[Letterhead of Corning Incorporated]
July 28, 1994
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Attention of 1933 Act Filing Desk
Re: Corning Incorporated
Registration Statement on Form S-4
Gentlemen:
Pursuant to Rule 461 under the Securities Act of 1933, Corning Incorporated
(the "Company") hereby requests that the effective time of the
above-referenced Registration Statement of the Company be accelerated to 9:00
a.m. on August 1, 1994, or as soon thereafter as practicable.
Sincerely,
/s/ WILLIAM C. UGHETTA
William C. Ughetta
Senior Vice President
<PAGE>
Registration No 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CORNING INCORPORATED
(Exact name of registrant as specified in its charter)
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New York 3229 16-0393470
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
One Riverfront Plaza William C. Ughetta
Corning, New York 14831 Corning Incorporated
(607) 974-9000 One Riverfront Plaza
(Address, Including Zip Code, and Corning, New York 14831
Telephone Number, Including (607) 974-9000
Area Code, of Registrant's (Name, Address, Including
Principal Executive Offices) Zip Code, and Telephone Number,
Including Area Code,
of Agent For Service)
COPIES TO:
Andrew R. Brownstein, Esq. Paul S. Blencowe, Esq.
Wachtell, Lipton, Rosen & Katz Fulbright & Jaworski L.L.P.
51 West 52nd Street 865 South Figueroa, 29th Floor
New York, New York 10019 Los Angeles, California 90017
(212) 403-1000 (213) 892-9200
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement and the
effective time of the merger (the "Merger") of a subsidiary of Corning
Incorporated ("Corning") and Nichols Institute ("Nichols"), as described in
the Agreement and Plan of Merger dated June 1, 1994, as amended (the "Merger
Agreement") attached as Appendix A to the Proxy Statement/Prospectus forming
a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.[ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE
REGISTRATION FEE
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Common Stock, par value $0.50
per share (1) 9,766,033 (2) N.A. N.A. $89,164 (3) (4)
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(1) Associated with the Common Stock are Preferred Share Purchase Rights that
will not be exercisable or evidenced separately from the Common Stock prior
to the occurrence of certain events.
(2) Based upon the maximum number of shares of Corning Common Stock issuable
in the Merger to holders of shares of Nichols Common Stock and Nichols
Preferred Stock, assuming exercise of all outstanding options and warrants to
acquire Nichols Common Stock and based on a price per share of Corning Common
Stock of $26.50, which results in the highest Exchange Ratio (as defined in
the Merger Agreement) possible under the Merger Agreement.
(3) The registration fee was computed pursuant to rule 457(f) under the
Securities Act of 1933, as amended (the "Securities Act"), based upon the
maximum value of $13 in shares of Corning Common Stock to be paid per share
of Nichols Common Stock in the Merger, and the value of $350 plus accrued
dividends in shares of Corning Common Stock to be paid per share of Nichols
Preferred Stock in the Merger.
(4) Pursuant to Rule 457(b) under the Securities Act and Section 14(g) of the
Securities Exchange Act of 1934, as amended, and Rule 0-11 thereunder, the
total registration fee of $89,164 is offset by the filing fee of $44,441
previously paid by Nichols in connection with the filing of preliminary proxy
materials on June 24, 1994. Accordingly, the fee payable upon the filing of
this Registration Statement is $44,723.
The Registrant hereby amends the Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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CORNING INCORPORATED
SHARES OF COMMON STOCK
TO BE ISSUED IN CONNECTION WITH THE MERGER
OF A WHOLLY OWNED SUBSIDIARY OF
CORNING INCORPORATED
AND
NICHOLS INSTITUTE
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B)
OF REGULATION S-K SHOWING THE LOCATION IN THE PROXY STATEMENT/PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
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Location or
Caption in Proxy
Item of Form S-4 Statement/Prospectus
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A. Information About the Transaction
Facing Page of the Registration
Statement; Cross-Reference Sheet;
1. Forepart of Registration Statement and Outside Outside Front Cover Page of Proxy
Front Cover Page of Prospectus Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Table of
Prospectus Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Certain Historical and Pro
and Other Information Forma Financial Data
Facing Page of the Registration
Statement; Summary; The Merger;
Background and Reasons for the Merger;
Recommendation of the Nichols Board;
Comparative Rights of Nichols
4. Terms of the Transaction Stockholders and Corning Stockholders
Corning Unaudited Pro Forma Combined
5. Pro Forma Financial Information Financial Information
6. Material Contacts with the Company Being Background and Reasons for the Merger;
Acquired Recommendation of the Nichols Board
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters Not Applicable
Background and Reasons for the Merger;
Recommendation of the Nichols Board;
8. Interests of Named Experts and Counsel Legal Opinions; Experts
9. Disclosure of Commission Position on Comparative Rights of Nichols
Indemnification for Securities Act Liabilities Stockholders and Corning Stockholders
B. Information About the Registrant
Available Information; Incorporation of
Certain Documents by Reference; Summary;
The Companies; Selected Financial Data
10. Information with Respect to S-3 Registrants of Corning; Business of Corning
Available Information; Incorporation of
11. Incorporation of Certain Information by Reference Certain Documents by Reference
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12. Information with Respect to S-2 or S-3
Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
Summary; The Companies; Dividends on and
Market Prices of Corning Common Shares
and Nichols Common Stock; Selected
Financial Data of Nichols; Nichols
Management Discussion and Analysis;
Business of Nichols; Security Ownership
17. Information with Respect to Companies Other Than of Certain Beneficial Owners and
S-3 or S-2 Companies Management of Nichols
D. Voting and Management Information
Outside Front Cover Page of Proxy
Statement/Prospectus; Available
Information; Incorporation of Certain
Documents by Reference; Summary; The
Special Meeting; The Merger; Security
18. Information if Proxies, Consents or Ownership of Certain Beneficial Owners
Authorizations Are to be Solicited and Management of Nichols
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited or in an
Exchange Offer Not Applicable
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Nichols Institute
33608 Ortega Highway
San Juan Capistrano, CA 92690
August , 1994
Dear Fellow Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders (the
"Special Meeting") of Nichols Institute ("Nichols"), which will be held on
Wednesday, August 31, 1994 at 9:30 a.m., local time, at 33608 Ortega Highway,
San Juan Capistrano, CA 92690, Building A.
At the Special Meeting, holders of Class A Common Stock and Class B Common
Stock of Nichols will be asked to consider and vote upon a proposal to adopt
an Agreement and Plan of Merger among Nichols, Corning Incorporated
("Corning") and a subsidiary of Corning (the "Merger Agreement"), with
respect to the merger of the Corning subsidiary into Nichols as provided for
in the Merger Agreement (the "Merger"). Holders of Class C Common Stock and
Series E Convertible Preferred Stock of Nichols are not entitled to vote on
the Merger and are being provided the accompanying Notice of Special Meeting
of Stockholders and Proxy Statement/Prospectus for informational purposes
only. In the Merger, each outstanding share of the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock of Nichols (together, the
"Nichols Common Stock") and each share of Series E Convertible Preferred
Stock of Nichols (but excluding shares of Class B Common Stock and Series E
Convertible Preferred Stock as to which appraisal rights shall have been
perfected) will be converted into shares of the common stock of Corning, as
described in the accompanying Proxy Statement/Prospectus, and Nichols will
become a wholly owned subsidiary of Corning. Stockholders will receive cash
in lieu of any fractional shares.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger and
additional related information.
NICHOLS' BOARD OF DIRECTORS HAS DETERMINED THE MERGER TO BE FAIR TO AND IN
THE BEST INTERESTS OF NICHOLS AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER
AGREEMENT.
The affirmative vote of the holders of shares representing a majority of the
outstanding voting power of the Nichols Common Stock is necessary to adopt
the Merger Agreement. I am the beneficial owner of shares of Nichols Common
Stock having an aggregate of approximately 60% of the voting power of the
Nichols Common Stock, and I have agreed to vote my shares in favor of the
Merger Agreement. Accordingly, adoption thereof by the Nichols stockholders
is assured.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-prepaid envelope. If you attend the Special Meeting, you may vote in
person if you wish, even though you previously have returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Please do not send your share certificates with your proxy card. After
adoption of the Merger Agreement by the Nichols stockholders and satisfaction
of all other conditions to the Merger, you will receive a transmittal form
and instructions for the surrender and exchange of your shares.
Sincerely,
Albert L. Nichols, M.D.
Chairman of the Board
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
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NICHOLS INSTITUTE
33608 ORTEGA HIGHWAY
SAN JUAN CAPISTRANO, CALIFORNIA 92690
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 31, 1994
TO THE STOCKHOLDERS OF NICHOLS INSTITUTE:
A Special Meeting of the Stockholders (the "Special Meeting") of Nichols
Institute, a Delaware corporation ("Nichols"), will be held on Wednesday,
August 31, 1994 at 9:30 a.m., local time, at 33608 Ortega Highway, San Juan
Capistrano, CA 92690, Building A, for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of June 1, 1994, as amended (the "Merger Agreement"), among
Nichols, Corning Incorporated, a New York corporation ("Corning"), and Apple
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Corning ("Merger Sub"), with respect to the merger of Merger Sub into Nichols
upon the terms and subject to the conditions thereof (the "Merger"). Pursuant
to the Merger Agreement, Nichols will become a wholly owned subsidiary of
Corning, and each share of Class A Common Stock (the "Class A Common Stock"),
par value $.10 per share, Class B Common Stock (the "Class B Common Stock"),
par value $.10 per share, and Class C Common Stock (the "Class C Common
Stock"), par value $.10 per share, of Nichols (together, the "Nichols Common
Stock") issued and outstanding at the effective time of the Merger (other
than shares of Class B Common Stock as to which appraisal rights shall have
been perfected) shall be converted into the right to receive that number (the
"Exchange Ratio") of shares of Corning's common stock, par value $.50 per
share (each a "Corning Common Share"), equal to the quotient derived by
dividing $13.00 by the average of the closing prices on the New York Stock
Exchange per Corning Common Share during the 10 consecutive trading days
ending on the fifth trading day prior to the Special Meeting; provided,
however, that in no event will the Exchange Ratio be greater than 0.491. Each
share of Nichols' Series E Convertible Preferred Stock ("Nichols Preferred
Stock") (other than shares of Nichols Preferred Stock as to which appraisal
rights shall have been perfected) shall be converted in the Merger into
Corning Common Shares in the manner and amount provided for pursuant to the
terms of the Nichols Preferred Stock. Each Corning Common Share issued in the
Merger shall be accompanied by one right (a "Right") to purchase, on the
occurrence of certain events, Corning Common Shares or Series A Preferred
Stock of Corning, unless the Rights shall not be outstanding as of the
effective time of the Merger. The Merger is more completely described in the
accompanying Proxy Statement/Prospectus, and a copy of the Merger Agreement
is attached as Appendix A thereto.
2. To transact such other matters relating to the conduct of the Special
Meeting or any adjournments or postponements thereof that may properly come
before the Special Meeting.
Only holders of record of shares of the capital stock of Nichols at the close
of business on July 29, 1994, the record date for the Special Meeting, are
entitled to notice of, and only holders of shares of Class A Common Stock and
Class B Common Stock at the close of business on July 29, 1994 are entitled
to vote at, the Special Meeting and any adjournments or postponements
thereof.
