver this Agreement and the Ancillary
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Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions (including, without limitation, the Transactions)
contemplated herein and therein (but only to the extent it is a party thereto).
The execution and delivery of this Agreement by Morton have been, and the
execution and delivery of the Ancillary Agreements by Morton and each
Contracting Subsidiary (to the extent it is a party thereto) will be, and the
consummation of the transactions contemplated hereby and thereby have been or
will be, duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of Morton or any Contracting Subsidiary
(to the extent it is a party thereto) are necessary to authorize this Agreement
or to consummate such transactions (other than (a) the approval of this
Agreement, the Merger and the transactions contemplated by the Distribution
Agreement by the affirmative vote of the stockholders of Morton holding a
majority of the issued and outstanding Morton Shares and (b) actions to be taken
by the Boards of Directors of Morton and certain Contracting Subsidiaries in
connection with the matters contemplated by the Ancillary Agreements, which
actions described in clause (b) above will be duly and validly taken prior to
the Effective Time). This Agreement has been, and each of the Ancillary
Agreements will be, prior to the Effective Time, duly authorized and validly
executed and delivered by Morton and each Contracting Subsidiary (to the extent
it is a party thereto) and constitutes, or will constitute, the legal, valid and
binding obligation of Morton and each Contracting Subsidiary (to the extent it
is a party thereto), enforceable against Morton and each Contracting Subsidiary
(to the extent it is a party thereto) in accordance with its terms. Morton has
taken all appropriate actions so that the restrictions on business combinations
contained in Section 23-1-43-18 of the Indiana Law and Article Eighth of the
Morton Restated Articles of Incorporation will not apply with respect to or as a
result of the Transactions.
Section 4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement do not, and
the execution and delivery at or prior to the time of the Spinoff of the
Ancillary Agreements by Morton and each Contracting Subsidiary (to the extent it
is a party thereto) will not, and the performance of this Agreement and the
Ancillary Agreements by Morton and each Contracting Subsidiary (to the extent it
is a party thereto) will not, (i) conflict with or violate any provision of the
articles of incorporation or by-laws of Morton or any Contracting Subsidiary,
(ii) assuming that all consents, approvals, authorizations and other actions
described in Section 4.5(b) have been obtained and all filings and obligations
described in Section 4.5(b) have been made, conflict with or violate any foreign
or domestic law, statute, European Union legislation or Directive, ordinance,
rule, regulation, order, judgment or decree ("Law") applicable to Morton or any
Contracting Subsidiary or by which any property or asset of Morton or any
Contracting Subsidiary is bound or affected, or (iii) except as set forth in
Section 4.5(a) of the Morton Disclosure Schedule, result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Morton or any Contracting
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults, or other occurrences which would neither,
individually or in the aggregate, (A) have a Morton Material Adverse Effect nor
(B) prevent or materially delay the performance of this Agreement or any
Ancillary Agreement by Morton or any Contracting Subsidiary (to the extent it is
a party thereto).
(b) The execution and delivery of this Agreement do not, and
the execution and delivery of the Ancillary Agreements by Morton and each
Contracting Subsidiary (to the extent it is a party thereto) will not, and the
performance of this Agreement and the Ancillary Agreements by Morton and each
Contracting Subsidiary (to the extent it is a party thereto) will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any domestic or foreign governmental or regulatory authority
("Governmental Entity"), except (i) for applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), the
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Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), state securities or "blue sky"
laws ("Blue Sky Laws"), the NYSE, state takeover laws, the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), the
filing of notifications in accordance with the antitrust laws of Sweden, Germany
and Belgium, filing and recordation of the Certificate of Merger and Articles of
Merger as required by the Delaware Law and the Indiana Law, respectively, and
the regulations and guidance promulgated thereunder, and as set forth in Section
4.5(b) of the Morton Disclosure Schedule and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or materially delay consummation of the
Transactions, (B) otherwise prevent Morton or any Contracting Subsidiary from
performing its material obligations under this Agreement and the Ancillary
Agreements (to the extent it is a party thereto), or (C) individually or in the
aggregate, have a Morton Material Adverse Effect.
Section 4.6 Permits; Compliance. Each of Morton and the Retained
Morton Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Morton or any
Retained Morton Subsidiary to own, lease and operate its properties or to carry
on the Retained Business as it is now being conducted (collectively, the "Morton
Permits"), except where the failure to have, or the suspension or cancellation
of, any of the Morton Permits would neither, individually or in the aggregate,
(A) have a Morton Material Adverse Effect nor (B) prevent or materially delay
the performance of this Agreement or any of the Ancillary Agreements by Morton
or any Contracting Subsidiary (to the extent it is a party thereto), and, as of
the date of this Agreement, no suspension or cancellation of any of the Morton
Permits is pending or, to the knowledge of Morton, threatened, except where the
failure to have, or the suspension or cancellation of, any of the Morton Permits
would neither, individually or in the aggregate, (A) have a Morton Material
Adverse Effect nor (B) prevent or materially delay the performance of this
Agreement or any of the Ancillary Agreements by Morton or any Contracting
Subsidiary (to the extent it is a party thereto). Neither Morton nor any
Retained Morton Subsidiary is in conflict with, or in default or violation of,
(i) any Law applicable to Morton or any Retained Morton Subsidiary with respect
to the Retained Business or by which any property or asset of Morton or any
Retained Morton Subsidiary is bound or affected with respect to the Retained
Business or (ii) any Morton Permits, except for any such conflicts, defaults or
violations that would neither, individually or in the aggregate, (A) have a
Morton Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement or any of the Ancillary Agreements or consummation
of the Transactions by Morton or any Contracting Subsidiary (to the extent it is
a party thereto).
Section 4.7 SEC Filings; Financial Statements.
(a) Morton has filed all forms, reports and documents required
to be filed by it under the Exchange Act since July 1, 1993 through the date of
this Agreement (collectively, the "Morton SEC Reports"). The Morton SEC Reports
(i) were prepared in accordance in all material respects with the requirements
of the Exchange Act and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No
subsidiary of Morton is subject to the periodic reporting requirements of the
Exchange Act.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Morton SEC Reports was
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly, in
all material respects, the consolidated financial position of Morton and its
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein. Except as and to the
extent set forth on the consolidated
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balance sheets (including the notes thereto) included in the financial
statements contained in the Morton SEC Reports, Morton does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on a balance sheet or in
notes thereto prepared in accordance with United States generally accepted
accounting principles, except for (i) liabilities or obligations incurred in the
ordinary course of business since July 1, 1996, (ii) liabilities or obligations
incurred outside the ordinary course of business since July 1, 1996 that would
neither, individually or in the aggregate, (A) have a Morton Material Adverse
Effect nor (B) prevent or materially delay the performance of this Agreement or
any of the Ancillary Agreements by Morton or any Contracting Subsidiary (to the
extent it is a party thereto), (iii) the Retained Debt and (iv) liabilities or
obligations incurred in connection with the execution and delivery of this
Agreement and the Ancillary Agreements and consummation of the transactions
contemplated hereby and thereby.
(c) Exhibit A to Section 4.7(c) of the Morton Disclosure
Schedule contains (i) audited consolidated balance sheets of the Retained
Business as of June 30, 1996 (the "Retained Business Balance Sheet") and June
30, 1995, (ii) statements of income and cash flow for the Retained Business for
the twelve-month periods ending June 30, 1996, June 30, 1995 and June 30, 1994.
The Retained Business Balance Sheet fairly presents in all material respects the
financial position of the Retained Business as of June 30, 1996. Except as and
to the extent set forth on the Retained Business Balance Sheet (including the
notes thereto), the Retained Business does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on a balance sheet or in notes thereto
prepared in accordance with United States generally accepted accounting
principles, except for (i) liabilities or obligations incurred in the ordinary
course of business since July 1, 1996, (ii) liabilities or obligations incurred
outside the ordinary course of business since July 1, 1996 that do not,
individually or in the aggregate, (A) have a Morton Material Adverse Effect nor
(B) prevent or materially delay the performance of this Agreement or any of the
Ancillary Agreements by Morton or any Contracting Subsidiary (to the extent it
is a party thereto), (iii) the Retained Debt and (iv) liabilities or obligations
incurred in connection with the execution and delivery of this Agreement and the
Ancillary Agreements and consummation of the transactions contemplated hereby
and thereby.
Section 4.8 Absence of Certain Changes or Events. Since July 1,
1996, except as contemplated by or as disclosed in this Agreement or the
Ancillary Agreements, as set forth in Section 4.8 of the Morton Disclosure
Schedule or as disclosed in any Morton SEC Report filed since July 1, 1996,
Morton and its subsidiaries have conducted the Retained Business only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (a) any Morton Material Adverse Effect other than due
to events, changes or developments relating to the economy in general, the
automotive industry (including strikes affecting one or more automotive
companies) or the automotive safety products industry in general, (b) any event
that would, or is reasonably likely to, have a material adverse effect on the
ability of Morton or any Contracting Subsidiary (to the extent it is a party
thereto) to consummate the transactions contemplated by this Agreement or the
Ancillary Agreements or perform their respective obligations thereunder, (c) any
material change by Morton in its accounting methods, principles or practices,
(d) any declaration, setting aside or payment of any dividend (other than in
accordance with Morton's regular dividend practice) or distribution (other than
in connection with the Spinoff) in respect of the Morton Shares or any
redemption, purchase or other acquisition of any of Morton's securities, other
than (i) for cash or (ii) in connection with the exercise of outstanding Morton
Options, or (e) with respect to employees engaged exclusively in the Retained
Business, any increase in the compensation or benefits or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any
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executive officers of Morton or any of its subsidiaries who are Company
Individuals (as defined in the Employee Benefits Allocation Agreement), except
in each case in the ordinary course of business consistent with past practice or
except in each case as required by applicable Law.
Section 4.9 Employee Benefit Plans; Labor Matters. Except for such
failures, liabilities, penalties, taxes, claims or other events or matters
described in subsections (c) through (n), but excluding subsection (g), below
that would not, individually or in the aggregate, have a Morton Material Adverse
Effect:
(a) Section 4.9(a) of the Morton Disclosure Schedule contains
a true and complete list of each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or termination
pay, change-in-control, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other material
employee benefit plan, program, agreement or arrangement, sponsored, maintained
or contributed to or required to be contributed to by Morton, any of its
subsidiaries or by any trade or business, whether or not incorporated (a "Morton
ERISA Affiliate"), that together with Morton would be deemed a "single employer"
within the meaning of section 4001(b)(1) of ERISA, for the benefit of any
employee or former employee of Morton, any of its subsidiaries or any Morton
ERISA Affiliate (the "Morton Plans").
(b) With respect to each of the Morton Plans, Morton has
heretofore delivered or made available to Autoliv true and complete copies of
each of the following documents: (A) a copy of each of the Morton Plans
(including all amendments thereto); (B) a copy of the most recent annual report,
if required under ERISA or other applicable Law, with respect to each such
Morton Plan; (C) a copy of the most recent actuarial report, if required under
ERISA or other applicable Law, with respect to each such Morton Plan; (D) a copy
of the most recent Summary Plan Description ("SPD"), if any, together with all
Summaries of Material Modification issued with respect to each such SPD,
required under ERISA or other applicable Law with respect to such Morton Plan;
(E) if any Morton Plan is funded through a trust or any other funding vehicle, a
copy of the trust or other funding agreement (including all amendments thereto)
and the latest financial statements thereof; and (F) the most recent
determination letter received from the Internal Revenue Service with respect to
each Morton Plan that is intended to be qualified under section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by
Morton, any of its subsidiaries or any Morton ERISA Affiliate since the
effective date of ERISA that has not been satisfied in full, and no condition
exists that presents a material risk to Morton, any of its subsidiaries or any
Morton ERISA Affiliate of incurring a liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC"),
which payments have been or will be made when due. To the extent this
representation applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it
is made not only with respect to the Morton Plans but also with respect to any
employee benefit plan, program, agreement or arrangement subject to Title IV of
ERISA to which Morton, any of its subsidiaries or any Morton ERISA Affiliate
made, or was required to make, contributions during the five-year period ending
on the last day of Morton's most recent fiscal year.
(d) To the knowledge of Morton, there are no proceedings
pending to terminate any of the Morton Plans and no condition exists that
presents a material risk that such proceedings will be instituted.
(e) Neither Morton, any of its subsidiaries, any Morton ERISA
Affiliate, any of the Morton Plans, any trust created thereunder nor, to the
knowledge of Morton, any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with which
Morton,
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any of its subsidiaries, any Morton ERISA Affiliate, any of the Morton Plans,
any such trust, any trustee or administrator thereof, or any party dealing with
the Morton Plans or any such trust could be subject to either a civil penalty
assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant to
section 4975, 4976 or 4980B of the Code.
(f) None of the Morton Plans or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Morton Plans ended
prior to the date of this Agreement.
(g) Except as set forth in Section 4.9(g) of the Morton
Disclosure Schedule, no Morton Plan is a "multiemployer plan," as such term is
defined in section 3(37) of ERISA.
(h) Except as set forth in Section 4.9(h) of the Morton
Disclosure Schedule, each of the Morton Plans has been operated and administered
in accordance with applicable Laws of each relevant jurisdiction, including but
not limited to ERISA and the Code.
(i) Each of the Morton Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified and
the trusts maintained thereunder are exempt from taxation under section 501(a)
of the Code.
(j) Except as set forth in Section 4.9(j) of the Morton
Disclosure Schedule, no amounts payable under the Morton Plans or any other
agreement or arrangement to which Morton, any of its subsidiaries or any Morton
ERISA Affiliate is a party will, as a result of the transactions contemplated
hereby, fail to be deductible for federal income tax purposes by virtue of
section 280G of the Code.
(k) Except as set forth in Section 4.9(k) of the Morton
Disclosure Schedule, no Morton Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees after retirement or other termination of service
(other than (i) coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in section 3(2) of ERISA, or (iii) benefits, the full cost of which is borne by
the current or former employee (or beneficiary thereof)).
(l) Except as set forth in Section 4.9(l) of the Morton
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
Morton, any of its subsidiaries or any Morton ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as expressly provided in
this Agreement or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
(m) There are no pending or threatened claims by or on behalf
of any Morton Plan, by any employee or beneficiary covered under any such Morton
Plan, or otherwise involving any such Morton Plan (other than routine claims for
benefits).
(n) With respect to each Morton Plan that is not subject to
United States Law (a "Morton Foreign Benefit Plan"):
(i) all employer and employee contributions to each Morton
Foreign Benefit Plan required by Law or by the terms of such Morton
Foreign Benefit Plan have been made, or if applicable, accrued in
accordance with normal accounting practices;
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(ii) the fair market value of the assets of each funded Morton
Foreign Benefit Plan, the liability of each insurer for any Morton Foreign
Benefit Plan funded through insurance or the book reserve established for
any Morton Foreign Benefit Plan, together with any accrued contributions,
is sufficient to procure or provide for the accrued benefit obligations,
as of the Effective Time, with respect to all current and former
participants in such plan according to the actuarial assumptions and
valuations most recently used to determine employer contributions to such
Morton Foreign Benefit Plan and no transaction contemplated by this
Agreement shall cause such assets or insurance obligations to be less than
such benefit obligations; and
(iii) each Morton Foreign Benefit Plan required to be
registered has been registered and has been maintained in good standing
with applicable regulatory authorities.
(o) Except as set forth in Section 4.9(o) of the Morton
Disclosure Schedule, and except for country-wide collective bargaining or other
country-wide labor union contracts, as of the date of this Agreement, neither
Morton nor any of its subsidiaries is a party to any collective bargaining or
other labor union contract applicable to persons employed by Morton or any of
its subsidiaries and no collective bargaining agreement or other labor union
contract is being negotiated by Morton or any of its subsidiaries. As of the
date of this Agreement, there is no labor dispute, litigation, arbitration,
strike or work stoppage against the Retained Business pending or threatened in
writing which may interfere with the business activities of the Retained
Business, except where such dispute, litigation, arbitration, strike or work
stoppage would not have a Morton Material Adverse Effect. As of the date of this
Agreement, to the knowledge of Morton, none of Morton, any of its subsidiaries,
or their respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the Retained Business, and there
is no charge or complaint against Morton or any of its subsidiaries in
connection with the operation of the Retained Business by or before the National
Labor Relations Board or any comparable state or foreign governmental authority
or agency pending or threatened in writing, except where such unfair labor
practice, charge or complaint would not have a Morton Material Adverse Effect.
Section 4.10 Tax Matters.
(a) Neither Morton nor, to the knowledge of Morton, any of its
affiliates has taken or agreed to take any action except pursuant to the terms
of this Agreement or the Ancillary Agreements that would prevent the Spinoff
from constituting a transaction qualifying under Sections 355 and 368(a)(1)(D)
of the Code or the Merger from constituting a transaction qualifying under
Section 368(a) of the Code or (in conjunction with the acquisition of Autoliv
Securities pursuant to the Exchange Offer) from constituting a transaction
qualifying under Section 351(a) of the Code, or would prevent the Exchange Offer
(in conjunction with the acquisition of Morton Shares pursuant to the Merger)
from constituting a transaction qualifying under Section 351(a) of the Code or a
transaction in which, for Swedish income tax purposes, neither Newco, Autoliv
nor the Autoliv stockholders will recognize taxable income or gain. Morton is
not aware of any agreement, plan or other circumstance that would prevent the
Merger or the Exchange Offer from so qualifying under Section 368(a) or Section
351(a) of the Code or under applicable Swedish tax Laws.
(b) Except for such matters that would not have a Morton
Material Adverse Effect or as set forth in Section 4.10(b) of the Morton
Disclosure Schedule, (i) Morton and its subsidiaries have timely filed all Tax
Returns due to be filed with any taxing authority with respect to Taxes on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of Morton and its subsidiaries, and such Tax
Returns are true, correct and complete in all material respects, (ii) all Taxes
shown to be payable on such Tax Returns that are due prior to the Effective Time
have been paid, (iii) no deficiency for any material amount of Tax has been
asserted or assessed by a taxing authority against Morton or any of its
subsidiaries, (iv) Morton and its subsidiaries have provided adequate reserves
in their financial
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statements for any Taxes that have not been paid, whether or not shown as being
due on any returns, (v) neither Morton nor any of its subsidiaries has made any
change in accounting methods, received a ruling from any taxing authority or
signed an agreement with any taxing authority which is reasonably likely to have
a Morton Material Adverse Effect, (vi) Morton and its subsidiaries have complied
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under
foreign laws) and have, within the time and manner prescribed by law, withheld
from employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under applicable laws, (vii) no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings have been initiated or are presently pending with regard to
any Taxes or Tax Returns of Morton or its subsidiaries, and neither Morton nor
its subsidiaries have received any notice of any such audits or proceedings,
(viii) the federal income Tax Returns of Morton and its subsidiaries have been
examined by the Internal Revenue Service (or the applicable statute of
limitations for the assessment of Taxes for such periods has expired) for all
periods through and including June 30, 1992, (ix) there are no outstanding
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies against
Morton or any of its subsidiaries, and no power of attorney granted by either
Morton or any of its subsidiaries with respect to any Taxes is currently in
force, (x) neither Morton nor any of its subsidiaries has, with regard to any
assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Morton or
any of its subsidiaries and (xi) neither Morton nor any of its subsidiaries has
any deferred gain from a deferred intercompany transaction within the meaning of
Treasury Regulation Section 1.1502-13 (or any similar provision under state,
local or foreign law). As used in this Agreement, "Taxes" shall mean any and all
taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind
(together with any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any government or taxing
authority, including, without limitation, taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs, and similar charges. "Tax Return" shall mean any
return, report, document, declaration or other information or filing required to
be supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes, including, without limitation, information returns, any
documents with respect to or accompanying payments of estimated Taxes, or with
respect to or accompanying requests for the extension of time in which to file
any such report, return, document, declaration or other information.
(c) Except as set forth in Section 4.10(c) of the Morton
Disclosure Schedule, none of Morton or its subsidiaries is a party to, is bound
by, or has any obligation under, a tax sharing contract, other than the Tax
Sharing Agreement.
Section 4.11 Contracts; Debt Instruments. Except as disclosed in
Section 4.9(a) or 4.11 of the Morton Disclosure Schedule, there is no contract
or agreement as of the date hereof that is material to the business, financial
condition or results of operations of the Retained Business (each, a "Morton
Material Contract") which would be required to be filed as an exhibit to
Morton's annual report on Form 10-K pursuant to applicable SEC regulations if
Morton's only business were the Retained Business. Except as disclosed in the
Morton SEC Reports or in Section 4.11 of the Morton Disclosure Schedule, neither
Morton nor any of the Retained Subsidiaries is in violation of or in default
under (nor does there exist any condition which with the passage of time or the
giving of notice would cause such a violation of or default under) any loan or
credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding with respect to the Retained
Business to which it is a party or by which it or any of its properties or
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assets is bound with respect to the Retained Business, except for violations or
defaults that would not, individually or in the aggregate, result in a Morton
Material Adverse Effect.
Section 4.12 Litigation. Except as disclosed in the Morton SEC
Reports or in Section 4.12 of the Morton Disclosure Schedule, there is no suit,
claim, action, proceeding, investigation or product recall pending or, to the
knowledge of Morton, threatened in writing against Morton or any of its
subsidiaries that, individually or in the aggregate, is reasonably likely to
have a Morton Material Adverse Effect. Except as disclosed in the Morton SEC
Reports or in Section 4.12 of the Morton Disclosure Schedule, neither Morton nor
any of its subsidiaries is subject to any outstanding Order (as defined in
Section 8.9(b)), writ, injunction or decree which, individually or in the
aggregate, would have a Morton Material Adverse Effect.
Section 4.13 Environmental Matters. Except as disclosed in the
Morton SEC Reports or in Section 4.13 of the Morton Disclosure Schedule or as
would not, individually or in the aggregate, have a Morton Material Adverse
Effect:
(a) The Retained Business (i) is in compliance with all
applicable Environmental Laws (defined below), (ii) holds all required
Environmental Permits (defined below) for the operation of the Retained Business
as currently conducted, and (iii) is in compliance with its required
Environmental Permits.
(b) The Retained Business has not received any written request
for information that is outstanding, or been notified that it is a potentially
responsible party, under CERCLA (defined below) or any similar state, local or
foreign Law or applicable Environmental Law.
(c) The Retained Business has not entered into or agreed to
any consent decree or order and is not subject to any judgment, decree or
judicial order relating to compliance with all applicable Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring, treatment,
remediation, removal or cleanup of Hazardous Materials (defined below).
(d) None of the real property owned or leased by the Retained
Business is listed or, to the best knowledge of Morton, proposed for listing on
the "National Priorities List" under CERCLA, as updated through the date hereof,
or any similar state or foreign list of sites requiring investigation or
cleanup.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign statute,
law, European Union legislation or directive, ordinance, regulation, rule, code
or order and any enforceable judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to pollution or protection of the environment or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental Law.
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"Hazardous Materials" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
Section 4.14 Trademarks, Patents and Copyrights. Except (i) as set
forth in Section 4.12 or 4.14 of the Morton Disclosure Schedule, (ii) with
respect to the "Morton" name and related trademarks and trade names, or (iii) to
the extent the inaccuracy of any of the following (or the circumstances giving
rise to such inaccuracy), individually or in the aggregate, would not have a
Morton Material Adverse Effect, Morton and each of the Retained Morton
Subsidiaries own or possess, or prior to the Spinoff will own or possess,
adequate licenses or other legal rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade dress, trade name rights,
copyrights, servicemarks, trade secrets, applications for trademarks and for
servicemarks, mask works and know-how used in connection with the Retained
Business as currently conducted (the "Retained Business Intellectual Property"),
and to Morton's knowledge, as of the date hereof, there is no claim challenging
the validity of any of the foregoing. Except as set forth in the Ancillary
Agreements, there are no contracts, agreements or licenses pursuant to which
Spinco or any of its subsidiaries will possess rights or interests of any kind
in or affecting the Retained Business Intellectual Property. The conduct of the
Retained Business as currently conducted does not infringe any patent, patent
right, license, trademark, trademark right, trade dress, trade name, trade name
right, service mark, mask work or copyright of any third party, except for such
infringements that, individually or in the aggregate, would not have a Morton
Material Adverse Effect. To Morton's knowledge, there are no infringements of
any proprietary rights owned by or licensed by or to the Retained Business that,
individually or in the aggregate, would have a Morton Material Adverse Effect.
Section 4.15 No Violation of Spinco Representations. Spinco has not
breached in any material respect any of the representations or warranties made
by it in the Distribution Agreement.
Section 4.16 Rights Agreement. The Board of Directors of Morton has
taken all requisite action in order to amend the Rights Agreement so as to
render the preferred share purchase rights (the "Rights") issued pursuant to the
Rights Agreement inapplicable to the Merger and the other transactions
contemplated by this Agreement and the Distribution Agreement and to extinguish
the Rights in connection with such transactions.
Section 4.17 Opinion of Financial Advisor. Goldman, Sachs & Co.
("Goldman Sachs") has delivered to Morton its opinion to the effect that, as of
the date of its delivery, the consideration to be received by Morton's
stockholders in the Spinoff and the Merger, taken as a whole, is fair to
Morton's stockholders. Goldman Sachs has authorized the inclusion in its
entirety of its written opinion (dated the date of this Agreement) in the
Proxy/Prospectus, and Morton will promptly deliver a signed copy of such opinion
to Autoliv upon its receipt.
Section 4.18 Brokers. No broker, finder or investment banker (other
than Goldman Sachs) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Morton or any subsidiary of Morton. Morton has heretofore made
available to Autoliv a complete and correct copy of all agreements between
Morton and Goldman Sachs pursuant to which such firm would be entitled to any
payment relating to the Transactions.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AUTOLIV
Autoliv hereby represents and warrants to Morton that:
Section 5.1 Organization and Qualification; Subsidiaries. Each of
Autoliv and its subsidiaries has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have an Autoliv Material Adverse Effect (defined below). Each of
Autoliv and its subsidiaries is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have an Autoliv Material Adverse Effect. For purposes of this
Agreement, "Autoliv Material Adverse Effect" means any change in or effect on
the business, after giving effect to the Transactions and the provisions of the
Distribution Agreement and the other Ancillary Agreements, of Autoliv and its
subsidiaries that is, or is reasonably likely to be, materially adverse to the
business, properties, financial condition or results of operations of Autoliv
and its subsidiaries taken as a whole.
Section 5.2 Corporate Organization Documents. Autoliv has heretofore
delivered or made available to Morton accurate and complete copies of its
Articles of Association and By-laws or equivalent organizational documents, as
currently in effect. Such Articles of Association, By-laws and all other
corporate organization documents are in full force and effect. Autoliv is not in
violation of any of the provisions of its Articles of Association or other
corporate organization documents.
Section 5.3 Capitalization. Autoliv's Articles of Association
provide that Autoliv's authorized share capital may not exceed 200,000,000
shares, par value SEK 10 per share. As of the date hereof, 55,000,000 Autoliv
Shares are issued and outstanding, all of which are validly issued and fully
paid. There are no warrants or other rights, arrangements or commitments of any
character to which Autoliv is a party or by which Autoliv is bound relating to
the issued or unissued capital stock of Autoliv or any subsidiary of Autoliv or
obligating Autoliv or any subsidiary of Autoliv to issue or sell any shares of
capital stock of, or other equity interests in, Autoliv or any subsidiary of
Autoliv. There are no outstanding contractual obligations of Autoliv or any
subsidiary of Autoliv to redeem or otherwise acquire any Autoliv Securities or
any capital stock of any subsidiary of Autoliv. Each outstanding share of
capital stock of each subsidiary of Autoliv is duly authorized, validly issued
and fully paid and each such share of an Autoliv subsidiary owned by Autoliv or
another subsidiary of Autoliv is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the voting rights, charges and other encumbrances of any nature
whatsoever, except where failure to own such shares free and clear would not,
individually or in the aggregate, have an Autoliv Material Adverse Effect. There
are no material outstanding contractual obligations of Autoliv or any subsidiary
of Autoliv to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any subsidiary of Autoliv or any other
person, other than guarantees by Autoliv of any indebtedness of any subsidiary
of Autoliv.
Section 5.4 Authority Relative to this Agreement. Autoliv has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated herein to be consummated by Autoliv. The execution and delivery of
this Agreement by Autoliv and the consummation by Autoliv of such transactions
have been duly and validly
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authorized by all necessary corporate action and no other corporate proceedings
on the part of Autoliv are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly authorized and
validly executed and delivered by Autoliv and constitutes a legal, valid and
binding obligation of Autoliv, enforceable against Autoliv in accordance with
its terms.
Section 5.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Autoliv do
not, and the performance of this Agreement by Autoliv will not, (i) conflict
with or violate any provision of the Articles of Association or other corporate
organizational documents of Autoliv or any equivalent organizational documents
of any subsidiary of Autoliv, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 5.5(b) have been obtained
and all filings and obligations described in Section 5.5(b) have been made,
conflict with or violate any Law applicable to Autoliv or any subsidiary of
Autoliv or by which any property or asset of Autoliv or any subsidiary of
Autoliv is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Autoliv or any subsidiary of Autoliv
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, or other occurrences which would neither, individually or in the
aggregate, (A) have an Autoliv Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement by Autoliv.
(b) The execution and delivery of this Agreement by Autoliv do
not, and the performance of this Agreement by Autoliv will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for applicable requirements of the SSE,
the FSA, the Exchange Act, the Securities Act, Blue Sky Laws, the NYSE and state
takeover laws, the pre-merger notification requirements of the HSR Act, the
filing of notifications in accordance with the antitrust laws of Sweden, Germany
and Belgium, and the filing of a request with the Stockholm District Court with
regard to the compulsory acquisition described in Section 3.3 and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not (A) prevent or materially delay
consummation of the Transactions, (B) otherwise prevent Autoliv from performing
its material obligations under this Agreement, or (C) individually or in the
aggregate, have an Autoliv Material Adverse Effect.
Section 5.6 Permits; Compliance. Each of Autoliv and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Autoliv or any
subsidiary of Autoliv to own, lease and operate its properties or to carry on
its business as it is now being conducted (collectively, the "Autoliv Permits"),
except where the failure to have, or the suspension or cancellation of, any of
the Autoliv Permits would neither, individually or in the aggregate, (A) have an
Autoliv Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement by Autoliv, and, as of the date of this Agreement,
no suspension or cancellation of any of the Autoliv Permits is pending or, to
the knowledge of Autoliv, threatened, except where the failure to have, or the
suspension or cancellation of, any of the Autoliv Permits would neither,
individually or in the aggregate, (A) have an Autoliv Material Adverse Effect
nor (B) prevent or materially delay the performance of this Agreement by
Autoliv. Neither Autoliv nor any subsidiary of Autoliv is in conflict with, or
in default or violation of, (i) any Law applicable to Autoliv or any subsidiary
of Autoliv or by which any property or asset of Autoliv or any subsidiary of
Autoliv is bound or affected or (ii) any Autoliv Permits, except for any such
conflicts, defaults or violations that would neither, individually or in
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the aggregate, (A) have an Autoliv Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement or consummation of the
Transactions by Autoliv or any of its subsidiaries.
Section 5.7 Stock Exchange and SEC Filings; Financial Statements.
(a) Autoliv has filed all forms, reports and documents
required to be filed by it under Rule 12g 3-2(B) of the Exchange Act or with the
SSE since June 30, 1994 through the date of this Agreement (collectively, the
"Autoliv Reports"). The Autoliv Reports (i) were prepared in accordance in all
material respects with the requirements of the Exchange Act, the SSE or Swedish
Laws or regulations, as the case may be, and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No subsidiary of Autoliv is subject to the periodic
reporting requirements of the Exchange Act or required to file any form, report
or other document with the SEC, the FSA, the SSE or any other comparable
Governmental Entity.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Autoliv Reports conform in all
material respects with International Accounting Standards, in each case applied
on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Autoliv and its consolidated
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein.
(c) Except as and to the extent set forth on the consolidated
balance sheet of Autoliv and its consolidated subsidiaries as of December 31,
1995, including the notes thereto, neither Autoliv nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in notes thereto prepared in accordance with International Accounting
Standards, except for (i) liabilities or obligations incurred in the ordinary
course of business since December 31, 1995, (ii) liabilities or obligations
incurred outside the ordinary course of business since December 31, 1995 that
would neither, individually or in the aggregate, (A) have an Autoliv Material
Adverse Effect nor (B) prevent or materially delay the performance of this
Agreement by Autoliv and (iii) liabilities and obligations incurred in
connection with the execution and delivery of this Agreement and consummation of
the Transactions contemplated hereby.
Section 5.8 Absence of Certain Changes or Events. Since January 1,
1996, except as contemplated by or as disclosed in this Agreement or as
disclosed in any Autoliv Report filed since January 1, 1996, Autoliv and its
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(a) any Autoliv Material Adverse Effect, other than due to events, changes or
developments relating to the economy in general, the automotive industry
(including strikes affecting one or more automotive companies) or the automotive
safety products industry in general, (b) any event that would, or is reasonably
likely to, have a material adverse effect on the ability of Autoliv to
consummate the transactions contemplated by this Agreement or perform its
obligations hereunder, (c) any material change by Autoliv in its accounting
methods, principles or practices, (d) any declaration, setting aside or payment
of any dividend (other than in accordance with Autoliv's regular dividend
practice) or distribution in respect of the Autoliv Securities or any
redemption, purchase or other acquisition of any of Autoliv's securities, or (e)
any increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of
Autoliv or any subsidiary of Autoliv except in
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each case in the ordinary course of business consistent with past practice or
except in each case as required by applicable law.
Section 5.9 Employee Benefit Plans; Labor Matters.
Except for such failures, liabilities, penalties, taxes, claims or
other events or matters described in subsections (c) through (n), but excluding
subsection (g), below that would not, individually or in the aggregate, have an
Autoliv Material Adverse Effect:
(a) Section 5.9(a) of the Disclosure Schedule delivered by
Autoliv to Morton prior to the execution of (and forming part of) this Agreement
(the "Autoliv Disclosure Schedule") contains a true and complete list of each
material bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance or termination pay, change-in-control, hospitalization
or other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other material employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by Autoliv, any of its subsidiaries or by any trade or business,
whether or not incorporated (an "Autoliv ERISA Affiliate"), that together with
Autoliv would be deemed a "single employer" within the meaning of section
4001(b)(1) of ERISA, for the benefit of any employee or former employee of
Autoliv, any of its subsidiaries or any Autoliv ERISA Affiliate (the "Autoliv
Plans").
