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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION
14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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HUSSMANN INTERNATIONAL, INC.
(Name of Subject Company)
HUSSMANN INTERNATIONAL, INC.
(Name of Person Filing Statement)
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COMMON STOCK, $0.001 PAR VALUE PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
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448110 10 6
(CUSIP Number of Class of Securities)
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BURTON HALPERN, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HUSSMANN INTERNATIONAL, INC.
12999 ST. CHARLES ROCK ROAD
BRIDGETON, MISSOURI 63044-2483
(314) 291-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of the Person Filing Statement)
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Copy to:
RICHARD D. KATCHER, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52(ND) STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
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/ / CHECK THE BOX IF THE FILING RELATES SOLELY TO PRELIMINARY COMMUNICATIONS
MADE BEFORE THE COMMENCEMENT OF A TENDER OFFER.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is Hussmann International, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 12999 St. Charles Road, Bridgeton, Missouri 63044-2483. The
telephone number of the Company at its principal executive offices is
(314) 291-2000.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
Exhibits or Annexes hereto, this "Statement") relates is the Common Stock, par
value $0.001 per share, of the Company (the "Common Stock"), including the
associated preferred stock purchase rights (the "Rights" and, together with the
Common Stock, the "Shares") issued pursuant to the Amended and Restated Rights
Agreement, dated as of July 15, 1999, between the Company and First Chicago
Trust Company of New York, as Rights Agent. As of May 8, 2000, there were
50,593,522 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by IR Merger Corporation (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of
Ingersoll-Rand Company, a New Jersey corporation ("Ingersoll"), to purchase all
of the outstanding Shares at a purchase price of $29.00 per Share, net to the
seller in cash (the "Offer Price"), upon the terms and subject to the conditions
set forth in the Purchaser's Offer to Purchase, dated May 16, 2000, and in the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"). The Offer is
described in a Tender Offer Statement on Schedule TO (as amended or supplemented
from time to time, the "Schedule TO"), filed by the Purchaser with the
Securities and Exchange Commission on May 16, 2000.
The Offer is being made in accordance with the Agreement and Plan of Merger,
dated as of May 11, 2000, among Ingersoll, the Purchaser and the Company (the
"Merger Agreement"). The Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions, following completion of the Offer,
and in accordance with the Delaware General Corporation Law (the "DGCL"), the
Purchaser will be merged with and into the Company (the "Merger"). Following the
consummation of the Merger, the Company will continue as the surviving
corporation and will be a wholly owned subsidiary of Ingersoll. At the effective
time of the Merger (the "Effective Time"), each issued and outstanding Share
(other than Shares owned by Ingersoll, the Purchaser, any of their respective
subsidiaries, or the Company, and Shares held by stockholders who did not vote
in favor of the Merger Agreement and who comply with all of the relevant
provisions of Section 262 of the DGCL relating to dissenters' rights of
appraisal) will be converted into the right to receive the same amount in cash
per Share that is paid pursuant to the Offer (the "Merger Consideration").
The Schedule TO states that the principal offices of Ingersoll and the
Purchaser are located at 200 Chestnut Ridge Road, Woodcliff Lake, New Jersey
07675-8738.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Rule 14f-1 under the Securities Exchange Act of 1934 (the "Information
Statement") that is attached as Annex B to this Statement and is incorporated
herein by reference. Except as described in this Statement (including in the
Exhibits hereto and in Annex B hereto) or incorporated herein by reference, to
the knowledge of the Company, as of the date of this
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Statement there exists no material agreement, arrangement or understanding or
any actual or potential conflict of interest between the Company or its
affiliates and (1) the Company's executive officers, directors or affiliates or
(2) the Purchaser or the Purchaser's executive officers, directors or
affiliates.
THE MERGER AGREEMENT. The summary of the Merger Agreement and the statement
of the conditions of the Offer contained in Sections 11 and 14, respectively, of
the Offer to Purchase of the Purchaser, dated May 16, 2000, which is filed as
Exhibit (a)(1) to the Schedule TO and which is being mailed to stockholders
together with this Statement, are incorporated herein by reference. The summary
of the Merger Agreement is qualified in its entirety by reference to the Merger
Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated
herein by reference.
EFFECTS OF THE OFFER AND THE MERGER UNDER COMPANY STOCK PLANS AND AGREEMENTS
BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS. Certain members of the
Company's management, including the Company's Chief Executive Officer, who is
also a member of the Board of Directors of the Company (the "Board"), have
interests in the transactions contemplated by the Merger Agreement that are in
addition to their interests as Company stockholders generally, as described
below. The Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
CHANGE IN CONTROL AGREEMENTS. J. Larry Vowell, President and Chief
Executive Officer, John S. Gleason, Executive Vice President-North American
Operations, Michael D. Newman, Senior Vice President and Chief Financial
Officer, John Schlee, Senior Vice President-Europe and Middle East, Lawrence R.
Rauzon, Senior Vice President-International, and certain other officers of the
Company are each a party to a Change in Control Agreement (collectively, the
"Change in Control Agreements") with the Company.
For purposes of the Change in Control Agreements, a "change in control"
generally includes (i) a reorganization, merger or consolidation of the Company
or sale or other disposition of all or substantially all of the Company's
assets, other than a transaction in which the beneficial owners of the Common
Stock prior to the transaction own at least two-thirds of the voting securities
of the corporation resulting from such transaction, no person owns 25% or more
of the voting securities of the corporation resulting from such transaction and
the members of the Company's Board constitute at least a majority of the members
of the board of directors of the corporation resulting from such transaction,
(ii) the consummation of a plan of complete liquidation or dissolution of the
Company, (iii) the acquisition by any person or group of 25% or more of the
Company's voting securities, or (iv) the failure of persons who were directors
of the Company on January 30, 1998 (or their successors as approved by a
majority of the members of the Company's Board) to constitute a majority of the
Company's Board. The purchase of Shares by the Purchaser in the Offer will
constitute a change in control for the purposes of the Change in Control
Agreements.
Benefits are payable under the Change in Control Agreements only if a change
in control has occurred and within three years thereafter the officer's
employment is terminated involuntarily without cause or voluntarily by the
officer for reasons such as a diminution in responsibilities, demotion,
relocation, loss of benefits or other adverse change. The principal benefits to
be provided to officers under the Change in Control Agreements are (i) a
lump-sum payment equal to three years' compensation (base salary and incentive
compensation), and (ii) continued participation in the Company's employee
benefit programs or equivalent benefits for three years following termination.
The Change in Control Agreements provide that, if separation payments
thereunder, either alone or together with payments under any other plan of the
Company, would constitute a "parachute payment" as defined in the Internal
Revenue Code (the "Code") and subject the officer to the excise tax imposed by
Section 4999 of the Code, the Company will pay that tax and any taxes on that
payment.
In the event that each of the five executive officers identified above
terminated his employment with the Company after completion of the Offer in
circumstances that require full benefits to be paid
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under the Change in Control Agreements, the approximate amounts payable to each
executive officer (not including the value that is attributable to the
continuation of certain insurance and health benefits) would be as follows: Mr.
Vowell, $18.3 million ($11.0 million of which is attributable to the cash-out of
stock options); Mr. Gleason, $9.7 million ($5.0 million of which is attributable
to the cash-out of stock options); Mr. Newman, $7.9 million ($4.5 million of
which is attributable to the cash-out of stock options); Mr. Schlee, $8.7
million ($5.9 million of which is attributable to the cash-out of stock
options); and Mr. Rauzon, $8.2 million ($5.4 million of which is attributable to
the cash-out of stock options). Aggregate payments to all of the Company's
executive officers, including those identified above (10 individuals), would
total approximately $79.6 million (approximately $47.4 million of which is
attributable to the cash-out of stock options).
STOCK-BASED RIGHTS. The Merger Agreement provides that, upon consummation
of the Offer, each outstanding stock option issued by the Company to acquire
Common Stock, whether vested or unvested, will be cancelled, and the option
holder will be entitled to receive an amount equal to the excess of the Merger
Consideration over the exercise price, multiplied by the number of shares of
Common Stock underlying the option, less applicable withholding taxes and
without interest. Under the terms of the Company's Stock Incentive Plan, as
amended, holders of stocks options or other awards under the plan would be
entitled to receive those amounts within 60 days after consummation of the
Offer. The purchase of Shares by the Purchaser will also constitute a change of
control for purposes of the options granted under the Stock Incentive Plan,
resulting in the vesting of those options.
The number of shares subject to options, the vesting of which would be
accelerated as a result of the completion of the Offer, is as follows:
Mr. Vowell, 323,167 shares; Mr. Gleason, 165,833 shares; Mr. Newman, 158,333
shares; Mr. Schlee, 126,167 shares; Mr. Rauzon, 126,167 shares; and all
executive officers, including the foregoing (10 individuals), 1,401,635 shares.
OTHER PLANS. The purchase of Shares by the Purchaser will also constitute a
change of control for purposes of the Company's Executive Retirement Plan and
Supplemental Executive Retirement Plan. Those plans may not be amended after a
change of control. In addition, the Executive Retirement Plan contains the
following protections that apply after a change of control:
- the plan will be administered by an independent third party selected by
the trustee of the trust in which the Company has set aside funds for
benefits under the Executive Retirement Plan and approved by Mr. Vowell;
- the Company must pay all reasonable administrative fees and expenses of
the administrator and indemnify the administrator against liabilities and
attorneys' fees that arise in connection with the plan administration;
- the administrator may be terminated only by the trustee with the approval
of Mr. Vowell; and
- participants are entitled to be reimbursed by the Company for any legal
fees or expenses incurred to enforce their rights under the plan.
In the Merger Agreement, the Company has reserved the right to amend the
Executive Retirement Plan and the Supplemental Executive Retirement Plan in
certain regards, and the Board will be asked to approve such amendments at its
next meeting. The permitted amendments would provide that:
- the plans must be continued in effect, without adverse amendments, for the
current participants, through at least December 31, 2001;
- unless otherwise elected by a participant, in the event of a subsequent
termination of the plans, the participants' benefits will not be paid out
in a lump sum or other accelerated basis, but will be paid in accordance
with the normal provisions of the plan and participants' elections; and
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- the investment choices provided to participants under the Executive
Retirement Plan after the change of control must be comparable to those
provided as of the date of the Merger Agreement.
In addition, the Company reserved the right, and plans to exercise the right, to
make an additional contribution to the trust funding these plans so that the
assets of the trust equal the accrued liabilities, but the additional
contribution may not exceed $7 million.