The affirmative vote of the holders of shares representing a majority of the
outstanding voting power of the Nichols Common Stock is necessary to adopt
the Merger Agreement. Dr. Albert L. Nichols, the beneficial owner of shares
of Nichols Common Stock having an aggregate of approximately 60% of the
voting power of the Nichols Common Stock, has agreed to vote in favor of the
Merger Agreement. Accordingly, adoption thereof by the Nichols stockholders
is assured.
Holders of Class A Common Stock and Class C Common Stock will not be entitled
to appraisal rights as a result of the Merger. Under Delaware law, appraisal
rights are unavailable to holders of the Class A Common Stock and the Class C
Common Stock because the Class A Common Stock and the Class C Common Stock
were, on the record date, listed on the American Stock Exchange and will be
converted into Corning Common Shares, which at the effective time of the
Merger will be listed on the New York Stock Exchange. Holders of record of
Class B Common Stock and Nichols Preferred Stock who comply with the
statutory requirements will be entitled, under Section 262 of the General
Corporation Law of the State of Delaware, to demand appraisal of their shares
of Class B Common Stock and Nichols Preferred Stock if the Merger Agreement
is adopted and the Merger is consummated. A summary of the provisions of
Section 262, including a summary of the requirements with which stockholders
demanding such appraisal must comply, is contained in the Proxy
Statement/Prospectus under the heading "THE MERGER--Appraisal Rights for
Unlisted Stock Only." The entire text of Section 262 is attached as Appendix
D to the accompanying Proxy Statement/Prospectus.
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Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-prepaid envelope. PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS
TIME. Your proxy may be revoked at any time before it is voted by signing and
returning a later dated proxy with respect to the same shares, by filing with
the Secretary of Nichols a written revocation bearing a later date, or by
attending and voting at the Special Meeting.
NICHOLS INSTITUTE
By:
Marilyn I. Hauge
Secretary
San Juan Capistrano, California
August , 1994
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CORNING INCORPORATED
PROSPECTUS
COMMON STOCK, PAR VALUE $.50 PER SHARE
NICHOLS INSTITUTE
PROXY STATEMENT
FOR A SPECIAL MEETING OF STOCKHOLDERS OF
NICHOLS INSTITUTE
TO BE HELD ON AUGUST 31, 1994
Nichols Institute, a Delaware corporation ("Nichols"), is furnishing this
Proxy Statement/Prospectus to its stockholders in connection with the
solicitation of proxies by the Board of Directors of Nichols (the "Nichols
Board") for use at its Special Meeting of Stockholders and at any
adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, holders of voting stock of Nichols will consider and
vote upon a proposal to adopt an Agreement and Plan of Merger, dated as of
June 1, 1994, as amended (the "Merger Agreement"), among Nichols, Corning
Incorporated, a New York corporation ("Corning"), and Apple Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Corning
("Merger Sub"), with respect to the merger of Merger Sub into Nichols upon
the terms and subject to the conditions thereof (the "Merger"). In the
Merger, Nichols will become a wholly owned subsidiary of Corning, and each
outstanding share of Class A Common Stock (the "Class A Common Stock"), par
value $.10 per share, Class B Common Stock (the "Class B Common Stock"), par
value $.10 per share, and Class C Common Stock (the "Class C Common Stock"),
par value $.10 per share, of Nichols (together, the "Nichols Common Stock")
(other than shares of Class B Common Stock as to which appraisal rights shall
have been perfected) shall be converted into the right to receive that number
(the "Exchange Ratio") of shares of Corning's common stock, par value $.50
per share (each a "Corning Common Share"), equal to the quotient derived by
dividing $13.00 by the average of the closing prices on the New York Stock
Exchange, Inc. (the "NYSE") per Corning Common Share during the 10
consecutive trading days ending on the fifth trading day prior to the Special
Meeting; provided, however, that in no event will the Exchange Ratio be
greater than 0.491. Each share of Nichols' Series E Convertible Preferred
Stock ("Nichols Preferred Stock") (other than shares of Nichols Preferred
Stock as to which appraisal rights shall have been perfected) shall be
converted in the Merger into Corning Common Shares in the manner and amount
provided for pursuant to the terms of the Nichols Preferred Stock. Each
Corning Common Share issued in the Merger shall be accompanied by one right
(a "Right") to purchase, on the occurrence of certain events, Corning Common
Shares or Series A Preferred Stock of Corning, unless the Rights shall not be
outstanding as of the effective time of the Merger. See "THE MERGER--Effect
on Capital Stock."
Dr. Albert L. Nichols, the beneficial owner of shares of Nichols Common Stock
having an aggregate of approximately 60% of the voting power of the Nichols
Common Stock, has agreed to vote in favor of the adoption of the Merger
Agreement. Accordingly, adoption thereof by the Nichols stockholders is
assured.
No fractional Corning Common Shares will be issued in the Merger. In lieu of
any such fractional shares, each holder of Nichols Common Stock who otherwise
would be entitled to receive a fractional Corning Common Share pursuant to
the Merger will be paid an amount in cash, without interest, equal to such
holder's proportionate interest in the net proceeds from the sale or sales in
the open market by the Exchange Agent for the Merger, Harris Trust and
Savings Bank, on behalf of all such holders, of the aggregate fractional
Corning Common Shares, if any, that would have been issued in the Merger.
This Proxy Statement/Prospectus is first being mailed to Nichols stockholders
on or about August , 1994.
THE CORNING COMMON SHARES ISSUABLE IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is August , 1994.
This Proxy Statement/Prospectus constitutes the Prospectus of Corning filed
as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the Corning Common Shares issuable in connection with the Merger. All
information concerning Corning contained in this Proxy Statement/Prospectus
has been furnished by Corning and all information concerning Nichols prior to
the Merger contained in this Proxy Statement/Prospectus has been furnished by
Nichols.
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AVAILABLE INFORMATION
Corning and Nichols are subject to the information and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at certain regional offices of the Commission located at Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661,
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such information can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, reports, proxy statements and other information
concerning Corning can be inspected at the NYSE, 20 Broad Street, New York,
New York 10005, and reports, proxy statements and other information
concerning Nichols can be inspected at the offices of The American Stock
Exchange, Inc. (the "AMEX"), 86 Trinity Place, New York, New York 10006, on
which exchange the Class A Common Stock and the Class C Common Stock are
listed.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO CORNING WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF
ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE
SECRETARY, CORNING INCORPORATED, ONE RIVERFRONT PLAZA, CORNING, NEW YORK
14831, TELEPHONE NUMBER (607) 974-9000. TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE August 24, 1994.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Corning with the Commission (File
No. 1-3247) pursuant to the Exchange Act are incorporated herein by
reference:
1. Corning's Annual Report on Form 10-K for the fiscal year ended January 2,
1994, filed pursuant to Section 13(a) of the Exchange Act.
2. All other reports filed by Corning pursuant to Section 13(a) or 15(d) of
the Exchange Act since January 2, 1994, consisting of Corning's Quarterly
Reports on Form 10-Q for the twelve weeks ended March 27, 1994 and the
twenty-four weeks ended June 19, 1994, respectively; and Corning's Current
Reports on Form 8-K dated January 24, 1994, April 6, 1994, June 28, 1994 and
July 26, 1994, respectively.
3. Corning's Current Reports on Form 8-K dated August 4, 1993 and August 13,
1993, which include certain historical financial statements of Damon
Corporation ("Damon").
4. The description of Corning's Preferred Share Purchase Rights Plan
contained in the registration statement on Form 8-A filed by Corning on July
8, 1986, including the amendment thereto on Form 8 filed by Corning on
October 9, 1989.
All documents filed by Corning pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in
any other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so
modified or superseded. All information appearing in this Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated by reference herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied
upon as having been authorized by Corning or Nichols. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement/Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Corning or Nichols since the date hereof or that the
information in this Proxy Statement/Prospectus or in the documents
incorporated by reference herein is correct as of any time subsequent to the
date hereof or thereof.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3
SUMMARY 9
The Companies 9
Special Meeting of Nichols Stockholders 9
The Merger 10
Certain Significant Considerations 15
Recent Developments 15
CERTAIN HISTORICAL AND PRO FORMA FINANCIAL DATA 16
Comparative Unaudited Per Share Data 16
Selected Historical Financial Data 17
Summary Unaudited Pro Forma Combined Financial Data 19
Dividends 19
Comparative Per Share Market Information 20
THE SPECIAL MEETING 21
Special Meeting 21
Record Date; Shares Entitled to Vote; Vote Required 21
Proxies; Proxy Solicitation 22
THE COMPANIES 22
Corning 22
Merger Sub 23
Nichols 23
BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE NICHOLS BOARD
23
Background 23
Nichols' Reasons for the Merger; Recommendation of the Nichols Board 25
Determination of the Nichols Board as to Voting Rights 26
Opinion of First Boston 26
Corning's Reasons for the Merger 29
THE MERGER 29
Terms of the Merger 29
Effect on Capital Stock 29
Representations and Warranties 31
Certain Covenants 32
Closing Conditions 34
Amendment; Termination 36
Agreement of Dr. Nichols to Vote in Favor of the Merger 37
Certain Federal Income Tax Consequences 37
Regulatory Approvals 38
Resale of Corning Common Shares Issued in the Merger; Affiliates 38
Accounting Treatment 39
Interests of Certain Persons in the Merger 39
Management and Operations of Nichols after the Merger 40
Expenses and Fees 40
Appraisal Rights for Unlisted Stock Only 40
DIVIDENDS ON AND MARKET PRICES OF CORNING COMMON SHARES AND NICHOLS COMMON
STOCK 43
Corning 43
Nichols 44
CORNING UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
45
SELECTED FINANCIAL DATA OF CORNING 51
SELECTED FINANCIAL DATA OF NICHOLS 53
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NICHOLS MANAGEMENT DISCUSSION AND ANALYSIS 54
Results of Operations 54
Liquidity and Capital Requirements 59
BUSINESS OF CORNING 62
General 62
Recent Developments 64
BUSINESS OF NICHOLS 68
General 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NICHOLS
79
DESCRIPTION OF CORNING CAPITAL STOCK 80
General 80
Voting Rights 80
Preemptive Rights 81
Corning Common Shares 81
Series Preferred Stock 81
Preferred Share Purchase Rights 82
Corning's Fair Price Amendment 83
Certain Other Provisions of Restated and By-Laws 83
DESCRIPTION OF NICHOLS CAPITAL STOCK 84
Common Stock 84
Preferred Stock 85
COMPARATIVE RIGHTS OF NICHOLS STOCKHOLDERS AND CORNING STOCKHOLDERS
86
Beneficial Ownership of Stock 87
Business Combinations 87
Appraisal Rights 91
State Takeover Legislation 91
Stockholder Rights Plan 92
Amendments to Charters 92
Amendments to By-Laws 92
Preemptive Rights 93
Redemption of Capital Stock 93
Dividend Sources 93
Duration of Proxies 93
Stockholder Action 93
Special Stockholder Meetings 94
Cumulative Voting 94
Number and Election of Directors 94
Removal of Directors 95
Vacancies 95
Indemnification of Directors and Officers 96
Limitation of Personal Liability of Directors 97
LEGAL OPINIONS 98
EXPERTS 98
Appendix A--Agreement and Plan of Merger, dated as of June 1, 1994, as amended, among
Corning, Merger Sub and Nichols A-1
Appendix B--Letter agreement, dated June 1, 1994, between Corning and Dr. Albert L. Nichols B-1
Appendix C--Opinion of CS First Boston Corporation C-1
Appendix D--Section 262 of the Delaware General Corporation Law D-1
</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
<S> <C>
Academic Associates 69
Acquiring Person 81
Additional Term 39
Affiliates 39
AMEX 2
Announcement Date 87
Antitrust Division 13
beneficial owner 88
Certificate of Merger 29
Certificates 30
CB 79
CBC 79
CLSI 12
CLIA 74
Class A Common Stock 1
Class B Common Stock 1
Class C Common Stock 1
Code 36
Combinations 84
Commission 1
Completed 1994 Transactions 45
Corning 1
Corning Board 19
Corning By-Laws 86
Corning Common Share 1
Corning Transactions 19
Corning Vitro 50
Corning Voting Stock 83
Costar 19
Corning Delaware 45
CS First Boston 11
Damon 3
Dallas operations 57
Delaware Business Combination Law 90
Determination Date 87
Diagnostics 54
Distribution Date 81
DGCL 11
Dissenting Holders 14
Dr. Nichols Letter Agreement 13
DOJ 67
Dow Corning 52
DRG's 73
EBITDA 28
EBIT 28
Effective Time 11
Employment Agreement 39
Equal Consideration Requirement 26
Excess Shares 11
Exchange Act 2
Exchange Agent 11
Exchange Fund 30
Exchange Ratio 1
Exercise Price 81
Fair Consideration Requirement 26
<PAGE>
<PAGE>
Fair Price Amendment 82
FDA 75
Final Expiration Date 81
510(k) 75
FTC 13
Funding Participants 66
HCFA 54
Heartland 79
HSR Act 13
Inspector General 67
Interested Shareholder 88
IRS 61
J.S. Pathology 50
Lender 79
Loan 79
Maryland Medical 19
material adverse change; material adverse
effect 31
MAWD 78
Merger 1
Merger Agreement 1
Merger Sub 1
MetPath 29
MetPath Settlement Agreement 67
MetWest 67
MIPS Offering 19
Morgan Stanley 78
Merger or Exchange 85
New York Business Combination Law 91
Nichols 1
Nichols Board 1
Nichols By-Laws 22
Nichols Common Stock 1
Nichols Preferred Stock 1
NISAT 68
NTL 19
NYBCL 80
NYSE 1
OBRA 74
OIG 55
OIG Subpoena 75
Opt Out Plaintiffs 66
Option Plans 40
Other 1993 Transactions 45
Preferred Securities 45
PJSC 23
Publication Date 39
Real Property Tax Payment 38
Record Date 21
Reference Laboratories 54
Regional Laboratories 54
Registration Statement 1
Related Person Business Combination 87
Related Person 87
Restated Certificate 79
Right 1
Rights Agent 82
Securities Act 1
<PAGE>
<PAGE>
Senior Notes 34
Series Preferred Stock 80
Series B Preferred Stock 80
Series C Preferred Stock 65
Settlement Agreement 66
Strategic Buyers 23
Siecor 19
Special Meeting 1
Stock Option 40
Surviving Corporation 29
Takeover Proposal 34
Transaction 23
Trust 31
Unaudited Pro Forma Information 45
Unilab 19
Unlisted Shares 41
Vitro 19
Vitro Corning 50
Voting Stock 88
Wisconsin Investment Board 79
</TABLE>
<PAGE>
<PAGE>
SUMMARY
Certain significant matters discussed in this Proxy Statement/Prospectus are
summarized below. This summary is not intended to be complete and is
qualified in all respects by reference to the more detailed information
appearing or incorporated by reference in this Proxy Statement/Prospectus
(including the Appendices hereto).