(b) With respect to each of the Autoliv Plans, Autoliv has
heretofore delivered or made available to Morton true and complete copies of
each of the following documents: (A) a copy of each of the Autoliv Plans
(including all amendments thereto); (B) a copy of the most recent annual
report, if required under ERISA or other applicable Law, with respect to each
such Autoliv Plan; (C) a copy of the most recent actuarial report, if required
under ERISA or other applicable Law, with respect to each such Autoliv Plan; (D)
a copy of the most recent SPD, if any, together with all Summaries of Material
Modification issued with respect to such SPD, required under ERISA or other
applicable Law with respect to each such Autoliv Plan; (E) if any Autoliv Plan
is funded through a trust or any other funding vehicle, a copy of the trust or
other funding agreement (including all amendments thereto) and (F) the latest
financial statements thereof; and the most recent determination letter received
from the Internal Revenue Service with respect to each Autoliv Plan that is
intended to be qualified under section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by
Autoliv, any of its subsidiaries or any Autoliv ERISA Affiliate since the
effective date of ERISA that has not been satisfied in full, and no condition
exists that presents a material risk to Autoliv, any of its subsidiaries or any
Autoliv ERISA Affiliate of incurring a liability under such Title, other than
liability for premiums due the PBGC, which payments have been or will be made
when due. To the extent this representation applies to sections 4064, 4069 or
4204 of Title IV of ERISA, it is made not only with respect to the Autoliv Plans
but also with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which Autoliv, any of its
subsidiaries or any Autoliv ERISA Affiliate made, or was required to make,
contributions during the five-year period ending on the last day of Autoliv's
most recent fiscal year.
(d) To the knowledge of Autoliv, there are no proceedings
pending to terminate any of the Autoliv Plans and no condition exists that
presents a material risk that such proceedings will be instituted.
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(e) Neither Autoliv, any of its subsidiaries, any Autoliv
ERISA Affiliate, any of the Autoliv Plans, any trust created thereunder nor, to
the knowledge of Autoliv, any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with which
Autoliv, any of its subsidiaries, any Autoliv ERISA Affiliate, any of the
Autoliv Plans, any such trust, any trustee or administrator thereof, or any
party dealing with the Autoliv Plans or any such trust could be subject to
either a civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a
tax imposed pursuant to section 4975, 4976 or 4980B of the Code.
(f) None of the Autoliv Plans or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Autoliv Plans ended
prior to the date of this Agreement.
(g) Except as set forth in Section 5.9(g) of the Autoliv
Disclosure Schedule, no Autoliv Plan is a "multiemployer plan," as such term is
defined in section 3(37) of ERISA.
(h) Except as set forth in Section 5.9(h) of the Autoliv
Disclosure Schedule, each of the Autoliv Plans has been operated and
administered in all material respects in accordance with applicable Laws of each
relevant jurisdiction, including but not limited to ERISA and the Code.
(i) Each of the Autoliv Plans that is intended to be
"qualified" within the meaning of section 401(a) of the Code is so qualified and
the trusts maintained thereunder are exempt from taxation under section 501(a)
of the Code.
(j) Except as set forth in Section 5.9(j) of the Autoliv
Disclosure Schedule, no amounts payable under the Autoliv Plans or any other
agreement or arrangement to which Autoliv, any of its subsidiaries or any
Autoliv ERISA Affiliate is a party will, as a result of the transactions
contemplated hereby, fail to be deductible for federal income tax purposes by
virtue of section 280G of the Code.
(k) Except as set forth in Section 5.9(k) of the Autoliv
Disclosure Schedule, no Autoliv Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees after retirement or other termination of service
(other than (i) coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in section 3(2) of ERISA, or (iii) benefits, the full cost of which is borne by
the current or former employee (or beneficiary thereof)).
(l) Except as set forth in Section 5.9(l) of the Autoliv
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
Autoliv, any of its subsidiaries or any Autoliv ERISA Affiliate to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(m) There are no pending or threatened claims by or on behalf
of any Autoliv Plan, by any employee or beneficiary covered under any such
Autoliv Plan, or otherwise involving any such Autoliv Plan (other than routine
claims for benefits).
(n) With respect to each Autoliv Plan that is not subject to
United States Law (an "Autoliv Foreign Benefit Plan"):
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(i) all employer and employee contributions to each Autoliv
Foreign Benefit Plan required by Law or by the terms of such Autoliv
Foreign Benefit Plan have been made, or if applicable, accrued in
accordance with normal accounting practices;
(ii) the fair market value of the assets of each funded
Autoliv Foreign Benefit Plan, the liability of each insurer for any
Autoliv Foreign Benefit Plan funded through insurance or the book reserve
established for any Autoliv Foreign Benefit Plan, together with any
accrued contributions, is sufficient to procure or provide for the accrued
benefit obligations, as of the Effective Time, with respect to all
current and former participants in such plan according to the actuarial
assumptions and valuations most recently used to determine employer
contributions to such Autoliv Foreign Benefit Plan and no transaction
contemplated by this Agreement shall cause such assets or insurance
obligations to be less than such benefit obligations; and
(iii) each Autoliv Foreign Benefit Plan required to be
registered has been registered and has been maintained in good standing
with applicable regulatory authorities.
(o) Except as set forth in Section 5.9(o) of the Autoliv
Disclosure Schedule, and except for country-wide collective bargaining or other
country-wide labor union contracts, as of the date of this Agreement, neither
Autoliv nor any subsidiary of Autoliv is a party to any collective bargaining or
other labor union contract applicable to persons employed by Autoliv or any
subsidiary of Autoliv and no collective bargaining agreement or other labor
union contract is being negotiated by Autoliv or any subsidiary of Autoliv. As
of the date of this Agreement, there is no labor dispute, litigation,
arbitration, strike or work stoppage against Autoliv or any subsidiary of
Autoliv pending or threatened in writing that may interfere with the respective
business activities of Autoliv or any subsidiary of Autoliv, except where such
dispute, litigation, arbitration, strike or work stoppage would not have an
Autoliv Material Adverse Effect. As of the date of this Agreement, to the
knowledge of Autoliv, none of Autoliv, any subsidiary of Autoliv, or their
respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of
Autoliv or any subsidiary of Autoliv, and there is no charge or complaint
against Autoliv or any subsidiary of Autoliv by or before the National Labor
Relations Board or any comparable state or foreign governmental authority or
agency pending or threatened in writing, except where such unfair labor
practice, charge or complaint would not have an Autoliv Material Adverse Effect.
Section 5.10 Tax Matters.
(a) Neither Autoliv nor, to the knowledge of Autoliv, any of
its affiliates has taken or agreed to take any action that would prevent the
Spinoff from constituting a transaction qualifying under Sections 355 and
368(a)(1)(D) of the Code or the Merger from constituting a transaction
qualifying under Section 368(a) of the Code or (in conjunction with the
acquisition of Autoliv Securities pursuant to the Exchange Offer) from
constituting a transaction qualifying under Section 351(a) of the Code, or would
prevent the Exchange Offer (in conjunction with the acquisition of Morton Shares
pursuant to the Merger) from constituting a transaction qualifying under Section
351(a) of the Code or a transaction in which, for Swedish income tax purposes,
neither Newco, Autoliv nor the Autoliv stockholders will recognize taxable
income or gain. Autoliv is not aware of any agreement, plan or other
circumstance that would prevent the Merger or the Exchange Offer from so
qualifying under Section 368(a) or Section 351(a) of the Code or under
applicable Swedish tax Laws.
(b) Except for such matters that would not have an Autoliv
Material Adverse Effect or as set forth in Section 5.10(b) of the Autoliv
Disclosure Schedule, (i) Autoliv and its subsidiaries have timely filed all Tax
Returns due to be filed with any taxing authority with respect to Taxes on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of Autoliv
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and its subsidiaries, and such Tax Returns are true, correct and complete in all
material respects, (ii) all Taxes shown to be payable on such Tax Returns that
are due prior to the Effective Time have been paid, (iii) no deficiency for any
material amount of Tax has been asserted or assessed by a taxing authority
against Autoliv or any of its subsidiaries, (iv) Autoliv and its subsidiaries
have provided adequate reserves in their financial statements for any Taxes that
have not been paid, whether or not shown as being due on any returns, (v)
neither Autoliv nor any of its subsidiaries has made any change in accounting
methods, received a ruling from any taxing authority or signed an agreement with
any taxing authority which is reasonably likely to have an Autoliv Material
Adverse Effect, (vi) Autoliv and its subsidiaries have complied in all respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under
foreign laws) and have, within the time and manner prescribed by law, withheld
from employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under applicable laws, (vii) no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings have been initiated or are presently pending with regard to
any Taxes or Tax Returns of Autoliv or its subsidiaries, and neither Autoliv nor
its subsidiaries have received any notice of any such audits or proceedings,
(viii) no federal income Tax Returns of Autoliv subsidiaries that are United
States corporations have been examined by the Internal Revenue Service, (ix)
there are no outstanding requests, agreements, consents or waivers to extend the
statutory period of limitations applicable to the assessment of any Taxes or
deficiencies against Autoliv or any of its subsidiaries, and no power of
attorney granted by either Autoliv or any of its subsidiaries with respect to
any Taxes is currently in force, and (x) neither Autoliv nor any of its
subsidiaries has, with regard to any assets or property held, acquired or to be
acquired by any of them, filed a consent to the application of Section 341(f) of
the Code, or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Autoliv or any of its subsidiaries.
Section 5.11 Contracts; Debt Instruments. Except as disclosed in
Section 5.9(a) or 5.11 of the Autoliv Disclosure Schedule, there is no contract
or agreement, as of the date hereof, that is material to the business, financial
condition or results of operations of Autoliv and its subsidiaries, taken as a
whole, which, if Autoliv and its subsidiaries, taken as a whole, were subject to
the reporting requirements under the Exchange Act as of the date hereof, would
be required to be filed by Autoliv as an exhibit to its annual report on Form
10-K. Except as disclosed in the Autoliv Reports or in Section 5.11 of the
Autoliv Disclosure Schedule, neither Autoliv nor any subsidiary of Autoliv is in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice would cause such a violation of or
default under) any loan or credit agreement, note, bond, mortgage, indenture or
lease, or any other contract, agreement, arrangement or understanding to which
it is a party or by which it or any of its properties or assets is bound, except
for violations or defaults that would not, individually or in the aggregate,
result in an Autoliv Material Adverse Effect.
Section 5.12 Litigation. Except as disclosed in Autoliv Reports or
in Section 5.12 of the Autoliv Disclosure Schedule, there is no suit, claim,
action, proceeding, investigation or product recall pending or, to the knowledge
of Autoliv, threatened in writing against Autoliv or any subsidiary of Autoliv
which, individually or in the aggregate, is reasonably likely to have an Autoliv
Material Adverse Effect. Except as disclosed in the Autoliv Reports or in
Section 5.12 of the Autoliv Disclosure Schedule, neither Autoliv nor any
subsidiary of Autoliv is subject to any outstanding Order, writ, injunction or
decree which, individually or in the aggregate, would have an Autoliv Material
Adverse Effect.
Section 5.13 Environmental Matters. Except as disclosed in the
Autoliv Reports or as would not, individually or in the aggregate, have an
Autoliv Material Adverse Effect:
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(a) Autoliv and its subsidiaries (i) are in compliance with
all applicable Environmental Laws, (ii) hold all required Environmental Permits
for the operation of Autoliv's business as currently conducted, and (iii) are in
compliance with their required Environmental Permits.
(b) None of Autoliv or any subsidiary of Autoliv has received
any written request for information that is outstanding, or been notified that
it is a potentially responsible party, under CERCLA or any similar state, local
or foreign Law or applicable Environmental Law.
(c) None of Autoliv or any subsidiary of Autoliv has entered
into or agreed to any consent decree or order or is subject to any judgment,
decree or judicial order relating to compliance with all applicable
Environmental Laws, Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous Materials.
(d) None of the real property owned or leased by Autoliv or
any subsidiary of Autoliv is listed or, to the best knowledge of Autoliv,
proposed for listing on the "National Priorities List" under CERCLA, as updated
through the date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
Section 5.14 Trademarks, Patents and Copyrights. Except (i) as set
forth in Section 5.12 or 5.14 of the Autoliv Disclosure Schedule, or (ii) to the
extent the inaccuracy of any of the following (or the circumstances giving rise
to such inaccuracy), individually or in the aggregate, would not have an Autoliv
Material Adverse Effect, Autoliv and its subsidiaries own or possess adequate
licenses or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade dress, trade name rights, copyrights,
servicemarks, trade secrets, applications for trademarks and for servicemarks,
mask works and know-how used in connection with the business of Autoliv and its
subsidiaries as currently conducted and, to Autoliv's knowledge, as of the date
hereof, there is no claim challenging the validity of any of the foregoing. The
conduct of the business of Autoliv and its subsidiaries as currently conducted
does not infringe any patent, patent right, license, trademark, trademark
right, trade dress, trade name, trade name right, service mark, mask work or
copyright of any third party except for such infringements that, individually or
in the aggregate, would not have an Autoliv Material Adverse Effect. To
Autoliv's knowledge, there are no infringements of any proprietary rights owned
by or licensed by or to Autoliv or any subsidiary of Autoliv that, individually
or in the aggregate, would have an Autoliv Material Adverse Effect.
Section 5.15 Opinions of Financial Advisors. Each of Enskilda
Securities ("Enskilda") and The Blackstone Group L.P. ("Blackstone") has
delivered to Autoliv its written opinion to the effect that, as of the date of
this Agreement, the consideration to be received by Autoliv's stockholders in
the Exchange Offer is fair to Autoliv's stockholders from a financial point of
view. Each of Enskilda and Blackstone has authorized the inclusion of its
opinion in the Proxy/Prospectus, the Swedish Prospectus and the English
translation of the Swedish Prospectus to be provided to Autoliv's stockholders
located outside of Sweden, the United States and Canada (the "International
Prospectus"), and Autoliv will promptly, after the date of this Agreement,
deliver signed copies of such opinions to Morton.
Section 5.16 Brokers. Except as set forth in Section 5.16 of the
Autoliv Disclosure Schedule, no broker, finder or investment banker (other than
Enskilda and Blackstone) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Autoliv or any subsidiary of Autoliv. Autoliv has heretofore
made available to Morton a complete and correct copy of all agreements between
Autoliv and Enskilda and between Autoliv and Blackstone or any other person
listed in Section 5.16 of the Autoliv Disclosure Schedule pursuant to which such
firms would be entitled to any payment relating to the Transactions.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO AND NEWCO SUB
Newco and Newco Sub hereby jointly and severally represent and
warrant to Autoliv and Morton that:
Section 6.1 Organization and Qualification; Subsidiaries. Each of
Newco and Newco Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of Newco and Newco Sub is duly qualified or licensed to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary. Neither Newco nor Newco Sub has
any subsidiaries other than, in the case of Newco, Newco Sub. Upon formation or
organization, the entities to be formed in connection with the actions
contemplated by Section 3.3(a) will be duly incorporated or organized.
Section 6.2 Certificate of Incorporation and By-Laws. Each of Newco
and Newco Sub has heretofore made available to each of Autoliv and Morton a
complete and correct copy of its Certificate of Incorporation and By-Laws. Such
Certificates of Incorporation and By-Laws are in full force and effect. Neither
Newco nor Newco Sub is in violation of any of the provisions of its Certificate
of Incorporation or By-Laws.
Section 6.3 Capitalization.
(a) As of the date of this Agreement, (i) the authorized
capital stock of Newco consists of 1,000 shares of Newco Common Stock, (ii)
1,000 shares of Newco Common Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and (iii) each of Autoliv and
Morton own 500 shares of Newco Common Stock free and clear of all encumbrances
of any kind. No shares of Newco capital stock are held in the treasury of Newco.
On or prior to the Effective Time, the Certificate of Incorporation of Newco
will be amended to provide that the authorized capital stock of Newco will
consist of (i) 250,000,000 shares of Newco Common Stock and (ii) 40,000,000
shares of preferred stock. As of the Registration Statement Effective Date,
1,000 shares of Newco Common Stock will be issued and outstanding, all of which
will be validly issued, fully paid and nonassessable and no shares of preferred
stock of Newco will be issued or outstanding. Except as provided in this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Newco or obligating Newco to issue or sell any shares of
capital stock of, or other equity interests in, Newco. The Newco Common Stock to
be issued in connection with the Transactions, when issued as contemplated
herein, will be duly authorized, validly issued, fully paid and nonassessable
and will not be issued in violation of any preemptive rights. Should SDRs be
issued in connection with the Exchange Offer, such SDRs, when issued as
contemplated herein will be validly issued. Should SDRs be issued, the
depositary agreement under which such SDRs are to be issued will have been duly
authorized, executed and delivered by Newco and will constitute a legal, valid
and binding obligation of Newco enforceable against Newco in accordance with its
terms.
(b) The authorized capital stock of Newco Sub consists of
1,000 shares of common stock, par value $.01 per share, of Newco Sub (the "Newco
Sub Common Stock"). As of the date of this Agreement, 1,000 shares of Newco Sub
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable. Each issued and outstanding share of Newco Sub Common
Stock is
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owned by Newco, free and clear of all encumbrances of any kind. No shares of
Newco Sub Common Stock are held in the treasury of Newco Sub. There are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Newco Sub or
obligating Newco or Newco Sub to issue or sell any shares of capital stock of,
or other equity interests in, Newco Sub. As of the Effective Time, all of the
outstanding shares of capital stock of the Surviving Corporation will be duly
authorized, validly issued, fully paid and nonassessable and will be owned by
Newco, free and clear of all encumbrances of any kind.
Section 6.4 Authority Relative to this Agreement. Each of Newco and
Newco Sub has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions (including, without limitation, the Transactions) contemplated
herein to be consummated by it. The execution and delivery of this Agreement by
each of Newco and Newco Sub and the consummation by each of Newco and Newco Sub
of such transactions have been duly and validly authorized by all necessary
corporate action (including, in the case of Newco Sub, the approval of Newco as
sole stockholder of Newco Sub) and no other corporate proceedings on the part of
either Newco or Newco Sub are necessary to authorize this Agreement or to
consummate such Transactions. This Agreement has been duly authorized and
validly executed and delivered by each of Newco and Newco Sub and constitutes a
legal, valid and binding obligation of each of Newco and Newco Sub, enforceable
against each of Newco and Newco Sub in accordance with its terms.
Section 6.5 No Conflict. The execution and delivery of this
Agreement by each of Newco and Newco Sub do not, and the performance of this
Agreement by each of Newco and Newco Sub will not, conflict with or violate any
provision of the Newco or Newco Sub Certificate of Incorporation or By-laws.
Section 6.6 No Activities. Except for obligations or liabilities
incurred in connection with its respective incorporation or organization and the
Transactions, neither Newco nor Newco Sub has incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or engaged
in any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE VII
COVENANTS
Section 7.1 Conduct of Business by Morton Pending the Closing.
Morton agrees that, between the date of this Agreement and the Effective Time,
except as set forth in Section 7.1 of the Morton Disclosure Schedule or as
contemplated by any other provision of this Agreement or the Ancillary
Agreements, unless Autoliv shall otherwise agree in writing, which agreement
shall not be unreasonably withheld or delayed, (1) the operations of the
Retained Business shall be conducted only in, and neither Morton nor any of its
subsidiaries shall take any action with respect to the operations of the
Retained Business except in, the ordinary course of business consistent with
past practice, and except that solely for purposes of the Distribution
Agreement, the Retained Business shall to the fullest extent reasonably
practicable be treated as if it were a stand-alone, self-financed entity as
provided for in accordance with Section 2.01(c) of the Distribution Agreement,
(2) Morton and its subsidiaries will conduct the operations of all businesses
other than the Retained Business in the ordinary course of business except where
the failure to so conduct would not have a Morton Material Adverse Effect, (3)
Morton and its subsidiaries will prepare and file all Tax Returns due on or
before the Effective Time on a basis consistent with the elections, conventions,
accounting methods and principles of taxation used for the most recent periods
for which Tax Returns have been filed, and (4) with respect to the Retained
Business, Morton and its subsidiaries shall each use their respective reasonable
efforts
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to keep available the services of such of the current officers, significant
employees and consultants of Morton and its subsidiaries and to preserve the
current relationships of Morton and its subsidiaries with such of the
customers, suppliers and other persons with which Morton or any subsidiary of
Morton has significant business relations as Morton deems reasonably necessary
in order to preserve substantially intact the Retained Business. By way of
amplification and not limitation, except as set forth in Section 7.1 of the
Morton Disclosure Schedule or as contemplated by any other provision of this
Agreement or the Ancillary Agreements, neither Morton nor any Retained Morton
Subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following, without the
prior written consent of Autoliv, which consent shall not be unreasonably
withheld or delayed:
(a) amend or otherwise change the Restated Certificate of
Incorporation or By-laws or equivalent organizational documents of Morton or any
Retained Morton Subsidiaries;
(b) issue, sell, pledge, dispose of, grant, transfer,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, guarantee or encumbrance of any stock of any class, or
securities convertible or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any kind to acquire
any shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of Morton or any Retained Morton
Subsidiary, except for (i) issuance and sale of Morton Preferred Stock pursuant
to the Rights Agreement; (ii) issuance and sale of Morton Shares; (iii) issuance
of rights to purchase shares of Morton Preferred Stock issuable in connection
with issuances of Morton Shares; (iv) grants of options to purchase Morton
Shares pursuant to the Morton Option Plan to persons who are not Company
Individuals (as defined in the Employee Benefits Allocation Agreement); (v)
issuance, sale or other transfer or disposition by a wholly-owned subsidiary of
its capital stock to its parent; and (vi) in connection with newly hired Company
Individuals, grants of options to purchase up to 3,000 Morton Shares per newly
hired employee consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, other than (i) quarterly cash dividends in the ordinary course in
an amount consistent with past practice and not in excess of $.15 per Morton
Share (other than dividends to be paid after August 31, 1997), (ii) the Spinoff
or (iii) dividends from a wholly-owned subsidiary to its parent, with respect to
any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock other
than for cash;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any division
thereof or any assets, in each case which would become part of the Retained
Business, other than acquisitions of assets in the ordinary course of business
and any other acquisitions which would not, individually, be material to the
Retained Business;
(ii) incur any indebtedness for borrowed money, issue any debt
securities, make any loans, advances or capital contributions to any other
person or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money which, in each
case, would become a Safety Liability (as defined in the Distribution
Agreement), that would not be eliminated as of the Effective Time, except for
$750 million in indebted ness (the "Retained Debt") in connection with the
Safety Credit Agreement (as defined in the Distribution Agreement);
(iii) terminate, cancel, or agree to any material change in,
or enter into any contract or agreement, other than the Retained Debt, material
to the business, results of operations or financial condition of the Retained
Business, in either case other than in the ordinary course of business;
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(iv) make or authorize any capital expenditure with respect to
the Retained Business, other than capital expenditures that are not, in the
aggregate, in excess of the amount set forth in the capital budget through June
30, 1997 for Morton and its subsidiaries, described in Section 7.1 of the Morton
Disclosure Schedule, or authorized under a prior year's capital budget;
(v) change the Retained Business' practices with respect to
the timing of payments or collections in any material respect; or
(vi) enter into any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
7.1(e);
(f) (i) except in the ordinary course of business in
accordance with past practices or Morton's severance policy in effect as of the
date of this Agreement, increase the compensation payable or to become pay able
to any Company Individual (as defined in the Employee Benefits Allocation
Agreement) (or any other person for whom the Retained Business will have
liability) or grant any rights to severance or termination pay to, or enter into
any employment or severance agreement with, any Company Individual (or any other
person for whom the Retained Business will have liability), or (ii) establish,
terminate, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
Company Individual (or any other person for whom the Retained Business will have
liability), that will create or materially increase any material liability of
Morton and its subsidiaries, taken as a whole, except as contemplated by this
Agreement or the Ancillary Agreements or to the extent required by applicable
Law or the terms of a collective bargaining agreement;
(g) transfer, sell, lease, license, encumber or otherwise
dispose of any material assets relating to the Retained Business outside the
ordinary course of business;
(h) adopt or change any accounting policies or procedures
relating to or materially affecting the Retained Business, other than actions in
the ordinary course of business and consistent with past practice, except as may
be required by Regulation S-X of the SEC;
(i) waive, release, assign, settle or compromise any material
claims or litigation relating to the Retained Business other than in the
ordinary course of business;
(j) make any material tax election, settle or compromise any
material federal, state, local or foreign income tax liability, file any amended
Tax Returns containing any material amendment or change any material method of
tax accounting, in each case that would be materially adverse to the Retained
Business;
(k) engage in or allow transfers of assets or liabilities or
engage or enter into other transactions between the Retained Business on the one
hand, and Spinco and its subsidiaries on the other hand, other than in the
ordinary course of business or as contemplated by the Ancillary Agreements; or
(l) fail to abide or fail to cause Spinco to abide by their
respective obligations under the Ancillary Agreements.
Section 7.2 Conduct of Business by Autoliv Pending the Closing.
Autoliv agrees that, between the date of this Agreement and the Effective Time,
except as set forth in Section 7.2 of the Autoliv Disclosure Schedule or as
contemplated by any other provision of this Agreement, unless Morton shall
otherwise agree in writing (which agreement shall not be unreasonably withheld
or delayed) or unless prohibited by
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any applicable Swedish Law, (1) the business of Autoliv and its subsidiaries
shall be conducted only in, and Autoliv and its subsidiaries shall not take any
action except in, the ordinary course of business consistent with past practice
and (2) Autoliv shall use reasonable efforts to keep available the services of
such of the current officers, significant employees and consultants of Autoliv
and its subsidiaries and to preserve the current relationships of Autoliv and
its subsidiaries with such of the customers, suppliers and other persons with
which Autoliv or any subsidiary of Autoliv has significant business relations as
Autoliv deems reasonably necessary in order to preserve substantially intact its
business organization. By way of amplification and not limitation, except as set
forth in Section 7.2 of the Autoliv Disclosure Schedule or as contemplated by
any other provision of this Agreement, neither Autoliv nor any subsidiary of
Autoliv shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following without the
prior written consent of Morton, which consent shall not be unreasonably
withheld or delayed:
(a) amend or otherwise change its Articles of Association or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, guarantee or encumbrance of, any shares of capital stock of
Autoliv or any subsidiary of Autoliv of any class, or securities convertible or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interests (including, without limitation,
any phantom interest), of Autoliv or any subsidiary of Autoliv, provided,
however, that nothing in this Section 7.2(b) shall prevent a wholly-owned
subsidiary of Autoliv from issuing, selling or otherwise transferring or
disposing of its capital stock to its parent;
(c) recommend to its stockholders that the stockholders
declare, set aside, make or pay any dividend or other distribution other than
(i) regular annual cash dividends in the ordinary course consistent with past
practice and, in the aggregate, not in excess of the lesser of (x) 20% of
Autoliv's net income per share for fiscal year 1996 and (y) SEK 2.75 per Autoliv
Share (other than dividends to be declared and paid after August 31, 1997), or
(ii) dividends from a wholly-owned subsidiary to its parent, with respect to any
of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any division
thereof or any assets, other than acquisitions of assets in the ordinary course
of business consistent with past practice, which are disclosed in Section 7.2(e)
of the Autoliv Disclosure Schedule, or any other acquisitions which would not,
individually, be material to Autoliv;
(ii) incur any indebtedness for borrowed money, issue any debt
securities, make any loans, advances or capital contributions to any
other person or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person
for borrowed money.
(iii) terminate, cancel or agree to any material change in, or
enter into any, contract or agreement material to the business,
results of operations or financial condition of Autoliv and its
subsidiaries taken as a whole, in either case other than in the
ordinary course of business, consistent with past practice;
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(iv) make or authorize any capital expenditure, other than
capital expenditures that are not, in the aggregate, in excess of
the amount set forth in Section 7.2 of the Autoliv Disclosure
Schedule, or authorized under a prior year's capital budget; or
(v) enter into any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under
this Section 7.2(e);
(f) (i) except in the ordinary course of business in
accordance with past practices or Autoliv's severance policy in effect on the
date of this Agreement, increase the compensation payable or to become pay able
to its officers or employees in salaries or wages of employees of Autoliv or any
subsidiary of Autoliv who are not officers of Autoliv or grant any rights to
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of Autoliv or any
subsidiary of Autoliv, or (ii) establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee, that will
create or materially increase any material liability of Autoliv and its
subsidiaries, taken as a whole, except to the extent required by applicable Law
or the terms of a collective bargaining agreement;
(g) transfer, sell, lease, license, encumber or otherwise
dispose of any material assets of Autoliv or any subsidiary of Autoliv outside
the ordinary course of business;
(h) adopt or change any accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice except as may be required by applicable Law or stock exchange
regulation;
(i) waive, release, assign, settle or compromise any material
claims or litigation other than in the ordinary course of business;
(j) make any material tax election, settle or compromise any
material federal, state, local or foreign income tax liability, file any amended
Tax Returns containing any material amendment or change any material method of
tax accounting, in each case which would be materially adverse to Autoliv and
its subsidiaries, taken as a whole; or
(k) engage in or allow transfers of assets or liabilities or
engage or enter into other transactions between Autoliv and its subsidiaries
other than in the ordinary course of business.
Section 7.3 Cooperation; Liaison Committee.
(a) To the extent permitted by applicable Laws, Autoliv and
Morton shall coordinate and cooperate in connection with (i) the preparation of
the Newco Registration Statement (as defined in Section 8.1(a)), (ii)
determining whether any action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts of Morton
(including the Morton Material Contracts) or Autoliv Material Contracts, in
connection with the consummation of the Transactions and (iii) seeking any such
actions, consents, approvals or waivers.
(b) To the extent permitted by applicable Laws, upon the
execution and delivery of this Agreement, Autoliv and Morton will establish a
committee (the "Liaison Committee") for the purpose of facilitating the
consummation of the transactions contemplated hereby. The Liaison Committee
will consist of
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four members, two of whom will be designated by Autoliv, and two of whom will be
designated by Morton. The Liaison Committee will be dissolved as of the
Effective Time.
Section 7.4 Notices of Certain Events. Prior to the Effective Time,
each of Autoliv and Morton shall give prompt notice to the other of (a) any
notice or other communication from any person alleging that the consent of such
person is or may be required in connection with the Transactions, where the
failure to obtain such consent (if required) would have a Morton Material
Adverse Effect or Autoliv Material Adverse Effect, respectively, (b) any notice
or other communication from any Governmental Entity in connection with the
Transactions, (c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened in writing against, relating to or
involving or otherwise affecting Autoliv, Morton or their subsidiaries that
relate to the consummation of the Transactions, (d) the occurrence of a default
or event that, with notice or lapse of time or both, will become a default under
any material contract of Morton or any material contract of Autoliv, which event
or default would have a Morton Material Adverse Effect or Autoliv Material
Adverse Effect, respectively, and (e) any change that is reasonably likely to
result in a Morton Material Adverse Effect or an Autoliv Material Adverse Effect
or is likely to materially delay or impede the ability of either Morton or
Autoliv to consummate the transactions contemplated by this Agreement or to
fulfill its obligations set forth herein.
ARTICLE XIII
ADDITIONAL AGREEMENTS
Section 8.1 Registration Statements.
(a) As promptly as practicable after the execution of this
Agreement, Autoliv and Morton shall jointly prepare and file (or cause Newco to
file) with the SEC a single document that will constitute (i) the proxy
statement of Morton relating to the special meeting of Morton's stockholders
(the "Morton Stockholders' Meeting") to be held to consider approval of this
Agreement, the Merger, and the transactions contemplated by the Distribution
Agreement, (ii) the prospectus forming part of the registration statement on
Form S-4 of Spinco (together with all amendments thereto, the "Spinco
Registration Statement"), in connection with the registration under the
Securities Act of the Spinco Common Stock to be issued to Morton stockholders
pursuant to the Spinoff, (iii) the prospectus forming part of the registration
statement on Form S-4 of Newco (together with all amendments thereto, the "Newco
Registration Statement" and, collectively with the Spinco Registration
Statement, the "Registration Statements"), in connection with the registration
under the Securities Act of the Newco Common Stock to be issued to the
stockholders of Autoliv and Morton pursuant to the Exchange Offer in the United
States and the Merger, respectively, and (iv) the offer to purchase (the "U.S.
Offer to Purchase") to be used by Newco in connection with the Exchange Offer in
the United States (such document, together with any amendments thereof or
supplements thereto, the "Proxy/Prospectus"). Autoliv, Morton and Newco each
shall use reasonable efforts to cause the Registration Statements to become
effective as promptly as practicable, and, prior to the effective date of the
Registration Statements (the "Registration Statement Effective Date"), Newco
shall take all or any action required under any applicable Laws in connection
with the issuance of Newco Common Stock and, if applicable, SDRs pursuant to the
Merger and the Exchange Offer. Autoliv or Morton, as the case may be, shall
furnish all information concerning Autoliv or Morton as the other party may
reasonably request in connection with such actions and the preparation of the
Registration Statements, the Swedish Prospectus and the International
Prospectus. As promptly as practicable after the Registration Statement
Effective Date, the Proxy/Prospectus will be mailed to the stockholders of
Morton and the U.S. and Canadian stockholders of Autoliv and provided to the
NYSE and SSE. In addition, as promptly as practicable after the Registration
Statement Effective Date, Newco will mail the Swedish Prospectus to Autoliv
stockholders located in Sweden and the International Prospectus to Autoliv
stockholders
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located outside of the United States, Canada and Sweden. Autoliv, Morton and
Newco shall cause the Newco Registration Statement, the Swedish Prospectus and
the International Prospectus to comply as to form and substance in all material
respects with the applicable requirements of (i) the Exchange Act, including,
without limitation, Section 14(e) thereof and the respective regulations
promulgated thereunder, (ii) the NYSE and the SSE or the FSA, (iii) the
Securities Act, (iv) the NBK ("N_ringslivets Borskommittes") Recommendations
Concerning Public Offers for the Acquisition of Shares (1988) and (v) the
Indiana Law.