The purchase of Shares by the Purchaser will also constitute a change of
control for purposes of the Company's Deferred Compensation Plan for Directors,
with the result that all account balances under that plan will be automatically
paid out.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting held on May 11, 2000, the Board determined that the terms of
the Offer and the Merger are advisable, fair to, and in the best interests of,
the stockholders of the Company. At this meeting, the Board approved the Merger
Agreement, the Offer, the Merger and the other transactions contemplated by the
Merger Agreement, and approved the Merger Agreement for purposes of Section 203
of the DGCL. YOUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES IN THE OFFER.
(b) (I) BACKGROUND OF THE OFFER; CONTACTS WITH INGERSOLL.
Representatives of the Company and Ingersoll met in late 1999 to discuss
opportunities for cooperating in the home shopping/e-commerce area. These
discussions did not contemplate any acquisition of the Company by Ingersoll.
On March 25, 2000, Mr. Henkel, Chairman, President and Chief Executive
Officer of Ingersoll, in a telephone conversation initiated the previous day
with Mr. Vowell, President and Chief Executive Officer of the Company, proposed
an acquisition of the Company by Ingersoll at a price ranging from $22 to $24
per share. Mr. Henkel indicated that Ingersoll would not pursue an acquisition
of the Company on a hostile basis. Mr. Vowell responded that, although the
Company was not for sale, he would consider Ingersoll's proposal.
On March 31, 2000, Mr. Vowell contacted Mr. Henkel and indicated that he
believed that the value of the Company was in a range between $28 and $30 per
share. Mr. Henkel responded that a price in that range would not be justified
based on the information available to him. Mr. Henkel also reiterated that
Ingersoll was not interested in proceeding on a hostile basis.
On April 4, 2000, Mr. Henkel contacted Mr. Vowell and indicated that
Ingersoll was prepared to raise its price to between $24 and $26 per share, in
an all-cash transaction. Mr. Vowell responded that he continued to believe that
a price in that range did not reflect the full value of the Company.
During the week of April 4, 2000, the Company retained Credit Suisse First
Boston Corporation ("CSFB") and independent counsel, Wachtell, Lipton, Rosen &
Katz ("WLRK"), to advise the Board.
On April 13, 2000, the Board met and received a detailed presentation from
CSFB. In addition, the Board received a presentation from WLRK on the legal
duties of directors in considering a potential acquisition of the Company. The
Board also discussed the possibility that other companies might be interested in
an acquisition of the Company and, in particular, discussed an expression of
interest that had been received in early March 2000 from another participant in
the commercial refrigeration industry (the "Industry Buyer"). The Company had
responded to the Industry Buyer at that time that it was not interested in
discussing an acquisition.
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In considering how to achieve the highest price for the Company, the Board
determined not to pursue a public sale process because such a process risked
serious damage to the Company's business and organization, with no guarantee
that a price would be achieved that reflected the Company's full value. The
Board also ruled out a private sale process involving a large number of
potential acquirors because of the difficulty in maintaining confidentiality in
such a situation. Instead, the Board authorized management to pursue discussions
with Ingersoll, the Industry Buyer and one other major manufacturing company
selected by the Board.
On April 14, 2000, Mr. Vowell contacted the Industry Buyer and indicated
that the Company had received a price indication for an acquisition of the
Company that could result in something compelling, and that it was possible that
events would unfold very rapidly. Accordingly, Mr. Vowell indicated that the
Industry Buyer should prepare to act rapidly if it remained interested in a
possible acquisition of the Company, and suggested that the Industry Buyer
prepare a proposal, including price, based on publicly available information.
The Industry Buyer indicated that they would consider the situation and contact
the Company on April 17, 2000.
On April 17, 2000, a representative of the Industry Buyer contacted
Mr. Vowell and indicated that the Industry Buyer desired non-public information
in order to prepare a proposal to acquire the Company. Mr. Vowell responded
that, since the Industry Buyer was a competitor of the Company, the Company was
unwilling to provide non-public information, which would be competitively
sensitive, unless the Industry Buyer could give a preliminary indication of
price, based on public information, from which the Company could estimate
whether a proposal from the Industry Buyer was likely to be attractive.
Mr. Vowell also stated that any attractive proposal would have to be at a
larger-than-normal premium to the Company's current market price and that the
Company was looking for a premium that reflected its premier position in the
industry. Mr. Vowell also indicated that, as part of any proposal, the Industry
Buyer should have a specific plan for dealing with the antitrust concerns that
an acquisition of the Company by the Industry Buyer would raise. The
representative of the Industry Buyer stated that he would contact Mr. Vowell
again on April 18.
On April 17, 2000, further discussions were held between Mr. Henkel and
Mr. Vowell. Mr. Henkel indicated that, based on publicly available information
about the Company, he was unwilling to propose an acquisition of the Company for
a price in excess of $26 per share. However, he indicated a willingness to
consider non-public information that the Company would make available.
Accordingly, Mr. Vowell scheduled a meeting with Mr. Henkel for April 20, 2000.
Also on April 17, 2000, Mr. Vowell contacted representatives of the other
major manufacturer selected by the Board to determine whether the major
manufacturer was interested in a possible acquisition of the Company. This
company subsequently indicated that it was not interested in pursuing
discussions.
On April 18, 2000, a representative of the Industry Buyer contacted
Mr. Vowell and stated that the Industry Buyer was not willing to make a proposal
based only on publicly available information. Mr. Vowell reiterated the points
from the discussion of April 17 and urged the Industry Buyer to act quickly if
it had an interest in the Company.
Also on April 18, 2000, the Company and Ingersoll entered into a
confidentiality/standstill agreement, a copy of which has been filed as
Exhibit (e)(2) hereto.
On April 20, 2000, the scheduled meeting between Mr. Vowell and Mr. Henkel
took place. The Company's plans and projections were discussed, but there was no
discussion concerning the price of Ingersoll's proposal. Mr. Henkel inquired
whether Mr. Vowell would be interested in participating, after the Merger, in
the development of the climate control business of the combined company.
Mr. Vowell responded that he preferred to defer any discussion of his
participation until after the time, if any, that Ingersoll and the Company
entered into a definitive agreement.
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On or about April 21, 2000, a representative of the Industry Buyer contacted
Mr. Vowell, stated that the Industry Buyer was studying the antitrust aspects of
an acquisition of the Company and that he would contact Mr. Vowell the following
week.
In the following week, Mr. Vowell and Mr. Henkel held additional discussions
concerning the price that Ingersoll was prepared to offer for the Company. Early
in the week, Mr. Henkel indicated that Ingersoll was prepared to pursue a
transaction at $28.50 per share. Mr. Vowell responded that he did not believe
such price adequately reflected the Company's value. On April 26, Mr. Henkel
indicated that Ingersoll's board of directors had provisionally authorized
discussions with the Company of a transaction at $29 per share, subject to
satisfactory completion of more detailed due diligence. Mr. Vowell conveyed this
to members of the Board who were available at that time and it was determined to
request that Ingersoll furnish to the Company the form of contract that
Ingersoll would propose to effect the transaction and, if the form of contract
was generally acceptable, to allow Ingersoll to proceed with more detailed due
diligence. Mr. Vowell also reviewed with the available directors the status of
the Company's contacts with the Industry Buyer and the other major manufacturer
that had been contacted. Counsel to Ingersoll furnished to WLRK an outline of
contractual terms, followed by Ingersoll's proposed form of agreement, and
various due diligence meetings between representatives of Ingersoll and the
Company took place during the week of May 1. The terms of the agreement were
negotiated during the period from May 3 through May 11, 2000.
On May 5, 2000, the Board met to review the status of the Company's contacts
with potential buyers. Mr. Vowell reported to directors on the discussions held
through that date and on the contract negotiations with Ingersoll. The Board
decided that the Company should continue its course of action.
On May 10, 2000, a representative of the Industry Buyer contacted
Mr. Vowell. Mr. Vowell stated that the discussions had progressed and would move
very rapidly, and otherwise repeated the suggestions made in earlier
conversations with the Industry Buyer, including that the Industry Buyer should,
if it had any interest, submit its proposed price based on public information,
prior to the Company's furnishing of any competitively sensitive non-public
information, and the Industry Buyer's plan for solving the antitrust issue.
On Thursday afternoon, May 11, 2000, the Board met to receive presentations
from the Company's legal and financial advisors and to consider the Offer, the
Merger and the Merger Agreement. At the meeting, CSFB delivered its oral
opinion, subsequently confirmed by delivery of its written opinion, that, as of
such date, the consideration to be received by the holders of Shares pursuant to
the Offer and the Merger was fair to such holders, other than Ingersoll and its
affiliates, from a financial point of view. Following such presentations and
receipt of CSFB's opinion, the Board discussed whether it should postpone
entering into the Merger Agreement in order to give the Industry Buyer
additional time to develop a proposal. The Board considered that such a delay
could jeopardize the Board's ability to conclude a transaction at a price of $29
per share, which the Board concluded was very favorable to the Company's
stockholders. The Board also considered that the Industry Buyer had still not
indicated any of its thinking with respect to price or any plan to solve the
antitrust issue, despite being asked to do so. The Board also considered that
neither the Industry Buyer nor anyone else would be precluded from bidding for
the Company should they determine to do so following announcement of the Merger
Agreement. Following this discussion, the Board determined that the terms of the
Offer and the Merger were advisable, fair to and in the best interests of, the
stockholders of the Company, approved the Offer, the Merger, the Merger
Agreement and the other transactions contemplated thereby, and determined to
recommend that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer and approve and adopt the Merger Agreement.
Following the Board meeting, Ingersoll, the Purchaser and the Company executed
the Merger Agreement.
In the morning on May 12, 2000, Ingersoll and the Company issued a joint
press release announcing the execution of the Merger Agreement.
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On May 16, 2000, in accordance with the Merger Agreement, the Purchaser
commenced the Offer.
(II) REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
In reaching its recommendations described above in paragraph (a) of this
Item 4, the Board considered a number of factors, including the following:
1. COMPANY OPERATING AND FINANCIAL CONDITION. The Board considered the
current and historical financial condition and results of operations of
the Company, as well as the prospects and strategic objectives of the
Company, including the risks involved in achieving those prospects and
objectives, and the current and expected conditions in the industry in
which the Company's business operates. In particular, the Board believes
that the trend toward globalization among the Company's customers and
competitors will require that the Company develop the capability to serve
customers throughout the world, and that this objective requires access
to significant additional capital for both acquisitions and internal
growth. The Board believes that the relatively low market value accorded
to the Common Stock has limited, and could continue to limit in the
future, the Company's access to the required capital and the Company's
ability to use its Common Stock as acquisition currency. Although the
Board believes that the Company would have been likely to achieve
significant gains in its operating results in the next few years, the
Board recognized that there were risks that such gains would not be
achieved and, even if achieved, would not be reflected in a sufficiently
high stock price to allow the Company to achieve its strategic goals.