THE COMPANIES
<TABLE>
<CAPTION>
<S> <C>
Corning Incorporated Corning is an international corporation competing in four
broadly based business segments: Specialty Materials,
Communications, Laboratory Services and Consumer
Products. Corning is engaged principally in the
manufacture and sale of products made from specialty
glasses and related inorganic materials having special
properties of chemical stability, electrical resistance,
heat resistance, light transmission and mechanical
strength. Corning and its subsidiaries annually produce
some 60,000 different products at 44 plants in eight
countries. In addition, Corning, through subsidiaries and
affiliates, engages in laboratory services businesses,
including life and environmental sciences and
clinical-laboratory testing, at more than 50 facilities
in ten countries.
The mailing address of Corning's principal executive
offices is One Riverfront Plaza, Corning, New York 14831,
and its telephone number is (607) 974-9000. See "THE
COMPANIES--Corning."
Apple Acquisition Corp. Merger Sub, a wholly owned subsidiary of Corning, was
formed by Corning solely for the purpose of effecting the
Merger. The mailing address of Merger Sub's principal
executive offices is c/o Corning Incorporated, One
Riverfront Plaza, Corning, New York 14831, and its
telephone number is (607) 974-9000. See "THE
COMPANIES--Merger Sub."
Nichols Institute Nichols provides clinical testing services to hospitals,
laboratories and physicians on a nationwide basis through
its centralized reference laboratories, its network of
regional laboratories, its diagnostics test kit division
and its substance abuse testing laboratory. Nichols
offers a comprehensive line of tests consisting of over
1,100 tests or "assays," substantially all of which are
performed in Nichols' facilities.
The mailing address of Nichols' principal executive
offices is 33608 Ortega Highway, San Juan Capistrano,
California 92690, and its telephone number is (714)
728-4000. See "THE COMPANIES--Nichols."
Special Meeting of Nichols Stockholders
Date, Time and Place of the Special
Meeting The Special Meeting is to be held on Wednesday, August
31, 1994 at 9:30 a.m., local time, at 33608 Ortega
Highway, San Juan Capistrano, CA 92690,Building A.
Purpose of the Special Meeting The purpose of the Special Meeting is to consider and
vote upon a proposal to adopt the Merger Agreement.
Record Date Only holders of record of shares of the capital stock of
Nichols at the close of business on July 29, 1994 are
entitled to notice of, and only holders of shares of
Class A Common Stock and Class B Common Stock at the
close of business on July 29, 1994, are entitled to vote
at, the Special Meeting. On that date, shares of
Class A Common Stock and shares of Class B Common
Stock were outstanding and entitled to vote.
<PAGE>
<PAGE>
Vote Required The affirmative vote of the holders of shares
representing a majority of the outstanding voting power
of the Nichols Common Stock entitled to vote at the
Special Meeting is required for adoption of the Merger
Agreement. Each share of Class A Common Stock is entitled
to one tenth of a vote, and each share of Class B Common
Stock is entitled to one vote, at the Special Meeting.
Dr. Albert L. Nichols, owner of shares of Nichols Common
Stock having an aggregate of approximately 60% of the
voting power of the Nichols Common Stock, has agreed to
vote in favor of the adoption of the Merger Agreement.
Accordingly, adoption thereof by the Nichols stockholders
is assured. See "THE SPECIAL MEETING--Record Date; Shares
Entitled to Vote; Vote Required," "THE MERGER--Agreement
of Dr. Nichols to Vote in Favor of the Merger" and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF NICHOLS."
The Merger
General Upon consummation of the Merger, Merger Sub will merge
into Nichols, Nichols will become a wholly owned
subsidiary of Corning and each share of Nichols Common
Stock outstanding at the effective time of the Merger,
(other than shares of Class B Common Stock as to which
appraisal rights shall have been perfected) shall be
converted into the right to receive that number (the
Exchange Ratio) of Corning Common Shares equal to the
quotient derived by dividing $13.00 by the average of the
closing prices on the NYSE per Corning Common Share (as
reported in the NYSE Composite Transactions) during the
10 consecutive trading days ending on the fifth trading
day prior to the Special Meeting; provided, however, that
in no event will the Exchange Ratio be greater than
0.491. Each share of Nichols' Preferred Stock (other than
shares of Nichols Preferred Stock as to which appraisal
rights shall have been perfected) shall be converted in
the Merger into Corning Common Shares in the manner and
amount provided for pursuant to the terms of the Nichols
Preferred Stock. See "DESCRIPTION OF NICHOLS
STOCK--Preferred Stock." Each Corning Common Share issued
in the Merger shall be accompanied by one Right unless
the Rights shall not be outstanding as of the Effective
Time. If, prior to the Effective Time, Corning should
split or combine the Corning Common Shares, or pay a
stock dividend or other stock distribution in Corning
Common Shares, or otherwise change the Corning Common
Shares into any other securities, or make any other
dividend or distribution on the Corning Common Shares
(other than normal quarterly dividends as the same may be
adjusted from time to time in the ordinary course), then
the Exchange Ratio will be appropriately adjusted to
reflect such split, combination, dividend or other
distribution or change. In the event the Exchange Ratio,
calculated as set forth above, without giving effect to
the proviso, would equal or be greater than 0.638, then
Nichols may terminate the Merger Agreement but it is not
obligated to do so. See "Certain Significant
Considerations."
<PAGE>
<PAGE>
Fractional Shares No fractional Corning Common Shares will be issued in the
Merger. In lieu of any such fractional shares, each
holder of Nichols Common Stock who otherwise would be
entitled to receive a fractional Corning Common Share
pursuant to the Merger will be paid an amount in cash,
without interest, equal to such holder's proportionate
interest in the net proceeds from the sale or sales in
the open market by Harris Trust and Savings Bank, the
exchange agent for the Merger (the "Exchange Agent"), on
behalf of all such holders, of the aggregate fractional
Corning Common Shares, if any, that would have been
issued in the Merger. As soon as practicable following
the Effective Time, the Exchange Agent will determine the
excess, if any, of (i) the number of full Corning Common
Shares delivered to the Exchange Agent by Corning over
(ii) the aggregate number of whole Corning CommonShares
to be distributed to holders of Nichols Common Stock
(such excess being herein called the "Excess Shares"),
and the Exchange Agent, as agent for the former holders
of Nichols Common Stock, will sell any such Excess Shares
at the prevailing prices on the NYSE, in round lots to
the extent practicable. See "THE MERGER--Terms of the
Merger."
Recommendation of the Nichols
Board The Nichols Board has determined the Merger to be fair to
and in the best interests of Nichols and its stockholders
and has unanimously approved the Merger Agreement. The
Nichols Board recommends that Nichols stockholders adopt
the Merger Agreement. The Nichols Board's recommendation
is based upon a number of factors discussed in this Proxy
Statement/Prospectus. See "BACKGROUND AND REASONS FOR THE
MERGER; RECOMMENDATION OF THE NICHOLS BOARD--Nichols'
Reasons for the Merger; Recommendation of the Nichols
Board."
Opinion of CS First Boston CS First Boston Corporation ("CS First Boston") has
rendered an opinion to the Nichols Board to the effect
that, as of June 1, 1994, the consideration to be
received by Nichols stockholders in connection with the
proposed Merger is fair to such stockholders from a
financial point of view. A copy of the opinion of CS
First Boston, dated June 1, 1994, setting forth the
assumptions made, the matters considered and the
limitations on the review undertaken in rendering such
opinion, is attached to this Proxy Statement/Prospectus
as Appendix C, and should be read carefully in its
entirety. See "BACKGROUND AND REASONS FOR THE MERGER;
RECOMMENDATION OF THE NICHOLS BOARD--Opinion of CS First
Boston."
Effective Time of the Merger Following satisfaction or waiver (where permissible) of
the conditions to the Merger, the Merger will be
consummated and become effective at the time (the
"Effective Time") at which the certificate of merger to
be filed pursuant to the General Corporation Law of the
State of Delaware (the "DGCL") is accepted for filing by
the Secretary of State of the State of Delaware or such
later date and time as may be specified in such
certificate of merger. See "THE MERGER--Terms of the
Merger--Effective Time" and "--Closing Conditions."