(b) (i) The Proxy/Prospectus shall include the unanimous
recommendation of the Board of Directors of Morton to the stockholders of Morton
that they vote in favor of approval of this Agreement and the Distribution
Agreement; provided, however, that if a Competing Transaction (as defined in
Section 8.4 (d)) shall have been made for Morton, the Board of Directors of
Morton may, at any time prior to the Effective Time, withdraw, modify or change
any such recommendation if the Board of Directors of Morton determines in good
faith that failure to so withdraw, modify or change its recommendation would
cause the Board of Directors of Morton to breach its fiduciary duties to
Morton's stockholders under applicable Laws after consultation with independent
legal counsel (who may be Morton's regularly engaged independent legal counsel).
In addition, the Proxy/Prospectus will include the opinion of Goldman Sachs
referred to in Section 4.17.
(ii) The Proxy/Prospectus, the Swedish Prospectus and
the International Prospectus shall include the unanimous recommendation of the
Board of Directors of Autoliv to the stockholders of Autoliv that they accept
the Exchange Offer; provided, however, that if a Competing Transaction shall
have been made for Autoliv, the Board of Directors of Autoliv may, at any time
prior to the Effective Time, withdraw, modify or change any such recommendation
if the Board of Directors of Autoliv determines in good faith that failure to so
withdraw, modify or change its recommendation would cause the Board of Directors
of Autoliv to breach its fiduciary duties to Autoliv or Autoliv's stockholders
under applicable Laws after consultation with independent legal counsel (who may
be Autoliv's regularly engaged independent legal counsel). In addition, the
Proxy/Prospectus, the Swedish Prospectus and the International Prospectus will
include the opinions of Enskilda and Blackstone referred to in Section 5.15.
(c) No amendment or supplement to the Registration Statements
will be made without the approval of Autoliv and Morton, which approval shall
not be unreasonably withheld or delayed. Each of Newco, Autoliv and Morton will
advise the others, promptly after it receives notice thereof, of the time when
the Newco Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of the qualification of Newco Common Stock or, if applicable, the SDRs issuable
in connection with the Merger and the Exchange Offer for offering or sale in any
jurisdiction, or of any request by the SEC, the NYSE, the SSE or the FSA for
amendment of the Newco Registration Statement or comments thereon and responses
thereto or requests by the SEC, the SSE or the FSA for additional information.
(d) The information supplied by Autoliv for inclusion in the
Registration Statements, the Swedish Prospectus and/or the International
Prospectus shall not, at (i) the time the Registration Statements are declared
effective, (ii) the time the Proxy/Prospectus, the Swedish Prospectus and the
International Prospectus (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of Autoliv or Morton, as the case may be, (iii)
the time of the Morton Stockholders' Meeting, (iv) the Effective Time and (v)
the Expiration Date, contain any untrue statement of a material fact or fail to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If at any time prior to the
Effective Time, any event or circumstance relating to Autoliv or any subsidiary
of Autoliv, or their respective officers or directors, should be discovered by
Autoliv that should be set forth in an amendment or a supplement to either of
the Registration Statements, Autoliv shall promptly inform Morton. Autoliv
agrees that all documents that Autoliv or Newco is responsible for filing in
connection with the Transactions
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will comply as to form and substance in all material respects with the
applicable requirements of the SSE or the FSA, the Delaware Law, the Securities
Act and the Exchange Act.
(e) The information supplied by Morton for inclusion in the
Registration Statements, the Swedish Prospectus and/or the International
Prospectus shall not, at (i) the time the Registration Statements are declared
effective, (ii) the time the Proxy/Prospectus, the Swedish Prospectus and the
International Prospectus (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of Morton or Autoliv, as the case may be, (iii)
the time of the Morton Stockholders' Meeting, (iv) the Effective Time, and (v)
the Expiration Date, contain any untrue statement of a material fact or fail to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If at any time prior to the
Effective Time any event or circumstance relating to Morton or any subsidiary of
Morton, or their respective officers or directors, should be discovered by
Morton that should be set forth in an amendment or a supplement to either of the
Registration Statements, the Swedish Prospectus or the International Prospectus,
Morton shall promptly inform Autoliv. Morton agrees that all documents that
Morton is responsible for filing with the SEC in connection with the
Transactions will comply as to form and substance in all material respects with
the applicable requirements of the Indiana Law, the Securities Act and the
Exchange Act.
Section 8.2 Stockholders' Meetings. (a) Morton shall call and hold
the Morton Stockholders' Meeting as promptly as practicable after the
Registration Statement Effective Date for the purpose of voting upon approval of
this Agreement and the Distribution Agreement and Autoliv, Morton and Newco will
cooperate with one another to cause the Morton Stockholders' Meeting to be held
prior to and proximate to the Expiration Date of the Exchange Offer. Morton
shall use its reasonable efforts (through its agents or otherwise) to solicit
from its stockholders proxies in favor of approval of this Agreement and the
Distribution Agreement, and shall take all other action necessary or advisable
to secure the affirmative vote of its stockholders required by the Indiana Law
to secure such approval, except to the extent that the Board of Directors of
Morton determines in good faith that doing so would cause the Board of Directors
of Morton to breach its fiduciary duties to Morton's stockholders under
applicable Laws after consultation with independent legal counsel (who may be
Morton's regularly engaged independent legal counsel).
(b) In the event that Autoliv shall call and hold an annual
general meeting or an extraordinary meeting to be held prior to the Effective
Time, Autoliv shall use its reasonable efforts to cause such meeting to be held
and concluded in a manner that will not delay materially the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements. To the
extent any matters to be proposed relate to this Agreement or the transactions
contemplated hereby, Autoliv shall consult in advance with Morton as to such
matters.
Section 8.3 Access to Information; Confidentiality.
(a) Except as required pursuant to any confidentiality
agreement or similar agreement or arrangement to which Autoliv or Morton or any
of their respective subsidiaries is a party or pursuant to applicable Law or the
regulations or requirements of any stock exchange or other regulatory
organization with whose rules the parties are required to comply, from the date
of this Agreement to the Effective Time:
(i) Autoliv shall (and shall cause its subsidiaries to): (A)
provide to Morton (and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives, collectively, "Representatives") reasonable access
at reasonable times, upon reasonable prior notice, to its officers,
employees, agents, properties, offices and other facilities of it
and its subsidiaries and to the books and records thereof and (B)
furnish promptly such information concerning its business,
properties, contracts, assets, liabilities,
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personnel and other aspects of it and its subsidiaries as Morton or
Morton's Representatives may reasonably request.
(ii) Morton shall (and shall cause its subsidiaries to):
provide to Autoliv and Autoliv's Representatives reasonable access
at reasonable times, upon reasonable prior notice, (A) to the
officers, employees, agents, properties, offices and other
facilities and the books and records relating to the Retained
Business, (B) to personnel at Morton's corporate headquarters to the
extent necessary to confirm the proper division of assets and
liabilities between Spinco and Morton pursuant to the Distribution
Agreement and the other Ancillary Agreements and (C) to personnel at
Morton's corporate headquarters (and counsel, consultants and
divisional Morton managers if appropriate), with respect to Morton's
contingent liabilities in a manner consistent generally with the
approach taken by Morton and Autoliv prior to the date of this
Agreement. Morton shall (and shall cause its subsidiaries to)
furnish promptly such information as Autoliv or Autoliv's
Representatives may reasonably request concerning the business,
properties, contracts, assets, liabilities, personnel and other
aspects relating to (1) the Retained Business and (2) Morton, to the
extent necessary to confirm the proper division of assets and
liabilities between Spinco and Morton pursuant to the Distribution
Agreement and the other Ancillary Agreements.
No investigation conducted pursuant to this Section 8.3 shall
affect or be deemed to modify any representation or warranty made in this
Agreement.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the reciprocal Confidentiality Agreements dated July 18, 1996 (the
"Confidentiality Agreements") between Autoliv and Morton with respect to the
information disclosed pursuant to this Section 8.3 or any information disclosed
by the other party prior to the date hereof.
(c) Effective upon the Spinoff, Morton will (i) assign all of
its rights under the Confidentiality Agreements, other than with respect to the
Retained Business and (ii) cause Spinco to assume all of the obligations of
Morton under the Confidentiality Agreements from and after the Spinoff, other
than with respect to the Retained Business.
Section 8.4 No Solicitation of Transactions.
(a) Prior to the Effective Time, each party to this Agreement
(i) will not, directly or indirectly, and will not authorize or permit its
officers, directors, employees, subsidiaries, agents or advisors or other
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it), to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing non-public information), or
take any other action knowingly to facilitate, any inquiries or the making of
any proposal or offer (including, without limitation, any proposal or offer to
its stockholders) that constitutes, or may reasonably be expected to lead to,
any Third-Party Transaction, or enter into or maintain or continue discussions
or negotiate with any person or entity in furtherance of such inquiries or to
obtain a Third-Party Transaction, or agree to or endorse any Third-Party
Transaction; (ii) shall notify the other parties promptly if any proposal or
offer, or any inquiry or contact with any person with respect thereto, regarding
a Third-Party Transaction is made; (iii) shall immediately cease and cause to be
terminated all existing discussions or negotiations with any parties conducted
heretofore with respect to a Third-Party Transaction and promptly request that
all confidential information furnished on behalf of such party be returned; and
(iv) agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party.
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(b) Notwithstanding anything to the contrary in Section
8.4(a), each party to this Agreement may furnish information to, and may
participate in discussions or negotiations with, any person that, unsolicited by
such party, has delivered a bona fide written proposal with respect to a
Competing Transaction, in each case to the extent that the Board of Directors of
such party determines in good faith that the failure to do so would cause the
Board of Directors of such party to breach its fiduciary duties to such party or
its stockholders under applicable Laws after consultation with independent legal
counsel (who may be such party's regularly engaged independent legal counsel)
and, notwithstanding anything to the contrary contained in this Agreement or the
Ancillary Agreements, any such furnishing of information and participation in
discussions or negotiations shall not constitute a breach of this Agreement or
the Ancillary Agreements by such party; provided, however, that any party
furnishing such information, or participating in such discussions or
negotiations shall notify the other promptly of such action and shall, in any
such notice, indicate the identity of the person making the written proposal
referred to in this Section 8.4(b) and, in reasonable detail, the terms and
conditions of such written proposal.
(c) A "Third-Party Transaction" means any of the following
involving Autoliv or Morton, as the case may be (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, share exchange,
business combination or other similar transaction; (ii) any sale, lease,
exchange, transfer or other disposition of 10% or more of the assets of such
party and its subsidiaries, taken as a whole or (iii) a tender offer or exchange
offer for, or any other acquisition of 10% or more of the outstanding voting
securities of such party; provided, however, that the term "Third-Party
Transaction" shall not include any transactions which relate solely to the
businesses to be owned by Spinco and its subsidiaries following the Spinoff and
which would not prevent or materially delay consummation of the Transactions.
(d) A "Competing Transaction" means a bona fide Third-Party
Transaction relating to a merger, consolidation, share exchange, tender or
exchange offer, business combination or other similar transaction involving all
or substantially all of the assets (and in any event, for the avoidance of
doubt, more than 50% of the assets) or more than 50% of the voting securities of
Morton or Autoliv.
(e) Nothing contained in this Section 8.4 will prohibit Morton
or Autoliv from making any disclosure to their stockholders if, in the good
faith judgment of its Board of Directors, after consultation with independent
legal counsel (who may be such party's regularly engaged independent legal
counsel), failure so to disclose would be inconsistent with applicable Law;
provided, however, neither Morton nor Autoliv, nor their respective Boards of
Directors or any committee thereof shall, except as permitted by Section 8.1(b),
withdraw, modify or change its recommendation with respect to the transactions
contemplated by this Agreement.
Section 8.5 Employee Benefits Matters. Annex A hereto sets forth
certain agreements among the parties hereto with respect to employee benefits
matters and is incorporated herein by this reference.
Section 8.6 Directors' and Officers' Indemnification and Insurance.
(a) The Certificate of Incorporation and By-Laws of the
Surviving Corporation shall contain the provisions that are set forth, as of the
date of this Agreement, in the Restated Articles of Incorporation and the
By-Laws, respectively, of Morton, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect adversely the rights thereunder of individuals
who at or at any time prior to the Effective Time were directors, officers,
employees, fiduciaries or agents of Morton.
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(b) Subject to commercial availability, for a period of six
years after the Effective Time, Newco shall cause to be maintained in effect the
current directors' and officers' liability insurance policies maintained by
Morton and Autoliv (provided that Newco may, and in the event of the
cancellation or termination of such policies, Newco shall, substitute therefor
policies reasonably satisfactory to the indemnified parties of at least the same
coverage containing terms and conditions which are no less advantageous) with
respect to claims arising from facts or events that occurred prior to the
Effective Time.
(c) This Section 8.6 is intended to be for the benefit of, and
shall be enforceable by, the indemnified parties, their heirs and personal
representatives and shall be binding on Newco and the Surviving Corporation and
their respective successors and assigns.
(d) From and after the Effective Time, Newco agrees that it
shall indemnify and hold harmless each present and former director and officer
of Morton or Autoliv, determined as of the Effective Time (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Morton or Autoliv would have been permitted
under applicable Indiana or Swedish law, as the case may be, and their charter
documents (each as in effect on the date hereof) to indemnify such Indemnified
Parties (and Newco shall also advance expenses as incurred to the fullest extent
permitted under applicable Law; provided that the Indemnified Party to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification); and provided, further, that any determination required to be
made with respect to whether an officer's or director's conduct complies with
the standards set forth under applicable Indiana or Swedish law and Morton or
Autoliv's charter documents shall be made by independent counsel selected by
Newco.
(e) To the extent paragraph (d) shall not serve to indemnify
and hold harmless an Indemnified Party, for a period of six years after the
Effective Time, Newco shall, subject to the terms set forth herein, indemnify
and hold harmless, to the fullest extent permitted under applicable Law (and
Newco shall also advance expenses as incurred to the fullest extent permitted
under applicable Law; provided that the Indemnified Party to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification), each
Indemnified Party against any Costs incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to the
transactions contemplated by this Agreement; provided, however, that Newco shall
not be required to indemnify any Indemnified Party pursuant hereto if it shall
be determined that the Indemnified Party acted in bad faith and not in a manner
such Indemnified Party believed to be in or not opposed to the best interests of
Morton or Autoliv, as the case may be.
(f) Any Indemnified Party wishing to claim indemnification
under paragraphs (d) or (e) of this Section 8.6, upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly notify Newco
thereof, but the failure to so notify shall not relieve Newco of any liability
it may have to such Indemnified Party if such failure does not materially
prejudice Newco. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) Newco
shall have the right to assume the defense thereof and Newco shall not be liable
to such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Newco elects not to assume such defense or
counsel for the Indemnified Parties advises that there are issues which may
raise conflicts of interest between Newco and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Newco shall pay
all
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reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that Newco
shall be obligated pursuant to this paragraph (f) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, (ii) the Indemnified Parties will reasonably cooperate in the
defense of any such matter and (iii) Newco shall not be liable for any
settlement effected without its prior written consent; and provided, further,
that Newco shall not have any obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law. If such indemnity is not available with respect to any Indemnified Party,
then Newco and the Indemnified Party shall contribute to the amount payable in
such proportion as is appropriate to reflect relative faults and benefits.
(g) If Newco or any of its successors or assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, proper provisions shall be made so that the successors and assigns of
Newco shall assume all of the obligations set forth in this Section 8.6.
Section 8.7 Affiliate Letters.
(a) Not fewer than 30 days prior to the Effective Time, Morton
shall deliver to Autoliv a list of names and addresses of those persons who
were, in Morton's reasonable judgment, at the record date for the Morton
Stockholders' Meeting, affiliates within the meaning of Rule 145 of the rules
and regulations promulgated under the Securities Act (each such person, an
"Affiliate") of Morton. Morton shall provide Autoliv with such information and
documents as Autoliv shall reasonably request for purposes of reviewing such
list. Morton shall use reasonable efforts to deliver or cause to be delivered to
Autoliv, prior to the Effective Time, an affiliate letter in the form attached
hereto as Exhibit C, executed by each of the Affiliates of Morton identified in
the foregoing list.
(b) Not fewer than 30 days prior to the Effective Time,
Autoliv shall deliver to Morton a list of names and addresses of those persons
who were, in Autoliv's reasonable judgment, at the record date for the Morton
Stockholders' Meeting, Affiliates of Autoliv. Autoliv shall provide Morton such
information and documents as Morton shall reasonably request for purposes of
reviewing such list. Autoliv shall use reasonable efforts to deliver or cause to
be delivered to Morton, prior to the Effective Time, an affiliate letter in the
form attached hereto as Exhibit D, executed by each of the Affiliates of Autoliv
identified in the foregoing list.
Section 8.8 Letters of Accountants.
(a) Morton shall use reasonable efforts to cause to be
delivered to Autoliv "comfort" letters of Ernst & Young LLP, Morton's
independent public accountants, dated and delivered on the Registration
Statement Effective Date and as of the Effective Time, and addressed to Autoliv,
in form and substance reasonably satisfactory to Autoliv and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement. At the request of Ernst & Young LLP, Autoliv shall deliver a
customary letter to Ernst & Young LLP in connection with Autoliv's receipt of
such "comfort" letters.
(b) Autoliv shall use reasonable efforts to cause to be
delivered to Morton "comfort" letters of Ernst & Young AB (or of an affiliated
entity within the Ernst & Young group), Autoliv's independent public
accountants, dated and delivered on the Registration Statement Effective Date
and as of the
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Effective Time, and addressed to Morton, in form and substance reasonably
satisfactory to Morton and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement. At the request of
Ernst & Young LLP, Morton shall deliver a customary letter to Ernst & Young AB
in connection with Morton's receipt of such letters.
Section 8.9 Further Action; Consents; Filings.
(a) Upon the terms and subject to the conditions hereof,
including, without limitation, the respective rights of the parties under
Sections 8.4(b) and 10.1, each of the parties hereto shall use reasonable
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the Transactions, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Autoliv or Morton or
any of their subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the Transactions, (iii) make all necessary filings, and thereafter make any
other submissions either required or deemed appropriate by each of the parties,
with respect to this Agreement, the Ancillary Agreements and the Transactions
required under (A) the rules and regulations of the SSE or the FSA, (B) the
Securities Act, the Exchange Act and any other applicable federal or Blue Sky
Laws, (C) the HSR Act, (D) the filing of notifications in accordance with the
antitrust laws of Sweden, Germany and Belgium and (E) any other applicable Law
and (iv) procure any third-party consents, required to consummate the
Transactions and the Spinoff, relating to any material contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which it
or any of its subsidiaries is a party. The parties hereto shall cooperate and
consult with one another in connection with the making of all such filings with
Governmental Entities, including by providing copies of all such documents to
the nonfiling party and its advisors prior to filing, and none of the parties
will file any such document if any of the other parties shall have reasonably
objected to the filing of such document. No party to this Agreement shall
consent to any voluntary extension of any statutory deadline or waiting period
or to any voluntary delay of the consummation of the Transactions at the behest
of any Governmental Entity without the consent and agreement of the other
parties to this Agreement, which consent shall not be unreasonably withheld or
delayed.
(b) Without limiting the generality of Section 8.9(a), each of
Autoliv and Morton shall use reasonable efforts to:
(A) take promptly any or all of the following actions to
the extent necessary to obtain the approval of any Governmental
Entity with jurisdiction over the enforcement of any applicable Laws
regarding the legality of the Transactions and the Spinoff: entering
into negotiations, providing information, making proposals, entering
into and performing agreements or submitting to judicial or
administrative orders, or selling or otherwise disposing of, or
holding separate (through the establishment of a trust or otherwise)
particular assets or categories of assets, or businesses, of
Autoliv, Morton or any of their affiliates; provided, however,
neither Autoliv nor Morton shall be obligated to take any action
that would have an Autoliv Material Adverse Effect or a Morton
Material Adverse Effect, as the case may be, assuming for purposes
of this proviso that the Transactions and the Spinoff have been
consummated;
(B) prevent the entry in a judicial or administrative
proceeding brought under any Law by any Governmental Entity or any
other party of any permanent or preliminary injunction or other
order (an "Order") that would make consummation of any of the
Transactions or the Spinoff in accordance with the terms of this
Agreement or the Ancillary
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Agreements unlawful or that would prevent or delay such
consummation, including, without limitation, taking the steps
contemplated by Section 8.9(b)(i); and
(C) take promptly, in the event that such an Order has
been issued in such a proceeding, any and all steps, including,
without limitation, the appeal thereof, the posting of a bond or the
steps contemplated by Section 8.9(b)(i), necessary to vacate, modify
or suspend such injunction or order so as to permit such
consummation on a schedule as close as possible to that
contemplated by this Agreement.
Section 8.10 Newco Organization.
(a) Immediately prior to the Effective Time, Newco shall, and
Autoliv and Morton shall cause Newco to, take action to (i) cause the full Board
of Directors of Newco at the Effective Time to consist of Gunnar Bark (who will
be Chairman of the Board), Paul Charlety, Jay Stewart, Fred Musone, two
additional non-executive directors designated by Morton and two additional
non-executive directors designated by Autoliv and (ii) cause to be confirmed as
(w) the senior executive officer of Newco in the position as Chief Executive
Officer, Fred Musone, (x) President and Chief Operating Officer, Paul Charlety,
and such others as Morton and Autoliv shall agree. Autoliv and Morton shall
designate the persons who will be the directors of Newco at the Effective Time
no later than the Registration Statement Effective Date. Notwithstanding
anything to the contrary in this Section 8.10(a), at any time prior to the
Effective Time, each of Morton and Autoliv may, at its election, replace its
respective designees to the Board of Directors, and upon the request of Morton
or Autoliv, as the case may be, the Board shall replace such party's respective
designees to the officer positions, of Newco.
(b) At the Effective Time, Autoliv and Morton shall cause
Newco to have an Executive Management Committee (the "Executive Management
Committee") consisting of such members as Morton and Autoliv shall agree. The
CEO shall be the chairman of the Executive Management Committee. The purpose and
function of the Executive Management Committee shall be set forth in the
Restated Certificate of Incorporation and By-laws of Newco, but in any event
shall be intended to enhance communication, coordination, and effective shared
decision making among the senior executives of Newco.
(c) Autoliv, Morton and Newco shall take all action necessary
to cause the Restated Certificate of Incorporation and By-laws of Newco, as of
the Effective Time, to be in the forms agreed to by the parties hereto between
the date hereof and the Effective Time.
Section 8.11 Depositary Facility for Newco Common Stock. As soon as
practicable after the date hereof, Newco will use reasonable efforts to cause a
commercial bank to operate a depositary facility in Sweden for the Newco Common
Stock. Newco shall pay all fees of such commercial bank relating to the
establishment and operation of such depositary facility, including, without
limitation, any fees payable in connection with the trading of the SDRs, if SDRs
are issued in connection with the Autoliv Transaction, and the distribution of
dividends.
Section 8.12 Plan of Reorganization. This Agreement and the
Ancillary Agreements are intended to constitute a "plan of reorganization"
within the meaning of Section 1.368-2(g) of the Treasury regulations promulgated
under the Code. From and after the date of this Agreement and until the
Effective Time, each party hereto shall use reasonable efforts to cause the
Merger to qualify as a reorganization under Section 368(a) of the Code, and will
not, without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken except pursuant to the terms of this
Agreement or the Ancillary Agreements which could prevent the Spinoff from
constituting a transaction qualifying under Sections 355
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and 368(a)(1)(D) of the Code or the Merger from qualifying, as a reorganization
under the provisions of Section 368(a) of the Code or (in conjunction with the
acquisition of Autoliv Securities pursuant to the Exchange Offer) as a transfer
of property described in Section 351(a) of the Code. From and after the date of
this Agreement and until the Effective Time, each party hereto shall use
reasonable efforts to cause the Exchange Offer (in conjunction with the
acquisition of Morton Shares pursuant to the Merger) to qualify, and will not,
without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken which could prevent the Exchange Offer
from qualifying, as a transfer of property described in Section 351(a) of the
Code. Following the Effective Time, and in accordance with the Distribution
Agreement, none of the Surviving Corporation, Newco, Autoliv or any of their
affiliates shall knowingly take any action or knowingly cause any action to be
taken which would prevent the Spinoff from constituting a transaction qualifying
under Sections 355 and 368(a)(1)(D) of the Code or the Merger or the Exchange
Offer to fail to so qualify as a reorganization under Section 368(a) of the Code
or as a transfer of property described in Section 351(a) of the Code, as the
case may be.
Section 8.13 Ancillary Agreements.
(a) Prior to the Spinoff, Morton and certain of its
subsidiaries will enter into the Distribution Agreement and each of the other
Ancillary Agreements.
(b) Morton shall not waive or amend any terms of the
Distribution Agreement or any of the other Ancillary Agreements without the
consent of Autoliv, which consent shall not be unreasonably withheld.
(c) The parties hereto acknowledge that the indemnities of
Spinco contained in the Distribution Agreement and the other Ancillary
Agreements shall inure to the benefit of the Surviving Corporation and Newco.
Newco shall not, and shall not permit any of its subsidiaries to, take any
action which would or would be reasonably likely to adversely affect the ability
of the Surviving Corporation to perform its obligations under the Ancillary
Agreements.
(d) Autoliv accepts and agrees that the form of certificate of
incorporation and by-laws of Spinco adopted in contemplation of the Spinoff
shall be as agreed to by Morton and Spinco in their sole discretion, provided
that nothing in the charter and by-laws shall adversely affect Spinco's
performance of its obligations under the Ancillary Agreements.
Section 8.14 Year-End Financial Statements.
(a) The parties hereto acknowledge that Ernst & Young LLP will
audit the consolidated balance sheet of the Retained Business as of December 31,
1996. Morton hereby agrees to use its reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable to assist and otherwise cause Ernst & Young LLP to complete the
audit of such balance sheet as promptly as practicable and no later than by
February 28, 1997. Prior to the Effective Time, Morton also agrees to provide
Autoliv as promptly as reasonably practicable such quarterly unaudited financial
information relating to the Retained Business and covering periods following the
date hereof as may be prepared by Morton in the ordinary course.
(b) The parties hereto acknowledge that Ernst & Young AB will
audit the consolidated balance sheet of Autoliv as of December 31, 1996. Autoliv
hereby agrees to use its reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable to assist and otherwise cause Ernst & Young AB to complete the audit
of such balance sheet by January 30, 1997, but in no event shall such audit be
completed later than February 15, 1997. Prior to the Effective Time,
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Autoliv also agrees to provide Morton as promptly as reasonably practicable such
quarterly unaudited financial information relating to Autoliv and covering
periods following the date hereof as may be prepared by Autoliv in the ordinary
course.
Section 8.15 Public Announcements. The initial press release
relating to the execution of this Agreement shall be a joint press release and,
thereafter until the Effective Time, Autoliv and Morton shall consult with each
other before issuing any press release and shall use reasonable efforts to
consult with each other before otherwise making any public statements with
respect to this Agreement, the Ancillary Agreements, the Spinoff or any
Transaction and shall not issue any such press release, and shall use reasonable
efforts not to make any such public statement, prior to such consultation,
except to the extent required by applicable Law or the requirements of the SSE
or the NYSE, in which case the issuing party shall use reasonable efforts to
consult with the other party before issuing any such release or making any such
public statement.
Section 8.16 Obligations of Newco Sub. Newco shall take all action
necessary to cause Newco Sub to perform its obligations under this Agreement and
to consummate the Merger on the terms and subject to the conditions set forth in
this Agreement.
Section 8.17 Stock Exchange Listings and De-listings. Newco shall
use its reasonable efforts to cause the shares of Newco Common Stock to be
issued in the Merger and the Autoliv Transaction to be approved for listing on
the NYSE, the SSE and such other exchange(s) that Newco deems to be appropriate,
subject to official notice of issuance, prior to the Effective Time. If SDRs are
issued in connection with the Autoliv Transaction, Newco shall use its
reasonable efforts to cause such SDRs to be approved for listing on the SSE,
subject to official notice of issuance, prior to the Effective Time. Morton
shall use its reasonable efforts to cause the Morton Common Stock to be
de-listed from the NYSE and de-registered under the Exchange Act as soon as
practicable following the Effective Time if such actions are determined prior to
the Effective Time in the reasonable judgment of Morton and Autoliv to be
necessary to the consummation of the Transactions. Autoliv shall use its
reasonable efforts to cause (i) the Autoliv Shares to be delisted from the SSE
and (ii) the quotation of the ADSs on the Private Offerings, Resales and Trading
through Automated Linkages system to be terminated, in each case as soon as
permitted under applicable Laws.
Section 8.18 Maintenance of Certain Facilities; Corporate
Headquarters. As part of its global capability, Newco intends to retain and
develop regional operating centers in each of Ogden, Utah and Stockholm, Sweden.
It is intended that the executive headquarters of Newco shall be in either
Amsterdam or London.
Section 8.19 Cancellation of Newco Common Stock Owned by Autoliv and
Morton. The shares of Newco Common Stock owned by Autoliv and Morton immediately
prior to the consummation of the Transactions will be cancelled immediately upon
consummation of the Transactions.
Section 8.20 Delivery of Tax Certificates. On or prior to the
Effective Time, Newco, Morton and Autoliv shall each deliver the tax
certificates described in Section 9.1(g)(ii) (A) and (B) as provided in such
sections.
Section 8.21 Safety Credit Agreement. Autoliv and Newco will use
their reasonable efforts, to cooperate with Morton in Morton's obtaining and
entering into the Safety Credit Agreement (as defined in the Distribution
Agreement).
Section 8.22 Post-Closing Transactions. Newco shall not for a period
of one year following the Effective Time engage or agree to engage or cause its
subsidiaries to engage in any of the following
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transactions, unless (a) an opinion in form and substance reasonably
satisfactory to Spinco is obtained from nationally recognized tax counsel to
Newco and/or (b) a supplemental ruling is obtained from the Internal Revenue
Service, in either case to the effect that such transaction(s) would not
adversely affect the tax consequences of the contributions, transfers,
assumptions, Merger and Spinoff to Spinco, any subsidiary thereof, or any
shareholder of Spinco. The transactions subject to this provision are: (i)
causing the Surviving Corporation to cease to engage in an active trade or
business within the meaning of Section 355(b) of the Code, whether by means of a
disposition or distribution of stock or assets, or otherwise; (ii) disposing of
any of the historic business assets of Morton that would result in the Surviving
Corporation failing the continuity of business enterprise test of Treasury
Regulation Section 1.368-1(d); (iii) transferring or causing the Surviving
Corporation to issue shares of capital stock of the Surviving Corporation that
would cause Newco to fail to be in control of the Surviving Corporation within
the meaning of Section 368(c) of the Code; (iv) reacquiring any of the Newco
Common Stock issued in the Merger; or (v) liquidating or merging with or into
any other entity (including a subsidiary of either Newco or the Surviving
Corporation). Newco hereby represents and warrants that Newco has no plan or
intention to undertake or cause its subsidiaries to undertake any of the
transactions set forth in (i), (ii), (iii), (iv) or (v) above. Notwithstanding
the foregoing, any act or transaction that is consistent with the
representations contained in (x) the request for rulings and any supplement
thereto filed with the Internal Revenue Service in connection with the Spinoff
or (y) the tax certificates described in Section 9.2(g)(ii) hereof relating to
the opinions of counsel to be rendered in connection with the Merger or the
Exchange Offer, shall not be subject to the provisions of this Section 8.22.
ARTICLE IX
CONDITIONS TO THE TRANSACTIONS
Section 9.1 Conditions to the Obligations of Each Party to
Consummate the Transactions. The obligations of Autoliv, Morton, Newco and Newco
Sub to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver, of the following conditions:
(a) the Registration Statements shall have been declared
effective by the SEC under the Securities Act and no stop order suspending the
effectiveness of the Registration Statements shall have been issued by the SEC
and no proceeding for that purpose shall have been initiated by the SEC;
(b) the Spinoff shall have been consummated in accordance with
the terms of the Distribution Agreement;
(c) the Morton Stockholder Approval Condition;
(d) no court of competent jurisdiction shall have issued or
entered any Order which is then in effect and has the effect of making any of
the Transactions illegal or otherwise prohibiting their consummation;
(e) any waiting period (and any extension thereof) applicable
to the consummation of the Transactions under the HSR Act and any other
competition, merger control or similar Law, including any waiting periods
arising from the filing of notification in accordance with the antitrust laws of
Sweden, Germany and Belgium, shall have expired or been terminated;
(f) all consents, approvals and authorizations required to be
obtained to consummate the Transactions shall have been obtained from all
Governmental Entities, except where the failure to
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obtain any such consents, approvals and authorizations would not result in a
change in or effect on the Retained Business or the business of Autoliv, in each
case after giving effect to the Transactions and provisions of the Distribution
Agreement and the other Ancillary Agreements, that is, or is reasonably likely
to be, materially adverse to the business, properties, financial condition or
results of operations of Autoliv and its subsidiaries and the Retained Business,
taken as a whole;
(g) (i) Morton shall have received, and provided a copy
thereof to Newco and Autoliv, in form and substance reasonably satisfactory to
Morton and Autoliv, a ruling from the Internal Revenue Service substantially to
the effect that no gain or loss will be recognized by Morton or Morton's
stockholders as a result of the Spinoff;
(ii) Autoliv, Morton and Newco shall have received the
following opinions:
(A) Wachtell, Lipton, Rosen & Katz ("Wachtell") shall have
issued its opinion, addressed to Morton, based upon (1) customary
representations of Morton and Newco contained in customary tax
certificates (the "Morton Tax Certificate" and the "Newco Tax
Certificate") to be delivered by Morton and Newco, respectively, to
Wachtell prior to the Effective Time, and (2) customary assumptions,
substantially to the effect that the Merger will be treated for U.S.
federal income tax purposes as a reorganization qualifying under the
provision of Section 368(a) of the Code and that each of Morton,
Newco and Newco Sub will be a party to the reorganization within the
meaning of Section 368(b) of the Code, such opinion to be dated as
of the Effective Time; and
(B) Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden LLP")
shall have issued its opinion, addressed to Autoliv, based upon (1)
customary representations of Autoliv, Newco and Morton contained in
the Morton Tax Certificate, the Newco Tax Certificate and a
customary tax certificate to be delivered by Autoliv to Skadden LLP
prior to the Effective Time (the "Autoliv Tax Certificate"), and (2)
customary assumptions, substantially to the effect that the Exchange
Offer (in conjunction with the acquisition of Morton Shares pursuant
to the Merger) will be treated for U.S. federal income tax purposes
as a transfer of property described in Section 351(a) of the Code,
such opinion to be dated as of the Effective Time;
(h) (i) There shall be no proposed legislation introduced and
pending in bill form and pending action in the United States Congress which, if
enacted into law, would have the effect of amending the Code so as to alter in
any materially adverse respect any of the United States federal income tax
consequences described in the private letter ruling or the tax opinions of
counsel described in paragraph (g) above.