2. TRANSACTION FINANCIAL TERMS/PREMIUM TO MARKET PRICE. The $29.00 Offer
represents an approximately 123% premium over the $13.00 closing price of
the Shares on the New York Stock Exchange on May 10, 2000 (the last
trading day prior to the Board meeting at which the Board approved the
Merger Agreement), an approximately 116% premium over the $13.42 average
closing price for the 30-day trading period ending on May 10, 2000, and
an approximately 49% premium over the all-time high closing price of the
Shares of $19.50 since the Company became an independent public company
in January 1998. The Board concluded that the $29.00 price fully reflects
the Company's prospects for growth and improved performance. The Board
also considered the form of consideration to be paid to holders of Shares
in the Offer and the Merger, and the certainty of value of such cash
consideration compared to continued investment in the Company's Common
Stock. The Board was aware that the consideration received by holders of
Shares in the Offer and Merger would be taxable to such holders for
federal income tax purposes.
3. STRATEGIC ALTERNATIVES. The Board considered the strategic alternatives
available to the Company, including the possibility of growing its
business through significant acquisitions while remaining an independent
public company. In this respect, the Board noted the limitations on the
ability of the Company to acquire other businesses resulting from the
Company's relatively limited debt capacity and, as discussed above, its
low stock price. The Board also noted that recent efforts by the Company
to make large acquisitions had been unsuccessful due to either the
Company's inability to comply with the seller's terms of sale or the
seller's unwillingness to proceed with the sale. An acquisition by
Ingersoll would give the Company better access to capital as well as the
immediate strategic benefit of integrating its business with Ingersoll's
Thermo King business unit. The Board concluded that the cash price to be
received by stockholders in the Offer and the Merger fairly compensated
the Company's stockholders for relinquishing the opportunity to share in
the potential benefit of this combination.
4. CSFB'S FAIRNESS OPINION. The Board considered presentations from CSFB
and the opinion of CSFB, dated May 11, 2000, that as of that date, the
consideration to be received by holders of
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Shares pursuant to the Offer and the Merger was fair to such holders,
other than Ingersoll and its affiliates, from a financial point of view.
A copy of the opinion rendered by CSFB to the Board, setting forth the
procedures followed, assumptions made, matters considered and limitations
of the review undertaken by CSFB in arriving at its opinion, is attached
hereto as Annex A and incorporated herein by reference. Stockholders are
urged to read this opinion in its entirety. The Board was aware that CSFB
becomes entitled to certain fees described in Item 5 upon the
consummation of the Offer.
5. TIMING OF COMPLETION. The Board considered the anticipated timing of
consummation of the transactions contemplated by the Merger Agreement,
including the structure of the transactions as a tender offer for all of
the Shares, which should allow stockholders to receive the transaction
consideration earlier than in an alternative form of transaction,
followed by the Merger in which stockholders will receive the same
consideration as received by stockholders who tender their Shares in the
Offer.
6. LIMITED CONDITIONS TO CONSUMMATION. The Board considered that
Ingersoll's obligation to consummate the Offer and the Merger is subject
to a limited number of conditions, with no financing condition. The Board
also considered the relative likelihood of obtaining required regulatory
approvals for this transaction, as compared to a transaction with other
potential partners, and the terms of the Merger Agreement regarding the
obligations of both companies to pursue such approvals.
7. ALTERNATIVE TRANSACTIONS. The Board considered that under the terms of
the Merger Agreement, while the Company is prohibited from soliciting
acquisition proposals from third parties, the Company may engage in
discussions or negotiations with, and may furnish non-public information
to, a third party that makes a non-solicited acquisition proposal if,
among other things, the Board determines in good faith that such
acquisition proposal would if consummated provide greater value to the
Company's stockholders from a financial point of view than the Offer and
the Merger, and is reasonably likely to be consummated without undue
delay. The Board considered that the terms of the Merger Agreement permit
the Company to terminate the Merger Agreement to enter into such a
superior transaction involving the Company if the Company pays Ingersoll
a $58 million termination fee. The Board considered the that these
provisions of the Merger Agreement could have the effect of deterring
third parties who might be interested in exploring an acquisition of the
Company. In this regard, the Board recognized that the provisions of the
Merger Agreement relating to termination fees and non-solicitation of
acquisition proposals were insisted upon by Ingersoll as a condition to
entering into the Merger Agreement.
8. POTENTIAL CONFLICTS OF INTEREST. The Board considered the interests of
certain Company executives in the Offer and the Merger (see Item
3--"EFFECTS OF THE OFFER AND THE MERGER UNDER COMPANY STOCK PLANS AND
AGREEMENTS BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS.").
The foregoing includes the material factors considered by the Board. In view
of its many considerations, the Board did not find it practical to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered. In addition, individual members of the Board may have given
different weights to the various factors considered. After weighing all of these
considerations, the Board determined to approve the Merger Agreement and
recommend that holders of Shares tender their Shares in the Offer.
(C) INTENT TO TENDER.
After reasonable inquiry and to the best of the Company's knowledge, each
executive officer and director of the Company currently intends to tender all
Shares held of record or beneficially owned by
9
<PAGE>
such person to the Purchaser in the Offer, except for persons who would by
tendering incur liability under Section 16(b) of the Exchange Act.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to a letter agreement dated March 28, 2000, the Company formally
retained CSFB to act as its financial advisor in connection with a Change of
Control Transaction (as defined in the engagement letter), including a possible
sale of the Company. The Board retained CSFB based upon CSFB's qualifications,
experience, reputation, and familiarity with the Company's business. CSFB is an
internationally recognized investment banking and advisory firm. As part of its
investment banking and financial advisory business, CSFB is continuously engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In addition, CSFB is a full-service
securities firm engaged in securities trading, brokerage and financing
activities. In the ordinary course of its business, CSFB and its affiliates may
actively trade the debt and equity securities of both the Company and Ingersoll
for its and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In the past, CSFB and its affiliates have provided financial advisory and
financing services for the Company.
Pursuant to the March 28 engagement letter, the Company paid to CSFB an
advisory fee of $75,000 and agreed to pay a fee of $1,500,000 upon the signing
of a definitive agreement for a Change of Control Transaction, such fees to be
creditable against an aggregate transaction fee of $8,000,000. The Company has
also agreed to reimburse CSFB for reasonable expenses as incurred. In addition,
the Company has agreed to indemnify CSFB, its directors, officers, agents and
employees and each person, if any, controlling CSFB against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
arising out of CSFB's engagement.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any person to make
solicitations or recommendations to stockholders on its behalf concerning the
Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by the
Company or, to the knowledge of the Company, by any executive officer, director,
affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
The Company is not currently undertaking or engaged in any negotiations in
response to the Offer that relate to (1) a tender offer for or other acquisition
of the Company's securities by the Company, any subsidiary of the Company or any
other person; (2) an extraordinary transaction, such as a merger, reorganization
or liquidation, involving the Company or any subsidiary of the Company; (3) a
purchase, sale or transfer of a material amount of assets of the Company or any
subsidiary of the Company; or (4) any material change in the present dividend
rate or policy, or indebtedness or capitalization of the Company.
There are no transactions, resolutions of the Board, agreements in
principle, or signed contracts in response to the Offer that relate to one or
more of the events referred to in the preceding paragraph.
10
<PAGE>
ITEM 8. ADDITIONAL INFORMATION.
(a) DELAWARE GENERAL CORPORATION LAW.
Under the DGCL, if the Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the outstanding shares of Common Stock, the Purchaser
will be able to effect the Merger after consummation of the Offer without a vote
of the Company's stockholders. However, if the Purchaser does not acquire at
least 90% of the Shares pursuant to the Offer or otherwise and a vote of the
Company's stockholders is required under Delaware law, a significantly longer
period of time will be required to effect the Merger. The Purchaser and
Ingersoll have each agreed to cause all of the Shares owned by them to be voted
in favor of the adoption of the Merger Agreement, so stockholder approval of the
Merger is assured if the Offer is completed.
(b) REGULATORY APPROVALS.
UNITED STATES ANTITRUST COMPLIANCE. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the rules that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The purchase of Shares pursuant to the Offer is subject to such
requirements.
Pursuant to the requirements of the HSR Act, the Purchaser has advised the
Company that the Purchaser filed a Notification and Report Form with respect to
the Offer and Merger with the Antitrust Division and the FTC on May 12, 2000. As
a result, the waiting period applicable to the purchase of Shares pursuant to
the Offer would be scheduled to expire at 11:59 p.m., New York City time,
15 days after such filing. However, prior to such time, the Antitrust Division
or the FTC may extend the waiting period by requesting additional information or
documentary material relevant to the Offer from the Company and/or the
Purchaser. If such a request is made, the waiting period will be extended until
11:59 p.m., New York City time, on the tenth day after substantial compliance by
the Purchaser with such request. Thereafter, such waiting period can be extended
only by court order or by agreement of the parties.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer. At any time before or after the consummation of
any such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws of the United States as it deems necessary or desirable
in the public interest, including seeking to enjoin the purchase of Shares
pursuant to the Offer or seeking divestiture of the Shares so acquired or
divestiture of substantial assets of Ingersoll or the Company. Private parties
(including individual States) may also bring legal actions under the antitrust
laws of the United States. The Company does not, and the Purchaser has advised
the Company that it does not, believe that the consummation of the Offer will
result in a violation of any applicable antitrust laws. However, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made,
or if such a challenge is made, what the result will be. See Item 3.
OTHER FILINGS. The Company believes that the Offer and the Merger will
require filing with the competition authorities of Austria, Brazil, Canada,
Germany, Ireland, Mexico and Spain, and there is a possibility that other
filings may have to be made with other foreign governments under their
pre-merger notification statutes. The filing requirements of various nations are
being analyzed by the parties and, where necessary, the parties intend to make
such filings.