<PAGE>
<PAGE>
Exchange of Certificates in the
Merger Promptly after the Effective Time, the Exchange Agent
will mail a transmittal form and instructions to each
holder of record of certificates which immediately prior
to the Effective Time represented outstanding shares of
Nichols Common Stock or Nichols Preferred Stock, which
form and instructions are to be used in forwarding such
certificates for surrender and exchange for (i)
certificates representing that number of whole Corning
Common Shares that such holder has the right to receive
pursuant to the Merger and (ii) cash for any fractional
Corning Common Shares to which such holder otherwise
would be entitled. Nichols stockholders are requested not
to surrender their certificates for exchange until such
transmittal form and instructions are received. Holders
of certificates formerly representing shares of Nichols
Common Stock or Nichols Preferred Stock will not be
entitled to receive dividends or any other distributions
from Corning until such certificates are so surrendered.
Persons entitled to receive dividends or other
distributions in respect of the certificates surrendered
in connection with the Merger will not be entitled to
receive interest on such dividends or other
distributions. See "THE MERGER--Effect on Capital
Stock--Exchange of Certificates."
Listing of the Corning Common
Shares on the NYSE Authorization for the listing of the Corning Common
Shares to be issued pursuant to the Merger Agreement for
trading on the NYSE is a condition to the obligations of
Corning, Merger Sub and Nichols to consummate the Merger.
Business of Nichols Pending the
Merger Nichols has agreed that, prior to the Effective Time or
earlier termination of the Merger Agreement, except as
contemplated by the Merger Agreement, Nichols and its
subsidiaries will each conduct its operations according
to its ordinary course of business consistent with past
practice. In addition, unless Corning agrees in writing
or except as otherwise permitted pursuant to the Merger
Agreement or as previously disclosed to Corning, prior to
the Effective Time neither Nichols nor any of its
subsidiaries is permitted to engage in any of a number of
actions specified in the Merger Agreement. See "THE
MERGER--Certain Covenants--Conduct of Business by
Nichols."
No Solicitation Nichols has agreed that, prior to the Closing or earlier
termination of the Merger Agreement, neither Nichols nor
any of its officers, employees, representatives, agents
or affiliates will, directly or indirectly, encourage,
solicit or engage in discussions or negotiations with any
person (other than Corning) concerning any merger,
consolidation, share exchange or similar transaction, any
purchase of substantial assets or equity of Nichols or
its significant subsidiaries, or any other transaction
that would involve the transfer or potential transfer of
control of Nichols, other than the transactions
contemplated by the Merger Agreement. See "THE
MERGER--Certain Covenants--No Solicitation."
Management and Operations of
Nichols after the Merger After the Merger, Nichols will be a wholly owned
subsidiary of Corning. Nichols will operate as one of
Corning's business units within the Corning Life
Sciences, Inc. ("CLSI") group, and Corning currently
intends to retain Nichols' corporate headquarters in San
Juan Capistrano, California. See "THE MERGER--Management
and Operations of Nichols after the Merger."
<PAGE>
<PAGE>
Conditions of the Merger;
Termination The consummation of the Merger is conditioned upon the
fulfillment or waiver (where permissible) of certain
conditions set forth in the Merger Agreement. See "THE
MERGER--Closing Conditions." The Merger Agreement may be
terminated (i) by mutual consent of Corning and Nichols,
(ii) by either Corning or Nichols if the Merger has not
been consummated by November 30, 1994 and (iii) under
certain other circumstances. In the event the Exchange
Ratio, as calculated, would equal or be greater than
0.638, then Nichols may terminate the Merger Agreement,
but it is not obligated to do so. See "THE
MERGER--Closing Conditions" and "-- Amendment;
Termination."
Agreement of Dr. Nichols to Vote in
Favor of the Merger Concurrently with the execution of the Merger Agreement,
Corning and Dr. Albert L. Nichols entered into a letter
agreement dated June 1, 1994 (the "Dr. Nichols Letter
Agreement"), pursuant to which Dr. Nichols has agreed to
vote all shares of Nichols Common Stock that he has the
right to vote in favor of the adoption of the Merger
Agreement at the Special Meeting. As ofJuly 27, 1994, Dr.
Nichols had the power to vote shares representing
approximately 60% of the voting power of the Nichols
Common Stock. Accordingly, adoption of the Merger
Agreement by the Nichols stockholders is assured. See
"THE MERGER--Agreement of Dr. Nichols to Vote in Favor of
the Merger."
Certain Federal Income Tax
Consequences It is expected that the Merger will constitute a
reorganization for federal income tax purposes and,
accordingly, that no gain or loss will be recognized by
holders of Nichols Common Stock upon the conversion of
Nichols Common Stock solely into Corning Common Shares in
the Merger (except with respect to any cash received in
lieu of a fractional share interest in Corning Common
Shares). See "THE MERGER--Certain Federal Income Tax
Consequences." Nichols stockholders are urged to consult
their own tax advisors as to the specific tax
consequences to them of the Merger.
Regulatory Approvals In connection with the Merger, Corning, Nichols and Dr.
Nichols have made filings or applications with the
Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust
Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules
promulgated thereunder (the "HSR Act"). Consummation of
the Merger is conditioned upon, among other things,
expiration of the waiting periods under the HSR Act and
the receipt of other necessary regulatory approvals. The
waiting periods under the HSR Act have expired. See "THE
MERGER--Regulatory Approvals" and "--Closing Conditions."
Accounting Treatment It is expected that the Merger will be accounted for as a
pooling of interests. It is a condition to the obligation
of Corning to consummate the Merger that Corning receive
the opinion of Price Waterhouse that the Merger can be
accounted for as a pooling of interests. See "THE
MERGER--Accounting Treatment."
<PAGE>
<PAGE>
Interests of Certain Persons in the
Merger In the Merger Agreement, Corning agreed to assume all
outstanding options granted under Nichols' stock option
plans. Each of Nichols' executive officers, including Dr.
Nichols and Messrs. Bragg and Bellamy, who are also
directors of Nichols, holds options, and Nichols' other
directors hold options. Upon the execution of the Merger
Agreement, the vesting schedule of certain options to
purchase shares of Class A Common Stock and Class C
Common Stock held by, among others, certain Nichols
executive officers (including certain directors)
accelerated. Also, if the Merger is consummated, and
subject in some cases to the satisfaction of certain
other conditions, vesting of options to purchase Class C
Common Stock held by certain Nichols executive officers,
including certain directors, will accelerate.
Also in connection with the Merger, effective as of the
Closing Date, Nichols will enter into an employment
agreement with Dr. Nichols pursuant to which Dr. Nichols
will serve as Chairman Emeritus of Nichols for a term of
two years, which term may be extended for an additional
three years by agreement between the parties. Dr. Nichols
will serve on the Board of Directors of CLSI and will
have special responsibility for strategic planning. See
"THE MERGER--Interests of Certain Persons in the Merger."
In connection with the Merger, as of the Closing Date
certain executive officers of Nichols will enter into new
employment contracts with Nichols. See "THE
MERGER--Interests of Certain Persons in the Merger."
Appraisal Rights for Unlisted
Stock Only Under the DGCL, holders of Class A Common Stock and Class
C Common Stock will not be entitled to appraisal rights
as a result of the Merger.
Under the DGCL, record holders of the Class B Common
Stock who do not vote in favor of the adoption of the
Merger Agreement and record holders of Nichols Preferred
Stock, in each case who properly demand appraisal of
their shares with respect to the Merger (the "Dissenting
Holders") have the right to obtain a cash payment for the
"fair value" of their shares of Class B Common Stock and
Nichols Preferred Stock, respectively (excluding any
element of value arising from the accomplishment or
expectation of the Merger). In order to exercise such
rights, Dissenting Holders must deliver to Nichols, prior
to the vote on the Merger Agreement at the Special
Meeting, a written demand for appraisal and must comply
with the other procedural requirements of Section 262 of
the DGCL, a description of which is provided under "THE
MERGER--Appraisal Rights for Unlisted Stock Only" and the
full text of which is attached to this Proxy
Statement/Prospectus as Appendix D.
Such "fair value" (which could be more than, the same as
or less than the market value of the number of Corning
Common Shares to be exchanged per share of Class B Common
Stock or Nichols Preferred Stock, as the case may be, on
the Closing Date) would be determined in judicial
proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Section
262 on a timely basis could result in the loss of
appraisal rights. See "THE MERGER--Appraisal Rights for
Unlisted Stock Only."
</TABLE>
<PAGE>
<PAGE>
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to vote in favor of adoption of the Merger Agreement,
Nichols stockholders should consider the following: (i) the Exchange Ratio
will be determined based on the average closing price of the Corning Common
Shares over the 10 consecutive trading days ending on the fifth trading day
prior to the date of the Special Meeting, and if that value is equal to or
greater than $26.48 then Nichols stockholders would receive $13.00 worth of
Corning Common Shares for each share of Nichols Common Stock, assuming that
the value of the Corning Common Shares at the Effective Time equals the value
used in calculating the Exchange Ratio; however, if the value used in
calculating the Exchange Ratio is less than $26.48 then Nichols stockholders
would receive less than $13.00 worth of Corning Common Shares for each share
of Nichols Common Stock, assuming that the value of the Corning Common Shares
at the Effective Time equals the value used in calculating the Exchange
Ratio; (ii) if the value used in calculating the Exchange Ratio is equal to
or less than $20.375, at which point (assuming that the value of the Corning
Common Shares at the Effective Time equalled such value) the Nichols
stockholders would receive less than $10.00 worth of Corning Common Shares
for each share of Nichols Common Stock, Nichols may, but is not obligated to,
terminate the Merger Agreement; and (iii) the price of the Corning Common
Shares at the Effective Time can be expected to vary from the value used in
calculating the Exchange Ratio as well as from its price as of the date of
this Proxy Statement/Prospectus and the date on which the Nichols
stockholders vote on the Merger Agreement due to changes in the business,
operations or prospects of Corning, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, general market and
economic conditions, and other factors. See "THE MERGER--Effect on Capital
Stock" and "--Amendment; Termination" and "DIVIDENDS ON AND MARKET PRICES OF
CORNING COMMON SHARES AND NICHOLS COMMON STOCK."
RECENT DEVELOPMENTS
On July 27, 1994, Nichols released its results for the quarter ended June 30,
1994. Nichols incurred a second quarter 1994 net loss of $3.7 million, or
$0.22 per share, compared to second quarter 1993 net income of $3.9 million,
or $0.13 per share. Nichols' first half 1994 net loss totaled $5.3 million,
or $0.31 per share, compared to first half 1993 net income of $4.4 million,
or $0.25 per share.
Revenues for the second quarter 1994 were $71.4 million, slightly ahead of
second quarter 1993 revenues of $71.2 million. Revenues for first half 1994
were $141.0 million, slightly behind first half 1993 revenues of $142.9
million.
The 1994 second quarter and first half results include approximately $4.5
million and $6.3 million, respectively, of increased pre-tax expenditures
related to the Merger, costs related to Nichols' proposed senior notes
offering which was suspended upon announcement of the Merger (as described
under "Background and Reasons for the Merger; Recommendation of the Nichols
Board"), expenses related to responding to a subpoena from the Office of the
Inspector General (as described under "Business of Nichols-OIG
Investigation"), and certain contract revenue adjustments.