(ii) There shall be no proposed legislation introduced and
pending in the Swedish Parliament which, if enacted into law, would have the
effect of materially adversely affecting the Swedish income tax consequences of
the Exchange Offer to be described in the tax opinion of Ernst & Young AB
pursuant to Paragraph (i) below.
(i) Ernst & Young AB shall have issued their opinion,
addressed to Newco, Autoliv and Morton, based upon representations of Autoliv
and assumptions concerning, among other things, the actions of holders of
Autoliv Securities, to the effect that, under the income tax laws of Sweden,
none of Newco, Autoliv or the Autoliv stockholders (with certain exceptions)
will recognize taxable income or gain as a result of the Exchange Offer.
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(j) the shares of Newco Common Stock to be issued pursuant to
the Merger and the Exchange Offer shall have been authorized for listing on the
NYSE, subject to official notice of issuance, and the shares of Newco Common
Stock or SDRs to be issued in connection with the Autoliv Transaction shall have
been authorized for listing on the SSE;
(k) the Minimum Condition; and
(l) Morton shall have established a credit facility or entered
into other financial arrangements providing for the Retained Debt on terms
acceptable in the reasonable judgment of Autoliv and Morton the liability for
which will be retained by the Surviving Corporation, and shall have made the New
Morton Capital Contribution (as defined in the Distribution Agreement)
immediately prior to the Distribution Date (as defined in the Distribution
Agreement) to Spinco, pursuant to the Distribution Agreement.
Section 9.2 Conditions to the Obligations of Morton. The obligations
of Morton to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of Autoliv
contained in this Agreement shall be true and correct as of the date hereof and
as of the Effective Time as though made on and as of the Effective Time, except
where any such failure or failures to be so true and correct, in the aggregate,
would not have an Autoliv Material Adverse Effect, and except that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date, except where any such failure or
failures to be so true and correct, in the aggregate, would not have an Autoliv
Material Adverse Effect, and Morton shall have received a certificate of
Autoliv, executed on its behalf by the Chairman, President or Chief Financial
Officer of Autoliv to such effect;
(b) Autoliv shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and the
conditions set forth in Section 9.2(c) shall have been satisfied, and Morton
shall have received a certificate of Autoliv, executed on its behalf by the
Chairman, President or Chief Financial Officer of Autoliv to that effect; and
(c) Autoliv and its subsidiaries shall own or possess adequate
licenses or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade dress, trade name rights, copyrights,
servicemarks, trade secrets, applications for trademarks and for servicemarks,
mask works and know-how used in connection with the business of Autoliv and its
subsidiaries as currently conducted, except where the failure to own or possess
any of the foregoing, individually or in the aggregate, would not have an
Autoliv Material Adverse Effect.
Section 9.3 Conditions to the Obligations of Autoliv. The
obligations of Autoliv to consummate the Transactions, or to permit the
consummation of the Transactions, are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Morton
contained in this Agreement shall be true and correct as of the date hereof and
as of the Expiration Date, as though made on and as of the Expiration Date,
except where any such failure or failures to be so true and correct, in the
aggregate, would not have a Morton Material Adverse Effect, and except that
those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, except where any
such failure or failures to be so true and correct, in the aggregate, would not
have a Morton Material Adverse
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Effect, and Autoliv shall have received a certificate of Morton, executed on its
behalf by the Chairman, President or Chief Financial Officer of Morton to such
effect;
(b) Morton shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and the
conditions set forth in Section 9.3(e) shall have been satisfied, and Autoliv
shall have received a certificate of Morton, executed on its behalf by the
Chairman, President or Chief Financial Officer of Morton to that effect;
(c) the Ancillary Agreements shall have been executed and
delivered substantially in the form of Exhibit A attached hereto and Exhibits A
and D to the Distribution Agreement (except for changes that have been mutually
agreed upon by the parties hereto);
(d) the indebtedness for borrowed money of the Retained
Business shall not exceed $750 million in addition to indebtedness (not to
exceed $1.1 million) incurred prior to the date hereof related to the Ogden,
Utah facility of the Retained Business; and
(e) except with regard to the "Morton" name and related
trademarks and trade names, Morton and the Retained Morton Subsidiaries shall
own or possess adequate licenses or other legal rights to use all patents,
patent rights, trademarks, trademark rights, trade names, trade dress, trade
name rights, copyrights, servicemarks, trade secrets, applications for
trademarks and for servicemarks, mask works and know-how used in connection with
the Retained Business as currently conducted, except where the failure to own or
possess any of the foregoing, individually or in the aggregate, would not have a
Morton Material Adverse Effect.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated and the
Merger and the Exchange Offer may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement, as follows:
(a) by mutual written consent duly authorized by the Board of
Directors of each of Autoliv and Morton;
(b) by either Autoliv or Morton, if the Effective Time shall
not have occurred on or before August 31, 1997; provided, however, that the
right to terminate this Agreement under this Section 10.1(b) shall not be
available to the party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by either Autoliv or Morton, if any Order preventing the
consummation of the Merger or the Autoliv Transaction shall have been entered by
any court of competent jurisdiction and shall have become final and
nonappealable;
(d) by Autoliv, if (i) the Board of Directors of Morton
withdraws, modifies or changes its recommendation of this Agreement, (ii) the
Board of Directors of Morton shall have recommended to the stockholders of
Morton a Third-Party Transaction or shall have resolved to do so, or (iii) a
tender offer or exchange offer for 10% or more of the outstanding shares of
capital stock of Morton is commenced, and the
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Board of Directors of Morton fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange offer
by its stockholders);
(e) by Morton, if (i) the Board of Directors of Autoliv
withdraws, modifies or changes its recommendation of the Exchange Offer, (ii)
the Board of Directors of Autoliv shall have recommended to the stockholders of
Autoliv a Third-Party Transaction or shall have resolved to do so, or (iii) a
public announcement is made with regard to a bid for 10% or more of the
outstanding shares of capital stock of Autoliv (other than the Exchange Offer),
and the Board of Directors of Autoliv fails to recommend against acceptance of
such tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange offer
by its stockholders);
(f) by Autoliv or Morton if (i) this Agreement and the
Distribution Agreement shall fail to receive the vote for approval by the
holders of a majority of the outstanding Morton Shares at the Morton
Stockholders' Meeting, unless such meeting is adjourned or postponed, in which
case at any adjournment or postponement thereof or (ii) the Exchange Offer
expires pursuant to Section 3.1(a) without any Autoliv Securities having been
accepted for payment;
(g) by Autoliv upon 10 days' written notice, upon a breach of
any material representation, warranty, covenant or agreement on the part of
Morton set forth in this Agreement, or if any material representation or
warranty of Morton shall have become untrue, in either case such that the
conditions set forth in Section 9.3 cannot be satisfied ("Terminating Morton
Breach"); provided, however, that, if such Terminating Morton Breach is curable
by Morton through the exercise of reasonable efforts and for so long as Morton
continues to exercise such reasonable efforts, Autoliv may not terminate this
Agreement under this Section 10.1(g);
(h) by Morton upon 10 days' written notice, upon breach of any
material representation, warranty, covenant or agreement on the part of Autoliv
set forth in this Agreement, or if any material representation or warranty of
Autoliv shall have become untrue, in either case such that the conditions set
forth in Section 9.2 cannot be satisfied ("Terminating Autoliv Breach");
provided, however, that, if such Terminating Autoliv Breach is curable by
Autoliv through reasonable efforts and for so long as Autoliv continues to
exercise such reasonable efforts, Morton may not terminate this Agreement under
this Section 10.1(h);
(i) by Autoliv, if the Board of Directors of Autoliv,
following consultation with independent legal counsel (who may be Autoliv's
regularly engaged independent legal counsel) determines in good faith that
failure to so terminate would cause the Board of Directors of Autoliv to breach
its fiduciary duties under applicable Laws, shall have withdrawn, modified or
changed its recommendation of the approval of the Exchange Offer in a manner
adverse to Newco or Morton and, on or prior to such date, any person (other than
Newco or Morton) shall have made a public announcement with respect to a
Competing Transaction that the Board of Directors of Autoliv determines in its
good faith judgment (based upon the advice of Enskilda and Blackstone) may be
more favorable to their stockholders than the transactions contemplated by this
Agreement; provided, however, that Autoliv may not terminate this Agreement
pursuant to this subsection (i) until three business days have elapsed following
delivery to Morton of written notice of such determination of Autoliv (which
written notice will inform Morton of the material terms and conditions of the
Competing Transaction); provided, further, however, that such termination under
this Section 10.1(i) shall not be effective until Autoliv has made payment to
Morton of the amounts required to be paid pursuant to Section 10.5(c); or
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(j) by Morton, if the Board of Directors of Morton, following
consultation with independent legal counsel (who may be Morton's regularly
engaged independent legal counsel) determines in good faith that failure to so
terminate would cause the Board of Directors of Morton to breach its fiduciary
duties under applicable Laws, shall have withdrawn, modified or changed its
recommendation of the adoption of this Agreement in a manner adverse to Newco or
Autoliv and, on or prior to such date, any person (other than Newco or Autoliv)
shall have made a public announcement with respect to a Competing Transaction
that the Board of Directors of Morton determines in its good faith judgment
(based upon the advice of Goldman Sachs) may be more favorable to their
stockholders than the transactions contemplated by this Agreement; provided,
however, that Morton may not terminate this Agreement pursuant to this
subsection (j) until three business days have elapsed following delivery to
Autoliv of written notice of such determination of Morton (which written notice
will inform Autoliv of the material terms and conditions of the Competing
Transaction); provided, further, however, that such termination under this
Section 10.1(j) shall not be effective until Morton has made payment to Autoliv
of the amounts required to be paid pursuant to Section 10.5(b).
Section 10.2 Effect of Termination. Except as provided in Section
11.1, in the event of termination of this Agreement pursuant to Section 10.1,
this Agreement shall forthwith become void, there shall be no liability under
this Agreement on the part of Autoliv, Morton, Newco or Newco Sub or any of
their respective officers or directors, and all rights and obligations of each
party hereto (other than with respect to any confidentiality obligations on the
part of any party contained herein or in the Confidentiality Agreements entered
into between the parties) shall cease, subject to the remedies of the parties
set forth in Sections 10.5(b), (c) and (d); provided, however, that nothing
herein shall relieve any party from liability for the willful breach of any of
its representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
Section 10.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of this Agreement by the stockholders of Morton, no amendment may be
made that would reduce the amount or change the type of consideration into which
each Morton Share shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
Section 10.4 Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any agreement or condition
contained herein; provided, however, that the Minimum Condition may be waived
only with the mutual consent of Autoliv and Morton, which consent may not be
unreasonably withheld by either party, and provided further, that Newco and
Newco Sub (x) will waive any of the conditions to the Transactions contained in
Article IX if so directed by Autoliv and Morton, jointly, and (y) may not waive
any of such conditions without the prior written consent of each of Morton and
Autoliv. Any waiver of a condition set forth in Section 9.1, or any
determination that such a condition has been satisfied, will be effective only
if made in writing by each of Morton and Autoliv and, unless otherwise specified
in such writing, shall thereafter operate as a waiver (or satisfaction) of such
condition for any and all purposes of this Agreement. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
Section 10.5 Expenses.
(a) Except as set forth in this Section 10.5 and except as
otherwise specifically provided in the Ancillary Agreements, all Expenses (as
defined below) incurred in connection with this Agreement and the Transactions
shall be paid by the party incurring such expenses, whether or not the Merger or
the
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Exchange Offer is consummated, except that Autoliv and Morton each shall pay
one-half of all expenses relating to printing, filing and mailing the Proxy
Statement/Prospectus, the Newco Registration Statement, the Swedish Prospectus
and the International Prospectus and all SEC and other regulatory filing fees
incurred in connection with the Proxy Statement/Prospectus, the Newco
Registration Statement, the Swedish Prospectus and the International Prospectus
and all filing fees in connection with the HSR Act and regulatory filings in
other jurisdictions in connection with the Transactions.
(b) Morton agrees that, if this Agreement is terminated
pursuant to Section 10.1(d) or Section 10.1(j), then promptly after such
termination, Morton shall reimburse Autoliv for all of its Expenses (in each
case, upon receipt of documentation in respect thereof which, in the case of
out-of-pocket expenses, shall consist of copies of invoices, and for all other
expenses shall consist of a certificate of the Chief Financial Officer of
Autoliv certifying as to the accuracy of such expenses) up to an aggregate
amount of $20 million. "Expenses" as used in this Agreement shall consist of all
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, financial institutions, experts and consultants
to a party hereto and its affiliates and other direct and indirect costs)
incurred by a party or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement, the transactions contemplated hereby, the preparation, printing,
filing and mailing of the Proxy Statement/Prospectus, the Registration
Statements, the Swedish Prospectus and the International Prospectus, the
solicitation of stockholder approvals and all other matters related to the
consummation of the transactions contemplated hereby.
(c) Autoliv agrees that, if this Agreement is terminated
pursuant to Section 10.1(e) or Section 10.1(i), then promptly after such
termination, Autoliv shall reimburse Morton for all its Expenses (upon receipt
of documentation in respect thereof which, in the case of out-of-pocket
expenses, shall consist of copies of invoices, and for all other expenses shall
consist of a certificate of the Chief Financial Officer of Morton certifying as
to the accuracy of such expenses) up to an aggregate amount of $20 million.
(d) Each of Autoliv and Morton agrees that the payments
provided for in Sections 10.5(b) and (c) shall be the sole and exclusive
remedies of the parties upon a termination of this Agreement pursuant to Section
10.1(d), (e), (i), or (j), as the case may be, and such remedies shall be
limited to the payments stipulated in Sections 10.5(b) and (c); provided,
however, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations and warranties or the breach of any
of its covenants or agreements set forth in this Agreement.
(e) Any payment required to be made pursuant to Section
10.5(b) or (c) shall be made to the party entitled to receive such payment not
later than two business days after delivery to the other party of notice of
demand for payment and shall be made by wire transfer of immediately available
funds to an account designated by the party entitled to receive payment in the
notice of demand for payment delivered pursuant to this Section 10.5(e).
(f) In the event that Autoliv or Morton, as the case may be,
shall fail to pay any expenses described in this Section 10.5 when due, the
amount of any such expenses shall be increased to include the costs and expenses
actually incurred or accrued by the other (including, without limitation, fees
and expenses of counsel) in connection with the collection under and enforcement
of this Section 10.5, together with interest on such unpaid expenses, commencing
on the date that such expenses became due, at a rate equal to the rate of
interest publicly announced by Bank of America, Illinois, from time to time, in
the City of Chicago, as such bank's Reference Rate plus 1.00%.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-Survival of Representations, Warranties and
Agreements. Except as otherwise expressly set forth in the Distribution
Agreement, the representations, warranties and agreements in this Agreement and
in any certificate delivered pursuant hereto shall terminate at the Effective
Time or upon the termination of this Agreement pursuant to Section 10.1, as the
case may be, except that the agreements set forth in Articles I, II and III and
Sections 8.3(b), 8.3(c), 8.5, 8.6, 8.12, 8.13(c), the last two sentences of
8.17, 8.18, 8.22, 10.5(a) and this Article XI and the representations and
warranties and agreements contained in the Morton Tax Certificate, Autoliv Tax
Certificate and the Newco Tax Certificate shall survive the Effective Time, and
those set forth in Sections 8.3(b) and 10.5 and this Article XI shall survive
termination. The obligation of the parties to maintain the confidentiality of
information related to Spinco and its subsidiaries shall survive the Effective
Time. Each party agrees that, except for the representations and warranties
contained in this Agreement and the Ancillary Agreements, no party hereto has
made any other representations and warranties, express or implied, and each
party hereby disclaims any other representations and warranties made by itself
or any of its officers, directors, employees, agents, financial and legal
advisors or other representatives with respect to the accuracy or completeness
of any information regarding Morton or Autoliv, the execution and delivery of
this Agreement or the transactions contemplated herein, notwithstanding the
delivery or disclosure to any other party or any party's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
Section 11.2 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy and facsimile or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 11.2):
If to Autoliv:
Autoliv AB
Box 703 81
S-107 24 Stockholm
Sweden
Attention: Jorgen Svensson, Vice President, General
Counsel
Telecopier: 46-8-24-44-93
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
25 Bucklersbury
London EC4N 8DA, England
Attention: Scott V. Simpson, Sr., Esq.
Telecopier: 44-171-489-8533
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If to Morton:
Morton International, Inc.
100 North Riverside Plaza
Chicago, IL 60606
Attention: Corporate Secretary
Telecopier: 1-312-807-2101
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Eric S. Robinson, Esq.
Telecopier: 1-212-403-2000
Notices to Newco or Newco Sub shall be delivered to each of Autoliv and Morton
as provided herein.
Section 11.3 Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares of capital
stock means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 promulgated under the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding, or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates or person with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in the City of New York, USA or in
Stockholm, Sweden;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "knowledge" means, with respect to any matter in question,
that the senior executive officers of Autoliv or Morton, as the case may be,
after due inquiry of the senior officers of the Retained Business and the
executive officers of Morton (in the case of Morton) or the senior officers of
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Autoliv and the managing directors or other senior officers of the material
subsidiaries of Autoliv and its affiliates (in the case of Autoliv), have actual
knowledge of such matter;
(f) "person" means an individual, corporation, company,
limited liability company, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government; and
(g) "subsidiary" or "subsidiaries" of any person means any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with any
other subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity interests, the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
Section 11.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
Section 11.5 Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 8.3(c), 8.5, 8.6, the last sentence of 8.12, 8.13(c) and 8.22 (the
"Third Party Provisions"), nothing in this Agreement, express or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third Party Provisions may
be enforced by the beneficiaries thereof. The provisions of Sections 8.3(c),
8.12, 8.13(c), and 8.22 shall inure to the benefit of Spinco.
Section 11.6 Schedules, Annexes and Exhibits. The Autoliv Disclosure
Schedule, the Morton Disclosure Schedule, Annex A and all Exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part of
this Agreement for all purposes as if fully set forth herein. Matters reflected
on the Autoliv Disclosure Schedule or the Morton Disclosure Schedule are not
necessarily limited to matters required by this Agreement to be reflected on
such Schedules and shall not be deemed to be a representation that a matter set
forth therein, or omitted therefrom, is or is not material in any respect. Such
additional matters are set forth for informational purposes only and do not
necessarily include other matters of a similar nature.
Section 11.7 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 11.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware to the greatest
extent permissible by law; provided,
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however, that the parties specifically agree that (i) all questions of Swedish
corporate or securities law and the interpretation thereof (including, without
limitation, questions relating to the fiduciary duties of the directors of
Autoliv) shall be governed by the Laws of the Kingdom of Sweden and (ii) all
questions of Delaware and Indiana corporate or securities law and the
interpretation thereof (including, without limitation, questions relating to the
fiduciary duties of the directors of Morton, which shall be governed by the laws
of Indiana) shall be governed by the laws of Delaware and Indiana, respectively.
Section 11.9 Submission to Jurisdiction; Venue. The parties hereto
unconditionally and irrevocably agree and consent to the exclusive jurisdiction
of, and service of process, and venue in, any state or federal court located in
the State of Delaware and waive any objection with respect thereto, for the
purpose of any action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby and further agree not to
commence any such action, suit or proceeding except in any such court. Each
party irrevocably waives any objections or immunities to jurisdiction to which
it may otherwise be entitled or become entitled (including sovereign immunity)
in any legal suit, action or proceeding against it arising out of or relating to
this Agreement or the transactions contemplated hereby which is instituted in
any such court. Autoliv hereby appoints CT Corporation as its authorized agent
(the "Autoliv Authorized Agent") upon whom process may be served in any such
action arising out of or relating to this Agreement or the transactions
contemplated hereby which may be instituted in any federal or state court
located in the State of Delaware by any other party hereto. Such appointment
shall be irrevocable. Autoliv agrees to take any and all action, including the
filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Autoliv Authorized Agent and written notice of such service to
Autoliv shall be deemed, in every respect, effective service of process upon
Autoliv.
Section 11.10 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
Section 11.11 Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 11.12 Entire Agreement. This Agreement (including Annex A,
the Exhibits, the Autoliv Disclosure Schedule, the Morton Disclosure Schedule)
and the agreements and other documents referred to herein, including, without
limitation, the Ancillary Agreements and the Confidentiality Agreements
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto.
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IN WITNESS WHEREOF, Autoliv, Morton, Newco and Newco Sub have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
AUTOLIV AB
By: /s/ Per Hakan Osvald
---------------------------------
Name: Per Hakan Osvald
Title: Chairman
AUTOLIV, INC.
By: /s/ Paul Charlety
---------------------------------
Name: Paul Charlety
Title: Treasurer
ASP MERGER SUB INC.
By: /s/ Paul Charlety
---------------------------------
Name: Paul Charlety
Title: Treasurer
MORTON INTERNATIONAL, INC.
By: /s/ S. Jay Stewart
---------------------------------
Name: S. Jay Stewart
Title: Chairman and
Chief Executive Officer
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ANNEX A
EMPLOYEE BENEFITS
Autoliv, Morton and Newco agree to the following with respect to the
compensation and benefits programs of Autoliv and the Surviving Corporation and
their respective subsidiaries:
1. Continuation of Benefits. Except as contemplated by the Agreement
or this Annex A, for a period of one year following the Effective Time,
Autoliv and the Surviving Corporation shall each maintain employee benefit
plans and arrangements (directly or in conjunction with Newco) which in
the aggregate will provide a level of benefits to active and retired
employees of Autoliv and its subsidiaries at least comparable, when taken
as a whole, to those provided under Autoliv Plans and arrangements as in
effect immediately prior to the Effective Time and a level of benefits to
Company Individuals (as defined in the Employee Benefits Allocation
Agreement) at least comparable, when taken as a whole, to those provided
under Morton Plans and arrangements as in effect immediately prior to the
Effective Time; provided, however, that changes may be made to such
employee benefit plans and arrangements to the extent necessary to comply
with applicable Law. From and after the Effective Time, Newco shall honor,
and shall cause the Surviving Corporation or Autoliv, as the case may be,
to honor in accordance with their terms, the Morton Plans and the Autoliv
Plans, including without limitation, all existing employment and severance
agreements and plans providing severance benefits which apply to current
or former employees or directors of Autoliv or its subsidiaries or Morton
or its subsidiaries.
2. Service Recognition. To the extent that service is relevant for
purposes of eligibility, participation, vesting or benefit accrual under
any employee benefit plan, program or arrangement established or
maintained by Newco, Autoliv, Morton or any subsidiary of Autoliv or
Morton, employees of Autoliv and its subsidiaries and Company Individuals
shall be credited for service accrued or deemed accrued prior to the
Effective Time with Autoliv, a subsidiary of Autoliv, Morton or a
subsidiary of Morton, as the case may be; provided, however, that such
crediting of service does not result in the duplication of benefits or an
unintended windfall with respect to the accrual of benefits.
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
Of
NEW MORTON INTERNATIONAL, INC.
FIRST: The name of the Corporation is New Morton International, Inc.
SECOND: The address of the Corporation's registered office in the State of
Indiana is 1 North Capitol Avenue in the City of Indianapolis, County of Marion.
The name of the Corporation's registered agent at such address is CT Corporation
System.
THIRD: The purpose of the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized under the Business
Corporation Law of the State of Indiana.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 525,000,000 of which 25,000,000
shares shall be Preferred Stock of the par value of $1.00 per share and
500,000,000 shares shall be Common Stock of the par value of $1.00 per share.
A. Preferred Stock. The Board of Directors is expressly authorized to
provide for the issue of all or any shares of the Preferred Stock, in one or
more series, and to fix for each such series such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series (a "Preferred Stock Designation") and as may be permitted
by the Indiana Business Corporation Law. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class, without a
separate vote of the holders of the Preferred Stock, or any series thereof,
unless a vote of any such holders is required pursuant to any Preferred Stock
Designation or applicable law.
Series A Junior Participating Preferred Stock:
(1) Designation and Amount. A series of preferred stock, par value
$1.00 per share is hereby created and shall be designated as "Series A Junior
Participating Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be 1,600,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors, except as otherwise required by law; provided, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
<PAGE>
(2) Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
par value $1.00 per share (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the second Monday of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend
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Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be not more than 60 days prior to the date fixed for the
payment thereof.
(3) Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Articles of
Amendment creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
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<PAGE>
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Articles of Incorporation, or in any other Articles of Amendment creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A
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Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(8) No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.
(9) Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Corporation's Preferred Stock.
(10) Amendment. The Articles of Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
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B. Common Stock. Except as otherwise required by law or as otherwise
provided in any Preferred Stock Designation, the holders of the Common Stock
shall exclusively possess all voting power and each share of Common Stock shall
have one vote.
FIFTH: A. Number, election and terms of directors. Subject to the rights
of the holders of any class or series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board (as defined in Article EIGHTH,
paragraph C (10)). The directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances, shall be
divided, with respect to the time for which they severally hold office, into
three classes, with the term of office of the first class to expire at the 1997
annual meeting of shareholders, the term of office of the second class to expire
at the 1998 annual meeting of shareholders and the term of office of the third
class to expire at the 1999 annual meeting of shareholders, with each director
to hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of shareholders, commencing with the 1997
annual meeting, (i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of shareholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy was created.
B. Shareholder nomination of director candidates and introduction of
business. Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the Corporation shall be given in the manner provided in the
By-Laws of the Corporation.
C. Newly created directorships and vacancies. Subject to the rights of the
holders of any class or series of Preferred Stock, and unless the Board of
Directors otherwise determines, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies of the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of shareholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Whole Board
shall shorten the term of any incumbent director.
D. Removal. Subject to the rights of the holders of any class or series of
Preferred Stock, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of all of the then
outstanding shares of the Voting Stock, voting together as a single class.
E. Amendment, repeal or alteration. Notwithstanding any other provisions of
these Articles of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class
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or series of the capital stock required by law, these Articles of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal this, Article FIFTH.
SIXTH: In furtherance and not in limitation of the powers conferred by law,
only the Board of Directors is expressly authorized to make, alter, amend and
repeal the By-Laws of the Corporation.
SEVENTH: Subject to the rights of the holders of any series of Preferred
Stock, (A) any action required or permitted to be taken by the shareholders of
the Corporation may be effected at an annual or special meeting of shareholders
of the Corporation and also may be effected by written consent of all
shareholders entitled to vote on the action and delivered to the Corporation and
(B) special meetings of shareholders of the Corporation may be called only by
the Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board. Notwithstanding any other provisions
of these Articles of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the
Corporation required by law, these Articles of Incorporation or any Preferred
Stock Designation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
this Article SEVENTH.
EIGHTH: A. (1) In addition to any affirmative vote required by law, by
these Articles of Incorporation or by any Preferred Stock Designation, and
except as otherwise expressly provided in Section B of this Article EIGHTH:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Shareholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $10 million or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $10 million or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of any Interested Shareholder or any Affiliate of any Interested
Shareholder; or
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(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving any Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of
the Corporation or any Subsidiary which is Beneficially Owned (as
hereinafter defined) by any Interested Shareholder or any Affiliate of
any Interested Shareholder;
shall require the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of the Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding any other provisions of these Articles of Incorporation or any
provision of law or of any agreement with any national securities exchange or
otherwise which might otherwise permit a lesser vote or no vote.
(2) The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of
subparagraphs (i) through (v) of paragraph (1) of this Section A.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law, any other
provision of these Articles of Incorporation and any Preferred Stock
Designation, if, in the case of a Business Combination that does not involve any
cash or other consideration being received by the shareholders of the
Corporation, solely in their respective capacities as shareholders of the
Corporation, the condition specified in the following paragraph (1) is met or,
in the case of any other Business Combination, the conditions specified in
either of the following paragraph (1) or paragraph (2) are met:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined);
provided, however, that this condition shall not be capable of
satisfaction unless there are at least three Continuing Directors.
(2) All of the following conditions shall have been met:
(i) The consideration to be received by holders of shares of
a particular class (or series) of outstanding capital stock (including
Common Stock and other than Excluded Preferred Stock (as hereinafter
defined)) shall be in cash or in the same form as the Interested
Shareholder or any of its Affiliates has previously paid for shares of
such class (or series) of capital stock. If the Interested Shareholder
or any of its Affiliates have paid for shares of any class (or series)
of capital stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of such
class (or series) of capital stock shall be either cash or the form
used to acquire the largest number of shares of such class (or series)
of capital stock previously acquired by the Interested Shareholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the date (the "Consummation Date") of the
consummation of the Business Combination, of the consideration other
than cash to be received per share by
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holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following (in each case appropriately
adjusted in the event of any stock dividend, stock split, combination
of shares or similar event):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its Affiliates
for any shares of Common Stock acquired by them within the
two-year period immediately prior to the date of the first public
announcement of the proposal of the Business Combination (the
"Announcement Date") or in any transaction in which the
Interested Shareholder became an Interested Shareholder,
whichever is higher, plus interest compounded annually from the
first date on which the Interested Shareholder became an
Interested Shareholder (the "Determination Date") through the
Consummation Date at the publicly announced base rate of interest
of The First National Bank of Chicago (or such other major bank
headquartered in the City of Chicago as may be selected by the
Continuing Directors) from time to time in effect in the City of
Chicago, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
cash, on each share of Common Stock from the Determination Date
through the Consummation Date in an amount up to but not
exceeding the amount of interest so payable per share of Common
Stock; and
(b) The Fair Market Value per share of Common Stock on the
Announcement Date or the Determination Date, whichever is higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the Consummation Date, of the consideration other
than cash to be received per share by holders of shares of any class
(or series), other than Common Stock or Excluded Preferred Stock, of
outstanding capital stock shall be at least equal to the highest of
the following (in each case appropriately adjusted in the event of any
stock dividend, stock split, combination of shares or similar event),
it being intended that the requirements of this paragraph (2)(iii)
shall be required to be met with respect to every such class (or
series) of outstanding capital stock whether or not the Interested
Shareholder or any of its Affiliates have previously acquired any
shares of a particular class (or series) of capital stock:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its Affiliates
for any shares of such class (or series) of capital stock
acquired by them within the two-year period immediately prior to
the Announcement Date or in any transaction in which it became an
Interested Shareholder, whichever is higher, plus interest
compounded annually from the Determination Date through the
Consummation Date at the publicly announced base rate of interest
of The First National Bank of Chicago (or such other major bank
headquartered in the City of Chicago as may be selected by the
Continuing Directors) from time to time in effect in the City of
Chicago, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
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cash, on each share of such class (or series) of capital stock
from the Determination Date through the Consummation Date in an
amount up to but not exceeding the amount of interest so payable
per share of such class (or series) of capital stock;
(b) the Fair Market Value per share of such class (or
series) of capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(c) the highest preferential amount per share, if any, to
which the holders of shares of such class (or series) of capital
stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation.
(iv) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding Preferred Stock; (b) there shall have
been (I) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors, and (II) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors; and (c) neither
such Interested Shareholder nor any of its Affiliates shall have
become the beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such Interested
Shareholder becoming an Interested Shareholder; provided, however,
that no approval by Continuing Directors shall satisfy the
requirements of this subparagraph (iv) unless at the time of such
approval there are at least three Continuing Directors.
(v) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder and any of its
Affiliates shall not have received the benefit, directly or indirectly
(except proportionately, solely in such Interested Shareholder's or
Affiliate's capacity as a shareholder of the Corporation), of any
loans, advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to all
shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such Act
or subsequent provisions).
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(vii) Such Interested Shareholder shall have supplied the
Corporation with such information as shall have been requested
pursuant to Section E of this Article EIGHTH within the time period
set forth therein.
C. For the purposes of this Article EIGHTH:
(1) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(2) "Interested Shareholder" means any person (other than Morton
International, Inc., an Indiana corporation, the Corporation or any
Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined),
directly or indirectly, of 10 percent or more of the voting power of
the outstanding Voting Stock; or
(ii) is an Affiliate or an Associate of the Corporation and
at any time within the two-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then outstanding Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended.
(3) A person shall be a "beneficial owner" of, or shall
"Beneficially Own", any Voting Stock:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Exchange Act, as in effect
on March 1, 1997; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of shareholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such person nor any such Affiliate or Associate is otherwise deemed
the beneficial owner); or
(iii) which are beneficially owned, directly or indirectly,
within the meaning of Rule 13d-3 under the Exchange Act, as in effect
on March 1, 1997, by
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any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (other than solely by reason of
a revocable proxy as described in subparagraph (ii) of this paragraph
(3)) or disposing of any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purposes hereof, to
beneficially own any shares of Voting Stock held under any such plan.
(4) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (2) of this Section C,
the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph (3) of
this Section C but shall not include any other unissued shares of
Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Exchange Act, as in
effect on March 1, 1997.
(6) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph (2) of
this Section C, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
(7) "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Shareholder and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Continuing Directors then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system
then in use, or if no such quotations are available, the fair market
value on the date in question of a
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share of such stock as determined by the Board in accordance with
Section D of this Article EIGHTH; and (ii) in the case of property
other than cash or stock, the fair market value of such property on
the date in question as determined by the Board in accordance with
Section D of this Article EIGHTH.
(9) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (2)(ii) and (2)(iii) of Section B of
this Article EIGHTH shall include the shares of Common Stock and/or
the shares of any other class (or series) of outstanding capital stock
retained by the holders of such shares.
(10) "Whole Board" means the total number of directors which this
Corporation would have if there were no vacancies.
(11) "Excluded Preferred Stock" means any series of Preferred
Stock with respect to which the Preferred Stock Designation creating
such series expressly provides that the provisions of this Article
EIGHTH shall not apply.
D. A majority of the Whole Board, but only if a majority of the Whole Board
shall then consist of Continuing Directors or, if a majority of the Whole Board
shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article EIGHTH, including, without limitation,
(i) whether a person is an Interested Shareholder, (ii) the number of shares of
Voting Stock beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in paragraph (2) of Section B have been met with respect to any Business
Combination, (v) the Fair Market Value of stock or other property in accordance
with paragraph (8) of Section C of this Article EIGHTH, and (vi) whether the
assets which are the subject of any Business Combination referred to in
paragraph (1)(ii) of Section A have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in any
Business Combination referred to in paragraph (1)(iii) of Section A has, an
aggregate Fair Market Value of $10 million or more.