The Purchaser is not required to purchase any Shares in the Offer if a
statute, rule, regulation, judgment, order or injunction is enacted, entered,
enforced, promulgated or deemed applicable to the Offer or the Merger that,
among other things, (i) prohibits the making or consummation of the Offer or the
Merger, (ii) imposes material limitations on the ability of the Purchaser to
accept for payment,
11
<PAGE>
pay for or purchase any Shares pursuant to the Offer and the Merger, or
effectively to exercise full rights of ownership of the Shares, (iii) requires
the divestiture by Ingersoll or the Purchaser of any Shares or (iv) prohibits or
imposes any material limitations on Ingersoll or the Purchaser's ownership or
operation (or that of any of their respective subsidiaries) of all or a material
portion of their or the Company's businesses or assets or compels Ingersoll or
the Purchaser to dispose of or hold separate all or any portion of the business
or assets of the Company or Ingersoll, or any of their respective subsidiaries,
which prohibition, limitation, disposition or separation would, in the
aggregate, account for more than $75 million in sales of Ingersoll or the
Company, as the case may be, in the most recent fiscal year completed.
(c) THE PURCHASER'S DESIGNATION OF PERSONS TO BE ELECTED TO THE BOARD OF
DIRECTORS.
The Information Statement attached as Annex B to this Statement is being
furnished in connection with the possible designation by Ingersoll, pursuant to
the terms of the Merger Agreement, of certain persons to be elected to the Board
other than at a meeting of the Company's stockholders.
(d) CERTAIN PROJECTED FINANCIAL DATA FOR THE COMPANY.
Prior to entering into the Merger Agreement, the Company provided to
Ingersoll certain information which was not publicly available, including
certain projected financial data (the "Projections") for the fiscal years 2000
through 2004. The Company does not publicly disclose projections, and the
Projections were not prepared with a view to public disclosure.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
2000 2001 2002 2003 2004
----------- ----------- ----------- ----------- -----------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Sales.................................. $1,422.0 $1,506.3 $1,596.2 $1,692.8 $1,796.5
Operating Income....................... 152.4 174.7 198.5 224.2 252.3
Net Income............................. 81.6 97.3 115.2 135.6 158.2
Diluted Shares Outstanding............. 50.7 49.4 49.4 49.4 49.4
Earnings Per Share..................... 1.61 1.97 2.33 2.74 3.20
Selected Supplemental Data:
EBITDA................................. $ 183 $ 206 $ 230 $ 256 $ 284
Capital expenditures................... 40 40 40 40 40
</TABLE>
The Projections were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission, the guidelines
established by the American Institute of Certified Public Accountants for
Prospective Financial Information or generally accepted accounting principles.
The Company's certified public accountants have not examined or compiled any of
the Projections or expressed any conclusion or provided any form of assurance
with respect to the Projections and, accordingly, assume no responsibility for
the Projections. The Projections were not prepared with the approval of the
Board. The Projections are included herein to give the Company's stockholders
access to information that was not publicly available and that the Company
provided to Ingersoll.
The Projections are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those statements and should be read with caution. The Projections are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and recent developments. While presented
with numerical specificity, the Projections were not prepared by the Company in
the ordinary course and are based upon a variety of estimates and hypothetical
assumptions made by management of the Company with respect to, among other
things, industry performance, general economic, market, interest rate and
financial conditions, sales, cost of goods sold, operating and other revenues
and expenses, capital expenditures and working capital of the Company, and other
matters which may not be realized and
12
<PAGE>
are inherently subject to significant business, economic and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond the Company's control. Accordingly, there can be no
assurance that the assumptions made in preparing the Projections will prove
accurate, and actual results may be materially greater or less than those
contained in the Projections. In addition, the Projections do not take into
account any of the transactions contemplated by the Merger Agreement, including
the Offer and the Merger. These events may cause actual results to materially
differ from the Projections.
For these reasons, as well as the bases and assumptions on which the
Projections were compiled, the inclusion of such Projections herein should not
be regarded as an indication that the Company, Ingersoll, the Purchaser or any
of their respective affiliates or representatives considers such information to
be an accurate prediction of future events, and the Projections should not be
relied on as such. None of such persons assumes any responsibility for the
reasonableness, completeness, accuracy or reliability of such Projections. No
party nor any of their respective affiliates or representatives has made, or
makes, any representation to any person regarding the information contained in
the Projections and none of them intends to update or otherwise revise the
Projections to reflect circumstances existing after the date when made or to
reflect the occurrences of future events even in the event that any or all of
the assumptions are shown to be in error.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase, dated May 16, 2000 (incorporated by
reference to Exhibit (a)(1) to the Schedule TO of the
Purchaser filed on May 16, 2000).
(a)(2) Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule TO of the Purchaser filed on
May 16, 2000).
(a)(3) Letter to Stockholders of the Company, dated May 16, 2000.*
(a)(4) Opinion of Credit Suisse First Boston Corporation, dated May
11, 2000 (included as Annex A hereto).*
(a)(5) Joint Press Release issued by Ingersoll and the Company on
May 12, 2000 (incorporated by reference to Exhibit (a)(7) to
the Schedule TO of the Purchaser filed on May 16, 2000).
(a)(6) Sections 11 and 14 of the Offer to Purchase, dated May 16,
2000 (incorporated by reference to Exhibit (a)(1) to the
Schedule TO of the Purchaser filed on May 16, 2000).
(e)(1) Agreement and Plan of Merger, dated as of May 11, 2000,
among Ingersoll, the Purchaser and the Company (incorporated
by reference to Exhibit (d)(1) to the Schedule TO of the
Purchaser filed on May 16, 2000).
(e)(2) Confidentiality Agreement, dated April 18, 2000, between
Ingersoll and the Company (incorporated by reference to
Exhibit (d)(2) to the Schedule TO of the Purchaser filed on
May 16, 2000).
(e)(3) The Information Statement of the Company, dated May 16, 2000
(included as Annex B to the Statement).*
</TABLE>
- ------------------------
* Included with the Statement mailed to stockholders.
13
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
HUSSMANN INTERNATIONAL, INC.
By: /s/ BURTON HALPERN
-----------------------------------------
Name: Burton Halpern
Title: Vice President, General Counsel
and Secretary
</TABLE>
Dated: May 16, 2000
<PAGE>
ANNEX A
<TABLE>
<S> <C>
CREDIT SUISSE FIRST BOSTON CORPORATION
[LOGO] 227 West Monroe Street
Chicago, IL 60606-5018
Telephone 312 750 3000
</TABLE>
May 11, 2000
Board of Directors
Hussmann International, Inc.
12999 St. Charles Rock Road
Bridgeton, MO 63044
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of
Company Common Stock (as defined below) of Hussmann International, Inc. (the
"Company"), other than Ingersoll-Rand Company (the "Acquiror") and its
affiliates, from a financial point of view, of the Consideration (as defined
below) to be received by such holders pursuant to the Agreement and Plan of
Merger, dated as of May 11, 2000 (the "Agreement"), among the Company, the
Acquiror and IR Merger Corporation, a wholly owned subsidiary of the Acquiror
(the "Sub"). The Agreement provides, among other things, (i) for the Sub to
commence a cash tender offer (the "Offer") for all outstanding shares of the
common stock, par value $.001 per share, of the Company ("Company Common
Stock"), including the associated preferred stock purchase rights, at a purchase
price of $29.00 per share in cash (the "Consideration"), and (ii) following
consummation of the Offer, the merger of the Sub with and into the Company (the
"Merger" and, together with the Offer, the "Transaction") pursuant to which each
remaining share of Company Common Stock, other than shares owned directly or
indirectly by the Company or the Acquiror, will be converted into the right to
receive the Consideration and the Company will become a wholly owned subsidiary
of the Acquiror.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company, as well as the Agreement. We
have also reviewed certain other information, including financial forecasts,
provided to us by the Company and have met with the Company's management to
discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the Company,
and we have compared those data with similar data for other publicly held
companies in businesses similar to the Company and we have considered the
financial terms of certain other business combinations and other transactions
which have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of
A-1
<PAGE>
the assets or liabilities (contingent or otherwise) of the Company, nor have we
been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. In connection with our
engagement, we were not authorized to and did not solicit indications of
interest in a possible acquisition of the Company from third parties, although
we have been advised by the Company that it contacted selected additional third
parties.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Offer.
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively trade
the debt and equity securities of both the Company and the Acquiror for our and
such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of Board of Directors
in connection with its consideration of the Transaction and does not constitute
a recommendation to any holder of Company Common Stock as to whether such holder
should tender shares of the Company Common Stock pursuant to the Offer or how
such holder should vote on any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received by the holders of Company Common Stock
in the Transaction is fair to such holders, other than the Acquiror and its
affiliates, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
A-2
<PAGE>
ANNEX B
HUSSMANN INTERNATIONAL, INC.
12999 ST. CHARLES ROCK ROAD
BRIDGETON, MISSOURI 63044-2483
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about May 16, 2000 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Statement") of Hussmann International, Inc. (the "Company"). You are receiving
this Information Statement in connection with the possible election of persons
designated by Ingersoll-Rand Company ("Ingersoll") to a majority of seats on the
Board of Directors (the "Board") of the Company. On May 11, 2000, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Ingersoll and IR Merger Corporation (the "Purchaser"), a Delaware corporation
and a wholly owned subsidiary of Ingersoll, pursuant to which the Purchaser is
required to commence a tender offer to purchase all outstanding shares of Common
Stock, par value $0.001 per share, including the associated preferred stock
purchase rights, of the Company (collectively, the "Shares"), at a price per
Share of $29.00, net to the seller in cash (the "Offer Price"), upon the terms
and conditions set forth in the Purchaser's Offer to Purchase, dated May 16,
2000, and in the related Letter of Transmittal (which, together with any
amendments and supplements thereto, collectively constitute the "Offer"). Copies
of the Offer to Purchase and the Letter of Transmittal have been mailed to
stockholders of the Company and are filed as Exhibits (a)(1) and (a)(2)
respectively, to the Tender Offer Statement on Schedule TO (as amended from time
to time, the "Schedule TO") filed by the Purchaser with the Securities and
Exchange Commission (the "Commission") on May 16, 2000. The Merger Agreement
provides that, subject to the satisfaction or waiver of certain conditions,
following completion of the Offer, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Purchaser will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation and will be a wholly owned subsidiary of
Ingersoll. At the effective time of the Merger (the "Effective Time"), each
issued and outstanding Share (other than Shares that are owned by Ingersoll, the
Purchaser, any of their respective subsidiaries, or the Company, and Shares held
by stockholders of the Company who did not vote in favor of the Merger Agreement
and who comply with all of the relevant provisions of Section 262 of the DGCL)
will be converted into the right to receive the amount in cash per Share paid
pursuant to the Offer.