<PAGE>
<PAGE>
CERTAIN HISTORICAL AND PRO FORMA FINANCIAL DATA
Comparative Unaudited Per Share Data
The following table sets forth certain unaudited historical, pro forma and
equivalent per share data for Corning as of and for the twenty-four weeks
ended June 19, 1994, and as of and for the year ended January 2, 1994, and
for Nichols as of and for the three months ended March 31, 1994, and as of
and for the year ended December 31, 1993.
For purposes of calculating equivalent share data, it has been assumed (for
illustrative purposes only) that the Exchange Ratio is 0.394. This
illustrative Exchange Ratio was calculated based upon an assumed price per
Corning Common Share of $33.00. Variations in the actual Exchange Ratio
pursuant to the Merger Agreement would not materially impact equivalent share
data.
The following data are derived from, and should be read in conjunction with,
the historical consolidated financial statements of Corning and Damon,
including the notes thereto, incorporated by reference into this Proxy
Statement/Prospectus, and the historical consolidated financial statements of
Nichols and the Corning Unaudited Pro Forma Combined Financial Information,
including the notes thereto, contained elsewhere in this Proxy
Statement/Prospectus. The pro forma financial data are presented for
informational purposes only, and are not necessarily indicative of the
results or financial position that actually would have occurred had the
Merger and other transactions represented in the pro forma financial data
been completed on the dates indicated or the results or financial position
that may occur or be attained in the future.
<TABLE>
<CAPTION>
As of and For As of and For
the Twenty-four Weeks the Fiscal Year
Ended Ended
June 19, 1994 January 2, 1994
<S> <C> <C>
Corning
Net income (loss) per common share
Historical $ 0.82 $(0.09)
Pro forma 0.70 0.01
Dividends per common share
Historical 0.34 0.68
Book value per common share
Historical 9.72 8.40
Pro forma 10.14
</TABLE>
<TABLE>
<CAPTION>
As of and For As of and For
the Three Months the Year
Ended Ended
March 31, 1994 December 31, 1993
<S> <C> <C>
Nichols
Net income (loss) per common share
Historical $(0.09) $(0.28)
Pro forma equivalent (a) 0.10 0.00
Dividends per common share
Historical -- --
Equivalent per share data (b) 0.07 0.27
Book value per common share
Historical 5.12 5.21
Pro forma equivalent (a) 3.88
</TABLE>
(a) The pro forma equivalent is calculated by multiplying the assumed
Exchange Ratio of 0.394 by Corning's pro forma book value and net income per
common share as of and for the twelve weeks ended March 27, 1994,
respectively, which have been prepared using adjustments consistent with
those included in the Corning Unaudited Pro Forma Combined Financial
Information contained elsewhere in this Proxy Statement/Prospectus.
(b) The equivalent per share data is calculated by multiplying the assumed
Exchange Ratio of 0.394 by Corning's dividends declared of $0.17 per share
for the twelve weeks ended March 27, 1994.
<PAGE>
<PAGE>
Selected Historical Financial Data
The following is a summary of certain consolidated financial information that
has been derived from the consolidated financial statements of Corning and
Nichols. The summary financial data set forth below for Corning and Nichols
for the 1989 through 1993 fiscal years are derived from the audited financial
statements of each company. The summary financial data set forth below for
each company for the first quarter or the first half of 1994 are derived from
their respective unaudited financial statements, which in the opinion of
management of each such company contain all adjustments necessary for the
fair presentation of this information. During the three months ended March
31, 1994, Nichols incurred unusual charges of $1.8 million which consisted of
$1.3 million in costs related to the "OIG Investigation" and $0.5 million in
financing fees. The financial data should be read in conjunction with the
historical statements and notes thereto, and related Management's Discussion
and Analysis of Financial Condition and Results of Operations, of Corning
which are incorporated by reference into this Proxy Statement/Prospectus and
of Nichols which are included elsewhere in this Proxy Statement/Prospectus.
Results for the first quarter or the first half of 1994 are not necessarily
indicative of the results that may be expected for any other interim period
or for the year as a whole.
CORNING
<TABLE>
<CAPTION>
Twenty-four Weeks
Ended Fiscal Year Ended
June June Dec. Dec.
19, 20, Jan. 2, Jan. 3, 29, 30, Dec. 31,
1994 1993 1994 1993 1991 1990 1989
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $2,054.6 $1,723.8 $4,004.8 $3,708.7 $3,259.2 $2,940.5 $2,439.2
Income (loss) before
extraordinary credit and
cumulative effect of
changes in accounting
methods (a) 169.4 139.6 (15.2) 266.3 311.2 289.1 259.4
Net income (loss) (a) 169.4 139.6 (15.2) (12.6) 316.8 292.0 261.0
BALANCE SHEET DATA:
Total assets $5,621.1 $4,434.7 $5,231.7 $4,286.3 $3,852.6 $3,512.0 $3,360.7
Working capital 535.9 634.1 451.4 465.2 521.0 458.4 487.3
Loans payable beyond one
year 1,605.6 970.8 1,585.6 815.7 700.0 611.2 624.5
Convertible preferred stock 25.0 26.4 25.7 26.9 27.9 30.7 31.6
Common shareholders' equity 2,074.7 1,859.0 1,685.8 1,803.8 2,018.8 1,850.3 1,711.2
PER COMMON SHARE DATA (b):
Income (loss) before
extraordinary credit and
cumulative effect of
changes in accounting
methods (a) $ 0.82 $ 0.73 $ (0.09) $ 1.40 $ 1.66 $ 1.53 $ 1.39
Net income (loss) (a) 0.82 0.73 (0.09) (0.08) 1.69 1.55 1.40
Book value 9.72 9.58 8.40 9.30 10.43 10.07 9.08
Common dividends declared
(c) 0.34 0.34 0.68 0.62 0.68 0.46 0.53
</TABLE>
(a) Amounts for all periods other than the first twenty-four weeks of 1994
are significantly impacted by certain non-recurring gains and losses and the
cumulative effect of changes in accounting methods. See the Notes to Selected
Consolidated Financial Data contained elsewhere in this Proxy
Statement/Prospectus.
(b) Adjusted for the two-for-one stock split effective January 13, 1992.
(c) Includes special dividends of $0.15 and $0.1125 per common share in 1991
and 1989, respectively.
<PAGE>
<PAGE>
NICHOLS
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March March
31, 31,
1994 1993 1993 1992 1991 1990 1989
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 69.6 $ 71.6 $279.6 $284.2 $236.3 $174.8 $129.7
Income (loss) before change
in accounting method (a) (1.5) 2.1 (4.4) (4.3) 3.4 6.9 4.8
Net income (loss) (a) (1.5) 2.1 (4.4) (4.3) 3.4 6.9 4.8
BALANCE SHEET DATA:
Total assets $247.4 $261.6 $247.2 $263.7 $232.4 $138.6 $ 91.2
Working capital (deficit) (b) (17.8) 41.4 (19.2) 35.9 27.8 38.3 23.9
Long term debt (b) 38.0 102.7 38.2 103.5 98.3 33.2 33.9
Shareholders' equity 90.7 99.0 92.2 96.6 84.5 76.1 38.8
PER COMMON AND COMMON
EQUIVALENT SHARE DATA (c):
Income (loss) before
cumulative effect of a
change in accounting method ($ 0.09) $ 0.12 ($ 0.28) ($ 0.28) $ 0.23 $ 0.49 $ 0.43
Net income (loss) (a)(d) (0.09) 0.12 (0.28) (0.28) 0.23 0.49 0.43
Book value (e) 5.12 5.62 5.21 5.56 5.47 5.28 3.33
Common dividends declared --
-- -- -- -- -- --
</TABLE>
(a) During 1992 and 1994, Nichols adopted the standards specified in
Statements of Financial Accounting No. 109 "Accounting for Income Taxes"
(SFAS 109) and No. 112 "Employers' Accounting for Postemployment Benefits"
(SFAS 112), respectively. The adoption of SFAS 109 and SFAS 112 did not have
a significant impact on previously reported amounts.
(b) As of December 31, 1993 Nichols was not in compliance with certain
covenants of its senior note agreements. The agreements provide that as a
result of the failure to comply with the covenants, the holders of the senior
notes have the right to declare the entire unpaid balance ($62.2 million)
immediately due and payable. Accordingly, the senior notes have been
classified as current, resulting in Nichols' reporting a working capital
deficit as of December 31, 1993 and as of March 31, 1994.
(c) Net income (loss) per common and common equivalent share is based on the
weighted average number of shares of Nichols Common Stock and, in 1989, 1990
and 1991 and the three months ended March 31, 1993, common equivalent shares
outstanding during the period. Common equivalent shares relate to Class A
Common Stock issuable upon the conversion of the Nichols Preferred Stock;
upon the exercise of stock options and warrants and to be issued as future
consideration for covenants not to compete.
(d) In 1989, Nichols distributed a 5% stock dividend and then a 100% stock
dividend. In 1990, Nichols distributed a 4% stock dividend. Per share
information presented above has been adjusted to give retroactive effect to
these dividends.
(e) Book value per common share at December 31, 1991, 1992, and 1993 and
March 31, 1993 and 1994 includes the impact of preferred stock liquidation
preferences and treats outstanding shares of the Class A Common Stock, Class
B Common Stock and Class C Common Stock as if they were shares of a single
class of common stock.
<PAGE>
<PAGE>
Summary Unaudited Pro Forma Combined Financial Data
The summary unaudited pro forma combined financial data set forth below
reflect the estimated impact on Corning's financial statements of the
proposed Merger, the acquisition of Damon, the merger with Costar Corporation
("Costar"), the transaction with Unilab Corporation ("Unilab") and several
other completed 1993 transactions, the Vitro S.A. ("Vitro") transaction in
January 1994, the acquisition of the optical-fiber and optical-cable
businesses of Northern Telecom Limited ("NTL") by Corning and Siecor
Corporation ("Siecor") in February 1994, the merger with Maryland Medical
Laboratory, Inc. ("Maryland Medical") completed in June 1994, and the
offering of Convertible Monthly Income Preferred Securities of Corning
Delaware, L.P. (the "MIPS Offering") completed in July 1994 (collectively,
the "Corning Transactions"). See "BUSINESS OF CORNING--Recent Developments".
Such pro forma data assume the Corning Transactions had been completed on
January 4, 1993, for income statement data and by June 19, 1994, for balance
sheet data. Corning's consolidated financial statements for periods prior to
the Maryland Medical transaction and the Merger will not be restated since
the acquisitions are not material to Corning's financial position or results
of operations. The summary unaudited pro forma combined financial data set
forth below is derived from, and should be read in conjunction with, the
Corning Unaudited Pro Forma Combined Financial Information and the historical
financial statements and notes thereto of Nichols included elsewhere in this
Proxy Statement/Prospectus, and the historical financial statements of
Corning and Damon and notes thereto incorporated by reference into this Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are
presented for informational purposes only, and are not necessarily indicative
of the results of operations or financial position which would have been
achieved had the Corning Transactions been completed on the dates indicated
or the results that may be attained in the future.
CORNING
<TABLE>
<CAPTION>
AS OF AND FOR FOR THE
THE TWENTY-FOUR FISCAL YEAR
WEEKS ENDED ENDED
JUNE 19, 1994 JANUARY 2, 1994
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales $2,241.9 $4,798.9
Net income 153.3 4.2
BALANCE SHEET DATA:
Total assets $5,868.5
Working capital 518.2
Loans payable beyond one year 1,278.2
Convertible preferred stock of subsidiary 365.4
Convertible preferred stock 25.0
Common shareholders' equity 2,165.4
PER SHARE DATA:
Net income $ 0.70 $ 0.01
Book value 10.00
</TABLE>
Dividends
The following table sets forth dividends per share declared on Corning Common
Shares for the three-year period ended January 2, 1994. No cash dividends
have been declared or paid on Nichols Common Stock.