E. A majority of the Whole Board shall have the right to demand, but only
if a majority of the Whole Board shall then consist of Continuing Directors, or,
if a majority of the Whole Board shall not then consist of Continuing Directors,
a majority of the then Continuing Directors shall have the right to demand, that
any person who it is reasonably believed is an Interested Shareholder (or holds
of record shares of Voting Stock Beneficially Owned by any Interested
Shareholder) supply the Corporation with complete information as to (i) the
record owner(s) of all shares Beneficially Owned by such person who it is
reasonably believed is an Interested Shareholder, (ii) the number of, and class
or series of, shares Beneficially Owned by such person who it is reasonably
believed is an Interested Shareholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability or effect of this
Article EIGHTH, as may be reasonably requested of such person, and such person
shall furnish such information within 10 days after receipt of such demand.
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F. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
G. Notwithstanding any other provisions of these Articles of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, these Articles of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal this Article EIGHTH.
NINTH: A. The following provisions apply with respect to liability on the
part of a director, a member of any committee of the Board of Directors,
officer, employee or agent of the Corporation (collectively, "Corporate
Persons," and individually, a "Corporate Person") for any loss or damage
suffered on account of any action taken or omitted to be taken by a Corporate
Person:
(1) No Corporate Person shall be liable for any loss or damage if, in
taking or omitting to take any action causing such loss or damage, either
(i) such Corporate Person acted (X) in good faith, (Y) with the care an
ordinarily prudent person in a like position would have exercised under
similar circumstances, and (Z) in a manner such Corporate Person reasonably
believed was in the best interests of the Corporation, or (ii) such
Corporate Person's breach of or failure to act in accordance with the
standards of conduct set forth in clause (A)(1)(i) above (the "Standards of
Conduct") did not constitute willful misconduct or recklessness.
(2) Any Corporate Person shall be fully protected, and shall be deemed
to have complied with the Standards of Conduct, in relying in good faith,
with respect to any information contained therein, upon (i) corporate
records, or (ii) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (W)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (X) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (Y) a committee of the Board of Directors, of which such
Corporate Person is not a member, if such Corporate Person reasonably
believes such committee of the Board of Directors merits confidence, or (Z)
the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board of Directors merits confidence.
B. The following provisions apply to the indemnification by the Corporation
of Corporate Persons and matters related thereto:
(1) The Corporation shall indemnify any person who was or is a party
to any threatened, pending or completed action, suit or proceeding, whether
civil or criminal, administrative or investigative, formal or informal (an
"Action"), by reason of the fact that he is or was a Corporate Person of
the Corporation or is or was serving at the request of the Corporation as a
Corporate Person, partner, trustee or member or in another authorized
capacity (collectively, an "Authorized Capacity") of or for another
corporation, unincorporated association, business trust, estate,
partnership,
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trust, joint venture, individual or other legal entity, whether or not
organized or formed for profit (collectively, "Another Entity"), against
expenses (including attorneys' fees) ("Expenses") and judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such Action, if such person (i) acted in good faith,
(ii) acted in a manner he reasonably believed (X) with respect to actions
as a Corporate Person of the Corporation, to be in the best interests of
the Corporation, or (Y) with respect to actions in an Authorized Capacity
of or for Another Entity, was not opposed to the best interests of the
Corporation, and (iii) with respect to any criminal Action, either (X) had
reasonable cause to believe his conduct was lawful, or (Y) had no
reasonable cause to believe his conduct was unlawful. The termination of
any Action by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, be determinative
that the person did not meet the standards for indemnification set forth in
this subparagraph (B)(1) (the "Indemnification Standards").
(2) To the extent that a person who is or was a Corporate Person of
the Corporation, or is or was serving at the request of the Corporation in
an Authorized Capacity of or for Another Entity, has been successful on the
merits or otherwise in the defense of any Action referred to in
subparagraph (B)(1) of this ARTICLE NINTH, or in the defense of any claim,
issue or matter in any such Action, the Corporation shall indemnify him
against Expenses actually and reasonably incurred by him in connection
therewith.
(3) Unless ordered by a court, any indemnification of any person under
subparagraph (B)(1) of this Article Ninth shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of such person is proper in the circumstances because he
met the Indemnification Standards. Such determination shall be made (i) by
the Board of Directors, by a majority vote of a quorum consisting of
directors who are not at the time parties to the Action involved
("Parties"); or (ii) if a quorum cannot be obtained under the preceding
clause (i), by a majority vote of a committee duly designated by the Board
of Directors (in which designation directors who are Parties may
participate), consisting solely of two or more directors who are not at the
time Parties; or (iii) by written opinion of independent legal counsel (X)
selected by the Board of Directors or committee in the manner prescribed in
Subparagraphs (i) or (ii), respectively, or (Y) if a quorum cannot be
obtained and a committee cannot be designated under the preceding clauses
(i) and (ii), respectively, selected by a majority of the full Board of
Directors, in which selection directors who are Parties may participate; or
(iv) by the shareholders who are not at the time Parties, voting together
as a single class.
(4) Expenses reasonably incurred in defending an Action by any person
who may be entitled to indemnification under subparagraph (B)(1) of this
ARTICLE NINTH may be paid by the Corporation in advance of the final
disposition of such Action if (i) such person furnishes the Corporation
with (X) a written affirmation of his good faith belief that he has met,
and (Y) a written undertaking, executed personally or on his behalf, to
repay the advance (an "Undertaking") if it is ultimately determined that he
did not meet the Indemnification Standards; and (ii) a determination is
made, under the procedure set forth in subparagraph (B)(3) of this ARTICLE
NINTH, that the facts then known to those making the determination would
not preclude indemnification under subparagraph (B)(1) of this ARTICLE
NINTH
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above. An Undertaking must be an unlimited general obligation of the person
making it, but need not be secured and may be accepted by the Corporation
without reference to such person's financial ability to make repayment.
(5) The indemnification provided in these Articles (i) shall not be
deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under (V) any law, (W) the By-Laws, (X) any
resolution of the Board of Directors or of the shareholders, (Y) any other
authorization, whenever adopted, after notice, by a majority vote of all
Voting Stock, or (Z) the articles of incorporation, code of by-laws or
other governing documents, or any resolution of or other authorization by
the directors, shareholders, partners, trustees, members, owners or
governing body, of Another Entity; (ii) shall inure to the benefit of the
heirs, executors and administrators of such person; and (iii) shall
continue as to any such person who has ceased to be a Corporate Person of
the Corporation or to be serving in an Authorized Capacity for Another
Entity.
(6) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Corporate Person of the
Corporation, or is or was serving at the request of the Corporation in an
Authorized Capacity of or for Another Entity, against any liability
asserted against and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this
paragraph (B).
(7) For the purposes of this paragraph (B), references to "the
Corporation" include any constituent corporation absorbed in a
consolidation or merger (a "Constituent") as well as the resulting or
surviving corporation (the "Survivor"), such that any person who is or was
a Corporate Person of such a Constituent, or is or was serving at the
request of such Constituent in an Authorized Capacity of or for Another
Entity, shall stand in the same position under the provisions of this
paragraph (B) with respect to the Survivor as he would if he had served the
Survivor, or at its request, in the same capacity.
TENTH: In addition to any other considerations which the Board of Directors
may lawfully take into account, in determining whether to take or to refrain
from taking corporate action on any matter, including making or declining to
make any recommendation to the shareholders of the Corporation, the Board of
Directors may in its discretion consider the long-term as well as short-term
best interests of the Corporation (including the possibility that these
interests may be best served by the continued independence of the Corporation),
taking into account, and weighing as the directors deem appropriate, the effects
of such action on employees, suppliers and customers of the Corporation and its
subsidiaries and the effect upon communities in which offices or other
facilities of the Corporation are located, and any other factors the directors
consider pertinent.
ELEVENTH: In furtherance and not in limitation of the powers conferred by
law or in these Articles of Incorporation, the Board of Directors (and any
committee of the Board of Directors) is expressly authorized, to the extent
permitted by law, to take such action or actions as the Board or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Article EIGHTH of these Articles of Incorporation) to
enter into negotiations with the Board of Directors and management of the
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Corporation with respect to any transaction which may result in a change in
control of the Corporation which is proposed or initiated by such person or (B)
contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the shareholders of
the Corporation, including, without limitation, the adoption of such plans or
the issuance of such rights, options, capital stock, notes, debentures or other
evidences of indebtedness or other securities of the Corporation (which issuance
may be with or without consideration, and may (but need not) be issued pro
rata), which rights, options, capital stock, notes, evidences of indebtedness
and other securities (i) may be exchangeable for or convertible into cash or
other securities on such terms and conditions as may be determined by the Board
or such committee and (ii) may provide for the treatment of any holder or class
of holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, and any other
provisions authorized by the laws of the State of Indiana at the time in force
may be added or inserted, in the manner now or hereafter provided herein or by
statute, and all rights, preferences and privileges of whatsoever nature
conferred upon shareholders, directors or any other persons whomsoever by and
pursuant to these Articles of Incorporation in its present form or as amended
are granted subject to the rights reserved in this Article.
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Exhibit 3.2
BY-LAWS
of
NEW MORTON INTERNATIONAL, INC.
Incorporated under the Laws of the State of Indiana
(The "Corporation")
ARTICLE I
Offices and Records
Section 1.1. Indiana Office. The principal office of the
Corporation in the State of Indiana shall be located in the City of
Indianapolis, County of Marion, and the name and address of its registered agent
is CT Corporation System, 1 North Capitol Avenue, Indianapolis, Indiana 46204.
Section 1.2. Other Offices. The Corporation may have such
other offices, either within or without the State of Indiana, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Indiana at the Corporation's
principal executive office in Chicago, Illinois or at such other place or places
as may from time to time be designated by the Board of Directors.
ARTICLE II
Shareholders
Section 2.1. Annual Meeting. The annual meeting of the
shareholders of the Corporation shall be held on such date and at such place and
time as may be fixed by resolution of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may
properly come before the meeting. Any previously scheduled annual meeting of the
shareholders may be postponed by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such annual
meeting of shareholders. Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock"), any action required or
permitted to be taken by the shareholders of the Corporation must be effected at
an annual or special meeting of shareholders of the Corporation or may be
effected by a unanimous consent in writing by such shareholders.
Section 2.2. Special Meeting. Subject to the rights of the
holders of any class of Preferred Stock, special meetings of the shareholders
may be called only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as such term
is defined in paragraph C(10) of Article EIGHTH of the Corporation's Articles of
Incorporation (the "Articles of Incorporation")). Any previously scheduled
special meeting of the shareholders may be postponed by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such special meeting of the shareholders.
<PAGE>
Section 2.3. Place of Meeting. The Board of Directors may
designate the place of meeting for any annual meeting or for any special meeting
of the shareholders called by the Board of Directors. If no designation is made
by the Board of Directors, or if a special meeting be otherwise called, the
place of meeting shall be the principal executive office of the Corporation in
Chicago, Illinois.
Section 2.4. Notice of Meeting. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be prepared and delivered by the Corporation
not less than ten (10) days nor more than sixty (60) days before the date of the
meeting, either personally or by mail, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail with postage thereon prepaid, addressed
to the shareholder at his address as it appears on the stock transfer books of
the Corporation. Such further notice shall be given as may be required by law.
Business transacted at any special meeting shall be confined to the purpose or
purposes stated in the notice of such special meeting. Meetings may be held
without notice if all shareholders entitled to vote are present, or if notice is
waived by those not present.
Section 2.5. Quorum. Except as otherwise provided by law or by
the Articles of Incorporation, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, except that when specified
business is to be voted on by a class or series voting as a class, the holders
of a majority of the shares of such class or series shall constitute a quorum of
such class or series for the transaction of such business. The chairman of the
meeting or a majority of the shares so represented may adjourn the meeting from
time to time, whether or not there is such a quorum. No notice of the time and
place of adjourned meetings need be given except as required by law. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 2.6. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder, or by his
duly authorized attorney in fact. Such proxy must be filed with the Secretary of
the Corporation or his representative at or before the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its execution,
unless the proxy shall otherwise provide.
Section 2.7. Judges of Election. The Board of Directors shall,
in advance of each meeting of shareholders, elect three (3) judges of election
to serve with respect to such meeting of shareholders, and if any judge so
elected shall refuse to serve or shall not be present at such shareholders'
meeting, he shall be replaced by the Board of Directors in advance of such
meeting or by the Chairman of such meeting in advance of any voting at such
meeting. All voting at shareholders' meetings shall be conducted solely under
the direction of the judges, and the decision of a majority of the judges as to
the outcome of all voting at such meetings shall be binding upon the Corporation
and its shareholders in the absence of actual fraud in the decision of a
majority of the judges. Any competent person over the age of twenty-one (21) may
be appointed as a judge of election, other than any director or candidate for
the office of director.
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Section 2.8. Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the shareholders may be made at an
annual meeting of shareholders (A) pursuant to the Corporation's notice of
meeting, (B) by or at the direction of the Board of Directors or (C) by any
shareholder of the Corporation who was a shareholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be
properly brought before an annual meeting by a shareholder pursuant to clause
(C) of paragraph (a)(1) of this By-Law, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the shareholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (A) as to each person whom
the shareholder proposes to nominate for election or reelection as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (B) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such shareholder,
as they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (a)(2) of this By-Law to the contrary, in the event that
the number of directors to be elected by the shareholders to the Board of
Directors of the Corporation is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
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(b) Special Meetings of Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors are to be elected at such special meetings by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the Board calls a special meeting of shareholders for the purpose of electing
one or more directors, any such shareholder may nominate a person or persons (as
the case may be) for election to such position(s) as specified in the
Corporation's notice of meeting, if the shareholder's notice required by
paragraph (a)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the 90th day
prior to such special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. The chairman of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this By-Law, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of
this By-Law, a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(4) Nothing in this Section 2.8 shall be deemed
to diminish or detract from the power of the Board of Directors to fix the
number of directors pursuant to Section 3.2 or to fill vacancies pursuant to
Section 3.7 of these By-Laws.
(5) For purposes of this By-Law, for the first
annual meeting of shareholders, the first anniversay of the preceding year's
annual meeting of shareholders shall be deemed to be October 24 in the year that
such first annual meeting is held.
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Section 2.9. Procedure for Election of Directors. Election of
directors at all meetings of the shareholders at which directors are to be
elected shall be by ballot, and, except as otherwise set forth in any Preferred
Stock Designation (as defined in Article FOURTH of the Articles of
Incorporation) with respect to the right of the holders of any class or series
of Preferred Stock to elect additional directors under specified circumstances,
a plurality of the votes cast thereat shall elect. Except as otherwise provided
by law, the Articles of Incorporation, any Preferred Stock Designation, the
By-Laws of the Corporation or resolution adopted by the Whole Board, action on
all matters other than the election of directors submitted to the shareholders
at any meeting shall be approved if the votes cast favoring the action exceed
the votes cast opposing the action.
ARTICLE III
Board of Directors
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these By-Laws required to be exercised or
done by the shareholders.
Section 3.2. Number, Tenure and Qualifications. Subject to the
rights of the holders of any class or series of Preferred Stock to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board. The directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances, shall be
divided, with respect to the time for which they severally hold office, into
three classes, with the term of office of the first class to expire at the 1997
annual meeting of shareholders, the term of office of the second class to expire
at the 1998 annual meeting of shareholders and the term of office of the third
class to expire at the 1999 annual meeting of shareholders, with each director
to hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of shareholders, commencing with the 1997
annual meeting, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of shareholders after their election, with each director to hold
office until his or her successor shall have been duly elected and qualified,
except that, if authorized by a resolution of the Board of Directors, directors
may be elected to terms expiring prior to the third succeeding annual meeting of
shareholders in order to fill any vacancy, preserve or create equality as near
as may be in the numbers of directors in each class, or in anticipation of a
director's ceasing to be qualified to serve as such. In order to be qualified to
serve as a director, a person must (a) not have attained the age of seventy (70)
years and (b) either (i) be an officer or employee of the Corporation and not
(A) have voluntarily resigned from the position or office he held at the time of
his election as a director, (B) have retired or been retired pursuant to the
requirements of a pension, profit sharing, or similar plan or (C) have, at the
time of his election as a director, held a position or office in the Corporation
which has been changed, other than by an upward or expanded promotion or (ii) in
the case of any person who is not an officer or employee of the Corporation, not
(A) have retired from or severed his connection with the organization with which
he was affiliated at the
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time of his election as a director or (B) have held a position or office with an
organization with which he was affiliated at the time of his election as a
director which has been changed, other than by an upward or expanded promotion.
Whenever any director shall cease to be qualified to serve as a director his
term shall expire, but such director shall continue to serve until his successor
is elected and qualified; provided, however, that no director's term shall so
expire if the Board of Directors shall have waived such qualification.
Section 3.3. Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the Annual Meeting of Shareholders. The Board
of Directors or any committee thereof may, by resolution, provide the time and
place for the holding of additional regular meetings without other notice than
such resolution.
Section 3.4. Special Meetings. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors; the person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings. Special meetings of any committee of the Board of
Directors shall be called at the request of the chairman of the committee or the
Secretary of the Corporation; the person authorized to call special meetings of
a committee of the Board of Directors may fix the place and time of the
meetings.
Section 3.5. Notice. Notice of any special meeting of the
Board of Directors or any committee thereof shall be given to each member
director at the appropriate business or residence address in writing or by
telegram, by facsimile transmission or by telephone communication. If mailed,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five (5) days
before such meeting. If by telegram, such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company at least
twenty-four (24) hours before such meeting. If by facsimile transmission, such
notice shall be deemed adequately delivered when the notice is transmitted at
least twenty-four (24) hours before such meeting. If by telephone, the notice
shall be given at least twelve (12) hours prior to the time set for the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors or committee thereof need be specified
in the notice of such meeting, except for amendments to these By-Laws, as
provided under Article VII, Section 7.1. A meeting may be held at any time
without notice if all the directors or committee members are present or if those
not present waive notice of the meeting in writing, either before or after such
meeting.
Section 3.6. Meetings by Conference Telephone. Members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by telephonic means or similar
communications equipment whereby all persons participating in the meeting can
hear and be heard by each other. Participation in a meeting pursuant to this
Section 3.6 shall constitute presence at such meeting for determining quorum and
all other purposes under these By-Laws.
Section 3.7. Quorum. A whole number of directors equal to at
least a majority of the Whole Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there
shall be less than a quorum present, a majority
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of the directors present may adjourn the meeting from time to time without
further notice. The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. The
directors present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum.
Section 3.8. Quorum Required for Committees of the Board of
Directors. A whole number of directors on a committee of the Board of Directors
equal to at least 50% of the number of members of such committee shall
constitute a quorum for the transaction of business by such committee. The act
of a majority of the members present at a meeting of a committee at which a
quorum is present shall be the act of such committee.
Section 3.9. Newly Created Directorships and Vacancies.
Subject to the rights of the holders of any class or series of Preferred Stock,
and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by the affirmative vote of
a majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of shareholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
Section 3.10. Executive Committee. The Board of Directors,
immediately following each annual meeting of shareholders or a special meeting
of the same held for the election of a majority of directors, shall immediately
meet and shall appoint from its number by a majority vote of the Whole Board an
Executive Committee of such number of members as from time to time may be
selected by the Board, to serve until the next annual or special meeting at
which a majority of directors is elected or until the respective successor of
each is duly appointed. The Executive Committee shall possess and may exercise
all the powers and authority of the Board of Directors in the management and
direction of the business and affairs of the Corporation, except as limited by
law and except for the power to change the membership or to fill vacancies in
the Board or said Committee. The Board shall have the power at any time to
change the membership of said Committee, to fill vacancies in it, to make rules
for the conduct of its business, or to dissolve it.
Section 3.11. Removal. Subject to the rights of the holders of
any class or series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class.
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ARTICLE IV
Officers
Section 4.1. Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a Secretary, a
Treasurer, and such other officers (including, without limitation, a President)
as the Board of Directors from time to time may deem proper. The Chairman of the
Board of Directors shall be chosen from the directors. All officers chosen by
the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of this
ARTICLE IV. Such officers shall also have such powers and duties as from time to
time may be properly assigned by the Board of Directors or by any Committee
thereof.
Section 4.2. Election and Term of Office. The elected officers
of the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each elected
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign, but any such
officer may be removed from office at any time by the affirmative vote of a
majority of the members of the Whole Board.
Section 4.3. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board of Directors
and shall have general management of the affairs of the Corporation. Except
where by law the signature of the President (if any) is required, the Chairman
of the Board shall possess the same power as the President to sign all
certificates, contracts, and other instruments of the Corporation which may be
authorized by the Board of Directors.
Section 4.4. President. The President (if one shall have been
chosen by the Board of Directors) shall act in a general executive capacity and
shall assist the Chairman of the Board in the administration and operation of
the Corporation's business and general supervision of its policies and affairs.
The President shall, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of shareholders and of the Board of Directors. The
President may sign certificates, contracts, and other instruments of the
Corporation as authorized by the Board of Directors.
Section 4.5. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such banks
as may be designated as depositaries in the manner provided by resolution of the
Board of Directors. The Treasurer shall have such further powers and duties and
shall be subject to such directions as may be granted or imposed from time to
time by the Board of Directors, the Chairman of the Board or the President.
Section 4.6. Secretary. The Secretary shall keep or cause to
be kept in one or more books provided for that purpose, the minutes of all
meetings of the Board, the committees of the Board and the stockholders; shall
see that all notices are duly given in accordance with the provisions of these
By-Laws and as required by law; shall be custodian of
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the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; shall see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and in general shall perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned by the Board of Directors, the Chairman of the Board or the
President.
Section 4.7. Removal. Any officer elected by the Board of
Directors may be removed by a majority of the members of the Whole Board
whenever, in their judgment, the best interests of the Corporation would be
served thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such action subsequent to the
effective date thereof, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
Section 4.8. Vacancies. A newly created office and a vacancy
in any office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of any term.
ARTICLE V
Stock Transfers
Section 5.1. Stock Transfers. The interest of each shareholder
of the Corporation shall be evidenced by stock certificates or by registration
in book-entry accounts without certificates for shares of stock in such form as
the appropriate officers of the Corporation may from time to time prescribe. The
shares of the stock of the Corporation shall be transferred on the books of the
Corporation by the holder thereof in person or by his attorney, upon
cancellation of certificates or debits to book-entry accounts, as the case may
be, for the same number of shares, with such proof of the authenticity of the
transfer as the Corporation or its agents may reasonably require.
Stock certificates shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE VI
Miscellaneous Provisions
Section 6.1. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of July and end on the thirtieth day of June of
each year.
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Section 6.2. Dividends. The Board of Directors may from time
to time declare, and the Corporation may pay dividends on its outstanding shares
in the manner and upon the terms and conditions provided by law and the Articles
of Incorporation.
Section 6.3. Seal. The corporate seal may bear in the center
the emblem of some object, and shall have inscribed thereunder the words
"Corporate Seal" and around the margin thereof the words "New Morton
International, Inc. -- Indiana 1997."
Section 6.4. Waiver of Notice. Whenever any notice is required
to be given to any shareholder or director of the Corporation under the
provisions of the Indiana Business Corporation Law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any annual
or special meeting of the shareholders or the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be made
annually.
Section 6.6. Resignations. Any director or any officer,
whether elected or appointed, may resign at any time by serving written notice
of such resignation on the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Chairman of the Board,
the President, or the Secretary. No formal action shall be required of the Board
of Directors or the shareholders to make any such resignation effective.
Section 6.7. Indemnification of Directors, Officers,
Employees and Agents. The Corporation shall provide indemnification as set forth
in Article NINTH of the Articles of Incorporation.
ARTICLE VII
Amendments
Section 7.1. Amendments. These By-Laws may be amended, added
to, rescinded or repealed at any meeting of the Board of Directors, provided
notice of the proposed change was given in the notice of the meeting, given not
less than two days prior to the meeting.
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Exhibit 4.1
Form of Agreement
- --------------------------------------------------------------------------------
NEW MORTON INTERNATIONAL, INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK,
as Rights Agent
Rights Agreement
Dated as of _________, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions.......................................... 1
Section 2. Appointment of Rights Agent.......................... 8
Section 3. Issue of Right Certificates.......................... 9
Section 4. Form of Right Certificates........................... 12
Section 5. Countersignature and Registration.................... 13
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates.......................... 14
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.......................... 16
Section 8. Cancellation and Destruction of
Right Certificates................................. 18
Section 9. Availability of Preferred Shares..................... 19
Section 10. Preferred Shares Record Date......................... 20
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights......................... 21
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares................................ 36
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power......................... 36
Section 14. Fractional Rights and Fractional Shares.............. 38
Section 15. Rights of Action..................................... 41
Section 16. Agreement of Right Holders........................... 42
Section 17. Right Certificate Holder Not Deemed a
Stockholder........................................ 43
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Section 18. Concerning the Rights Agent.......................... 44
Section 19. Merger or Consolidation or Change of
Name of Rights Agent............................... 45
Section 20. Duties of Rights Agent............................... 46
Section 21. Change of Rights Agent............................... 50
Section 22. Issuance of New Right Certificates................... 52
Section 23. Redemption........................................... 52
Section 24. Exchange............................................. 54
Section 25. Notice of Certain Events............................. 57
Section 26. Notices.............................................. 58
Section 27. Supplements and Amendments........................... 59
Section 28. Successors........................................... 60
Section 29. Benefits of this Rights Agreement.................... 61
Section 30. Severability......................................... 61
Section 31. Governing Law........................................ 61
Section 32. Counterparts......................................... 61
Section 33. Descriptive Headings................................. 62
Signatures........................................................... 63
Exhibit A - Form of Right Certificate
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Rights Agreement, dated as of _____________, 1997, between New
Morton International, Inc., an Indiana corporation which, following the Spin-Off
(as defined herein), will be renamed Morton International, Inc. (the "Company"),
and First Chicago Trust Company of New York, a New York corporation (the "Rights
Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company to be issued in the distribution of
Common Shares (the "Spin-Off") by Morton International, Inc., an Indiana
corporation, to its shareholders, each Right representing the right to purchase
one one-hundredth of a Preferred Share (as hereinafter defined), upon the terms
and subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the effective date of the Spin-Off (the "Record
Date") and the earliest of the Distribution Date, the Redemption Date and the
Final Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
<PAGE>
Section 1. Definitions. For purposes of this Rights Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the Common Shares of the Company then outstanding, but shall
not include the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 20% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing
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provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Rights Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act as in effect
on the date of this Rights Agreement.
(c) "Associate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act as in effect
on the date of this Rights Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only
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after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any
of such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange; or (B) the right to vote pursuant
to any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
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(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated
by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of
the Company.
Notwithstanding anything in this definition of Beneficial Ownership
to the contrary, the phrase "then outstanding", when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M., New
York time, on such date; provided, however, that, if such date is not a Business
Day, it shall mean
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5:00 P.M., New York time, on the next succeeding Business Day.
(g) "Common Shares" when used with reference to the Company shall
mean the shares of common stock, par value $1.00 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.
(h) "Company" shall have the meaning set forth in the preamble
hereof.
(i) "current per share market price" shall have the meaning set
forth in Section 11(d) hereof.
(j) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(k) "equivalent preferred shares" shall have the meaning set forth
in Section 11(b) hereof.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(m) "Exchange Ratio" shall have the meaning set forth in Section
24(a) hereof.
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(n) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(o) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotation System.
(p) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(q) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights and preferences set forth in the Articles of Incorporation of the
Company.
(r) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(s) "Record Date" shall have the meaning set forth in the second
paragraph hereof.
(t) "Redemption Date" shall have the meaning set forth in Section
7(a) hereof.
(u) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(v) "Right" shall have the meaning set forth in the second paragraph
hereof.
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<PAGE>
(w) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(x) "Rights Agent" shall have the meaning set forth in the preamble
hereof.
(y) "Security" shall have the meaning set forth in Section 11(d)
hereof.
(z) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(aa) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(ab) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall, prior to the Distribution
Date, also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time
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<PAGE>
appoint such co-Rights Agents as it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day
(or such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) of, or of the first public announcement of the
intention of any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding Common Shares for or pursuant to the terms of any such plan)
to commence, a tender or exchange offer the consummation of which would result
in any Person becoming the Beneficial Owner of Common Shares aggregating 20% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Rights Agreement and prior to the issuance of the Rights;
the earlier of such dates being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the certificates for Common Shares registered in the names of the
holders
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thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit A hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) Until the earliest of the Distribution Date, the Redemption Date
or the Final Expiration Date, Certificates for Common Shares shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Morton International,
Inc. (formerly New Morton International, Inc.) and First Chicago Trust
Company of New York, dated as of ___________, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of Morton International, Inc. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. Morton
International,
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Inc. will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Under certain circumstances, as set forth in the Rights Agreement, Rights
issued to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be
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<PAGE>
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
automated quotation system on which the Rights may from time to time be listed,
or to conform to usage. Subject to the provisions of Section 22 hereof, the
Right Certificates shall entitle the holders thereof to purchase such number of
one one-hundredths of a Preferred Share as shall be set forth therein at the
price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the number of such one one-hundredth of a Preferred
Share and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such
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Right Certificates, nevertheless, may be countersigned by the Rights Agent and
issued and delivered by the Company with the same force and effect as though the
person who signed such Right Certificates had not ceased to be such officer of
the Company; and any Right Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Right Certificate,
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates
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(other than Right Certificates representing Rights that have become void
pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to
Section 24 hereof) may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates entitling the registered holder
to purchase a like number of one one-hundredths of a Preferred Share as the
Right Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of
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all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Company will
make and deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein), in whole or in
part, at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on the tenth anniversary of the Record
Date (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred
Share purchasable pursuant to the exercise of a Right shall initially be
$105.00, and shall be subject to
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adjustment from time to time as provided in Section 11 or 13 hereof and shall be
payable in lawful money of the United States of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes any such transfer agent to comply with all
such requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredth of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent of the Preferred Shares
with such depositary agent) and the Company hereby directs such depositary agent
to comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) promptly after receipt of such
certificates or depositary
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receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt, deliver such
cash to or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire,
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any other Right Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and, in such case, shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company covenants
and agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any Preferred Shares upon the exercise of Rights. The Company
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shall not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name
any certificate for Preferred Shares is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on
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which the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the Record
Date (A) declare a dividend on the Preferred Shares payable in Preferred Shares,
(B) subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in effect at the
time of the record date
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for such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares transfer
books of the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Rights Agreement, in the event any
Person becomes an Acquiring Person after the Record Date, each holder of a Right
shall thereafter have a right to receive, upon exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Rights Agreement and in lieu of Preferred
Shares, such number of Common Shares of the Company as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred
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Share for which a Right is then exercisable and dividing that product by (B) 50%
of the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Rights Agreement. No Right Certificate shall be issued pursuant to Section
3 that represents Rights beneficially owned by an Acquiring Person whose Rights
would be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled.
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(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or
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having a conversion price per share, if a security convertible into Preferred
Shares or equivalent preferred shares) less than the then current per share
market price of the Preferred Shares on such record date, the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or equivalent
preferred shares so to be offered (and/or the aggregate initial conversion price
of the convertible securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of Preferred
Shares outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose
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determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and holders of the Rights. Preferred Shares
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with
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the Rights Agent and shall be binding on the Rights Agent and holders of the
Rights) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current
per share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
immediately prior to such date; provided, however, that in the event that the
current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares,
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or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the
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Security selected by the Board of Directors of the Company. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for the transaction
of business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per share
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one hundred. If neither the Common Shares nor
the Preferred Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or
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decrease of at least 1% in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest one one-millionth of a Preferred Share or one ten-thousandth of any
other share or security as the case may be. Notwithstanding the first sentence
of this Section 11(e), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.
(f) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
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(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (A) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (B) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights in substitution for any
adjustment in the number of
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one one-hundredths of a Preferred Share purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be
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distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
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(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by
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their terms are convertible into or exchangeable for Preferred Shares, dividends
on Preferred Shares payable in Preferred Shares or issuance of rights, options
or warrants referred to hereinabove in Section 11(b), hereafter made by the
Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the Record Date and prior to
the Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares, or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively
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whenever such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one
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or more transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Rights Agreement and in lieu of Preferred
Shares, such number of Common Shares of such other Person (including the Company
as successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Rights Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to
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such issuer; and (iv) such issuer shall take such steps (including, but not
limited to, the reservation of a sufficient number of its Common Shares in
accordance with Section 9 hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to the Common Shares thereafter
deliverable upon the exercise of the Rights. The Company shall not consummate
any such consolidation, merger, sale or transfer unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional
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Rights would otherwise be issuable, an amount in cash equal to the same fraction
of the current market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price of
the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any
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such date no such market maker is making a market in the Rights, the fair value
of the Rights on such date as determined in good faith by the Board of Directors
of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a
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Preferred Share shall be the closing price of a Preferred Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Rights Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of
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Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Rights Agreement and will
be entitled to specific performance of the obligations under, and injunctive
relief against actual or threatened violations of the obligations of any Person
subject to, this Rights Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the
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associated Common Shares certificate made by anyone other than the Company or
the Rights Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time
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to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Rights Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and administration
of this Rights Agreement, including the costs and expenses of defending against
any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
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Section 19. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or corporate trust powers of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Rights Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Rights Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
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In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
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(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Rights Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or
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the execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Rights Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing
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by the Rights Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Rights Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
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accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by
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the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to do business as a banking institution in the State of New York), in good
standing, having an office in the State of New York, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer
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agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by the Board of Directors of the Company to reflect
any adjustment or change in the Purchase Price and the number or kind or class
of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Rights Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company
may, at its option, at any time prior to such time as any Person becomes an
Acquiring Person, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the Record
Date (such redemption price being hereinafter referred to as the "Redemption
Price").
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The redemption of the Rights by the Board of Directors of the Company may be
made effective at such time, on such basis and with such conditions as the Board
of Directors of the Company in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in
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any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the Record Date (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, after the Record
Date becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights
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pursuant to paragraph (a) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate and the
only right thereafter of a holder of such Rights shall be to receive that number
of Common Shares equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize
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additional Common Shares for issuance upon exchange of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
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Section 25. Notice of Certain Events. (a) In case at any time after
the Record Date the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the
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purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Rights
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
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first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Morton International, Inc.