The Offer, the Merger, and the Merger Agreement are more fully described in
the Statement to which this Information Statement is attached as Annex B, which
was filed by the Company with the Commission on May 16, 2000 and which is being
mailed to stockholders of the Company along with this Information Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934 ("Exchange Act") and
Rule 14f-1 promulgated thereunder. The information set forth herein supplements
certain information set forth in the Statement. Information set forth herein
related to Ingersoll, the Purchaser or the Ingersoll Designees (as defined
below) has been provided by Ingersoll. You are urged to read this Information
Statement carefully. You are not, however, required to take any action in
connection with the matters set forth herein.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on May
16, 2000. The Offer is currently scheduled to expire at 12:00 midnight, New York
City time, on Tuesday, June 13, 2000, unless the Purchaser extends it.
B-1
<PAGE>
GENERAL
The Common Stock is the only class of equity securities of the Company
outstanding which is entitled to vote at a meeting of the stockholders of the
Company. As of the close of business on May 8, 2000, there were 50,593,522
outstanding shares of Common Stock, of which Ingersoll and the Purchaser own no
shares as of the date hereof.
RIGHTS TO DESIGNATE DIRECTORS AND INGERSOLL DESIGNEES
The information contained herein concerning Ingersoll Designees (as
described below) has been furnished to the Company by Ingersoll and its
designees. Accordingly, the Company assumes no responsibility for the accuracy
or completeness of this information.
The Merger Agreement provides that, promptly upon the purchase of and
payment for Shares by the Purchaser pursuant to the Offer, Ingersoll will be
entitled to designate such number of directors (the "Ingersoll Designees") on
the Board, rounded up to the next whole number, as is equal to the product
obtained by multiplying the total number of directors on the Board by the
percentage that the number of Shares so purchased and paid for bears to the
total number of Shares then outstanding.
The Merger Agreement provides that the Company will, upon request of the
Purchaser, promptly increase the size of the Board or obtain the resignations of
such number of directors as is necessary to enable the Ingersoll Designees to be
elected to the Board and, subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder, will cause the Ingersoll Designees to be so
elected.
Notwithstanding the foregoing, if Shares are purchased pursuant to the
Offer, there will be until the Effective Time at least two members of the Board
who were directors on the date of the Merger Agreement and who are not officers
of the Company or representatives of any affiliates of the Company.
The Ingersoll Designees will be selected by Ingersoll from among the
individuals listed below. Each of the following individuals has consented to
serve as a director of the Company if appointed or elected. None of the
Ingersoll Designees currently is a director of, or holds any positions with, the
Company. Ingersoll has advised the Company that, to the best of Ingersoll's
knowledge, except as set forth below, none of the Ingersoll Designees or any of
their affiliates beneficially owns any equity securities or rights to acquire
any such securities of the Company, nor has any such person been involved in any
transaction with the Company or any of its directors, executive officers or
affiliates that is required to be disclosed pursuant to the rules and
regulations of the Commission other than with respect to transactions between
Ingersoll and the Company that have been described in the Schedule TO or the
Statement.
B-2
<PAGE>
The name, age, citizenship, present principal occupation or employment and
five-year employment history of each of the individuals who may be selected as
Ingersoll Designees are set forth below. Unless otherwise noted, the business
address of each person listed below is Chestnut Ridge Road, Woodcliff Lake, New
Jersey 07675-8738, telephone (201) 573-0123.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AND AGE POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------ ------------------------------------------------------------
<S> <C>
David W. Devonshire.................. Executive Vice President and Chief Financial Officer of
AGE: 54 Ingersoll- Rand Company from 1999 to the present; Director,
Vice President and Treasurer of IR Merger Corporation from
2000 to present; Senior Vice President and Chief Financial
Officer of Ingersoll-Rand Company from 1998 to 1999; Senior
Vice President and Chief Financial Officer of Owens Corning
from 1993 to 1998.
Ronald G. Heller..................... Secretary of Ingersoll-Rand Company from 1991 to present;
AGE: 53 Secretary of IR Merger Corporation from 2000.
Herbert L. Henkel.................... Chairman of the Board of Ingersoll-Rand Company from 2000;
AGE: 51 President and Chief Executive Officer of Ingersoll-Rand
Company from 1999 to present; Director and President of IR
Merger Corporation from 2000 to present; President and Chief
Operating Officer of Ingersoll-Rand Company from April to
October 1999; Chief Operating Officer of Textron Inc. from
1998 to 1999; Vice President of Textron Inc, from 1993 to
1998; Director of Kollmorgen Corporation from 1997 to
present; Director of Pitney-Bowes, Inc. from 1999 to
present.
Steven T. Martin..................... Executive Vice President of Ingersoll-Rand Company from 1998
AGE: 59 to present; Vice President of Ingersoll-Rand Company and
President of Production Equipment Group from 1996 to 1998;
President of Production Equipment Group from 1995 to 1996.
Patricia Nachtigal................... Vice President and General Counsel of Ingersoll-Rand Company
AGE: 53 from 1991 to present; Director, Vice President and Assistant
Secretary of IR Merger Corporation from 2000 to present.
Nicholas J. Pishotti................. Vice President, Strategic Technologies of Ingersoll-Rand
AGE: 59 Company from 1998 to present; Vice President, Strategic
Sourcing of Ingersoll-Rand Company from 1995 to 1998.
Steve Shawley........................ Vice President and Controller of Ingersoll-Rand Company from
AGE: 46 1999 to present; Controller of Ingersoll-Rand Company from
1998 to 1999; Vice President and Controller of Thermo King
Corporation from 1994 to 1998.
</TABLE>
B-3
<PAGE>
OWNERSHIP OF COMMON STOCK BY THE
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information as of April 6, 2000, with respect
to the beneficial ownership of the Company's Common Stock by (i) each director
of the Company, (ii) each of the Chief Executive Officer and the other four most
highly compensated executive officers of the Company ("Named Executive
Officers"), (iii) all directors and executive officers of the Company as a
group, and (iv) each person who, to the best of the Company's knowledge,
beneficially owns more than five percent of any class of the Company's voting
securities. Except as otherwise indicated, persons listed below have sole voting
and investment power with respect to all shares held by them, except to the
extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP(A) PERCENT OF CLASS
--------------- ----------------
<S> <C> <C>
DIRECTORS
J. Joe Adorjan............................................. 3,206(b) *
Richard G. Cline........................................... 222,087(c) *
Lawrence A. Del Santo...................................... 2,206(b) *
R. Randolph Devening....................................... 2,206(b) *
Archie R. Dykes............................................ 10,029(b) *
Victoria B. Jackson........................................ 5,818(b) *
J. Larry Vowell (Chief Executive Officer).................. 438,188(d) *
NAMED EXECUTIVE OFFICERS
John S. Gleason............................................ 289,418(c) *
Michael D. Newman.......................................... 147,807 *
John Schlee................................................ 267,815(d)(e) *
Lawrence R. Rauzon......................................... 236,885(c) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(16 individuals, including those named above).............. 2,166,733(c)(f) 4.3
PRINCIPAL STOCKHOLDERS
Ariel Capital Management, Inc.............................. 6,636,105(g) 13.0
307 North Michigan Avenue
Chicago, IL 60601
Shapiro Capital Management Company, Inc.................... 3,130,475(h) 6.1
3060 Peachtree Road, N.W.
Atlanta, GA 30305
</TABLE>
- ------------------------
* Less than one percent.
(a) Includes shares which the named director or executive officer has the right
to acquire within 60 days after April 6, 2000 through the exercise of stock
options as follows: Mr. Cline, 200,000 shares; Mr. Vowell, 378,336 shares;
Mr. Gleason, 220,611 shares; Mr. Newman, 141,310 shares; Mr. Schlee, 226,871
shares; and Mr. Rauzon, 201,917 shares.
(b) Includes 2,206 Common Stock units. Common Stock units are paid in Common
Stock on the later of the date selected by the director or during the first
January occurring after the director ceases to serve as a director. The
directors have no voting or investment power over Common Stock units. In
addition, under the terms of Hussmann's Deferred Compensation Plan for
Directors, on May 18, 2000, the date of the annual meeting of stockholders,
each director will be granted addi-
B-4
<PAGE>
tional Common Stock units determined by dividing $15,000 by the Fair Market
Value of a share of Common Stock as of that date. "Fair Market Value" means
the average closing price per share, as reported for New York Stock Exchange
Composition Transactions, for the 20 trading days immediately preceding the
date of determination.
(c) The number of shares shown for Mr. Cline includes 19,400 shares owned by
Northern Funds and Northern Institutional Funds of which Mr. Cline is a
trustee. Mr. Cline expressly disclaims beneficial ownership of these shares.
(d) Includes shares held in the Company's Retirement Savings Plan. Such shares
are not directly allocated to individual participants but instead are held
in a separate Company Stock Fund in which each participant holds units. The
fund also holds varying amounts of cash. The number of shares of Common
Stock reported as held by the officer in the Retirement Savings Plan is an
approximation of the number of shares of Common Stock in the fund which are
allocable to the officer. The number of shares allocable varies on a daily
basis based on the cash position of the fund and the market price of the
Common Stock.
(e) The number of shares shown for Mr. Schlee includes 27 shares owned by his
wife. Mr. Schlee expressly disclaims beneficial ownership of these shares.
(f) The number of shares shown as beneficially owned includes 1,874,367 shares
which the directors and executive officers have the right to acquire within
60 days after April 6, 2000 through the exercise of stock options, and
75,732 shares representing the vested beneficial interest of such persons
under the Company's Retirement Savings Plan.
(g) The information as to Ariel Capital Management, Inc. ("Ariel") is derived
from a statement with respect to the Common Stock filed with the Securities
and Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"). Ariel has sole voting
power as to 6,316,480 shares and sole investment power as to 6,636,105
shares.
(h) The information as to Shapiro Capital Management Company, Inc. is derived
from a statement with respect to the Common Stock filed with the SEC
pursuant to Section 13(d) of the Exchange Act.
B-5
<PAGE>
BOARD OF DIRECTORS
The Board is divided into three staggered classes. At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring.