<TABLE>
<CAPTION>
Fiscal Year Ended (a)
Jan. 2, Jan. 3 Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
First quarter $0.170 $0.150 $0.125
Second quarter 0.170 0.150 0.125
Third quarter 0.170 0.150 0.125
Fourth quarter 0.170 0.170 0.300(b)
</TABLE>
(a) Adjusted for the two-for-one stock split effective January 13, 1992.
(b) Includes a special dividend of $0.15 per common share in the fourth
quarter of 1991.
The continued declaration of dividends by the Board of Directors of Corning
(the "Corning Board") is subject to, among other things, Corning's current
and prospective earnings, financial condition and capital requirements and
such other factors as the Corning Board may deem relevant.
<PAGE>
<PAGE>
Comparative Per Share Market Information
The Corning Common Shares are listed and traded on the NYSE under the symbol
"GLW." The shares of Class A Common Stock and Class C Common Stock are traded
on the AMEX under the symbols "LABA" and "LABC", respectively. There is no
established public trading market for Class B Common Stock or the Nichols
Preferred Stock. The following table sets forth the high and low sales prices
per share reported in the NYSE Composite Transactions for Corning and on the
AMEX Composite Transactions for Nichols as reported in published financial
sources:
<TABLE>
<CAPTION>
Price Per Share of Common Stock (a)
Nichols Nichols
Corning (b) Class A (c) Class C
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1991
First quarter (d) $31.000 $21.063 $16.875 $ 9.000 N/A N/A
Second quarter 31.750 28.375 14.750 10.500 $12.500 $ 9.375
Third quarter 35.750 31.250 16.875 11.250 16.750 10.250
Fourth quarter 43.125 33.563 16.125 10.875 16.000 11.125
Fiscal 1992
First quarter 40.313 28.750 15.125 9.000 15.000 8.625
Second quarter 38.625 31.500 10.000 7.375 9.875 7.250
Third quarter 38.625 34.375 10.000 7.125 9.250 7.250
Fourth quarter 39.750 34.750 9.625 4.750 8.875 4.500
Fiscal 1993
First quarter 39.000 29.000 7.625 4.250 6.625 4.125
Second quarter 35.875 31.500 7.125 4.375 6.750 4.125
Third quarter 35.125 26.875 8.625 5.000 7.750 5.000
Fourth quarter 28.250 24.000 8.750 5.000 7.875 4.750
Fiscal 1994
First quarter 33.125 27.625 6.250 4.875 5.875 4.500
Second quarter 34.125 30.250 2.250 4.500 12.250 3.875
Third quarter (through July 29,
1994)
</TABLE>
(a) Corning's fiscal year ends on the Sunday closest to December 31 of each
year, and Nichols' fiscal year ends on December 31 of each year.
(b) Adjusted for the two-for-one stock split effective January 13, 1992.
(c) Adjusted for the one-for-two reverse stock split effective June 4, 1991.
(d) From May 10, 1985 until June 4, 1991, the Class A Common Stock (then
designated "Common Stock") was listed and traded on the AMEX under the symbol
"LAB".
On May 31, 1994, the last full trading day prior to the announcement of the
proposed Merger, the closing sales price per share reported in the NYSE
Composite Transactions for Corning Common Shares was $32.875. On May 31,
1994, the closing sales prices per share reported on the AMEX Composite
Transactions for the Nichols Class A Common Stock and the Nichols Class C
Common Stock were $4.813 and $4.125, respectively.
On July 29, 1994, the closing sales price per share reported in the NYSE
Composite Transactions for Corning Common Shares was $ . On July 29,
1994, the closing sales prices per share reported on the AMEX for the Class A
Common Stock and the Nichols Class C Common Stock were $ and
$ , respectively.
Holders of Nichols Common Stock are urged to obtain current market quotations
for the Corning Common Shares and the Nichols Common Stock.
<PAGE>
<PAGE>
THE SPECIAL MEETING
Special Meeting
This Proxy Statement/Prospectus is being furnished to Nichols stockholders in
connection with the solicitation by the Nichols Board of proxies for use at
the Special Meeting to be held on Wednesday, August 31, 1994 at 9:30 a.m.,
local time, at 33608 Ortega Highway, San Juan Capistrano, California 92690,
Building A.
At the Special Meeting, holders of Class A Common Stock and Class B Common
Stock will consider and vote upon a proposal to adopt the Merger Agreement.
As a result of a voting agreement entered into between Corning and Dr.
Nichols, adoption of the Merger Agreement by Nichols stockholders is assured.
See "THE MERGER--Agreement of Dr. Nichols to Vote in Favor of the Merger."
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, Merger Sub will merge into Nichols, Nichols will become a
wholly owned subsidiary of Corning and each share of Nichols Common Stock
issued and outstanding immediately prior to the Merger (other than shares of
Class B Common Stock as to which appraisal rights shall have been perfected)
shall be converted into the right to receive that number (the Exchange Ratio)
of Corning Common Shares equal to the quotient derived by dividing $13.00 by
the average of the closing prices on the NYSE per Corning Common Share (as
reported in the NYSE Composite Transactions) during the 10 consecutive
trading days ending on the fifth trading day prior to the Special Meeting;
provided, however, that in no event will the Exchange Ratio be greater than
0.491. Each share of Nichols Preferred Stock (other than shares of Nichols
Preferred Stock as to which appraisal rights shall have been perfected) shall
be converted in the Merger into Corning Common Shares in the manner and
amount provided for pursuant to the terms of the Nichols Preferred Stock.
Each Corning Common Share issued in the Merger shall be accompanied by one
Right unless the Rights shall not be outstanding as of the Effective Time.
See "THE MERGER--Terms of the Merger."
No fractional Corning Common Shares will be issued in the Merger. In lieu of
any such fractional shares, each holder of Nichols Common Stock who otherwise
would be entitled to receive a fractional Corning Common Share pursuant to
the Merger Agreement will be paid an amount in cash, without interest, equal
to such holder's proportionate interest in the net proceeds from the sale or
sales in the open market by the Exchange Agent, on behalf of all of such
holders, of the aggregate fractional Corning Common Shares, if any, that
would have been issued in the Merger. As soon as practicable following the
Effective Time, the Exchange Agent will determine the number of Excess
Shares, if any, and the Exchange Agent, as agent for the former holders of
Nichols Common Stock, will sell any such Excess Shares at the prevailing
prices on the NYSE. The sale of any Excess Shares will be executed on the
NYSE and will be executed in round lots to the extent practicable. See "THE
MERGER--Terms of the Merger."
Holders of Class A Common Stock and Class C Common Stock will not be entitled
to appraisal rights as a result of the Merger. Holders of the Class B Common
Stock and Nichols Preferred Stock have the right to demand appraisal of, and
obtain payment for, the "fair value" of such shares by following the
procedures prescribed in Section 262 of the DGCL, a copy of which is attached
as Appendix D to this Proxy Statement/Prospectus, and which is summarized
under "THE MERGER--Appraisal Rights for Unlisted Stock Only" in this Proxy
Statement/Prospectus. Failure to take any of the steps required under Section
262 on a timely basis could result in the loss of appraisal rights.
The Nichols Board has unanimously approved the Merger Agreement, determined
that the Merger is fair to and in the best interests of Nichols and its
stockholders and recommends that Nichols stockholders vote FOR adoption of
the Merger Agreement. The Executive Committee of the Corning Board, acting
pursuant to authority delegated to it by the Corning Board, has approved the
Merger Agreement and the issuance of Corning Common Shares in the Merger, and
the Board of Directors of Merger Sub and Corning, as the sole stockholder of
Merger Sub, have approved and adopted the Merger Agreement and the Merger.
Approval of the Merger Agreement and the Merger by Corning's stockholders is
not required. See "BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF
THE NICHOLS BOARD--Nichols' Reasons for the Merger; Recommendation of the
Nichols Board" and "--Corning's Reasons for the Merger."
Record Date; Shares Entitled to Vote; Vote Required
The close of business on July 29, 1994 (the "Record Date") has been fixed as
the record date for determining the holders of Nichols Common Stock who are
entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were shares of Class A Common Stock and shares of
Class B Common Stock outstanding and entitled to vote. The holders of record
on the Record Date of shares of Class A Common Stock are entitled to
one-tenth of a vote per share of Class A Common Stock, and the holders of
record on the Record Date of Class B Common Stock are entitled to one vote
per share of Class B Common Stock, on each matter
<PAGE>
<PAGE>
submitted to a vote at the Special Meeting. Holders of Class A Common Stock
and Class B Common Stock will vote together on the Merger Agreement as a
single class. The presence in person or by proxy of the holders of shares
representing a majority of the voting power of the Nichols Common Stock
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Special Meeting. Under the Nichols Certificate of
Incorporation, holders of shares of Class C Common Stock and Nichols
Preferred Stock are not entitled to vote at the Special Meeting. Under the
DGCL and the Nichols By-Laws, as amended (the "Nichols By-Laws"), the
affirmative vote of holders of shares representing a majority of the
outstanding voting power of the Nichols Common Stock present in person or
represented by proxy at the Special Meeting is required for adoption of the
Merger Agreement.
Dr. Albert L. Nichols, who owns an aggregate of approximately 60% of the
voting power of the Nichols Common Stock, has agreed to vote in favor of the
Merger Agreement. Accordingly, adoption thereof by the Nichols stockholders
is assured. See "THE MERGER--Agreement of Dr. Nichols to Vote in Favor of the
Merger" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF NICHOLS."
Abstention from voting and broker nonvotes will have the practical effect of
voting against adoption of the Merger Agreement since they represent one less
vote for such adoption. However, since the adoption of the Merger Agreement
by the Nichols stockholders is already assured, such abstentions and broker
nonvotes will not affect the outcome of the vote.
Proxies; Proxy Solicitation
Shares of Class A Common Stock and Class B Common Stock represented by
properly executed proxies received at or prior to the Special Meeting which
have not been revoked will be voted at the Special Meeting in accordance with
the instructions contained therein. Shares of Class A Common Stock and
Class B Common Stock represented by properly executed proxies for which no
instruction is given will be voted FOR adoption of the Merger Agreement.
Nichols stockholders are requested to complete, sign, date and return
promptly the enclosed proxy card in the postage-prepaid envelope provided for
this purpose to ensure that their shares are voted. A stockholder may revoke
a proxy by submitting at any time prior to the vote on the adoption of the
Merger Agreement a later-dated proxy with respect to the same shares, by
delivering written notice of revocation to the Secretary of Nichols at any
time prior to such vote or by attending the Special Meeting and voting in
person. Mere attendance at the Special Meeting will not in and of itself
revoke a proxy. If a stockholder is not the registered direct holder of his
or her shares, the stockholder must obtain appropriate documentation from the
registered holder in order to be able to vote the shares in person.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in
the same manner as such proxies would have been voted at the original
convening of the meeting (except for any proxies which have theretofore
effectively been revoked or withdrawn), notwithstanding that they may have
been effectively voted on the same or any other matter at a previous meeting.
Nichols will bear the cost of soliciting proxies from its stockholders. In
addition to solicitation by mail, directors, officers and employees of
Nichols and Corning may solicit proxies by telephone, telegram or otherwise.