100 North Riverside Plaza
Chicago, Illinois 60606
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
any Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
14 Wall Street
Floor 8
New York, New York 10005
Attention: Bond and Reorganization
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement
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without the approval of any holders of Right Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, or to make any other
provisions with respect to the Rights which the Company may deem necessary or
desirable, any such supplement or amendment to be evidenced by a writing signed
by the Company and the Rights Agent; provided, however, that from and after such
time as any Person becomes an Acquiring Person, this Rights Agreement shall not
be amended in any manner which would adversely affect the interests of the
holders of Rights. Without limiting the foregoing, the Company may at any time
prior to such time as any Person becomes an Acquiring Person amend this Rights
Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) to not
less than the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Shares then known by the Company to be beneficially owned by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan) and (ii)
10%.
Section 28. Successors. All the covenants and provisions of this
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
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Section 29. Benefits of this Rights Agreement. Nothing in this
Rights Agreement shall be construed to give to any Person other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Rights Agreement; but this Rights Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. Governing Law. This Rights Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Indiana and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
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Section 32. Counterparts. This Rights Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Rights Agreement are inserted for convenience only
and shall not control or affect the meaning or construction of any of the
provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and attested, all as of the day and year first
above written.
Attest: NEW MORTON INTERNATIONAL, INC.
By __________________________ By __________________________________
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY OF
NEW YORK
By __________________________ By __________________________________
Name: Name:
Title: Title:
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Exhibit A
Form of Right Certificate
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER _____________, 2007 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.
Right Certificate
MORTON INTERNATIONAL, INC.
This certifies that ________________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ___________, 1997 (the "Rights Agreement"),
between Morton International, Inc., an Indiana corporation (formerly New Morton
International, Inc.) (the "Company"), and First Chicago Trust Company of New
York, a New York corporation (the "Rights Agent"), to purchase from the Company
at any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York time, on ___________, 2007 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $1.00 per share, of the Company
(the "Preferred Shares"), at a purchase price of $___ per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of __________, 1997, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredth of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
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This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $1.00
per share.
No fractional Preferred Shares will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
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meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of __________, _____.
ATTEST: MORTON INTERNATIONAL, INC.
______________________________ By ___________________________________
Name: Name:
Title: Title:
Countersigned:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By ___________________________
Name:
Title:
A-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _______________________, ________
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
A-4
<PAGE>
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_____________________________________
Signature
- --------------------------------------------------------------------------------
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: MORTON INTERNATIONAL, INC.
The undersigned hereby irrevocably elects to exercise
___________________________ Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________________, _______
__________________________________
Signature
A-5
<PAGE>
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
A-6
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
__________________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
A-7
<PAGE>
Exhibit 10.1
Form of Agreement
================================================================================
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
dated as of [ ], 1997
by and between
MORTON INTERNATIONAL, INC.,
an Indiana corporation
and
NEW MORTON INTERNATIONAL, INC.,
an Indiana corporation
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01 General.......................................... 2
Section 1.02 Schedules, Etc................................... 11
Section 1.03 Certain Constructions............................ 11
ARTICLE II
EMPLOYEE BENEFITS; LABOR MATTERS
Section 2.01 New Morton Free-Standing Qualified Plan.......... 12
Section 2.02 Company Retained Qualified Plans................. 14
Section 2.03 Company-New Morton Joint Qualified Plans......... 15
Section 2.04 Foreign Plans.................................... 22
Section 2.05 Welfare Plans.................................... 24
Section 2.06 Stock Option Plans............................... 26
Section 2.07 Company Incentive Plans.......................... 27
Section 2.08 Severance Pay.................................... 29
Section 2.09 Company Restricted Trust......................... 30
Section 2.10 Company Miscellaneous Plans; Post-
Distribution Liabilities....................... 31
Section 2.11 Collective Bargaining Agreements; Labor
Management Relations Act....................... 31
Section 2.12 Other Balance Sheet Adjustments.................. 32
Section 2.13 Preservation of Rights To Amend or
Terminate Plans................................ 32
Section 2.14 Reimbursement; Indemnification................... 33
Section 2.15 Further Transfers................................ 34
ARTICLE III
MISCELLANEOUS
Section 3.01 Complete Agreement; Construction................. 35
Section 3.02 Guarantee of Subsidiaries' Obligations........... 35
Section 3.03 Failure of the Company and New Morton
To Agree on Certain Determinations............. 36
Section 3.04 Governing Law.................................... 36
Section 3.05 Notices.......................................... 37
Section 3.06 Amendments....................................... 38
Section 3.07 Successors and Assigns........................... 38
Section 3.08 Termination...................................... 38
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Section 3.09 No Third Party Beneficiaries..................... 38
Section 3.10 Titles and Headings.............................. 38
Section 3.11 Schedules........................................ 39
Section 3.12 Legal Enforceability............................. 39
Signatures...................................................... 40
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<PAGE>
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Employee Benefits Allocation Agreement (the "Agreement"), dated as
of [ ], 1997, by and between Morton International, Inc., an Indiana corporation
(the "Company"), and New Morton International, Inc., an Indiana corporation and
a wholly owned subsidiary of the Company ("New Morton").
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to enter into the Distribution Agreement (the
"Distribution Agreement") dated as of [ ], 1997, by and between the Company and
New Morton, pursuant to which, among other things, the Company will distribute
to holders of its common stock all the issued and outstanding shares of common
stock of New Morton (the "Distribution");
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to enter into the Combination Agreement, dated as of
November 25, 1996 (the "Combination Agreement"), by and among the Company,
Autoliv AB, a corporation organized under the laws of the Kingdom of Sweden
("Autoliv"), Autoliv, Inc., a Delaware corporation ("New Parent"), and ASP
Merger Sub Inc. a Delaware corporation ("Newco Sub") and wholly owned subsidiary
of New Parent, pursuant to which, among other things, Newco Sub will be merged
with and into the Company (the "Merger") and New Parent will
<PAGE>
offer to acquire all of the outstanding capital stock of Autoliv pursuant to the
Exchange Offer (as defined in the Combination Agreement, and, together with the
other transactions contemplated thereby, the "Transactions");
WHEREAS, it is intended that in connection with such separation and
distribution New Morton will adopt employee benefit plans and programs which are
substantially identical to those sponsored by the Company; and
WHEREAS, in connection with such separation and distribution, the
Company and New Morton desire to provide for the allocation of assets and
liabilities and other matters relating to employee benefit arrangements.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. As used in this Agreement, the following terms
shall have the following meanings:
Accountants: Ernst & Young or any other "Big Six" accounting firm
which is New Morton's outside auditor.
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<PAGE>
Bonus Plan: the Morton International, Inc. executive bonus program
which is comprised of the Morton International, Inc. Key Executive Annual Bonus
Program, the Morton International, Inc. Staff Executive Annual Bonus Program and
the Morton International, Inc. Group Executive Annual Bonus Program.
Code: the Internal Revenue Code of 1986, as amended, or any
successor legislation.
Collective Bargaining Agreement: any collective bargaining and other
labor agreement to which the Company or any of its subsidiaries is a party,
including, without limitation, those listed on Schedule A.
Commission: the Securities and Exchange Commission.
Company Business: any business or operation of the Company and its
subsidiaries which is, pursuant to the Distribution Agreement, to be conducted,
following the Distribution, by the Company or any Company Subsidiary or any
business or operation which is, following the Distribution, otherwise conducted
by the Company or any Company Subsidiary.
Company Common Stock: the Common Stock, par value $1.00 per share,
of the Company.
Company Employee: any individual who is, following the Distribution,
intended to be employed by the Company or any Company Subsidiary on an ongoing
basis.
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<PAGE>
Company Incentive Plan: the Bonus Plan, the Company Option Plan or
the LTIP.
Company Individual: any individual who (i) is a Company Employee as
of the Cut-off Date or, following the Distribution, becomes a Company Employee
pursuant to Section 2.15 hereof or (ii) is, as of the Cut-off Date, an employee
of or former employee of the Company or its predecessors whose last employment
with the Company or its predecessors was with a Company Business or a Former
Company Business other than anyone who is to become a New Morton Employee
pursuant to Section 2.15 hereof or who was a corporate officer at the time of
retirement or (iii) is a beneficiary of any individual specified in clause (i)
or (ii).
Company Miscellaneous Plans: the Plans of the Company and its
subsidiaries, including, without limitation, the Plans listed on Schedule D, but
excluding any Qualified Plan, Welfare Plan, any of the Company Incentive Plan,
any Plan which provides for the payment of severance, salary continuation or
similar benefits and any Plan which is governed by a Collective Bargaining
Agreement.
Company-New Morton Joint Qualified Plan: the Morton International,
Inc. Pension Plan (the "Joint Defined Benefit Plan") or the Morton
International, Inc. Employee Savings and Investment Plan (the "Joint Savings
Plan").
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<PAGE>
Company Option: an option to purchase shares of the Company Common
Stock granted pursuant to the Company Option Plan.
Company Option Plan: the Morton International, Inc. 1989 Incentive
Plan or any predecessor stock option plan of the Company pursuant to which there
are outstanding options.
Company Restricted Trust: the trust established pursuant to a trust
agreement between the Company and Bankers Trust Company, as trustee, dated June
23, 1989.
Company Retained Foreign Plan: any Plan which is maintained by a
foreign subsidiary or foreign division of the Company or any of its subsidiaries
exclusively for the benefit of Company Individuals.
Company Retained Qualified Plan: a Qualified Plan sponsored or
maintained by the Company or any of its subsidiaries exclusively for the benefit
of Company Individuals.
Company Subsidiary: as of and following the Distribution Date, any
direct or indirect subsidiary of the Company other than New Morton or any New
Morton Subsidiary.
Company VEBA: the Morton International, Inc. Employees' Insurance
Trust established pursuant to a Trust Agreement dated February 22, 1995 between
the Company and Bank of America Illinois (successor to Continental Trust
Company).
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<PAGE>
Current Plan Year: the plan year or fiscal year, to the extent
applicable with respect to any Plan, during which the Cut-off Date occurs. The
plan year for the Bonus Plan, the Company Option Plan and the LTIP shall be the
year ended June 30.
Cut-off Date: the close of business on the Distribution Date.
Distribution: the distribution to holders of Company Common Stock of
the shares of New Morton Common Stock and related rights owned by the Company on
the Distribution Date on the basis of one share of New Morton Common Stock for
each outstanding share of Company Common Stock.
Distribution Date: the date determined by the Company's Board as of
which the Distribution shall be effected, which is presently contemplated to be
[March 31, 1997].
Enrolled Actuary: Hewitt Associates, or any other enrolled actuary
making actuarial or similar determinations with respect to assets or liabilities
relating to a particular employee benefit plan selected by New Morton.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
Ex-Distribution Date: the first trading day prior to the
Distribution Date on which the Company Common Stock is
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<PAGE>
traded on the New York Stock Exchange ex-dividend with respect to the
Distribution of New Morton Common Stock; provided, that if the Company Common
Stock does not trade ex-dividend prior to the Distribution Date, the
Ex-Distribution Date shall be deemed to be the Distribution Date.
Former Company Businesses: all of the businesses and operations
heretofore but not currently conducted by the Company or any of its current or
former subsidiaries or conducted currently or heretofore by any of the Company's
former subsidiaries all of which are listed on Schedule B and all businesses or
operations predominantly managed or operated by, or otherwise operationally
related to, the Company's Automotive Safety Products Group which have been sold
or otherwise disposed of or discontinued prior to the Distribution Date but
shall not include any of the Former New Morton Businesses.
Former New Morton Businesses: all of the businesses and operations
heretofore but not currently conducted by the Company or any of its current or
former subsidiaries or hereto or currently conducted by any of its former
subsidiaries or predecessors which are listed on Schedule C and any other
business and operation not currently conducted by the Company or any of its
current subsidiaries or any predecessors of the Company including Morton
Thiokol, Inc., Thiokol Chemical Corporation, Thiokol Corporation or Morton
Norwich Products Inc. and
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<PAGE>
their respective subsidiaries and affiliates which does not constitute a Former
Company Business.
IRS: the Internal Revenue Service.
LTIP: the Morton International, Inc. Key Executive Long Term
Incentive Program.
New Morton Businesses: any business or operation of the Company and
its subsidiaries which is, pursuant to the Distribution Agreement, to be
conducted, following the Distribution, by New Morton or any New Morton
Subsidiary, including the Corporate Operations (as defined in the Distribution
Agreement) or any business or operation which is, following the Distribution,
otherwise conducted by New Morton or any New Morton Subsidiary.
New Morton Common Stock: the Common Stock, par value $1.00 per
share, of New Morton.
New Morton Employee: any individual who is, following the
Distribution, intended to be employed by New Morton or a New Morton Subsidiary
on an ongoing basis.
New Morton Free-Standing Foreign Plan: any Plan which is maintained
by a foreign subsidiary or foreign division of the Company or any of its
subsidiaries exclusively for the benefit of New Morton Individuals.
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<PAGE>
New Morton Free-Standing Qualified Plan: the Morton International,
Inc. Pension Plan for Collectively Bargained Employees, the Morton
International, Inc. Retirement Income Plan for Collectively Bargained Employees,
the Morton International, Inc. Bargaining Unit Employee Savings and Investment
Plan, and the Morton International, Inc. Retirement Savings Plan.
New Morton Individual: any individual who (i) is a New Morton
Employee as of the Cut-off Date or, following the Distribution, becomes a New
Morton Employee pursuant to the second sentence of Section 2.15 hereof, (ii) is,
as of the Cut-off Date, an employee of or former employee of the Company or its
predecessors whose last employment with the Company or its predecessors was with
a New Morton Business or a Former New Morton Business (including, without
limitation, retirees from corporate headquarters' staff who retired on or prior
to the Cut-off Date or any corporate officer who retired prior to the Cut-Off
Date) other than anyone who is to become a Company Employee, or (iii) is a
beneficiary of any individual specified in clause (i) or (ii).
New Morton Subsidiary: any direct or indirect subsidiary of the
Company that, effective as of the Distribution Date or otherwise in connection
with the Distribution, will be,
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<PAGE>
or is contemplated by the Distribution Agreement to be, a direct or indirect
subsidiary of New Morton, and any other subsidiary of New Morton which may be
organized or acquired on or after the Distribution Date.
New Morton Option Plan: a Plan to be adopted by New Morton pursuant
to which options to purchase shares of New Morton Common Stock may be granted to
New Morton Employees.
New Morton Qualified Plan: a Qualified Plan to be sponsored or
maintained by New Morton or a New Morton Subsidiary which will provide benefits
for New Morton Individuals who, immediately prior to the Cut-off Date, are
active or inactive participants in or otherwise entitled to benefits under any
Company-New Morton Joint Qualified Plan and which is expected to provide
substantially identical benefits to the Company-New Morton Joint Qualified Plan
in which each such New Morton Individual currently participates.
Plan: any plan, program, policy or arrangement or contract or
agreement providing benefits for any group of employees or former employees or
individual employee or former employee, or the beneficiary or beneficiaries of
any such employee or former employee, whether formal or informal or written or
unwritten and whether or not legally binding, and including, without limitation,
any means, whether or not legally
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<PAGE>
required, pursuant to which any benefit is provided by an employer to any
employee or former employee or the beneficiary or beneficiaries of any such
employee or former employee.
Prior Plan Year: a plan year or fiscal year, to the extent
applicable with respect to any Plan, which ended on or prior to the Cut-off
Date.
Qualified Plan: a Plan which is an employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) and which constitutes or is
intended in good faith to constitute a qualified plan under Section 401(a) of
the Code.
Welfare Plan: any Plan, including, without limitation, the Plans
listed on Schedule E, which is not a Qualified Plan and which provides medical,
health, disability, accident, life insurance, death, dental or any other welfare
benefit, including, without limitation, any post-employment benefit.
Section 1.02 Schedules, Etc. References to a "Schedule" are, unless
otherwise specified, to one of the Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
Section 1.03 Certain Constructions. References to the singular in
this Agreement shall refer to the plural and vice-versa and references to the
disjunctive shall refer to the
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conjunctive and vice-versa and references to the masculine shall refer to the
feminine and vice-versa.
ARTICLE II
EMPLOYEE BENEFITS; LABOR MATTERS
Section 2.01 New Morton Free-Standing Qualified Plan.
(a) Effective as of the Cut-off Date, New Morton shall or shall
cause one or more New Morton Subsidiaries, as appropriate, to assume or retain,
as the case may be, and be solely responsible for, all assets, liabilities and
obligations whatsoever of the Company and its subsidiaries under the New Morton
Free-Standing Qualified Plan; provided, however, that the Company shall make all
required contributions, no later than the later of the Cut-off Date and the date
such contributions are legally required to be made, to such New Morton
Free-Standing Qualified Plan for all Prior Plan Years, to the extent not
previously made. The Company and New Morton shall take such action as is
necessary to effect an adjustment to the books of the Company and New Morton so
that, as of the Cut-off Date, the prepaid expense balances and accrued pension
liabilities with respect to the New Morton Free-Standing Qualified Plan are
reflected on New Morton's consolidated balance sheet rather than the Company's
consolidated balance sheet as of the Cut-off Date. New Morton and the Company
shall each take, or
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cause to be taken, all such actions as may be necessary or appropriate in order
to establish New Morton or the New Morton Subsidiaries, as appropriate, as
successor to the Company or any of its subsidiaries, as to all rights, assets,
duties, liabilities and obligations under, or with respect to, the New Morton
Free-Standing Qualified Plan, including, but not limited to, the rights, assets,
duties, liabilities and obligations of the Company or any of its subsidiaries
under, or with respect to, any and all trust agreements to the extent that they
relate to such New Morton Free-Standing Qualified Plan. From and after the
Cut-off Date, the Company and the Company Subsidiaries shall cease to have any
liability or obligation whatsoever with respect to the New Morton Free-Standing
Qualified Plan, except as otherwise specifically provided in this Section 2.01.
(b) Upon New Morton or any New Morton Subsidiary becoming the
successor employer or successor plan sponsor to the Company or any of its
subsidiaries under such New Morton Free-Standing Qualified Plan, the Company
agrees to take such actions as may be necessary to amend each individual trust
in order for New Morton or a New Morton Subsidiary effectively to maintain and
administer such New Morton Free-Standing Qualified Plan, including, if
necessary, to direct the trustee of each individual trust, or, to the extent
applicable, each master trust in which assets of such New Morton Free-Standing
Qualified Plan are invested, to transfer to the new trustee or other funding
agent appointed by New Morton for such plan the amount
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<PAGE>
of assets in such individual trust or master trust, as the case may be,
determined by the former trustee of such New Morton Free-Standing Qualified Plan
to be attributable to such New Morton Free-Standing Qualified Plan. Such
transfer shall be made in cash, securities, other property or a combination
thereof, as determined by the Company and New Morton. The Company agrees, during
the period ending with the date of complete transfer of assets to a trust or
other funding arrangement maintained by New Morton to cause distributions in
respect of retired or terminated participants who are New Morton Individuals to
be made, on behalf of New Morton, from the New Morton Free-Standing Qualified
Plan in accordance with applicable law and pursuant to plan provisions and to
cause loans and hardship distributions to be made in accordance with applicable
law and pursuant to plan provisions. The Company agrees that it shall, as soon
as practicable after the Distribution Date, provide New Morton such information
(in the possession of the Company or a Company Subsidiary and not already in the
possession of New Morton or a New Morton Subsidiary) as may be reasonably
requested by New Morton and necessary in order for New Morton or any New Morton
Subsidiary effectively to maintain and administer the New Morton Free-Standing
Qualified Plan.
Section 2.02 Company Retained Qualified Plans. Effective as of the
Cut-off Date, the Company shall or shall
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cause one or more Company Subsidiaries, as appropriate, to retain and be solely
responsible for, all liabilities and obligations whatsoever of the Company and
its subsidiaries under each of the Company Retained Qualified Plans. The Company
and New Morton shall take such action as is necessary to effect an adjustment to
the books of the Company and New Morton so that, as of the Cut-off Date, the
prepaid expense balances and accrued pension liabilities with respect to the
Company Retained Qualified Plans are reflected on the Company's consolidated
balance sheet rather than New Morton's consolidated balance sheet as of the
Cut-off Date. From and after the Cut-off Date, New Morton and the New Morton
Subsidiaries shall cease to have any liability or obligation whatsoever with
respect to any of the Company Retained Qualified Plans.
Section 2.03 Company-New Morton Joint Qualified Plans.
(a) As soon as practicable after the date hereof and effective as of
the Cut-off Date, New Morton shall take, or cause to be taken, all action
necessary and appropriate to establish and administer one or more new New Morton
Qualified Plans and to provide benefits thereunder for all New Morton
Individuals who, immediately prior to the Cut-off Date, were participants in or
otherwise entitled to benefits under any Company-New Morton Joint Qualified
Plan. New Morton agrees that each such New Morton Individual shall be, to the
extent
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applicable, entitled, for all purposes under any applicable new New Morton
Qualified Plan, to be credited with the term of service and any accrued benefit
or account balance credited to such New Morton Individual as of the Cut-off Date
under the terms of any applicable Company-New Morton Joint Qualified Plan as if
such service had been rendered to New Morton and as if such accrued benefit or
account balance had originally been credited to such New Morton Individual under
the new New Morton Qualified Plan. The Company agrees to provide New Morton, as
soon as practicable after the Distribution Date (with the cooperation of New
Morton, to the extent that relevant information is in the possession of New
Morton or a New Morton Subsidiary), with a list of the New Morton Individuals
who were, to the best knowledge of the Company, participants in or otherwise
entitled to benefits under each Company-New Morton Joint Qualified Plan
immediately prior to the Cut-off Date, together with a listing, if requested by
New Morton, of each such New Morton Individual's term of service for eligibility
and vesting purposes under such Plan and a listing of each such New Morton
Individual's accrued benefit or account balance thereunder. The Company shall,
as soon as practicable after the Distribution Date, provide New Morton with such
additional information (in the possession of the Company or a Company Subsidiary
and not already in the possession of New Morton or a New Morton Subsidiary) as
may be reasonably requested by New Morton and necessary in order for New Morton
or the New Morton Subsidiary to
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establish and administer effectively any new New Morton Qualified Plan.
(b) The Company agrees, as soon as practicable following the
Distribution Date, to direct the trustee of the trust funding the Company-New
Morton Joint Qualified Plan which is a Joint Defined Benefit Plan to transfer to
the trustee or other funding agent of any applicable new New Morton Qualified
Plan, in cash, securities, other property or a combination thereof, as
determined by the Company and New Morton, an amount equal to (W) plus (X) less
(Y), as adjusted by (Z) and as further reduced to reflect contributions due but
not paid in respect of New Morton Individuals with respect to the portion of the
Current Plan Year which ends on the Cut-off Date (as set forth on Annex I);
where (W) equals that amount of the assets of the Joint Defined Benefit Plan
which would be allocated to the plan participants and beneficiaries who are New
Morton Individuals if the Company-New Morton Joint Defined Benefit Plan had been
terminated as of the Distribution Date (the "Valuation Date"), using the
actuarial assumptions and methods set forth in Annex I, including the procedures
outlined in ERISA Section 4044 for allocating assets among priority categories
(with all of the foregoing calculations being determined as of the Valuation
Date by the Enrolled Actuary, which determination shall be based upon the
actuarial assumptions set forth on Annex I hereto); where (X) equals the amount
of all contributions, if any, attributable to New Morton Individuals made
subsequent to
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the Valuation Date to the Joint Defined Benefit Plan through the date of
complete transfer; where (Y) equals aggregate payments made from the trust
relating to the Joint Defined Benefit Plan in respect of New Morton Individuals
from the Valuation Date through the date of complete transfer; and where (Z)
equals the amount of the net earnings or losses, as the case may be, from the
Valuation Date through the date of transfer, on the average of the daily
balances of W, X and Y and based upon the actual rate of return earned by the
applicable Joint Defined Benefit Plan during such period. To the extent that
total assets of the Joint Defined Benefit Plan exceeds the total liabilities of
the Joint Defined Benefit Plan as of the Valuation Date calculated using the
actuarial assumptions on Annex I (the "Excess"), then in addition to the
transfer described in the preceding sentence an additional amount of assets
shall be transferred equal to the percentage of such Excess that the liabilities
of such plan (determined using the same actuarial assumptions) attributable to
New Morton Individuals bears to the total plan liabilities. Notwithstanding the
foregoing provisions of Section 2.03(b), each such transfer shall be adjusted,
if and to the extent necessary, to comply with Section 414(l) of the Code and
the regulations promulgated thereunder. The Company further agrees that, as soon
as practicable following the later of the Distribution Date and the
establishment of the qualified trust for the New Morton Qualified Plan which is
a Joint Defined Benefit Plan, an initial
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transfer of assets will be made based on an estimate prepared by the Enrolled
Actuary of the amount described in clause (W) as of the Valuation Date (using
January 1, 1996 participant data for such estimate). Once the final transfer
amount is determined, a transfer of assets will be made from the Company-New
Morton Joint Qualified Plan to the New Morton Qualified Plan (or vice versa) as
necessary to result in a split of assets which is consistent with this section.
(c) The Company agrees, as soon as practicable following the
Distribution Date, to direct the trustee of the trust funding the Company-New
Morton Joint Qualified Plan which is a Joint Savings Plan to transfer to the
trustee or other funding agent of any applicable new New Morton Qualified Plan
in cash, securities or other property or a combination thereof, as determined by
the Company and New Morton, an amount equal to the account balances as of the
date of transfer attributable to the participants and beneficiaries in the Joint
Savings Plan who are New Morton Individuals plus the portion of any unallocated
contributions and trust earnings attributable to such participants and
beneficiaries who are New Morton Individuals. To the extent practicable such
transfers shall be effected so as to preserve investment elections of the
participants and beneficiaries in the Joint Savings Plan.
(d) New Morton and the Company shall, in connection with the
transfers described in this Section 2.03, cooperate in
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making any and all appropriate filings required under the Code or ERISA, and the
regulations thereunder, and any applicable securities laws and take all such
action as may be necessary and appropriate to cause such transfers to take place
as soon as practicable after the Distribution Date; provided, however, that each
such transfer shall not take place until as soon as practicable after the later
of (i) the expiration of a 30-day period following the date of filing the
required Forms 5310 (or any successor form thereto) with the IRS and (ii) the
earlier of (A) the receipt of a favorable IRS determination letter with respect
to the qualification of each applicable new New Morton Qualified Plan under
Section 401(a) of the Code or (B) the receipt by the Company of an opinion of
New Morton's counsel in the form set forth in Annex III hereto to the effect
that each applicable new New Morton Qualified Plan is intended in good faith to
be qualified under Section 401(a) of the Code. The Company agrees to provide to
New Morton's counsel such information in the possession of the Company or any
Company Subsidiary as may be reasonably requested by New Morton's counsel in
connection with the issuance of such opinion. The Company agrees, during the
period ending with the date of complete transfer of assets and liabilities to
each such new New Morton Qualified Plan, to cause distributions in respect of
terminated or retired participants who are New Morton Individuals to be made, on
behalf of New Morton, from the relevant Company-New Morton
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Joint Qualified Plan in accordance with applicable law and pursuant to plan
provisions.
(e) Except as specifically set forth in this Section 2.03, from and
after the Cut-off Date, the Company and the Company Subsidiaries shall cease to
have any liability or obligation whatsoever with respect to New Morton
Individuals under the Company-New Morton Joint Qualified Plans, and New Morton
shall assume or retain, as the case may be, and shall be solely responsible for,
all liabilities and obligations whatsoever of the Company and its subsidiaries
with respect to New Morton Individuals under the Company-New Morton Joint
Qualified Plans; provided, however, that the Company shall either be responsible
for or make all required contributions, no later than the later of the Cut-off
Date and the date such contributions are legally required to be made, in respect
of New Morton Individuals with respect to each Company-New Morton Joint
Qualified Plan for all Prior Plan Years and for the portion of the Current Plan
Year ending on the Cut-off Date (determined as set forth in Section 2.03(b)), to
the extent not previously made. The Company and New Morton shall take such
action as is necessary to effect an adjustment to the books of the Company and
New Morton so that, as of the Cut-off Date, the prepaid expense balances and
accrued pension liabilities with respect to the Company-New Morton Joint
Qualified Plans to the extent attributable to the New Morton Individuals are
reflected on New Morton's consolidated
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balance sheet rather than the Company's consolidated balance sheet as of the
Cut-off Date.
Section 2.04 Foreign Plans. (a) With respect to each New Morton
Free-Standing Foreign Plan:
(i) New Morton and the Company shall take, or cause to be taken, all
such action as may be necessary or appropriate in order to establish New
Morton or one or more New Morton Subsidiaries, as appropriate, as
successor to the Company or any of its subsidiaries as to all rights,
assets, duties, liabilities and obligations as of the Cut-off Date under,
or with respect to, such New Morton Free-Standing Foreign Plan. The
Company agrees that it shall, as soon as practicable, provide New Morton
with all information (in the possession of the Company or a Company
Subsidiary and not already in the possession of New Morton or a New Morton
Subsidiary) as may be reasonably requested by New Morton and necessary for
the New Morton or New Morton Subsidiaries to administer effectively such
New Morton Free-Standing Foreign Plan.
(ii) From and after the Cut-off Date, the Company and the Company
Subsidiaries shall cease to have any liability or obligation whatsoever
under such New Morton Free-Standing Foreign Plan; provided, however, that
the Company shall make all required contributions to such New Morton
Free-Standing Foreign Plan for all Prior Plan Years, to
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the extent not previously made. The Company and New Morton shall take such
action as is necessary to effect an adjustment to the books of the Company
and New Morton so that, as of the Cut-off Date, the prepaid expense
balances and accrued pension liabilities with respect to such New Morton
Free-Standing Foreign Plan are reflected on New Morton's consolidated
balance sheet, rather than the Company's consolidated balance sheet as of
the Cut-off Date. As of the Cut-off Date, New Morton and the New Morton
Subsidiaries shall assume or retain, as the case may be, and shall be
solely responsible for, all liabilities and obligations whatsoever under
such New Morton Free-Standing Foreign Plan, except as otherwise
specifically provided in this Section 2.04(a)(ii).
(b) Effective as of the Cut-off Date, Company and the Company
Subsidiaries shall take, or cause to be taken, all such action as may be
necessary or appropriate in order to establish Company or one or more Company
Subsidiaries, as appropriate, to retain and be solely responsible for all
assets, liabilities and obligations whatsoever of the Company and its
subsidiaries under each Company Retained Foreign Plan. The Company and New
Morton shall take such action as is necessary to effect an adjustment to the
books of the Company and New Morton so that, as of the Cut-off Date, the prepaid
expense balances and accrued pension liabilities with respect to the Company
Retained Foreign Plans are reflected on the Company's
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consolidated balance sheet rather than New Morton's consolidated balance sheet
as of the Cut-off Date. From and after the Cut-off Date, New Morton and the New
Morton Subsidiaries shall cease to have any liability or obligation whatsoever
with respect to any of the Company Retained Foreign Plans.
Section 2.05 Welfare Plans.
(a) As of the Cut-off Date, New Morton shall assume or retain, or
cause a New Morton Subsidiary to assume or retain, as the case may be, and shall
be solely responsible for, or cause its insurance carriers to be responsible
for, all liabilities and obligations whatsoever of the Company and its
subsidiaries whether or not incurred prior to the Cut-off Date in connection
with claims under any Welfare Plan (including any Welfare Plan providing for
post-retirement benefits) brought by or in respect of any New Morton Individual
and the Company and the Company Subsidiaries shall cease to have any such
liability or obligation.
(b) New Morton shall take, or cause to be taken, all actions
necessary and appropriate on behalf of itself and the New Morton Subsidiaries
(i) to assume any existing Welfare Plan of the Company or any of its
subsidiaries, which Welfare Plan, as of the Cut-off Date, provides benefits
solely for New Morton Individuals or (ii) otherwise to adopt such Welfare Plans
as necessary to provide welfare benefits, effective as of the Cut-off Date, and
in either case shall assume the liabilities and
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obligations to New Morton Individuals which are or shall become the
responsibility of New Morton under Section 2.05(a). For this purpose with
respect to any New Morton individual, New Morton or a New Morton Subsidiary
shall, to the extent applicable, credit such New Morton Individual with term of
service and consider such New Morton Individual to have satisfied any other
eligibility criteria (including satisfaction of applicable deductibles or
coinsurance amounts) as of the Cut-off Date as if such service had been rendered
to New Morton or the New Morton Subsidiary and as if such eligibility criteria
had been satisfied while employed by New Morton or the New Morton Subsidiary. In
connection with the foregoing, the Company agrees to provide New Morton or its
designated insurance representative with such information (in the possession of
the Company or any Company Subsidiary and not already in the possession of New
Morton or a New Morton Subsidiary) as may be reasonably requested by New Morton
and necessary for New Morton and the New Morton Subsidiaries to assume or
establish any such Welfare Plan.
(c) The Company shall take, or cause to be taken, all actions
necessary and appropriate to direct the trustee of the Company VEBA to transfer
in cash to the new trustee or other funding agent appointed by New Morton for a
trust arrangement similar to the Company VEBA the amount of assets in such trust
determined by the Accountants to be attributable as of the last day of the month
in which the Cut-off Date occurs
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to contributions (and earnings thereon) made by the employees who are New Morton
Employees. The Company shall, as soon as practicable after the Distribution
Date, provide New Morton with such additional information (not already in the
possession of New Morton or the New Morton Subsidiaries) as may be reasonably
requested by New Morton and necessary in order for the New Morton Subsidiaries
to manage effectively the trust assets transferred in accordance with this
Section 2.05(c).
(d) The Company and the Company Subsidiaries shall assume, or
retain, all liabilities and obligations whatsoever of the Company and its
subsidiaries for benefits under any Welfare Plan other than as set forth in
Section 2.05(a).
Section 2.06 Stock Option Plans. The Company and New Morton shall
cooperate and take all action necessary (including obtaining the consent of the
holders of the Company Options, if required, and, if deemed necessary or
appropriate, seeking a "no-action" letter or interpretive advice from the
Commission) to amend (if necessary) the Company Option Plan and to adopt the New
Morton Option Plan so that as of the Distribution Date, each Company Option
which is outstanding and not exercised immediately prior to the Distribution
Date and which is held by a New Morton Individual shall, without any action on
the part of the holder thereof, be converted into an option to purchase shares
of New Morton Common Stock, the number of shares of New Morton Common Stock
subject to, and the exercise
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price of such option to be determined in accordance with, the requirements of
Section 424 of the Code and the regulations promulgated thereunder, based upon
(A) the average of the high and low trading prices on the New York Stock
Exchange for the Company Common Stock for each of the last five trading days
prior to the Ex-Distribution Date and (B) the average of the high and low
trading prices on the New York Stock Exchange for the New Morton Common Stock
for each of the first five trading days following the Distribution Date on which
the New Morton Common Stock is traded regular way on the New York Stock
Exchange; such option to be subject to substantially similar terms and
conditions as in effect prior to the conversion. The exercise price of any such
option shall be rounded to the nearest $.01; the number of shares subject to any
such option shall be rounded to the nearest share. Any related limited stock
appreciation rights or supplemental cash payment rights held by New Morton
Individuals shall be adjusted in a consistent manner and shall be assumed by,
and become the responsibility of, New Morton.