TERMS EXPIRING IN 2000
RICHARD G. CLINE, 65. Chairman of the Board of the Company. Mr. Cline served
as President and Chief Operating Officer of NICOR Inc. since 1985, and became
Chairman of the Board and Chief Executive Officer in 1986. He retired as Chief
Executive Officer in May 1995 and continued to serve as Chairman until his
retirement from NICOR at the end of 1995. NICOR is engaged in natural gas
distribution and containerized liner shipping. For the previous 22 years,
Mr. Cline was an executive of Jewel Companies, Inc., becoming Chairman,
President and Chief Executive Officer in 1984. Mr. Cline is also Chairman of
Hawthorne Investors, Inc., a private management advisory and investment firm he
founded in 1996. Additionally he is a director of Whitman Corporation, Kmart
Corporation and Ryerson Tull, Inc.; and is a trustee of Northern Funds and
Northern Institutional Funds and a past chairman of the Federal Reserve Bank of
Chicago. Mr. Cline is also a director and past president of the University of
Illinois Foundation.
VICTORIA B. JACKSON, 45. Ms. Jackson received her BBA degree from Belmont
University in 1977 and an MBA degree from Vanderbilt University in 1981.
Following graduation from college, she joined DSS/ProDiesel, Inc., a diesel
parts remanufacturing and distribution company based in Nashville, Tennessee,
and served as its President and Chief Executive Officer until February 1999.
Ms. Jackson is also a director of Whitman Corporation, AmSouth Bancorporation
and Meritor Automotive Inc. She has previously served as Chairman of Tennessee's
Alcohol and Beverage Commission, as a director of the Association of Diesel
Specialists and as a member of the Board of Directors of the Federal Reserve
Bank of Atlanta.
TERMS EXPIRING IN 2001
LAWRENCE A. DEL SANTO, 66. Mr. Del Santo is the former Chairman and Chief
Executive Officer of Vons Companies, Inc., a supermarket retailer that operates
stores in Southern California, where he was employed from 1994-1997. From
1984-1994, he was an executive of American Stores Company, serving as Senior
Executive Vice President and Chief Operating Officer beginning in 1993. He is
also a director of Supervalu, Inc. and PETsMART, Inc. and a trustee of the
University of San Francisco.
R. RANDOLPH DEVENING, 58. Mr. Devening is President and Chief Executive
Officer of Foodbrands America, Inc., which produces, markets and distributes
perishable food products for the food service and retail store delicatessen
market. Mr. Devening has been with Foodbrands America since 1994. From 1989
through 1994, Mr. Devening served as Chief Financial Officer of Fleming
Companies, Inc., and became its Vice Chairman in 1993. He is also a director of
ENTEX Information Services, Inc., Hancock Fabrics, Inc., Love's Country
Stores, Inc., Keystone Automotive Operations, Inc., and The Fred Jones
Companies, Inc.
J. LARRY VOWELL, 59. Mr. Vowell has spent his entire professional career
with the Company. After holding a variety of management positions, Mr. Vowell
became President and Chief Operating Officer-Hussmann U.S.A. in 1990 and
President and Chief Executive Officer later that year.
TERMS EXPIRING IN 2002
J. JOE ADORJAN, 61. Mr. Adorjan is a partner in Stonington Partners Inc. and
Chairman of Adven Capital Partners LLC, private investment firms. Previously, he
was Chairman and Chief Executive Officer of Borg-Warner Security Services,
retiring in 1999. Before joining Borg-Warner in 1995, Mr. Adorjan served as
President of Emerson Electric Company from 1992-1995 and as Chairman and Chief
Executive Officer of ESCO Electronics Corporation from 1990-1992. He is also a
director of Goss Graphic Systems, Inc., The Earthgrains Company and Dynegy
Corporation.
B-6
<PAGE>
ARCHIE R. DYKES, 69. Dr. Dykes is Chairman of Capital City Holdings, Inc.,
Nashville, Tennessee, a venture capital organization. Dr. Dykes served as
Chairman and Chief Executive Officer of the Security Benefit Group of Companies
from 1980 through 1987. He served as Chancellor of the University of Kansas from
1973 to 1980. Before that he was Chancellor of the University of Tennessee.
Dr. Dykes is a director of the Fleming Companies, Inc., Whitman Corporation,
Midas, Inc. and the Employment Corporation. He is also a member of the Board of
Trustees of the Kansas University Endowment Association and the William Allen
White Foundation. He formerly served as Vice Chairman of the Commission on the
Operation of the United States Senate and as a member of the Executive Committee
of the Association of American Universities.
There are no family relationships among any of the Company's directors or
executive officers.
DIRECTOR COMPENSATION
Directors other than Messrs. Cline and Vowell receive an annual retainer of
$30,000, plus $1,000 for each committee meeting attended. The Chairperson of
each committee is paid an additional $3,000 annual retainer. Directors may elect
to defer receipt of all or a portion of their retainer and meeting fees.
Interest is credited to these deferred compensation accounts at the prime rate.
Immediately after each annual meeting of stockholders, directors other than
Messrs. Cline and Vowell are granted Common Stock units with a fair market value
of $15,000. Dividend equivalents are credited to these Common Stock unit
accounts and interest is credited on dividend equivalents at the prime rate.
Deferred compensation accounts, dividend equivalents and interest are paid in
cash on dates selected by the directors. The Common Stock units are paid in
Common Stock on the later of the date selected by the director or during the
first January occurring after the director ceases to serve as a director.
Directors may also receive awards pursuant to the Company's Stock Incentive
Plan.
Provided he is re-elected at the Company's 2000 annual meeting of
stockholders, Mr. Cline's agreement to serve as Chairman of the Board will
expire on January 31, 2001. Under this agreement, he will continue to be
compensated at a rate of $400,000 annually. Additionally, on February 1, 2000,
he was granted a ten-year non-qualified option to purchase 100,000 shares of
Common Stock at the market price on the date of grant. These options become
exercisable on February 1, 2001 or in the event a merger or change in control of
the Company. Mr. Cline's cash compensation and stock options are in lieu of all
other compensation as a director. Mr. Cline is not an employee of the Company
and does not participate in the Company's management incentive or general
employee benefit plans.
1999 BOARD MEETINGS
During 1999, the Board of Directors held a total of seven meetings. In 1999,
all directors attended at least 75% percent of the meetings of the Board and of
the Board committees on which they served, except for Mr. Del Santo. He attended
70% of the aggregate number of meetings of the Board and the Management
Resources and Compensation Committee.
BOARD COMMITTEES
The Board of Directors has four standing committees, which are described
below.
AUDIT COMMITTEE. The Audit Committee reviews the audit report of the
Company as prepared by its independent auditors, recommends the selection of
independent auditors each year and reviews audit and any non-audit fees paid to
the independent auditors of the Company. The Audit Committee reviews the
Company's internal audit reports and reports its findings and recommendations to
the Board for appropriate action. The Audit Committee met four times in 1999.
MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE. The Management Resources
and Compensation Committee is responsible for management evaluation and
succession planning, supervising the compensation policies of the Company,
administering employee incentive plans, reviewing officers' salaries, approving
significant changes in salaried employee benefits and
B-7
<PAGE>
recommending to the Board such other forms of remuneration as it deems
appropriate. The Management Resources and Compensation Committee met three times
in 1999.
EXECUTIVE COMMITTEE. The Executive Committee of the Board acts, except as
limited by applicable law, in lieu of the full Board and between meetings of the
Board. The Executive Committee did not meet in 1999.
NOMINATING COMMITTEE. The Nominating Committee is responsible for
recommending, to the full Board, nominees for election to the Board and
candidates for membership on the various committees of the Board. The Nominating
Committee will consider nominees recommended by other directors, stockholders
and management who present for evaluation by the Nominating Committee
appropriate data with respect to the suggested candidate, provided that
nominations by stockholders must be made in accordance with our By-laws. The
Nominating Committee was established in March 2000 and therefore did not meet in
1999.
FINANCE AND PENSION COMMITTEE. The Finance and Pension Committee supervises
the financial affairs of the Company and receives and reviews reports of those
persons who supervise and manage the Company's benefit plans. The Board has
delegated to the Finance and Pension Committee and certain officers its
authority to approve financing transactions involving the borrowing up to
$200 million in any one transaction. The Finance and Pension Committee
periodically reports to the Board any action taken to approve financing
transactions in excess of $25 million. The Finance and Pension Committee met
twice in 1999.
COMMITTEE MEMBERS. The committee members for each of the four standing
committees are set forth below:
<TABLE>
<CAPTION>
MANAGEMENT
RESOURCES
AND FINANCE AND
EXECUTIVE AUDIT NOMINATING COMPENSATION PENSION
NAME COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
- ---- --------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Richard G. Cline...................... X*
Victoria B. Jackson................... X X X
Lawrence A. Del Santo................. X X X*
R. Randolph Devening.................. X X X X*
J. Larry Vowell....................... X
J. Joe Adorjan........................ X X X* X
Archie R. Dykes....................... X* X X
</TABLE>
- ------------------------
* Chairperson.
EXECUTIVE OFFICERS
The names, ages and experience of the executive officers of the Company as
of March 2000, are set forth below:
J. LARRY VOWELL (59)
President and Chief Executive Officer, Director since January 29, 1998
Mr. Vowell has spent his entire professional career with Hussmann. After
holding a variety of management positions, Mr. Vowell became President and
Chief Operating Officer-Hussmann U.S.A. in 1990 and President and Chief
Executive Officer later that year.
JOHN S. GLEASON (58)
Executive Vice President-North American Operations
Mr. Gleason joined Hussmann in 1988 as President-International Group. He
served as Executive Vice President-Sales and Marketing for North America
from 1991 to 1995.
B-8
<PAGE>
MICHAEL D. NEWMAN (43)
Senior Vice President-Chief Financial Officer
Mr. Newman joined Hussmann in 1996. Prior to that, he spent seventeen years
with General Electric Company in various financial positions, most recently
as Manager, America's Finance.
JOHN SCHLEE (57)
Senior Vice President-Europe and Middle East
Mr. Schlee joined Hussmann in 1988 as Group Vice President-Manufacturing. He
became Senior Vice President-Manufacturing in 1989, was Senior Vice
President-International from 1995 to 1996 and was Senior Vice
President-Global Development from 1996 to November 1997.
LAWRENCE R. RAUZON (50)
Senior Vice President-International
Mr. Rauzon served as Vice President-Western United States from 1989-1994
when he was appointed Vice President and Region Manager, Western United
States. He was appointed to the position of Vice President-Asia-Pacific in
1996 and to his present position in April 2000. He has been with Hussmann
since 1978.
MARK C. SCHAEFER (42)
Vice President-Mexico and Latin America
Mr. Schaefer joined Hussmann in 1981. He became President-Hussmann Mexico in
1992, and was appointed to his present position in 1995.
DENNIS G. GIPSON (46)
Vice President-Global Development
Mr. Gipson joined Hussmann in 1972. From 1989 to 1991 he was Vice President
Sales-North Central Zone. He served as Vice President for Product
Development and Research from 1992 to 1996 and as Vice
President-Refrigeration, North America from 1996 to November 1997.