Such directors, officers and employees of Nichols and Corning will not be
additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of Nichols Common Stock held of record by them
will be reimbursed for their reasonable expenses incurred in forwarding such
material. Nichols has retained D.F. King & Co., Inc. to aid in soliciting
proxies from its stockholders. The fees of such firm are estimated to be
$4,000 plus reimbursement of out-of-pocket expenses.
THE COMPANIES
Corning
Corning is an international corporation competing in four broadly based
business segments: Specialty Materials, Communications, Laboratory Services
and Consumer Products. Corning is engaged principally in the manufacture and
sale of products made from specialty glasses and related inorganic materials
having special properties of chemical stability, electrical resistance, heat
resistance, light transmission and mechanical strength. Corning and its
subsidiaries annually produce some 60,000 different products at 44 plants in
eight countries. In addition, Corning, through subsidiaries and affiliates,
engages in laboratory services businesses, including life and environmental
sciences and clinical-laboratory testing, at more than 50 facilities in ten
countries. The mailing address of Corning's principal executive offices is
One Riverfront Plaza, Corning, New York 14381, and its telephone number is
(607) 974-9000.
<PAGE>
<PAGE>
Merger Sub
Merger Sub, a wholly owned subsidiary of Corning, was formed by Corning
solely for the purpose of effecting the Merger. The mailing address of Merger
Sub's principal executive offices is c/o Corning Incorporated, One Riverfront
Plaza, Corning, New York 14381, and its telephone number is (607) 974-9000.
Nichols
Nichols provides clinical testing services to hospitals, laboratories and
physicians on a nationwide basis through its centralized reference
laboratories, its network of regional laboratories, its diagnostics test kit
division and its substance abuse testing laboratory. Nichols offers a
comprehensive line of tests consisting of over 1,100 tests or "assays",
substantially all of which are performed in Nichols' facilities. The mailing
address of Nichols' principal executive offices is 33608 Ortega Highway, San
Juan Capistrano, California 92690, and its telephone number is (714)
728-4000.
BACKGROUND AND REASONS FOR THE MERGER;
RECOMMENDATION OF THE NICHOLS BOARD
Background
In September 1993, Nichols engaged Peter J. Solomon Securities Company
Limited ("PJSC") as its financial advisor to, among other things, analyze and
explore various corporate strategic alternatives for Nichols and made a
public announcement of this fact. PJSC began to investigate a wide variety of
strategic alternatives, and in connection therewith, commenced a review of
Nichols' historical financial performance and its stock price performance, an
analysis of its internal growth prospects and a review of options relating to
the sale of various corporate assets.
In November 1993, Nichols became concerned that its results of operations and
the adverse financial effects of its announced intention to recognize a
material restructuring charge in the fourth quarter of 1993 would result in
its inability to remain in compliance with certain financial covenants
contained in the loan agreements with its senior noteholders, concerning
approximately $62 million of senior notes held by institutional lenders, and
that waivers or amendments of those covenants might be unobtainable. The
senior note agreements provide that if Nichols fails to comply with its loan
covenants, the senior noteholders have the right to declare the entire unpaid
balance of all senior notes immediately due and payable. If the senior notes
were or are accelerated, Nichols would be unable to satisfy its obligations
thereunder without the proceeds of a refinancing of the entire outstanding
amount of the senior notes.
In late November 1993, representatives of Nichols and PJSC met with the
senior noteholders to review the probable senior notes covenant default as of
December 31, 1993. Nichols both assured the senior noteholders that Nichols
and PJSC were actively exploring alternatives to potentially refinance or
prepay the senior notes and sought to obtain waivers and modify those senior
note covenants probable of default. No such waivers or modifications have
been received to date. PJSC also began to explore the option of refinancing
the senior notes through a public or private offering, and held discussions
with a number of major investment and commercial banks.
After reviewing several refinancing proposals at its December 10, 1993 board
meeting, in January 1994 Nichols began working on a public offering of $100
million senior notes to be underwritten by CS First Boston. Nichols filed a
Registration Statement on Form S-1 covering these notes with the Commission
on April 20, 1994. The proceeds from the sale of these notes were to be used
by Nichols to retire its outstanding senior notes and for certain other
purposes designed to improve significantly its operating and financial
flexibility.
In the fourth quarter of 1993, PJSC also began to contact third parties that
might be interested in investing in, a joint venture with, merging with or
acquiring all or part of Nichols (a "Transaction"). PJSC and Nichols
identified companies (the "Strategic Buyers") that possessed certain key
attributes relating to a Transaction, including: (i) the financial capacity
to complete a Transaction; (ii) the ability to analyze and pursue a
Transaction within a reasonable amount of time and with a minimum amount of
disruption to Nichols' operations; (iii) the proven ability to close a
Transaction given appropriate information; and (iv) the greatest likelihood
to pay the highest price for a Transaction. Several Strategic Buyers were
identified by PJSC through this process, including Corning. PJSC advised the
Nichols Board that, in PJSC's judgment, the Strategic Buyers represented the
most likely potential buyers for Nichols that met the criteria set forth by
the Nichols Board. PJSC contacted each Strategic Buyer, including Corning, to
determine its interest in a potential Transaction.
During the first five months of 1994, Nichols focused its efforts on its
planned senior notes offering. Nichols and PJSC continued discussions with
Strategic Buyers and other interested persons regarding a Transaction, but
received no firm offers until the proposal received from Corning on May 25,
1994, discussed below.
<PAGE>
<PAGE>
Although when contacted in November 1993 Corning had declined to pursue a
potential Transaction, on May 9, 1994 Corning contacted PJSC expressing such
an interest. On May 10, 1994, Corning entered into a confidentiality
agreement with Nichols and thereafter PJSC delivered to Corning a
Confidential Information Memorandum regarding Nichols that had been prepared
by PJSC.
On May 17, 1994, Corning contacted PJSC and expressed a preliminary
indication of interest in acquiring Nichols at a value of $11.00 per share in
Corning Common Shares, subject to additional due diligence. Corning indicated
that the price might be higher than $11.00 per share depending upon the
results of its due dilligence investigation. From May 19, 1994 through May
24, 1994, Corning conducted operational, financial and legal due diligence on
Nichols.
On May 25, 1994, representatives of Corning and its financial advisor, Lazard
Freres & Co., met with Dr. Nichols, Mr. George Bragg, Nichols' Chief
Executive Officer, and representatives of PJSC to discuss the terms of a
potential Transaction. At that meeting, representatives of Corning stated
that they were prepared to recommend to the Corning Board that Corning enter
into an agreement with Nichols pursuant to which each Nichols stockholder
would receive up to $13.00 in value in Corning Common Shares for each share
of Nichols Common Stock pursuant to a merger of a newly formed Corning
subsidiary into Nichols, with Nichols being the surviving corporation. The
Class A Common Stock and Class C Common Stock had closed that day at $4.938
and $4.063, respectively, on the AMEX. The Corning representatives stated
that Corning's offer to purchase Nichols was contingent upon the negotiation
and execution of definitive agreements that would include, among other
things, the agreement of Dr. Nichols to vote his shares in favor of the
Merger, the requirement that the Merger be accounted for as a pooling of
interests and that Nichols would be required to agree to a no solicitation
provision in the Merger Agreement. The Corning representatives also requested
Nichols to call a special meeting of the Nichols Board for May 31, 1994 to
consider the Merger and advised the Nichols representatives that it would
hold a meeting of the Executive Committee of the Corning Board to consider
the Merger on June 1, 1994. The parties agreed to proceed to see if
definitive agreements on all terms and conditions could be reached, and if
the necessary board approvals for the transactions could be obtained, upon
the terms and within the time frame outlined at that meeting. The Corning
representatives made clear that Corning's proposal was contingent upon there
not being disclosure to third parties of any possible Transaction until
definitive agreements were executed.
On May 26, 1994, Corning presented a draft Merger Agreement to Nichols.
Pursuant to the Merger Agreement a wholly owned subsidiary of Corning would
be merged with and into Nichols, with Nichols being the surviving
corporation, and each share of Nichols Common Stock issued and outstanding
would be converted into the right to receive that number of Corning Common
Shares equal to the quotient derived by dividing $13.00 by the average of the
per share closing price on the NYSE of Corning Common Shares during the 10
consecutive trading days ending on the fifth trading day prior to the Special
Meeting, provided that the Corning stock price was above a specified minimum
level, below which a fixed exchange ratio (and thus a lower variable dollar
value per share) would apply, and subject to certain other terms and
conditions.
From May 26, 1994 through May 31, 1994, Nichols and its advisors and Corning
and its advisors proceeded to negotiate the terms of a final Merger
Agreement. During these negotiations, Corning's representatives reiterated
their position that Corning would be unwilling to proceed with the Merger
unless the Merger Agreement contained a no solicitation provision and Dr.
Nichols executed a voting agreement with Corning prior to or simultaneously
with Corning's execution of the Merger Agreement. Corning's representatives
stated that Corning's willingness to pay Nichols stockholders a substantial
premium for their stock depended upon Corning's ability to assure itself that
the Merger would be approved by the Nichols stockholders as a result of its
voting agreement with Dr. Nichols and the no solicitation provision in the
Merger Agreement. The structure of the Exchange Ratio was the subject of
significant negotiation, with Corning ultimately agreeing to keep the $13.00
value per share of Nichols Common Stock fixed above a specified minimum
market price for Corning Common Shares, and that Nichols would have the right
to terminate the Merger Agreement if, as of the time the Exchange Ratio is
fixed, the value of Corning Common Shares to be received in the Merger per
share of Nichols Common Stock were to be below $10.00. Corning's conditions
to closing the Merger were also heavily negotiated. See "THE
MERGER--Representations and Warranties" and "--Closing Conditions."
The Nichols Board met on May 31, 1994 with its legal and financial advisors.
It reviewed the current operating and financial condition of Nichols, the
history of the Corning negotiations, the terms of the proposed Merger
Agreement, including the various conditions to closing, the terms of the
proposed voting agreement between Dr. Nichols and Corning and the status of
discussions between PJSC and other potential buyers of Nichols.
First Boston delivered the presentation described under "BACKGROUND AND
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE NICHOLS BOARD--Opinion of CS
First Boston" regarding the
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financial terms of the proposed Merger and responded to questions from the
Nichols Board regarding, among other things, the outlook for Corning Common
Shares, the liquidity of that stock and its views on the substantial premium
over the current market price for Nichols Common Stock that was being offered
by Corning. The First Boston representatives described the extent and results
of CS First Boston's due diligence regarding Corning and its favorable
evaluation of the prospects for Corning and the future performance of Corning
Common Shares. The CS First Boston representatives also described in
extensive detail how the Exchange Ratio formulation would operate at various
prices for the Corning Common Shares.
CS First Boston then rendered its opinion that the Merger is fair to the
holders of each class of Nichols' stock from a financial point of view.
PJSC then made its presentation to the Nichols Board regarding the history of
its activities in exploring strategic alternatives for Nichols and the status
of each alternative, including its discussions regarding a Transaction with
all of the other Strategic Buyers and other potential acquirors. PJSC
repeated its view that the Strategic Buyers constituted the most likely
potential buyers for Nichols that met the criteria set forth by the Nichols
Board. The PJSC representatives advised the Nichols Board that PJSC had not
received a formal offer from any other Strategic Buyer or other party and no
Strategic Buyer or other party had expressed an interest in acquiring Nichols
at a price comparable to or greater than the price being offered by Corning.