Section 2.07 Company Incentive Plans.
(a) The Company shall be responsible for the payment of all
liabilities and obligations for benefits due and payable or unpaid as of and
through the Cut-off Date under each Company Incentive Plan with respect to any
Prior Plan Year (other than the Current Plan Year). Any deferred bonuses that
were earned
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with respect to any Prior Plan Year that are not paid as of the Cut-off Date
shall be treated as benefits for the Current Plan Year in accordance with
Section 2.07(b).
(b) Except as specifically provided in Section 2.06, for any Current
Plan Year under each Company Incentive Plan, the Company and the Company
Subsidiaries shall be responsible for the payment of all liabilities and
obligations for benefits unpaid as of and through the Cut-off Date (including
for deferred compensation) with respect to Company Individuals and New Morton
and the New Morton Subsidiaries shall assume and be responsible for the payment
of all liabilities and obligations for benefits unpaid as of and through the
Cut-off Date (including for deferred compensation) with respect to New Morton
Individuals. Except as specifically provided in Section 2.06, each of the
Company and New Morton will, to the extent practicable, either continue each
such Company Incentive Plan or adopt a new Plan in substitution therefor and, in
this connection, adjust, in a manner equitable to participants, any incentive
goals contained in each Company Incentive Plan to reflect the Distribution.
(c) For purposes of the Company Incentive Plans, individuals who, in
connection with the Distribution, cease to be employees of the Company and
become New Morton Employees shall not be deemed to have terminated employment
for purposes of any deferral elections made by such individuals and service
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with New Morton shall be deemed continuous service with the Company.
Section 2.08 Severance Pay.
(a) New Morton and the Company agree that, with respect to
individuals who, in connection with the Distribution, cease to be employees of
the Company and become New Morton Employees, such cessation shall not be deemed
a severance of employment from the Company and its subsidiaries for purposes of
any Plan of the Company or any of its subsidiaries that provides for the payment
of severance, salary continuation or similar benefits and shall, in connection
with the Distribution, if and to the extent appropriate obtain waivers from
individuals against any such assertion.
(b) Notwithstanding anything in the Agreement to the contrary, the
Company and the Company Subsidiaries shall assume and be solely responsible for
all liabilities and obligations whatsoever in connection with claims made by or
on behalf of the Company Individuals and New Morton and the New Morton
Subsidiaries shall assume and be solely responsible for all liabilities and
obligations whatsoever in connection with claims made by or on behalf of New
Morton Individuals in respect of severance pay, salary continuation and similar
obligations relating to the termination or alleged termination of any such
person's employment either before, to the extent unpaid on the Cut-off Date, or
on or after the Cut-off Date.
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Section 2.09 Company Restricted Trust.
(a) Effective as of the Distribution Date, New Morton shall or shall
cause one or more New Morton Subsidiaries, as appropriate, to assume or retain,
as the case may be, and be solely responsible for, all assets, liabilities and
obligations whatsoever of the Company and its subsidiaries with respect to New
Morton Individuals to the extent such liabilities are funded as of the Cut-off
Date under the Company Restricted Trust. In this connection, New Morton agrees
to establish one or more trusts substantially similar to the Company Restricted
Trust to hold the assets attributable to such liabilities and the Company agrees
to take such action as may be necessary to amend the Company Restricted Trust to
effectuate the purposes of this Section 2.09 and to direct the trustee of the
Company Restricted Trust to transfer to the new trustee or other funding agent
appointed by New Morton the amount of assets, plus the portion of any
unallocated contributions and trust earnings, determined by the Enrolled Actuary
in accordance with the procedures set forth on Annex II hereto to be
attributable to New Morton Individuals. Such transfer shall be made in cash,
securities, other property or a combination thereof, as determined by the
Company and New Morton.
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Section 2.10 Company Miscellaneous Plans; Post-Distribution
Liabilities.
(a) The Company and the Company Subsidiaries shall be solely
responsible for the payment of all liabilities and obligations whatsoever with
respect to any Company Individual unpaid as of and through the Cut-off Date
under any Company Miscellaneous Plan and New Morton and the New Morton
Subsidiaries shall assume and be solely responsible for the payment of all
liabilities and obligations whatsoever with respect to any New Morton Individual
unpaid as of and through the Cut-off Date under any Company Miscellaneous Plan.
(b) The Company and the Company Subsidiaries shall be solely
responsible for the payment of all liabilities and obligations whatsoever
arising with respect to any Company Individual and attributable to any period
subsequent to the Cut-off Date and New Morton and the New Morton Subsidiaries
shall be solely responsible for the payment of all liabilities and obligations
whatsoever arising with respect to any New Morton Individual and attributable to
any period subsequent to the Cut-off Date.
Section 2.11 Collective Bargaining Agreements; Labor Management
Relations Act. New Morton agrees that it shall assume and discharge all of the
liabilities and obligations of the Company and its subsidiaries relating to New
Morton Individuals which have not been satisfied as of and through the
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Cut-off Date with respect to any Collective Bargaining Agreement, and to be
bound by any and all provisions of such Collective Bargaining Agreements with
respect to such New Morton Individuals as if New Morton or a New Morton
Subsidiary were the signatory employer. The provisions of this Section 2.11 are,
to the extent applicable, governed by and subject to the Labor Management
Relations Act, as amended.
Section 2.12 Other Balance Sheet Adjustments. To the extent not
otherwise provided in this Agreement, the Company and New Morton shall take such
action as is necessary to effect an adjustment to the books of the Company and
New Morton so that, as of the Cut-off Date, the prepaid expense balances and
accrued liabilities with respect to any employee liability or obligation assumed
or retained as of the Cut-off Date by the Company and the Company Subsidiaries,
on the one hand, and New Morton and the New Morton Subsidiaries, on the other
hand, are appropriately reflected on the respective consolidated balance sheets
as of the Cut-off Date, respectively, of the Company and New Morton.
Section 2.13 Preservation of Rights To Amend or Terminate Plans. No
provisions of this Agreement, including, without limitation, the agreement of
the Company or New Morton that it, or any Company Subsidiary or New Morton
Subsidiary, will make a contribution or payment to or under any Plan herein
referred to for any period, shall be construed as a limitation
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on the right of the Company or New Morton or any Company Subsidiary or New
Morton Subsidiary to amend such Plan or terminate its participation therein
which the Company or New Morton or any Company Subsidiary or New Morton
Subsidiary would otherwise have under the terms of such Plan or otherwise, and
no provision of this Agreement shall be construed to create a right in any
employee or former employer or beneficiary of such employee or former employee
under a Plan which such employee or former employer or beneficiary would not
otherwise have under the terms of the Plan itself.
Section 2.14 Reimbursement; Indemnification. The Company and New
Morton acknowledge that the Company and the Company Subsidiaries, on the one
hand, and New Morton and the New Morton Subsidiaries, on the other hand, may
incur costs and expenses (including, but not limited to, contributions to Plans
and the payment of insurance premiums) arising from or related to any of the
Plans which are, as set forth in this Agreement, the responsibility of the other
party hereto. Accordingly, the Company (and any Company Subsidiary responsible
therefor) and New Morton (and any New Morton Subsidiary responsible therefor)
agree to reimburse each other, as soon as practicable but in any event within 30
days of receipt from the other party of appropriate verification, for all such
costs and expenses reduced by the amount of any tax reduction or recovery of tax
benefit realized by the Company or New Morton, as the case may
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be, in respect of the corresponding payment made by it; provided, however, that
notwithstanding anything in this Section 2.14 to the contrary, costs and
expenses or other recovery arising from any challenge by the U.S. Government to
the allocation of assets set forth in Section 2.03 shall not be subject to
reimbursement and indemnification under this Agreement or the Distribution
Agreement. All liabilities and obligations retained, assumed or indemnified by
New Morton or any New Morton Subsidiary pursuant to this Agreement, in each
case, shall be deemed to be New Morton Liabilities, as defined in the
Distribution Agreement, and all liabilities retained, assumed or indemnified by
the Company or any Company Subsidiary pursuant to this Agreement, shall be
deemed to be Safety Liabilities, as defined in the Distribution Agreement, and,
in each case, shall be subject to the indemnification provisions set forth in
Article V thereof.
Section 2.15 Further Transfers. The Company and New Morton recognize
that there may be New Morton Individuals who will, after the Distribution Date,
become employed by the Company and there may be Company Individuals who become
employed, after the Distribution Date, by New Morton. Any such transfers or
assumptions will be considered to be governed by the terms of this Agreement and
shall not require the agreement of the Company and New Morton if they occur
within 12 months of the Distribution Date. After such date, if the Company and
New
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Morton so agree with respect to any such individuals, the assets and liabilities
with respect to such employees which are associated with the plans and programs
described in this Agreement may be transferred and assumed in a manner
consistent with this Agreement. Any costs associated with or arising out of such
transfers and assumptions shall be borne by the party that becomes the new
employer of the transferred individual.
ARTICLE III
MISCELLANEOUS
Section 3.01 Complete Agreement; Construction. This Agreement,
including the Schedules and Annexes hereto and the agreements and documents
referred to herein, shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Notwithstanding any other provisions in this Agreement or the Distribution
Agreement to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of the Distribution Agreement and this
Agreement, the provisions of this Agreement shall control, except with respect
to Section 9.03 of the Distribution Agreement, which shall control over any
contrary provision hereof.
Section 3.02 Guarantee of Subsidiaries' Obligations. The Company
shall cause to be performed, and hereby guarantees
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the performance and payment of, all actions, agreements, obligations and
liabilities set forth herein to be performed or paid by the Company Subsidiaries
and New Morton shall cause to be performed, and hereby guarantees the
performance and payment of, all actions, obligations and liabilities set forth
herein to be performed or paid by the New Morton Subsidiaries.
Section 3.03 Failure of the Company and New Morton To Agree on
Certain Determinations. In any case in which the Company shall disagree with the
determination of an amount which this Agreement requires to be made by the
Enrolled Actuary or the Accountants (as the case may be), the Company shall have
the right within 30 days after receipt of notice of such determination and
back-up workpapers to engage at the expense of the Company, an enrolled actuary
(or "Big Six" accounting firm) to make the determination of such amount. If the
amount determined by such actuaries (or "Big Six" accounting firm) should
differ, such amount shall be finally determined by another enrolled actuary (or
"Big Six" accounting firm) selected by agreement between or among the Enrolled
Actuary (or the Accountants) and the enrolled actuary or enrolled actuaries (or
Big Six accounting firm or firms) for the Company, whose fees and expenses shall
be borne solely by the Company.
Section 3.04 Governing Law. Subject to applicable federal law, this
Agreement shall be governed by and construed
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in accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
Section 3.05 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To the Company:
[Name to come]
[3350 Airport Road]
[Ogden, Utah 84409]
Attention: Corporate Secretary
with a copy to:
Autoliv, Inc.
[Address To Come]
Attention: Corporate Secretary
and
Skadden, Arps, Slate, Meagher & Flom
25 Bucklersbury
London EC4N 8DA, England
Attention: Scott V. Simpson, Sr., Esq.
To New Morton:
[New] Morton International, Inc.
100 North Riverside Drive
Chicago, Illinois 60606-1560
Attention: Corporate Secretary
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Jodi J. Schwartz
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Section 3.06 Amendments. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
Section 3.07 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 3.08 Termination. This Agreement may be terminated in the
event that the Distribution Agreement is terminated and the Distribution
abandoned prior to the Distribution Date. In the event of such termination,
neither party shall have any liability of any kind to the other party.
Section 3.09 No Third Party Beneficiaries. This Agreement is solely
for the benefit of the parties hereto and their respective subsidiaries and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
Section 3.10 Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning of or interpretation of this Agreement.
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Section 3.11 Schedules. The Schedules shall be construed with and as
an integral part of this Agreement to the same extent as if the same had been
set forth verbatim herein.
Section 3.12 Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
MORTON INTERNATIONAL, INC.
By ________________________________
Title:
NEW MORTON INTERNATIONAL, INC.
By ________________________________
Title:
<PAGE>
Exhibit 10.2
Form of Agreement
================================================================================
TAX SHARING AGREEMENT
dated as of [________], 1997
by and between
Morton International, Inc.,
an Indiana corporation
and
New Morton International, Inc.,
an Indiana corporation
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
.................................................. 2
ARTICLE II
FILING OF TAX RETURNS
Section 2.01 Manner of Filing.................................. 6
Section 2.02 Pre-Distribution Tax Returns...................... 7
Section 2.03 Post-Distribution Tax Returns..................... 9
ARTICLE III
BALANCE SHEET ADJUSTMENTS AND PAYMENT OF TAXES
Section 3.01 Allocation of Tax Liabilities With Respect
to Unfiled Returns for Pre-Distribution
Periods......................................... 10
(a) United States Consolidated Income
Tax for Periods Ended on the
Distribution Date.......................... 10
(b) State and Local Income and Similar
Taxes for Periods Ended on or
Before the Distribution Date for
which the Company is Responsible........... 13
(c) Federal, State and Local Taxes Other
Than Income Taxes for Periods that
Include the Distribution Date for
which the Company is Responsible........... 16
(d) Federal, State and Local Taxes for
which New Morton is Responsible............ 18
(e) Foreign Tax Returns.......................... 21
Section 3.02
(a) Change in the Company Filed Returns.......... 21
(b) Changes in New Morton Group Member
Filed Returns.............................. 24
(c) Manner of Payment; Miscellaneous............. 27
Section 3.03 Restructuring Taxes............................... 27
Section 3.04 Liability for Taxes with Respect to Post-
Distribution Periods............................ 28
Section 3.05
(a) Carrybacks................................... 29
(b) Payment...................................... 30
Section 3.06 Liabilities....................................... 30
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Section 3.07 Payment........................................... 33
Section 3.08 Breach............................................ 33
ARTICLE IV
INDEMNITY; COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01 Indemnity......................................... 34
Section 4.02 Tax Controversies................................. 35
Section 4.03 Cooperation and Exchange of Information........... 39
ARTICLE V
MISCELLANEOUS
Section 5.01 Expenses.......................................... 42
Section 5.02 Entire Agreement; Termination of Prior
Agreements...................................... 42
Section 5.03 Notices........................................... 43
Section 5.04 Resolution of Disputes............................ 44
Section 5.05 Application to Present and Future
Subsidiaries.................................... 44
Section 5.06 Term.............................................. 45
Section 5.07 Titles and Headings............................... 45
Section 5.08 Legal Enforceability.............................. 45
Section 5.09 Singular and Plural............................... 46
Section 5.10 Governing Law..................................... 46
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<PAGE>
TAX SHARING AGREEMENT
Tax Sharing Agreement (the "Agreement"), dated as of [________],
1997, by and between Morton International, Inc., an Indiana corporation (the
"Company"), and New Morton International, Inc., an Indiana corporation and a
wholly owned subsidiary of the Company ("New Morton").
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to enter into the Distribution Agreement (the
"Distribution Agreement") dated as of [________], 1997, by and between the
Company and New Morton, pursuant to which, among other things, the Company will
distribute to holders of its common stock all the issued and outstanding shares
of common stock of New Morton (the "Distribution");
WHEREAS, the Board of Directors of the Company has determined it is
appropriate and desirable to enter into the Combination Agreement, dated as of
November 25, 1996 (the "Combination Agreement"), by and among the Company,
Autoliv AB, a corporation organized under the laws of the Kingdom of Sweden
("Autoliv"), Autoliv, Inc., a Delaware corporation ("New Parent"), and ASP
Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of New
Parent ("Safety Sub"), pursuant to which, among other things, Safety Sub will be
merged with and into the Company (the "Merger") and New Parent will offer to
acquire all of the outstanding capital stock of Autoliv
<PAGE>
pursuant to the Offer (as defined in the Combination Agreement, and, together
with the other transactions contemplated thereby, the "Transactions");
WHEREAS, the Company, on behalf of itself and its present and future
subsidiaries other than the New Morton Group (as hereinafter defined) (the
"Company Group"), and New Morton, on behalf of itself and its present and future
subsidiaries (the "New Morton Group"), wish to provide for the allocation
between the Company Group and the New Morton Group of all responsibilities,
liabilities and benefits relating to or affecting Taxes (as hereinafter defined)
paid or payable by either of them for all taxable periods, whether beginning
before, on or after the Distribution Date (as hereinafter defined) and to
provide for certain other matters.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
Any capitalized terms used but not defined in this Agreement shall
have the meanings ascribed thereto in the Distribution Agreement. As used in
this Agreement, the following terms shall have the following meanings (such
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meanings to be equally applicable to both the singular and the plural forms of
the terms defined):
"Code" means the Internal Revenue Code of 1986, as amended, and
shall include corresponding provisions of any subsequently enacted federal tax
laws.
"Distribution Date" means the date determined by the Company's Board
of Directors as of which the Distribution shall be effected[, which is presently
contemplated to be [ ], 1997.]
"due date" means, with respect to any Tax Return or payment, the
date on which such Tax Return is due to be filed with or such payment is due to
be made to the appropriate governmental authority pursuant to applicable law,
giving effect to any applicable extensions of the time for such filing or
payment.
"Final Determination" shall mean the final resolution of liability
for any Tax for a taxable period, (i) by IRS Form 870 or 870-AD (or any
successor forms thereto), on the date of acceptance by or on behalf of the IRS,
or by a comparable form under the laws of other jurisdictions; except that a
Form 870 or 870-AD or comparable form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim for refund and/or
the right of the taxing authority to
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assert a further deficiency shall not constitute a Final Determination; (ii) by
a decision, judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (iii) by a closing
agreement or accepted offer in compromise under Section 7121 or 7122 of the
Code, or comparable agreements under the laws of other jurisdictions; (iv) by
any allowance of a refund or credit in respect of an overpayment of Tax, but
only after the expiration of all periods during which such refund may be
recovered (including by way of offset) by the Tax imposing jurisdiction; or (v)
by any other final disposition, including by reason of the expiration of the
applicable statute of limitations.
"IRS" means the Internal Revenue Service.
"Reasonable Basis" means "reasonable basis" within the meaning of
section 1.6662-7(d) of the Treasury Regulations.
"Restructuring Taxes" means any Taxes resulting from the transfers
of stock and/or assets undertaken to effect the Distribution; including, without
limitation, any Tax imposed pursuant to or as a result of Code Section 311.
"Tax" means any of the Taxes.
"Tax Benefit" means any item of loss, deduction, credit or any other
Tax Item which decreases Taxes paid or payable.
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"Tax Detriment" means any item of income, gain, recapture of credit
or any other Tax Item which increases Taxes paid or payable.
"Tax Item" means any item of income, gain, loss, deduction, credit,
recapture of credit or any other item which increases or decreases Taxes paid or
payable, including an adjustment under Code Section 481 resulting from a change
in accounting method.
"Tax Return" means any return, filing, questionnaire or other
document required to be filed, including requests for extensions of time,
filings made with estimated tax payments, claims for refund and amended returns
that may be filed, for any period with any taxing authority (whether domestic or
foreign) in connection with any Tax or Taxes (whether or not a payment is
required to be made with respect to such filing).
"Taxes" means all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use, ad valorem,
gross receipts, value added, franchise, transfer, recording, withholding,
payroll, employment, excise, occupation, premium and property taxes, together
with any related interest, penalties and additions to any such tax, or
additional amounts imposed by any taxing authority (domestic or foreign) upon
the
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New Morton Group, the Company Group or any of their respective members,
divisions, assets or branches.
ARTICLE II
FILING OF TAX RETURNS
Section 2.01. Manner of Filing. All Tax Returns filed after the date
hereof relating to taxable periods beginning prior to the close of business on
the Distribution Date shall be prepared on a basis which is consistent with the
rulings obtained in connection with the Distribution (in the absence of a
controlling change in law or circumstances) and otherwise in accordance with
past practice and shall be filed on a timely basis (including extensions) by the
party responsible for such filing under this Agreement. To the extent that an
inconsistent position would result in a Tax Detriment to the other party and in
the absence of a controlling change in law or circumstances, all Tax Returns
filed after the date hereof relating to taxable periods beginning prior to the
Distribution Date shall be prepared on a basis consistent with the elections,
accounting methods, conventions, and principles of taxation used for the most
recent taxable periods for which Tax Returns involving similar Tax Items have
been filed. Subject to the provisions of this Agreement, all decisions relating
to the preparation of Tax Returns shall be made in the reasonable discretion of
the party responsible under this Agreement for such preparation.
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Section 2.02. Pre-Distribution Tax Returns. All consolidated federal
income Tax Returns which include a member of the Company Group and the New
Morton Group that are required to be filed for periods beginning before the
Distribution Date ("Pre-Distribution Federal Periods") shall be prepared by New
Morton and provided to the Company at least twenty days prior to the due date
for such Tax Return. If requested to do so by New Morton, the Company shall make
consent dividend elections or any other elections provided for under the Code
and, for a newly organized New Morton Group member, including, without
limitation, New Morton, to adopt any permissible accounting method with respect
to the Company's consolidated federal income Tax Return for the Company's
taxable year ending on the Distribution Date; provided, that the Company shall
not be required to make any such election if the Company determines in good
faith that such election would cause a material Tax Detriment or other material
adverse effect to any member of the Company Group.
All state and local income and/or franchise Tax Returns or other Tax
Returns for state and local Taxes measured by income including, without
limitation, the Michigan Single Business Tax, which include a member of the
Company Group and/or the New Morton Group that may be or are required to be
filed for periods beginning before the Distribution Date shall be prepared by
New Morton and provided to the Company at least
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twenty days prior to the due date for such Tax Return. Notwithstanding the
foregoing, if the corresponding return for the most recent period for which such
a Tax Return was filed was filed by a member of the New Morton Group, such New
Morton Group member shall file such return.
Unless otherwise agreed to by the Company and New Morton, all
foreign Tax Returns and any other Tax Returns not described elsewhere in this
Section 2.02 which include a member of the New Morton Group that are required to
be filed for periods beginning before the Distribution Date shall be prepared by
New Morton and provided to the Company at least twenty days prior to the due
date for such Tax Return. Such Tax Return shall be filed by the member of the
Company Group or the New Morton Group, as the case may be, who filed the
corresponding Tax Return for the most recent period for which such a Tax Return
has been filed, or, if no such corresponding Tax Return has been filed, by the
appropriate entity in accordance with local law or custom.
Except as otherwise provided in this Section 2.02, the Company shall
consent to and assume responsibility for the filing of each Tax Return described
in this Section 2.02 as prepared by New Morton, which consent shall not be
withheld unless the Company delivers written notice to New Morton that the
Company disagrees with one or more Tax Items (each, a "Disputed Item") in such
Tax Return at least ten days prior to the
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due date for such Tax Return. If, after receiving such notice and prior to such
due date for such Tax Return, New Morton delivers to the Company an opinion of
nationally recognized tax counsel to the effect that each of the Disputed Items
has a Reasonable Basis, then the Company shall file such Tax Return as prepared
by New Morton, and an amended Tax Return shall, if necessary, be filed to report
such Disputed Item as determined pursuant to Section 5.04 of this Agreement.
Notwithstanding the foregoing, if the Company disagrees with the treatment of
any Tax Item as reported on a Tax Return described in this Section 2.02, and
such Tax Item is a Tax Item the liability for which is allocated to the Company
pursuant to Article III hereof (a "Safety Item"), such Safety Item shall be
reported as directed by the Company, provided that the Company shall first
provide New Morton with an opinion of counsel to the effect that there is a
Reasonable Basis for the treatment of such Safety Item as directed by the
Company. If New Morton and the Company have not agreed to the treatment of a
Safety Item as of the due date of such Tax Return, the Tax Return shall be filed
as prepared by New Morton, and an amended Tax Return shall, if necessary, be
filed to report such Safety Item as determined pursuant to Section 5.04 of this
Agreement.
Section 2.03. Post-Distribution Tax Returns. All Tax Returns for
periods beginning after the Distribution Date shall be the responsibility of the
New Morton Group if such Tax
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Returns relate solely to New Morton Businesses, and all other Tax Returns shall
be the responsibility of the Company.
ARTICLE III
BALANCE SHEET ADJUSTMENT
AND PAYMENT OF TAXES
Section 3.01. Allocation of Tax Liabilities With Respect to
Unfiled Returns for Pre-Distribution Periods.
(a) United States Consolidated Income Tax for Periods Ended on the
Distribution Date. Except as otherwise provided in this Section 3.01(a), the
Company shall pay, on a timely basis, all Taxes due with respect to the United
States consolidated income tax liability for Pre-Distribution Federal Periods
("Pre-Distribution Consolidated Federal Tax Liability"). New Morton hereby
assumes and agrees to pay on or prior to the due date for payment thereof its
share of the Pre-Distribution Consolidated Federal Tax Liability, which payment
may be made either directly to the IRS by New Morton (provided that New Morton
shall provide the Company with written notice of such payment at least ten
business days prior to the due date of the corresponding Tax Return and provide
proof of such payment within five business days of making such payment) or to
the Company which shall then forward such New Morton payment to the IRS together
with its own payment, if any.
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New Morton's share of the Pre-Distribution Consolidated Federal
Tax Liability for each Pre-Distribution Federal Period shall be
(i) that portion of the total tax liability shown on the Company's
United States consolidated income tax return for such Pre-Distribution Federal
Period, as filed (each, a "Company Pre-Distribution Consolidated Federal
Return"), as would be allocated to New Morton under the Company's existing
federal income tax allocation election if: (p) the Company and New Morton were
separately incorporated members of the same consolidated group for such
Pre-Distribution Federal Period and all previous taxable periods; (q) the
Company owned and operated the Safety Business during such Pre-Distribution
Federal Period and all previous taxable periods; and (r) New Morton owned and
operated the New Morton Businesses during such Pre-Distribution Federal Period
and all previous taxable periods;
(ii) reduced by the sum of (x) all amounts paid by New Morton after
the Distribution Date with respect to such Pre-Distribution Consolidated Federal
Tax Liability, and (y) an amount equal to New Morton's share of all estimated
federal income tax payments remitted by the Company to the IRS on or prior to
the Distribution Date with respect to such Pre-Distribution Federal Period. New
Morton's share of all estimated federal income tax payments remitted by the
Company to the IRS on or prior to the Distribution Date with respect to
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such Pre-Distribution Federal Period shall (A) with respect to any such payment
made on or before June 30, 1996, be an amount equal to the product of (r) all
such payments and (s) the relevant New Morton Pre-Distribution Federal Tax Ratio
(as defined below) and (B) with respect to any such payment made on or after
July 1, 1996, be equal to the amount of such payments less the amounts taken
into account in determining "cash used in the Safety Business" for purposes of
Section 2.01(c) of the Distribution Agreement. The "New Morton Pre-Distribution
Federal Tax Ratio" for any Pre-Distribution Federal Period shall be the ratio of
New Morton's allocated federal income tax liability for such Pre-Distribution
Federal Period under Section 3.01(a)(i) above to the sum of the total tax
liability of the New Morton Group and the Company Group for such
Pre-Distribution Federal Period.
If the calculations made pursuant to paragraphs (i) and (ii) of this
Section 3.01(a) indicate that New Morton has either overpaid or underpaid its
share of any such Pre-Distribution Consolidated Federal Tax Liability, then at
the time that the relevant Company Pre-Distribution Consolidated Federal Return
is filed, the Company shall pay New Morton the amount of any such overpayment or
New Morton shall pay the Company the amount of any such underpayment, the amount
of such overpayment or underpayment, as the case may be, to be equal to the
difference between the amounts calculated pursuant to paragraphs (i) and (ii) of
this Section 3.01(a).
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All calculations and determinations required to be made pursuant to
this Section 3.01(a) shall be made in good faith by New Morton and shall be
subject to the Company's approval, which approval shall not be withheld unless
the Company in good faith reasonably disputes any such calculation or
determination, in which case any payments shall nevertheless be made in
accordance with New Morton's calculations and determinations, subject to
subsequent adjustment in accordance with the provisions of Section 5.04 of this
Agreement.
(b) State and Local Income and Similar Taxes for Periods Ended on or
Before the Distribution Date for which the Company is Responsible. Except as
otherwise provided in this Section 3.01(b), the Company shall pay, on a timely
basis, all state and local income taxes, and other Taxes the calculations of
which are based upon income, including, without limitation, the Michigan Single
Business Tax, with respect to taxable periods ending on or before the
Distribution Date ("Pre-Distribution State or Local Taxable Periods") for those
Tax Returns with respect to which it has filing responsibility pursuant to
Section 2.02 of this Agreement (each such Tax being individually referred to as
a "Pre-Distribution State or Local Income Tax"). New Morton hereby assumes and
agrees to pay on or prior to the due date thereof its share of each
Pre-Distribution State or Local Income Tax, which payment may be made either
directly to the appropriate taxing authority by New
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Morton (provided that New Morton shall provide the Company with written notice
of such payment at least ten business days prior to the due date of the
corresponding Tax Return and provide proof of such payment within five business
days of making such payment) or to the Company which shall then forward such New
Morton payment to the appropriate taxing authority together with its own
payment, if any. For each Pre-Distribution State or Local Taxable Period, New
Morton's share of each Pre-Distribution State or Local Income Tax shall be
(i) that portion of each such Tax as shown on the applicable Tax
Return, as filed, as the ratio (referred to as the "New Morton State or Local
Income Tax Ratio"), of the aggregate Pre-Distribution State or Local Income Tax
liability of the New Morton Group with respect to such Pre-Distribution State or
Local Taxable Period (determined on a separate return basis as if the corporate
separation contemplated by the Distribution Agreement had been effected on the
first day of each relevant taxable period), bears to the sum of the applicable
Pre-Distribution State or Local Income Tax liability of the New Morton Group and
the Company Group (each determined on a separate return basis as if the
corporate separation contemplated by the Distribution Agreement had been the
first day of each relevant taxable period);
(ii) reduced by the sum of (x) all amounts paid by New Morton after
the Distribution Date with respect to such
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Pre-Distribution State or Local Income Tax and (y) an amount equal to New
Morton's share of all estimated tax payments remitted by the Company to the
relevant taxing authority on or prior to the Distribution Date with respect to
each such Pre-Distribution State or Local Income Tax. New Morton's share of each
such estimated tax payment remitted by the Company to the relevant taxing
authority on or before the Distribution Date shall (A) with respect to any such
payment made on or before June 30, 1996, be an amount equal to the product of
(r) such payment and (s) the applicable New Morton Pre-Distribution State or
Local Income Tax Ratio and (B) with respect to any such payment made on or after
July 1, 1996, be equal to the amount of such payments less the amounts taken
into account in determining "cash used in the Safety Business" for purposes of
Section 2.01(c) of the Distribution Agreement.
With respect to each Pre-Distribution State or Local Income Tax, if
the calculations made pursuant to paragraphs (i) and (ii) of this Section
3.01(b) indicate that New Morton has either overpaid or underpaid its share of
such liability, then not later than 30 days after the actual filing date, the
Company shall pay New Morton the amount of any such overpayment or New Morton
shall pay the Company the amount of any such underpayment, the amount of such
overpayment or underpayment, as the case may be, to be equal to the difference
between the amounts calculated pursuant to paragraphs (i) and (ii) of this
Section 3.01(b).
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All calculations and determinations required to be made pursuant to
this Section 3.01(b) shall be made in good faith by New Morton and shall be
subject to the Company's approval, which approval shall not be withheld unless
the Company in good faith reasonably disputes any such calculation or
determination, in which case any payments shall nevertheless be made in
accordance with New Morton's calculations and determinations, subject to
subsequent adjustment in accordance with the provisions of Section 5.04 of this
Agreement.
(c) Federal, State and Local Taxes Other Than Income Taxes for
Periods that Include the Distribution Date for which the Company is Responsible.
Except as otherwise provided in this Section 3.01(c), the Company shall pay, on
a timely basis, all federal, state and local Taxes not dealt with in either
Section 3.01(a) or 3.01(b), with respect to all Tax Returns due after the
Distribution Date that include any period ending on or before the Distribution
Date with respect to which it has filing responsibility pursuant to Section 2.02
of this Agreement (each such Tax being individually referred to as an "1997
Other Tax"). New Morton hereby assumes and agrees to pay prior to the due date
thereof its share of each 1997 Other Tax, which payment may be made either
directly to the appropriate taxing authority by New Morton (provided that New
Morton shall provide the Company with written notice of such payment at least
ten business days prior to the due date of the corresponding Tax
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Return and provide proof of such payment within five business days of making
such payment) or to the Company which shall then forward such New Morton payment
to the appropriate taxing authority together with its own payment, if any. New
Morton's share of each 1997 Other Tax shall be
(i) that portion of each such Tax as shown on the applicable Tax
Return, as filed, as the ratio (referred to as the "New Morton 1997 Other Tax
Ratio") of the applicable 1997 Other Tax liability of the New Morton Group
(determined on a separate return basis as if the corporate separation
contemplated by the Distribution Agreement had been effected July 1, 1996),
bears to the sum of the applicable 1997 Other Tax liability of the New Morton
Group and the Company Group (each determined on a separate return basis as if
the corporate separation contemplated by the Distribution Agreement had been
effected July 1, 1996);
(ii) reduced by the sum of (x) all amounts paid by New Morton after
the Distribution Date with respect to such 1997 Other Tax and (y) an amount
equal to New Morton's share of all estimated or other similar payments remitted
by the Company to the relevant taxing authority on or prior to the Distribution
Date with respect to each such 1997 Other Tax. New Morton's share of each such
estimated or other similar payment remitted by the Company on or before the
Distribution Date
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shall be an amount equal to the product of (r) such payments and (s) the
applicable New Morton 1997 Other Tax Ratio.
With respect to each 1997 Other Tax, if the calculations made
pursuant to paragraphs (i) and (ii) of this Section 3.01(c) indicate that New
Morton has either overpaid or underpaid its share of such liability, then, not
later than 30 days after the actual filing date, the Company shall pay New
Morton the amount of such overpayment or New Morton shall pay the Company the
amount of any such underpayment, the amount of such overpayment or underpayment,
as the case may be, to be equal to the difference between the amounts calculated
pursuant to paragraphs (i) and (ii) of this Section 3.01(c).