BURTON HALPERN (58)
Vice President, General Counsel and Secretary
Mr. Halpern has served in various legal capacities with Hussmann since 1970.
He became General Counsel in 1985.
JOSEPH R. PINKSTON III (45)
Vice President-Human Resources
Mr. Pinkston joined Hussmann in 1995. From 1992-1995 he served as Group
Director of Human Resources for the Bowman Distribution Division of the
Barnes Group. Prior to that, he served in various human resource positions
with units of Allied Signal Inc.
THOMAS G. KORTE (36)
Vice President-Corporate Controller
Mr. Korte joined Hussmann in March 1998. From 1986 until joining Hussmann he
was employed by KPMG LLP with his last position being Senior Manager.
There are no family relationships among any of the executive officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers of the Company and persons who own more than ten percent of
the Common Stock to file reports of ownership and changes in ownership of Common
Stock with the Securities and Exchange Commission and New York Stock Exchange.
These persons are also required to furnish to the Company copies of all such
reports.
To the Company's knowledge, based solely on its review of the copies of such
reports received by the Company, and written representations from certain
reporting persons, directors and executive officers of the Company and all other
reporting persons complied with all applicable filing requirements.
B-9
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for the last three years of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company serving at the end of 1999. On
January 30, 1998, Whitman Corporation ("Whitman"), the former sole stockholder
of the Company, distributed (the "Distribution") to its stockholders all of the
outstanding shares of Common Stock of the Company, and the Company became an
independent, publicly held company. References to restricted stock and stock
options for 1997 relate to awards under Whitman's Stock Incentive Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS (A)
--------------------------------------------- ----------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (B) (#) ($) (C)
- --------------------------- -------- -------- -------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Larry Vowell 1999 516,678 225,917 16,832 -- -- 94,898
President and CEO 1998 418,754 692,789 18,875 -- 396,500 58,269
1997 345,003 210,000 15,792 277,500 52,200 61,188
John S. Gleason 1999 297,084 81,888 13,702 -- -- 46,565
Executive Vice President 1998 263,757 321,209 10,830 -- 212,500 33,627
- -North American Operations 1997 248,746 151,000 9,385 166,500 31,500 35,083
Michael D. Newman 1999 253,334 80,060 9,497 -- -- 37,814
Senior Vice President 1998 229,841 305,539 10,710 -- 205,000 17,619
- -Chief Financial Officer 1997 172,463 100,000 8,751 129,500 24,300 21,641
John Schlee 1999 218,758 58,466 8,751 -- -- 35,054
Senior Vice President 1998 204,174 248,295 9,960 -- 159,500 18,734
- -Europe and Middle East 1997 194,083 80,000 8,751 129,500 24,300 26,379
Lawrence R. Rauzon 1999 193,750 58,466 8,751 -- -- 31,910
Senior Vice President 1998 180,000 248,295 9,960 -- 159,500 22,516
- -International 1997 169,576 113,000 8,751 129,500 24,300 20,485
</TABLE>
- ------------------------
(a) As a result of the Distribution, all Whitman restricted stock awards and
Whitman stock options, including all restricted stock awards and stock
options for 1997, that were outstanding on January 30, 1998 were canceled
and awards of restricted Common Stock and options to purchase Common Stock
were granted in substitution of the Whitman awards. Substitute awards are
not reflected as compensation during 1998 in the Summary Compensation Table.
(b) The number of shares of restricted Common Stock and their market value held
by Messrs. Vowell, Gleason, Newman, Schlee and Rauzon at December 31, 1999,
was as follows: Mr. Vowell, 4,618 shares ($69,547); Mr. Gleason, 2,771
shares ($41,731); Mr. Newman, 2,155 shares ($32,454); Mr. Schlee, 2,155
shares ($32,454); and Mr. Rauzon, 2,155 shares ($32,454). Restricted shares
vest ratably over a period of three years. Dividend equivalents are paid on
restricted stock at the times and in the same amount as dividends paid to
all stockholders.
(c) The amounts shown for All Other Compensation in 1999 are amounts accrued
under a nonqualified retirement plan (Mr. Vowell, $72,579; Mr. Gleason,
$37,099; Mr. Newman, $33,744; Mr. Schlee, $28,024; and Mr. Rauzon, $26,534),
together with the 1999 values of premiums paid by
B-10
<PAGE>
the Company for an executive split dollar life insurance program
(Mr. Vowell, $22,319; Mr. Gleason, $9,466; Mr. Newman, $4,070; Mr. Schlee,
$7,030; and Mr. Rauzon, $5,376).
OPTION GRANTS IN 1999
No options to purchase Common Stock or stock appreciation rights were
granted to the executive officers named in the Summary Compensation Table in
1999.
OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table regarding the exercise of
options to purchase Common Stock during 1999 and unexercised options held as of
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARE ACQUIRED OPTIONS HELD AT OPTIONS AT
ON EXERCISE VALUE REALIZED DECEMBER 31, 1999 DECEMBER 31, 1999 ($) (B)
NAME (#) ($) (A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Larry Vowell.......... 0 0 309,505/391,998 1,004,661/185,747
John S. Gleason.......... 0 0 177,868/208,577 544,185/115,470
Michael D. Newman........ 0 0 103,004/196,640 177,941/104,009
John Schlee.............. 29,345 295,976 195,231/157,807 915,391/85,343
Lawrence R. Rauzon....... 23,057 216,239 170,277/157,807 714,145/85,343
</TABLE>
- ------------------------
(a) The value realized equals the aggregate amount of the excess of the fair
market value of the securities underlying the options at the time of
exercise over the exercise price, without any adjustment for taxes payable
by the executive officer.
(b) Based on the closing price of the Common Stock ($15.06) on December 31,
1999, as reported for New York Stock Exchange Composite Transactions.
The closing price of the Company Common Stock on December 31, 1999, the last
trading day prior to the Company's fiscal year end, was $15.06 per share on the
New York Stock Exchange.
PENSION PLANS
The Company maintains qualified, defined benefit pension plans and
nonqualified retirement plans paying benefits in optional forms elected by the
employee based upon percentage multipliers which are applied to Covered
Compensation and Credited Service. Except for Mr. Vowell, the benefit formula
provides a retirement benefit of 1% of Covered Compensation for each year of
Credited Service (excluding 1989-1991), up to a maximum of 20 years. The benefit
for Mr. Vowell, who had 29 years of Credited Service at December 31, 1988 (when
the benefit structure was amended), will be determined under a minimum benefit
formula (33.3% of Covered Compensation). Such benefits are not subject to
deduction for social security or other offset amounts. As of December 31, 1999,
Mr. Vowell had an accrued annual benefit payable at normal retirement age of
approximately $224,000.
For executive officers other than Mr. Vowell, the following table reflects
future benefits, payable as life annuities upon retirement, in terms of a range
of amounts determined under the benefit formula for representative periods of
Credited Service.
B-11
<PAGE>
PROJECTED ANNUAL PENSION
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE (B)
COVERED -------------------------------------------
COMPENSATION (A) 5 10 15 20 OR MORE
- --------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$400,000 $20,000 $40,000 $ 60,000 $ 80,000
500,000 25,000 50,000 75,000 100,000
600,000 30,000 60,000 90,000 120,000
700,000 35,000 70,000 105,000 140,000
</TABLE>
- ------------------------
(a) Covered Compensation includes salary and bonus, averaged over the five
consecutive years in which such compensation is the highest.
(b) As of December 31, 1999, Messrs. Gleason, Newman, Schlee and Rauzon had 8,
3, 8 and 18 years of Credited Service, respectively.
TERMINATION BENEFITS
The Company has entered into Change in Control Agreements (the "Change in
Control Agreements"), with Messrs. Vowell, Gleason, Newman, Schlee, Rauzon and
certain other officers. The Change in Control Agreements were a result of a
determination by the Board that it was important and in the best interests of
the Company and its stockholders to ensure that, in the event of a possible
change in control of the Company, the stability and continuity of management
would continue unimpaired, free of the distractions incident to any such
possible change in control.
For purposes of the Change in Control Agreements, a "change in control"
includes (i) a reorganization, merger or consolidation of the Company or sale or
other disposition of all or substantially all of the Company's assets, other
than a transaction in which the beneficial owners of the Common Stock prior to
the transaction own at least two-thirds of the voting securities of the
corporation resulting from such transaction, no person owns 25% or more of the
voting securities of the corporation resulting from such transaction and the
members of the Company's Board of Directors constitute at least a majority of
the members of the board of directors of the corporation resulting from such
transaction, (ii) the consummation of a plan of complete liquidation or
dissolution of the Company, (iii) the acquisition by any person or group of 25%
or more of the Company's voting securities, or (iv) persons who were directors
of the Company on January 30, 1998 (or their successors as approved by a
majority of the members of the Company's Board) cease to constitute a majority
of the Company's Board. The consummation of the transactions contemplated by the
Merger Agreement will constitute a change in control for the purposes of the
Change in Control Agreements.
Benefits are payable under the Change in Control Agreements only if a change
in control has occurred and within three years thereafter the officer's
employment is terminated involuntarily without cause or voluntarily by the
officer for reasons such as demotion, relocation, loss of benefits or other
changes. The principal benefits to be provided to officers under the Change in
Control Agreements are (i) a lump sum payment equal to three years' compensation
(base salary and incentive compensation), and (ii) continued participation in
the Company's employee benefit programs or equivalent benefits for three years
following termination. The Change in Control Agreements provide that, if
separation payments thereunder, either alone or together with payments under any
other plan of the Company, would constitute a "parachute payment" as defined in
the Internal Revenue Code (the "Code") and subject the officer to the excise tax
imposed by Section 4999 of the Code, the Company will pay that tax and any taxes
on that payment.
The Change in Control Agreements are not employment agreements, and do not
impair the right of the Company to terminate the employment of the officer with
or without cause prior to a change in
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<PAGE>
control, or, absent a potential or pending change in control, the right of the
officer to voluntarily terminate his employment.
EMPLOYMENT AGREEMENT
The Company and J. Larry Vowell, the President and Chief Executive Officer
of the Company, have entered into an employment agreement (the "Employment
Agreement") for the purpose of securing Mr. Vowell's continued services. The
Employment Agreement has a three-year term expiring on April 9, 2001.