All calculations and determinations required to be made pursuant to
this Section 3.01(c) shall be made in good faith by New Morton and shall be
subject to the Company's approval, which approval shall not be withheld unless
the Company in good faith reasonably disputes any such calculation or
determination, in which case any payments shall nevertheless be made in
accordance with New Morton's calculations and determinations, subject to
subsequent adjustment in accordance with the provisions of Section 5.04 of this
Agreement.
(d) Federal, State and Local Taxes for which New Morton is
Responsible. New Morton or a member of the New Morton Group, as the case may be,
shall pay, on a timely basis,
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all federal, state and local Taxes with respect to all Tax Returns due after the
Distribution Date with respect to periods ending on or before the Distribution
Date for which New Morton or any member of the New Morton Group has filing
responsibility pursuant to Section 2.02 of this Agreement (each such Tax being
individually referred to as a "New Morton 2.02 Tax"). The Company hereby assumes
and agrees to pay prior to the due date thereof its share of each New Morton
2.02 Tax, which payment may be made either directly to the appropriate taxing
authority by the Company (provided that the Company shall provide New Morton
with written notice of such payment at least ten business days prior to the due
date of the corresponding Tax Return and provide proof of such payment within
five business days of making such payment) or to New Morton which shall then
forward such Company payment to the appropriate taxing authority together with
its own payment, if any. The Company's share of each New Morton 2.02 Tax shall
be
(i) that portion of each such Tax as shown on the applicable Tax
Return (other than any amended Tax Return), as filed, as the ratio (referred to
as the "Company 2.02 Ratio") of the applicable New Morton 2.02 Tax liability of
the Company Group (determined on a separate return basis as if the corporate
separation contemplated by the Distribution Agreement had been effected July 1,
1996), bears to the sum of the applicable New Morton 2.02 Tax liability of the
Company Group and the New Morton Group (each determined on a separate return
basis as if
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the corporate separation contemplated by the Distribution Agreement had been
effected July 1, 1996);
(ii) reduced by the sum of (x) all amounts paid by the Company after
the Distribution Date with respect to such New Morton 2.02 Tax and (y) an amount
equal to the Company's share of all estimated or other similar payments remitted
by the Company on or prior to the Distribution Date, with respect to each such
New Morton 2.02 Tax. The Company's share of each such estimated or other similar
payment remitted by the Company on or before the Distribution Date shall be an
amount equal to the product of (r) such payments and (s) the applicable Company
2.02 Ratio.
With respect to each New Morton 2.02 Tax, if the calculations made
pursuant to paragraphs (i) and (ii) of this Section 3.01(d) indicate that the
Company has either overpaid or underpaid its share of such liability, then not
later than 30 days after the actual filing date, New Morton shall pay the
Company the amount of any such overpayment or the Company shall pay New Morton
the amount of such underpayment, the amount of such overpayment or underpayment,
as the case may be, to be equal to the difference between the amounts calculated
pursuant to paragraphs (i) and (ii) of this Section 3.01(d).
All calculations and determinations required to be made pursuant to
this Section 3.01(d) shall be made in good
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faith by New Morton and shall be subject to the Company's approval, which
approval shall not be withheld unless the Company in good faith reasonably
disputes any such calculation or determination, in which case any payments shall
nevertheless be made in accordance with New Morton's calculations and
determinations, subject to subsequent adjustment in accordance with the
provisions of Section 5.04 of this Agreement.
(e) Foreign Tax Returns. The New Morton Group shall be responsible
for the filing of all foreign Tax Returns that are due with respect to periods
ending on or before the Distribution Date and for the payment of all Taxes due
or payable in connection therewith.
Section 3.02. (a) Change in the Company Filed Returns. If as a
result of any audit, amendment or other change in a Tax Return as filed by the
Company or any of the Automotive Safety Businesses with respect to any period
ending on or before the Distribution Date, any Tax Benefit or Tax Detriment is
changed (a "Change"), then:
(i) If in connection with any such Change, the amount of the Tax
Detriments generated by or attributable to New Morton Businesses with respect to
the taxable period to which such return relates ("New Morton Business Tax
Detriments") exceeds the amount of Tax Benefits generated by or attributable to
New Morton Businesses with respect to such taxable period ("New Morton Business
Tax Benefits"), New Morton
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hereby assumes and agrees to pay to the appropriate taxing authority (provided
that New Morton shall provide the Company with written notice of such payment at
least ten business days prior to the due date of the corresponding Tax Return
and provide proof of such payment within five business days of making such
payment), or to the Company to the extent payment cannot be made directly to
such taxing authority the Company has previously made the payment to such taxing
authority, or no payment is due to the taxing authority, an amount equal to the
product of (x) the amount by which New Morton Business Tax Detriments exceed New
Morton Business Tax Benefits and (y) the actual marginal tax rate applicable
with respect to the relevant Tax Return, with appropriate adjustment to account
for Tax credits generated by or attributable to New Morton Businesses included
in such calculation and an amount equal to all interest payable with respect
thereto, which interest shall be calculated as hereinafter set forth. New Morton
shall pay interest at the rate the taxing jurisdiction imposes upon tax
deficiencies (the "Deficiency Rate") for the relevant periods with respect to
that portion of such tax payment attributable to the lesser of (a) the amount by
which New Morton Business Tax Detriments exceed New Morton Business Tax
Benefits, and (b) the amount by which New Morton Business Tax Detriments (net of
New Morton Business Tax Benefits) exceeds Automotive Safety Business Tax
Benefits net of Automotive Safety Business Tax
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Detriments, each as defined below. New Morton shall pay interest on the balance,
if any, of such tax payment (the "Balance") in an amount equal to one-half of
the sum of (x) the interest the taxing jurisdiction would have paid with respect
to the Balance had the Balance been a refund from the taxing jurisdiction, and
(y) the interest that New Morton would have paid to the taxing authority with
respect to the tax deficiency represented by the Balance, in each case, for the
relevant periods (the "Blended Rate").
(ii) If in connection with any such Change, the New Morton Business
Tax Benefits exceed the New Morton Business Tax Detriments, the Company shall
pay or cause to be paid to New Morton the product of (x) the amount by which New
Morton Business Tax Benefits exceed New Morton Business Tax Detriments and (y)
the actual marginal Tax rate applicable with respect to the relevant Tax Return,
with appropriate adjustment to account for Tax credits generated by or
attributable to New Morton Businesses included in such calculation plus a
payment equal to any interest received by the Company, acting as agent for New
Morton with respect to such amount. If, however, the refund of tax, exclusive of
interest, received by the Company as New Morton's agent is less than the amount
due New Morton pursuant to this Section 3.02(a)(ii), the Company shall also pay
to New Morton interest on the additional tax amount (the "Excess") in an amount
equal to one-half of the sum of (x) the interest the taxing jurisdiction would
have paid to the Company with respect
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to the Excess had the Excess been refunded by the taxing jurisdiction, and (y)
the interest the Company would have paid to the taxing jurisdiction with respect
to the Excess had the Excess been a deficiency due from the Company to such
jurisdiction, in each case, for the relevant periods.
(b) Changes in New Morton Group Member Filed Returns. If as a result
of any Change in any Tax Return as filed by any member of the New Morton
Businesses with respect to any period ending on or before the Distribution Date,
any Tax Benefit or Tax Detriment is changed, then:
(i) If in connection with any such Change, the amount of the Tax
Detriments generated by or attributable to Automotive Safety Businesses with
respect to the taxable period to which such return relates ("Automotive Safety
Business Tax Detriments") exceeds the amount of Tax Benefits generated by or
attributable to Automotive Safety Businesses with respect to such taxable period
("Automotive Safety Business Tax Benefits"), the Company shall pay to the
appropriate New Morton Business or to the appropriate taxing authority (provided
that the Company shall provide New Morton with written notice of such payment at
least ten business days prior to the due date of the corresponding Tax Return
and provide proof of such payment within five business days of making such
payment) an amount equal to the product of (x) the amount by which Automotive
Safety Business Tax Detriments exceed Automotive Safety
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Business Tax Benefits and (y) the actual marginal Tax rate applicable with
respect to the relevant Tax Return, with appropriate adjustment to account for
Tax credits generated by or attributable to the Safety Business included in such
calculation and an amount equal to all interest payable with respect thereto,
which interest shall be calculated as hereinafter set forth, any such payment to
be reduced to the extent it would otherwise duplicate any Tax refund received by
New Morton. The Company shall pay interest at the Deficiency Rate for the
relevant periods with respect to that portion of such tax payment attributable
to the lesser of (a) the amount by which the Automotive Safety Business Tax
Detriments exceed the Automotive Safety Business Tax Benefits, and (b) the
amount by which the Automotive Safety Business Tax Detriments (net of the
Automotive Safety Business Tax Benefits) exceeds New Morton Business Tax
Benefits (net of New Morton Business Tax Detriments). The Company shall pay
interest on the balance, if any, of such tax payment (the "Company Balance") in
an amount equal to one-half of the sum of (x) the interest the taxing
jurisdiction would have paid with respect to the Company Balance had the Company
Balance been a refund from the taxing jurisdiction, and (y) the interest that
the Company would have paid to the taxing authority with respect to the tax
deficiency represented by the Company Balance, in each case, for the relevant
periods (the "Company Blended Rate").
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(ii) If in connection with any such Change, the Automotive Safety
Business Tax Benefits exceed the Automotive Safety Business Tax Detriments, the
appropriate New Morton Business shall pay to the Company the product of (x) the
amount by which Automotive Safety Business Tax Benefits exceed Automotive Safety
Business Tax Detriments and (y) the actual marginal Tax rate applicable with
respect to the relevant Tax Return, with appropriate adjustment for Tax credits
generated by or attributable to the Safety Business included in such
calculation, such payment to be reduced to the extent it would otherwise
duplicate any Tax refund received by the Company directly from a taxing
authority plus a payment equal to any interest received by New Morton, acting as
agent for the Company with respect to such amount. If, however, the refund of
tax, exclusive of interest, received by New Morton as the Company's agent is
less than the amount due the Company pursuant to this Section 3.02(a)(ii), New
Morton shall also pay to the Company interest on the additional tax amount (the
"Company Excess") in an amount equal to one-half of the sum of (x) the interest
the taxing jurisdiction would have paid New Morton with respect to the Company
Excess had the Company Excess been refunded by the taxing jurisdiction, and (y)
the interest New Morton would have paid to the taxing jurisdiction with respect
to the Company Excess had the Company Excess been a deficiency due from New
Morton to such jurisdiction, in each case, for the relevant periods.
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(c) Manner of Payment; Miscellaneous. Any payment required to be
made pursuant to this Section 3.02 with respect to any Tax Return shall be made
by the party obligated to make such payment at such time as such party shall
reasonably determine and direct.
Section 3.03. Restructuring Taxes. (a) (i) Notwithstanding any other
provision of this Agreement to the contrary, and except as otherwise provided in
this Section 3.03(a) or in Section 9.03 of the Distribution Agreement, New
Morton shall pay or cause to be paid, and shall fully indemnify and hold
harmless the Company from and against, all Restructuring Taxes, including all
liability, costs and expenses associated with claims with respect to such
Restructuring Taxes asserted by third parties against any member of the Company
Group. New Morton hereby assumes and agrees to pay prior to the due date thereof
all such Restructuring Taxes, which payment may be made either directly to the
appropriate taxing authority by New Morton (provided that New Morton shall
provide the Company with written notice of such payment at least ten business
days prior to the due date of the corresponding Tax Return and provide proof of
such payment within five business days of making such payment) or to the Company
which shall then forward such New Morton payment to the appropriate taxing
authority.
(ii) Anything in this Section 3.03(a) to the contrary
notwithstanding, Section 3.03(a) hereof shall not apply
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to any Restructuring Taxes to the extent that all or any portion of such
Restructuring Taxes would not have resulted but for an act or omission of the
Company or any of its affiliates, a misrepresentation on the part of the Company
made in connection with the opinions of counsel described in Section 6.03 of the
Distribution Agreement, or any other post Distribution Date transaction
involving either the stock or assets of the Company or any of its affiliates.
(b) If the Company is otherwise required to recognize gain pursuant
to Code Section 311 with respect to the Distribution, then, to the extent
permitted by law or regulation, the Company, if so requested by New Morton,
shall elect pursuant to Code Section 336(e) to treat the Distribution as a
disposition of all the assets of New Morton; provided, that the Company shall
not be required to make any such election if the Company determines in good
faith that such election would cause a material Tax Detriment or other material
adverse effect to any member of the Company Group.
Section 3.04. Liability for Taxes with Respect to Post-Distribution
Periods. Unless otherwise provided in this Agreement, the Company Group shall
pay all Taxes and shall be entitled to receive and retain all refunds of Taxes
with respect to periods beginning after the Distribution Date which are
attributable to Automotive Safety Businesses. Unless otherwise provided in this
Agreement, the New Morton Group shall
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pay all Taxes and shall be entitled to receive and retain all refunds of Taxes
with respect to periods beginning after the Distribution Date which are
attributable to New Morton Businesses.
Section 3.05. (a) Carrybacks. Except as provided in this Section
3.05, if the consolidated federal income taxes of the Company Group are reduced
for a taxable period ending on or before the Distribution Date (a "Company Tax
Reduction"), by reason of (i) a New Morton loss or other Tax attribute arising
on or after the Distribution Date (a "New Morton Carryback"), and/or (ii) a
Company loss or other Tax attribute arising on or after the Distribution Date (a
"Company Carryback"), then the Company shall pay to New Morton an amount equal
to the portion of the Company Tax Reduction which is attributable to the New
Morton Carryback. If both a New Morton Carryback and a Company Carryback exist,
the rules of Treas. Reg. ss. 1.1502-21T(b) shall be applied to determine the
portion of the Company Tax Reduction attributable to the New Morton Carryback
and the Company Carryback, respectively. The preceding two sentences shall
apply, mutatis mutandis, to state and local Taxes. The Company shall, and shall
cause each member of the Company Group to, take all steps reasonably necessary
to receive a reduction in Taxes attributable to a New Morton Carryback.
Notwithstanding anything in this Section 3.05 to the contrary, the Company shall
not be required to take any action to carry back a New Morton Carryback if the
Company determines in good faith that
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carrying back such New Morton Carryback would cause a material Tax Detriment or
other material adverse effect to any member of the Company Group.
(b) Payment. Any payment required to be made pursuant to this
Section 3.05 shall be made no later than 10 days after the Company Tax Reduction
is actually received, credited or otherwise utilized by the Company. Any payment
not so made within 10 days shall thereafter bear interest at the Federal
short-term rate established pursuant to Section 6621 of the Code.
Section 3.06. Liabilities.
(a) To the extent that Taxes imposed on a member of the New Morton
Group are reduced for a taxable period beginning after the Distribution Date
(the "Section 3.06(a) Tax Reduction") by reason of a deduction, loss or credit
with respect to an item for which a member of the Company Group bore the
economic responsibility (such as a foreign tax credit), then New Morton shall
pay to the Company an amount equal to the Section 3.06(a) Tax Reduction;
provided, however, that if a New Morton Tax Benefit, but for such deduction,
loss or credit, would have resulted in a reduction in Taxes by New Morton or any
member of the New Morton Group (the "Section 3.06(a) Hypothetical Tax
Reduction") in the same taxable period with respect to which the Section 3.06(a)
Tax Reduction occurred (assuming that such
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New Morton Tax Benefit had been utilized to the extent otherwise possible in
such taxable period), New Morton shall pay to the Company only an amount equal
to the excess, if any, of the Section 3.06(a) Tax Reduction over the Section
3.06(a) Hypothetical Tax Reduction plus, for the taxable period in which the New
Morton Tax Benefit, in fact, results in a reduction of Taxes payable by the New
Morton Group an amount equal to such reduction of Taxes (but such aggregate
payments shall not exceed the amount of the Section 3.06(a) Tax Reduction). New
Morton shall, and shall cause each member of the New Morton Group to, take all
steps reasonably necessary to receive a reduction in Taxes attributable to such
deduction, loss or credit. Within twelve months of the end of each taxable year
New Morton shall provide the Company with an accounting setting forth the
utilization of the Section 3.06(a) Tax Reduction and New Morton Tax Benefits.
(b) To the extent that Taxes imposed on a member of the Company
Group are reduced for a taxable period (the "Section 3.06(b) Tax Reduction") by
reason of a deduction, loss or credit with respect to an item for which a member
of the New Morton Group bore the economic responsibility (such as a foreign tax
credit), then the Company shall pay to New Morton an amount equal to the Section
3.06(b) Tax Reduction; provided, however, that if the Company Tax Benefit, but
for such deduction, loss or credit, would have resulted in a reduction in Taxes
by the Company or any member of the Company Group (the
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<PAGE>
"Section 3.06(b) Hypothetical Tax Reduction") in the same taxable period with
respect to which the Section 3.06(b) Tax Reduction occurred (assuming that such
Company Tax Benefit had been utilized to the extent otherwise possible in such
taxable period), the Company shall pay to New Morton only an amount equal to
such excess, if any, of the Section 3.06(b) Tax Reduction over the Section
3.06(b) Hypothetical Tax Reduction plus, for the taxable period in which the
Company Tax Benefit, in fact, results in a reduction of Taxes payable by the
Company Group an amount equal to such reduction of Taxes (but such aggregate
payments shall not exceed the amount of the Section 3.06(b) Tax Reduction). The
Company shall, and shall cause each member of the Company Group to, take all
steps reasonably necessary to receive a reduction in Taxes attributable to such
deduction, loss or credit. Within twelve months of the end of each taxable year
the Company shall provide New Morton with an accounting setting forth the
utilization of the Section 3.06(b) Tax Reduction and the Company Tax Benefits.
(c) Any payment required to be made pursuant to this Section 3.06
shall be made no later than 10 days after the Section 3.06(a) Tax Reduction and
New Morton Tax Benefits or the Section 3.06(b) Tax Reduction, as the case may
be, is actually received, credited or otherwise utilized, after giving effect to
the Section 3.06(a) Hypothetical Tax Reduction or the Section 3.06(b)
Hypothetical Tax Reduction and the Company Tax Benefits, as the case may be. Any
payment not so made within
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10 days shall thereafter bear interest at the Federal short-term rate
established pursuant to Section 6621 of the Code.
Section 3.07. Payment. Pursuant to Article V of the Distribution
Agreement and Article III of this Agreement, a member of the Company Group will
or may assume or satisfy, or make an indemnification payment with respect to, a
liability of a member of the New Morton Group, and vice versa. If any such
payment or portion thereof by any member of either the New Morton Group or the
Company Group pursuant to Article III of this Agreement or Article V of the
Distribution Agreement is characterized by any taxing authority as a Tax
Detriment to a member of the other Group, then the payor shall pay the other
Group an additional amount so the total payments made by the payor equal the
sume of (i) the portion, if any, of such payments that was not characterized by
such taxing authority as a Tax Detriment, plus (ii) x/(l-y) where x is the
amount payable under said Article V of the Distribution Agreement or Article III
of this Agreement, as the case may be, which was characterized by such taxing
authority as a Tax Detriment, without reference to this Section 3.07, and y is
the then highest marginal blended rate reflecting the federal corporate income
Tax and applicable state and local corporate income Taxes.
Section 3.08. Breach. The Company shall indemnify and hold harmless
each member of the New Morton Group and New Morton shall indemnify and hold
harmless each member of the Company Group from and against any payment required
to be made as a result of the breach by a member of the
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Company Group or the New Morton Group, as the case may be, of any obligation
under this Agreement.
ARTICLE IV
INDEMNITY; COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01. Indemnity. (a) Notwithstanding anything to the
contrary in this Agreement, the Company shall indemnify and hold harmless each
member of the New Morton Group for, from and against all liability for all Taxes
or portion thereof for the payment of which the Company is responsible pursuant
to Article III of this Agreement.
(b) Notwithstanding anything to the contrary in this Agreement, New
Morton shall indemnify and hold harmless each member of the Company Group for,
from and against all liability for all Taxes or portion thereof for the payment
of which New Morton is responsible pursuant to Article III of this Agreement,
including, without limitation, any liability for Taxes for which New Morton is
responsible under Article III and which is imposed upon any member of the
Company Group pursuant to Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law as a result of any member of the New
Morton Group or the Company Group being a member of an affiliated, combined,
consolidated, unitary or similar group of corporations.
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Section 4.02. Tax Controversies. (a) Whenever a party hereto
(hereinafter an "Indemnitee") is notified in writing by any taxing authority of
the existence of an issue which could increase the liability for any Tax of the
other party hereto or any member of its Group (hereinafter an "Indemnity
Issue"), the Indemnitee shall promptly give notice to such other party
(hereinafter the "Indemnitor") of such Indemnity Issue. The Indemnitor and its
representatives, at the Indemnitor's expense, shall be entitled to participate
(i) in all conferences, meetings or proceedings with any taxing authority, the
subject matter of which is or includes an Indemnity Issue and (ii) in all
appearances before any court, the subject matter of which is or includes an
Indemnity Issue. The Responsible Party (as defined below) for any Tax Return
with respect to which there is an increase or decrease in liability for any Tax
or with respect to which a payment is required hereunder shall have the right to
decide as between the parties hereto how such matter is to be dealt with and
finally resolved with the appropriate taxing authority and shall control all
audits and similar proceedings. The Responsible Party agrees to cooperate in the
settlement of any Indemnity Issue with the other party and to take such other
party's interests into account. If the Indemnitor is not the Responsible Party,
such cooperation may include permitting the Indemnitor, at the Indemnitor's sole
expense, to litigate or otherwise resolve any Indemnity Issue. Notwithstanding
the foregoing, if the Responsible Party
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<PAGE>
is not the Indemnitor, the Responsible Party shall not enter into a final
settlement with the relevant taxing authority with respect to any matter
involving an Indemnity Issue without first presenting the proposed settlement to
the Indemnitor, who shall provide the Responsible Party with written consent to
such settlement within ten days of receipt (which consent may not unreasonably
be withheld), whereupon (or if the Indemnitor fails to respond to such
settlement in writing within such ten day period) the Responsible Party may
enter into such settlement with the relevant taxing authority; provided,
however, that the Indemnitor may withhold its consent to the proposed settlement
by notifying the Responsible Party in writing within such ten day period that
the Indemnitor does not consent to the proposed settlement. If the Indemnitor
provides the Responsible Party with written notification withholding consent in
accordance with the immediately preceding sentence, then:
(1) The Indemnitor shall fully indemnify and hold harmless the
Responsible Party from and against any and all liabilities for Taxes and other
costs and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) over and above the payments that the Responsible Party would
have been liable for if the Responsible Party had entered into the proposed
settlement; and
(2) The Responsible Party shall, in its sole discretion:
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(A) enter into a closing agreement or other final resolution
with respect to such matter with the relevant taxing authority with
respect to all issues other than Indemnity Issues and shall allow the
Indemnitor to continue to defend the Indemnity Issues in proceedings with
the relevant taxing authority; or
(B) settle all issues with respect to such matter with the
relevant taxing authority and/or pay any additional liability for Taxes as
provided for in such settlement, provided, that such settlement shall
permit the Indemnitor to file a claim for refund with respect to any
Indemnity Issues; or
(C) pay to the Indemnitor any additional liability for Taxes
as provided for in such settlement to the extent that such liability
relates to issues other than Indemnity Issues, whereupon the Indemnitor
shall assume control over and responsibility for any proceeding related to
such matter and shall be fully liable for and shall fully indemnify and
hold the Responsible Party harmless from and against any and all liability
for Taxes with respect to such matter.
For purposes of this Agreement, "Responsible Party" shall mean (x) with respect
to a Tax Return that relates solely to the operations of the Safety Business,
the Company, and (y) with
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<PAGE>
respect to a Tax Return that relates solely to the operations of the New Morton
Business, New Morton. With respect to all Tax Returns other than those described
in clauses (x) and (y), above, the Company and New Morton shall attempt to
separate the Indemnity Issues in controversy with respect to such Tax Return
into Indemnity Issues for which the Company shall be the Responsible Party and
Indemnity Issues for which New Morton shall be the Responsible Party. If the
Company and New Morton do not succeed in separating such Indemnity Issues, the
Company and New Morton shall jointly act as Responsible Party with respect to
such Tax Return and shall cooperate reasonably in any audit or similar
proceeding with respect to such Tax Return, provided, that New Morton shall
always be the Responsible Party with respect to Indemnity Issues relating to
Restructuring Taxes to the extent that New Morton bears indemnification
responsibility with respect thereto pursuant to this Agreement. Neither the
Company nor New Morton shall take any action with respect to such Tax Return
without the other's written consent, which consent shall not be unreasonably
withheld, and the Company and New Morton shall agree as to any settlement or
compromise of Indemnity Issues on such Tax Return. If the Company and New Morton
cannot agree as to any action to be taken with respect to any Indemnity Issue on
such Tax Return, the parties shall take such action as shall be determined
pursuant to Section 5.04 with respect to such Indemnity Issue.
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<PAGE>
(b) Notwithstanding the foregoing, if the settlement of any
Indemnity Issue would materially increase the other party's liability for Taxes,
the Responsible Party shall not enter into a final settlement without the
consent of the other party, which consent shall not be unreasonably withheld.
(c) The right to participate referred to in Section 4.01(a) shall
include the submission and content of documentation, protests, memoranda of fact
and law and briefs, the conduct of oral arguments or presentations, the
selection of witnesses and the negotiation of stipulations of fact.
Section 4.03. Cooperation and Exchange of Information. (a) New
Morton shall prepare and submit to the Company on a timely basis blank Tax
Return workpaper packages for the year of the Distribution. The Company shall,
and shall cause each appropriate member of the Company Group to, prepare and
submit to New Morton in accordance with the various due dates set forth in the
tax package instructions, all information as New Morton shall reasonably request
to enable New Morton to prepare the Company Tax Returns for the taxable year
ended the Distribution Date.
(b) The Company, on behalf of itself and each member of the Company
Group, agrees to provide the New Morton Group, and New Morton, on behalf of
itself and each member of the New Morton Group, agrees to provide the Company
Group, with such
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cooperation and information as the other shall reasonably request of the other
in connection with the preparation or filing of any Tax Return or claim for
refund contemplated by this Agreement or in conducting any audit or other
proceeding in respect of Taxes. The Company shall file on a timely basis all Tax
Returns prepared by New Morton for filing by the Company, in accordance with
this Agreement. Such cooperation and information shall include without
limitation promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any taxing authority which relate to
Automotive Safety Businesses in the case of the New Morton Group and New Morton
Businesses in the case of the Company Group, and providing copies of all
relevant Tax Returns, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by taxing
authorities, including without limitation, foreign taxing authorities, and
records concerning the ownership and Tax basis of property, which either party
may possess. Each party shall make its employees and facilities available on a
mutually convenient basis to provide explanation of any documents or information
provided hereunder.
(c) New Morton and the Company agree to retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
relating thereto existing on the date hereof or created through or with respect
to periods ending on or before the Distribution Date, until the expiration of
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the statute of limitations (including extensions) of the taxable years to which
such Tax Returns and other documents relate and until the Final Determination of
any payments which may be required in respect of such years under this
Agreement. The Company and New Morton agree to advise each other promptly of any
such Final Determination. Any information obtained under this Agreement shall be
kept confidential, except as may be otherwise necessary in connection with the
filing of Tax Returns or claims for refund or in conducting any audit or other
proceeding.
(d) If any member of the Company Group or the New Morton Group, as
the case may be, fails to provide any information requested pursuant to this
Section 4.02 by (i) the dates, specified in subsection (a) hereof or, (ii) with
respect to information not requested pursuant to subsection (a) hereof, within a
reasonable period, as determined in good faith by the party requesting
information, then the requesting party shall have the right to engage a public
accountant of its choice to gather such information. New Morton and the Company,
as the case may be, agree upon 24 hours' notice, in the case of a failure to
provide information pursuant to subsection (a) hereof, and otherwise upon 30
days' notice after the expiration of such reasonable period, to permit any such
public accountant full access to all appropriate records or other information in
the possession of any member of the Company Group or the New Morton Group, as
the case may be, during reasonable business
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hours, and to reimburse or pay directly all costs and expenses in connection
with the engagement of such public accountant.
ARTICLE V
MISCELLANEOUS
Section 5.01. Expenses. Unless otherwise expressly provided in this
Agreement or in the Distribution Agreement, each party shall bear any and all
expenses that arise from their respective obligations under this Agreement.
Section 5.02. Entire Agreement; Termination of Prior Agreements.
This Agreement constitutes the entire agreement of the parties concerning the
subject matter hereof and supersedes all other agreements, whether or not
written, in respect of any Tax between or among any member or members of the
Company Group, on the one hand, and any member or members of the New Morton
Group, on the other hand. All such agreements are hereby cancelled and any
rights or obligations existing thereunder are hereby fully and finally settled
without any payment by any party thereto. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. Anything in
this Agreement or the Distribution Agreement to the contrary notwithstanding, in
the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the Distribution Agreement, the provisions of
this Agreement shall control.
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Section 5.03. Notices. All notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To the Company or any member of the Company Group:
[Autoliv ASP, Inc.]
[3350 Airport Road]
[Ogden, Utah 84409]
Attention: Corporate Secretary
with a copy to:
Autoliv, Inc.
[Address To Come]
Attention: Corporate Secretary
and
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Stuart M. Finkelstein, Esq.
To New Morton or any member of the New Morton Group:
Morton International, Inc.
100 North Riverside Drive
Chicago, Illinois 60606
Attention: Corporate Secretary
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Jodi J. Schwartz, Esq.
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<PAGE>
Section 5.04. Resolution of Disputes. Any disputes between the
parties with respect to this Agreement that cannot be resolved by good faith
effort by the parties shall be resolved by a "Big Six" public accounting firm or
a law firm satisfactory to the Company and New Morton, whose determination shall
be final and binding on all parties and whose fees and expenses shall be shared
by each of New Morton and the Company in accordance with the final allocation of
the Tax liability in dispute.
Section 5.05. Application to Present and Future Subsidiaries. This
Agreement is being entered into by the Company and New Morton on behalf of
themselves and each member of the Company Group and New Morton Group,
respectively. This Agreement shall constitute a direct obligation of each such
member and shall be deemed to have been readopted and affirmed on behalf of any
corporation which becomes a member of the Company Group or New Morton Group in
the future. The Company and New Morton hereby guarantee the performance of all
actions, agreements and obligations provided for under this Agreement of each
member of the Company Group and the New Morton Group, respectively. The Company
and New Morton shall, upon the written request of the other, cause any of their
respective group members formally to execute this Agreement. This Agreement
shall be binding upon, and shall inure to the benefit of, the successors,
assigns and persons controlling any of the corporations
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<PAGE>
bound hereby for so long as such successors, assigns or controlling persons are
members of the Company Group or the New Morton Group or their successors and
assigns.
Section 5.06. Term. This Agreement shall commence on the date of
execution indicated below and shall continue in effect until otherwise mutually
agreed to in writing by the Company and New Morton, or their successors.
Section 5.07. Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part or to affect the meaning or interpretation of this Agreement.
Section 5.08. Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
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Section 5.09. Singular and Plural. As used herein, the singular
shall include the plural and vice versa.
Section 5.10. Governing Law. This Agreement shall be governed by the
laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this agreement as of
the [____________] day of [____________], 1996.
MORTON INTERNATIONAL, INC. NEW MORTON INTERNATIONAL, INC.
By ________________________________ By ___________________________________
<PAGE>
Exhibit 21.1
New Morton International, Inc. Subsidiaries*
State or County of
Entity Organization or Incorporation
------ -----------------------------
Bee Chemical Company Illinois
Bee Chemical Industria e Comercio Ltda. Brazil (Rio de Janeiro, R.)
CVD Incorporated Delaware
The Canadian Salt Company Limited Canada
Canadian Brine Limited Province of Ontario
Navigation Sonamar, Inc. Province of Quebec
Ecuatoriana de Sal Y Productos Quimicos C.A. Guayaquil, Ecuador
(50% owned)
GLC Trucking Company, Inc. California
Inagua Transports, Incorporated Liberia
MI Insurance Company Ltd. Bermuda
Morfecor C.A. (50% owned) Guayaquil, Ecuador
Morton Bahamas Limited Bahamas
Inagua General Store Limited Bahamas
Morton International Ireland Company Ireland
Amsterdam Finance C.V. Netherlands
Morton ASP Finance Ltd. Ireland
- ----------
* Includes inactive subsidiaries. Except as noted, all subsidiaries are
wholly owned. Subsidiaries conduct business only under their corporate name.
<PAGE>
State or County of
Entity Organization or Incorporation
------ -----------------------------
Morton S.R. Finance Ltd. Ireland
Morton International B.V. Netherlands
Morton International Chemicals (Taiwan) Ltd. Taiwan
Morton International Export Sales, Inc. Virgin Islands of the United
States
Morton International G.m.b.H. Germany
ERCO Industrielack G.m.b.H. Germany
IRO Chemie Vervaltungsgesellschaft m.b.H. Germany
Morton International Limited England
CVD Limited England
Morton International Ltd. (Canada) Province of Ontario
Morton International, Ltd. (Japan) Japan
Morton International Produtos Quimicos Ltda. Brazil
Morton International Pte. Ltd. Singapore
Morton International S.A. France
Morton S.A. France
Morton International, S.A. de C.V. Mexico D.F.
Morton International S.p.A. Italy
Santa Barbara s.r.l. Italy
Morton International Spain S.A. Spain
Morton International Co., Ltd. Japan
Morton Service B.V. Netherlands Netherlands
Morton Nippon Coatings Partnership (50% owned) Delaware
Morton-WKK, Ltd. (50% owned) Bermuda
<PAGE>
State or County of
Entity Organization or Incorporation
------ -----------------------------
Dongguan Kong King Morton Photoplastic Film China
Co., Ltd.
Morton-WKK, Ltd. Hong Kong Hong Kong
Morton Yokohama, Inc. (50% owned) Delaware
MTI Aviation, Inc. Delaware
110 North Wacker, Inc. Delaware
Nippon-Bee Chemical Co., Ltd. (50% owned) Japan
N.V. Morton International S.A. Belgium
The Morton International, Inc. Foundation Illinois
Toyo-Morton, Limited (50% owned) Japan
Toray Thiokol Company, Ltd. (5% owned) Japan