The Employment Agreement provides that Mr. Vowell's base salary will be at
least $425,000 per year and he is entitled to participate in all executive
compensation plans and programs, as well as pension, retirement and insurance
plans. In the event Mr. Vowell's employment is terminated for good reason or by
the Company without cause, Mr. Vowell will receive a lump sum severance payment
equal to his base salary and a pro rated bonus, in each case for the remainder
of the term of the Employment Agreement. In addition, the Company will continue
Mr. Vowell's executive perquisites and benefits, and credit Mr. Vowell with
service for purposes of any retirement benefits, for the remainder of the term
of the Employment Agreement. In the event of a change in control of the Company,
Mr. Vowell's severance benefits will be governed by his Change in Control
Agreement described above.
REPORT OF THE MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Management Resources and Compensation Committee of the Board of
Directors (the "Committee") consists entirely of outside, non-employee
directors. The Committee oversees the design of and regularly reviews the
Company's executive compensation programs. The Committee believes compensation
should vary on the basis of performance, should be aligned to comparable peer
groups, and should ultimately be driven by the short- and long-term interests of
stockholders. In determining the compensation payable to the Company's executive
officers, the Committee seeks to implement the following policies through a
combination of fixed and variable compensation. These policies were developed
with the assistance of outside compensation consultants.
COMPENSATION POLICIES
- Executives will be rewarded for the achievement of financial and
individual results against clearly defined goals and objectives.
- As executives assume greater responsibilities, their total compensation
packages will be subject to greater risk, based upon the financial
performance of the Company.
- Stockholder value creation must be an important link in the design of the
executive compensation package.
- The various components of the executive compensation package must attract,
retain and motivate key executives and aid in maintaining an
entrepreneurial spirit by members of the management team.
- Generally, base compensation will be aligned to median base compensation
levels for positions of similar scope at comparable organizations.
- Variable cash awards will be used to align compensation with short-term
business objectives. Exceeding these objectives will increase the amount
of the awards.
- Equity instruments (primarily stock options) will be used to align a
significant portion of total compensation with the Company's long-term
strategy of continued stockholder value creation.
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<PAGE>
1999 COMPENSATION OVERVIEW
As outlined above, the Company's executive compensation program consists of
specific elements that, in the aggregate, are market competitive and are aligned
to short- and long-term business objectives. Each of the three primary
compensation elements is described in more detail below. The Company's executive
officers are also eligible to participate in compensation and benefit programs
generally available to other Company employees.
To determine the Company's comparative position on each of the specified
primary compensation elements, the Company analyzed various published
compensation surveys and proxy statements of 16 companies in similar industries
and of comparable revenues to the Company. Five of the 16 companies whose proxy
statements were analyzed are in the Russell 2000--Producer Durables Index, the
peer group index in the Performance Graph included in this Proxy Statement.
Because the Committee believes that the Company's most direct competitors for
executive talent are not necessarily all of the companies that would be included
in a peer group established to compare stockholder return, the compensation peer
group is not the same as the Performance Graph peer group.
ELEMENTS OF 1999 TOTAL COMPENSATION
BASE COMPENSATION. Each executive officer's salary is reviewed each year
and adjusted as appropriate based on Company performance, individual
performance, the scope and responsibilities of the executive's position, and the
base salaries paid by peer companies to employees in comparable positions.
During 1999, base salaries of the executive officers reflected the 50th
percentile compensation level for executives of the surveyed companies.
ANNUAL CASH INCENTIVE. The Committee has created the Company Incentive Plan
("HIP") to motivate executive officers and other Company management employees to
attain annual performance objectives. Cash awards for the CEO and other
executive officers under the HIP are based on financial performance goals
established by the Committee at the beginning of the year. Annual cash
incentives available under the HIP are set at a level which, when combined with
an executive officer's salary, would position the officer's cash compensation at
or near the 75th percentile of peer company compensation if the highest
financial performance goals as set by the Committee are achieved. The pre-set
financial performance targets are based directly on the Company's "economic
profit." Economic profit is a measure of financial performance based on
after-tax net operating profit after subtracting the Company's cost of capital.
Studies of total stockholder return have shown that the use of economic profit
as a measure for incentive compensation helps to increase/maximize total
stockholder return. The HIP awards are paid during the year following the year
of performance after the Committee has certified that the applicable performance
goals have been satisfied. Based on the Company's performance versus the
economic profit target levels for 1999, executive officers other than
Mr. Vowell received 30.0% of the mid-point of the officer's salary range.
LONG TERM INCENTIVE. The Company provides long-term incentives through the
Company's Stock Incentive Plan ("SIP"). The Committee believes that stock
ownership by executive officers and middle management is essential for aligning
management's interest with that of stockholders. Under the SIP, the Committee
may provide long-term performance incentive awards in the form of stock options
(with or without stock appreciation rights), restricted stock awards and
performance awards. As discussed in last year's Committee Report, in 1998 the
Committee approved stock option awards designed to focus management's energy and
effort on stockholder value by a) accelerating vesting of the options based upon
increases in the Company's stock price and b) combining the amount of options
which would have been granted annually over a three year period into a single
award. Therefore, no additional options were awarded to the Company's executive
officers during 1999.
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CEO COMPENSATION
Mr. Vowell's 1999 base compensation, annual cash incentive and stock option
grant each followed the same policies and calculations set forth above with
respect to the other executive officers; PROVIDED, HOWEVER, Mr. Vowell was
eligible for a higher percentage payout, up to a maximum of 163% of the mid-
point of his salary range, under the HIP if the Company achieves the pre-set
economic profit performance levels. For 1999, Mr. Vowell received a payout of
37.9% or $225,917. Like the other executive officers, Mr. Vowell did not receive
a stock option award during 1999.
Effective April 9, 1998, Mr. Vowell has a 3-year employment agreement
terminating April 9, 2001 (which is described more fully under "Employment
Agreement" above) which establishes a minimum salary of $425,000.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code generally imposes a $1,000,000
limit on the amount of compensation that is deductible by the Company with
respect to the Chief Executive Officer and each of the four named executive
officers. Performance-based compensation which has been approved by stockholders
is excluded from the $1,000,000 limit if, among other requirements, the
compensation is payable only upon attainment of pre-established, objective
performance goals and the board committee that establishes such goals consists
only of two or more "outside directors." Grants of stock options and stock
appreciation rights and performance awards made under the SIP meet the
deductibility requirements. If restricted stock awards made under the SIP are
not subject to a performance condition, such awards would be subject to the
limit. No such awards were made during 1999.
Awards under HIP may exceed the deduction limitation under Section 162(m) if
the pre-established, objective performance goals set forth in the plan are
attained. While the tax impact of any compensation arrangement is one factor to
be considered, such impact is evaluated by the Committee in light of its overall
compensation policies and need for flexibility to attract and retain executive
talent. In order to mitigate the negative impact of Section 162(m) on
stockholders, the terms of the HIP allow the awards to be deferred.
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PERFORMANCE GRAPH
The following performance graph compares the Company's cumulative total
stockholder return on the Common Stock from January 30, 1998 (the date of the
Distribution) to December 31, 1999 with the cumulative total return of the
Russell 2000 Stock Index (the "Russell 2000") and the Russell 2000-Producer
Durables (the "Peer Group", which includes the Company). These comparisons
assume an initial investment of $100 and reinvestment of dividends.
CUMULATIVE TOTAL RETURNS
HUSSMANN INTERNATIONAL, INC. RUSSELL 2000, PEER GROUP
[COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN GRAPH]
<TABLE>
<CAPTION>
1/30/98 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hussmann............. $100.00 $137.80 $136.57 $104.53 $142.92 $108.49 $122.49 $125.87 $111.68
Russell 2000......... $100.00 $111.82 $106.61 $ 85.13 $ 99.02 $ 93.65 $108.21 $101.37 $120.07
Peer Group........... $100.00 $112.91 $103.26 $ 78.01 $ 93.52 $ 83.65 $103.50 $100.10 $127.90
</TABLE>
B-16
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[LOGO]
HUSSMANN INTERNATIONAL, INC.
12999 ST. CHARLES ROCK ROAD, BRIDGETON, MISSOURI 63044-2483
May 16, 2000
Dear Fellow Stockholder:
I am very pleased to inform you that Hussmann International, Inc. has
entered into a merger agreement with Ingersoll-Rand Company, pursuant to which a
subsidiary of Ingersoll has commenced a tender offer to purchase all of the
outstanding shares of Hussmann common stock for $29.00 per share in cash. I
believe the transaction is an outstanding one for Hussmann stockholders. Among
other things, the $29 offer price per share represents an approximately 117%
premium over the closing market price of Hussmann on May 11, 2000, the day
before the agreement was announced. We are very excited about the transaction
and hope you share our views.
The tender offer is conditioned on, among other things, at least a majority
of shares of Hussmann common stock outstanding on a fully diluted basis being
tendered and not withdrawn and the receipt of regulatory approvals. The tender
offer will be followed by a merger, in which each share of Hussmann common stock
not purchased in the tender offer will be converted into the right to receive in
cash the price paid in the tender offer.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE INGERSOLL OFFER
AND THE MERGER ARE ADVISABLE, FAIR TO, AND IN THE BEST INTERESTS OF, HUSSMANN'S
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HUSSMANN'S STOCKHOLDERS ACCEPT THE
INGERSOLL OFFER AND TENDER THEIR SHARES OF HUSSMANN COMMON STOCK PURSUANT TO THE
OFFER.
In arriving at its recommendation, the Board of Directors considered a
number of factors, as described in the attached Schedule 14D-9, including the
written opinion of the Company's financial advisor, Credit Suisse First Boston
Corporation, that, as of the date of the opinion, the consideration to be
received by the holders of Hussmann common stock in the tender offer and the
merger is fair to Hussmann's stockholders, other than Ingersoll and its
affiliates, from a financial point of view. A copy of CSFB's written opinion,
which sets forth the assumptions made, procedures followed, matters considered
and limitations of the review undertaken by CSFB in rendering its opinion, is
included as Annex A with the attached Schedule 14D-9. You should read the
opinion carefully and in its entirety.
Enclosed are the Ingersoll Offer to Purchase, dated May 16, 2000, the Letter
of Transmittal and related documents. These documents set forth the terms and
conditions of the tender offer. The attached Schedule 14D-9 describes in more
detail the reasons for your Board's conclusions and contains other information
relating to the tender offer. We urge you to consider this information
carefully.
Sincerely,
<TABLE>
<S> <C>
/s/ Richard G. Cline /s/ J. Larry Vowell
Richard G. Cline J. Larry Vowell
CHAIRMAN OF THE BOARD PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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