The Nichols Board next requested representatives from Nichols' independent
auditors, Deloitte & Touche, to describe the requirements to account for the
Merger as a pooling of interests in view of the fact that the closing of the
Merger is conditioned upon the receipt by Corning of the opinion of its
independent accountants that the Merger would be accounted for as a pooling
of interests. Deloitte & Touche representatives reviewed the pooling
requirements with the Nichols Board and analyzed these requirements in the
context of specific situations that are present at Nichols.
After presentations by counsel to Nichols regarding the duties of the Nichols
Board and the terms of the proposed Merger Agreement, the Nichols Board
proceeded to discuss the proposed Merger Agreement. Following this
discussion, the Nichols Board unanimously approved the Merger Agreement.
Nichols' Reasons for the Merger; Recommendation of the Nichols Board
At the meeting held by the Nichols Board on May 31, 1994, the Nichols Board,
by a unanimous vote of all directors, determined that the terms of the Merger
are fair to and in the best interests of Nichols and its stockholders,
approved the Merger Agreement and authorized and directed Mr. Bragg and Mr.
Bellamy to execute the Merger Agreement on behalf of Nichols.
Nichols executed the Merger Agreement on May 31, 1994 and Dr. Nichols
executed the Dr. Nichols Letter Agreement contemporaneously therewith. After
approval by the Executive Committee of the Corning Board, Corning executed
the Merger Agreement on June 1, 1994 and press releases announcing the Merger
Agreement and the transactions contemplated therein were issued.
Accordingly, the Nichols Board, having unanimously approved the Merger
Agreement and determined that the Merger is fair to and in the best interests
of Nichols and its stockholders, recommends that the Nichols stockholders
vote FOR adoption of the Merger Agreement.
As described above under "Background," the decision of the Nichols Board to
approve the Merger Agreement on May 31, 1994, followed almost nine months of
exploring and analyzing strategic and financial alternatives available to
Nichols. During this period, the Nichols Board met numerous times, at which
meetings the Nichols Board reviewed in detail Nichols' business, results of
operations and prospects, including possible Transactions with Strategic
Buyers. Also during this period, PJSC presented to the Nichols Board periodic
updates on the status of its exploration and analysis of various strategic
and financial alternatives available to Nichols, including the contemplated
offering of the Nichols high-yield senior notes.
In making its recommendation to Nichols' stockholders with respect to the
Merger, the Nichols Board considered a number of factors. These factors
included, without assigning relative weights to, the following:
(i) the investigation and review by the Nichols Board of the Merger;
(ii) the knowledge and review of the business, assets and prospects of
Nichols;
(iii) the information provided to the Nichols Board by the officers of
Nichols and PJSC with respect to the financial and other aspects of the
Merger, including the relationship thereof to other possible Transactions and
the prospects of Nichols if the Merger were not to be effected;
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(iv) the presentation of CS First Boston delivered to the Nichols Board at
its meeting on May 31, 1994, including CS First Boston's written opinion,
dated June 1, 1994, that, as of such date, the consideration to be received
by the Nichols stockholders in connection with the proposed Merger is fair to
such stockholders from a financial point of view;
(v) the review of the material terms and conditions of the Merger as
reflected in the Merger Agreement, including the amount and form of
consideration, the proposed price protection range and the fact that each
holder of Nichols Common Stock will receive for their shares the same
consideration, which the Nichols Board believed represented the most
favorable transaction possible with Corning for the Nichols stockholders;
(vi) the historical and prospective business of Nichols, including, among
other things, the current financial condition and future prospects of Nichols
and the current financial condition and future prospects of Corning;
(vii) the conditions precedent to the consummation of the Merger, including
regulatory approval and receipt of certain assurances that the Merger will be
accounted for as a pooling of interests, and the estimated length of time to
consummate the Merger;
(viii) alternatives to the Merger, including a public debt offering, and
the risks associated with such alternatives, including the financial
requirements to service any such debt, as well as the risks inherent in
continuing as an independent public company in an industry that is both
changing rapidly and consolidating as opposed to the strengths of a
combination between Corning and Nichols;
(ix) recognizing that the execution of the Dr. Nichols Letter Agreement
would assure the approval of the stockholders and would therefore preclude
competing bidders, the absence of any other firm proposals by potential
acquirors despite PJSC's efforts to solicit potential Transactions and the
advice of PJSC that the Strategic Buyers represented the most likely
potential buyers for Nichols that met the criteria set by the Nichols Board;
(x) the structure of the Merger, which would permit holders of Nichols
Common Stock to exchange all their shares of Nichols Common Stock on a
tax-free basis; and
(xi) such other matters as the Nichols Board deemed appropriate or
necessary in considering the Merger.
Determination of the Nichols Board as to Voting Rights
The holders of Nichols Common Stock will not be entitled to approve or
disapprove the Merger by separate class votes. The Nichols Certificate of
Incorporation provides that under certain circumstances a merger or
consolidation must be approved by separate class votes of one or more of the
classes of its Common Stock. If, however, (i) the holders of Nichols Common
Stock are to each receive identical consideration on a per share outstanding
basis, and therefore the "Equal Consideration Requirement" provided for in
the Nichols Certificate of Incorporation would be met and (ii) the merger or
consolidation is not with a Related Person (as defined in the Nichols
Certificate of Incorporation) and therefore the "Fair Consideration
Requirement" provided for in the Nichols Certificate of Incorporation would
not apply, the holders of Class A Common Stock and Class B Common Stock would
vote together as a single class, and the holders of Class C Common Stock
would not be entitled to vote on the merger or consolidation. The Nichols
Board has determined, with the advice of counsel, that the Equal
Consideration Requirement will be met with respect to the Merger since the
holders of Nichols Common Stock will each receive identical consideration on
a per share outstanding basis. Furthermore, the Nichols Board has determined
that the Merger is not with a Related Person and, accordingly, the Fair
Consideration Requirement does not apply. See "DESCRIPTION OF NICHOLS CAPITAL
STOCK--Voting on Mergers, Consolidations and Other Business Combinations" and
"COMPARATIVE RIGHTS OF NICHOLS STOCKHOLDERS AND CORNING STOCKHOLDERS--Mergers
and Consolidations of Nichols Which are Not Related Person Business
Combinations."
Opinion of CS First Boston
CS First Boston delivered to the Nichols Board its written opinion that, as
of June 1, 1994, the consideration to be received by the Nichols stockholders
in connection with the Merger is fair to each class of such stockholders from
a financial point of view. Such opinion confirmed the oral opinion given by
CS First Boston to the Nichols Board on May 31, 1994.
The full text of the opinion of CS First Boston dated June 1, 1994, which
sets forth assumptions made, matters considered and limits on the review
undertaken, is attached as Appendix C to this Proxy Statement/Prospectus.
Nichols stockholders are urged to read such opinion in its entirety. CS First
Boston's opinion is directed only to the fairness of the consideration to be
received by the Nichols stockholders and does not constitute a recommen
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dation to any Nichols stockholder as to how such stockholder should vote. The
summary of the opinion of CS First Boston set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
In arriving at its opinion, CS First Boston (i) reviewed the Merger
Agreement, (ii) reviewed certain publicly available business and financial
information relating to Nichols and Corning; (iii) reviewed certain other
information, including financial forecasts, provided to CS First Boston by
Nichols and Corning; (iv) discussed the business and prospects of Nichols and
Corning with Nichols and Corning management, respectively; (v) considered
certain financial and stock market data of Nichols and Corning and compared
that data for Nichols with similar data for other publicly held companies in
businesses similar to that of Nichols; (vi) considered the financial terms of
certain other business combinations which have recently been effected; (vii)
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which CS First
Boston deemed relevant; and (viii) discussed with representatives of Nichols
and PJSC information developed by PJSC regarding other potential
opportunities for the sale of Nichols; however, CS First Boston was not
involved in any discussions which representatives of Nichols or PJSC may have
had with any third parties in this regard.
In connection with its review, CS First Boston did not independently verify
any of the foregoing information and relied on it being complete and accurate
in all material respects. With respect to the financial forecasts, CS First
Boston assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Nichols and Corning
management as to the future financial performance of Nichols and Corning,
respectively. In addition, CS First Boston did not independently evaluate or
appraise the assets of Nichols or Corning, nor was it furnished with any such
appraisals.
In arriving at its opinion and making its presentation to the Nichols Board
on May 31, 1994, CS First Boston performed a variety of financial analyses,
including those summarized below. The summary set forth below includes
summaries of all of the material financial analyses discussed by CS First
Boston with the Nichols Board, but does not purport to be a complete
description of the analyses performed by CS First Boston in arriving at its
opinion. Arriving at a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not necessarily susceptible
to partial analysis or summary description. CS First Boston believes that its
analyses must be considered as a whole and that selecting portions of its
analyses or only certain of the factors considered by it without considering
all analyses and factors, could create an incomplete view of the evaluation
process underlying its opinion. In performing its analyses, CS First Boston
made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, many
of which are beyond the control of CS First Boston, Nichols or Corning. Any
estimates incorporated in the analyses performed by CS First Boston are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses and securities neither
purport to be appraisals nor necessarily reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. No public
company utilized as a comparison is identical to Nichols, and none of the
acquisition transactions utilized as comparisons is identical to the Merger.
Accordingly, an analysis of publicly traded comparable companies and
comparable acquisition transactions is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company
to which they are being compared.
The following is a summary of the analyses performed by CS First Boston and
presented to the Nichols Board in connection with its fairness opinion:
Premium Paid. CS First Boston considered the premium paid for Nichols Common
Stock based on average prices of publicly traded Nichols Common Stock over
the following periods:
<TABLE>
<CAPTION>
Period Prior
to Announcement Weighted Average Price Weighted Average Premium
<S> <C> <C>
One Day $4.40 195.3%
One Week 4.42 194.4
One Month 4.43 200.4
</TABLE>
This analysis illustrated that the Merger price per common share provides a
significant premium to Nichols Common Stock over each period.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, CS
First Boston estimated the present value of the future cash flows that
Nichols could produce over a ten-year period from 1994 through 2003, under
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various assumptions, if Nichols were to perform on a stand-alone basis in
accordance with forecasts prepared by Nichols management. CS First Boston
determined certain equity market value reference ranges for Nichols based
upon the sum of (i) (A) the aggregate discounted present value (using various
discount rates ranging from 11% to 14%) of the ten-year unleveraged free cash
flows of Nichols (as projected by Nichols), plus (B) the discounted present
value (using various discount rates ranging from 11% to 14%) of (a) the
projected earnings for 2003 (as projected by Nichols) before interest, taxes,
depreciation and amortization ("EBITDA") multiplied by (b) numbers
representing various terminal or exit multiples (ranging from 7x to 10x),
plus (ii) certain corporate adjustments made by subtracting debt and adding
cash, cash equivalents, marketable securities and estimated cash proceeds
from the exercise of certain stock options. This analysis resulted in an
equity value reference range per share of Nichols Common Stock from $7.95 to
$13.75.
Comparable Company Analysis. CS First Boston also reviewed and compared the
financial and market performance of the following group of six publicly
traded clinical laboratory companies with that of Nichols: Allied Clinical
Laboratories, Inc., Dianon Systems, Inc., National Health Laboratories
Incorporated, Physicians Clinical Laboratory, Inc., Unilab Corporation and
Universal Standard Medical Laboratories, Inc. CS First Boston selected these
companies on the basis of various factors, including primarily each company's
concentration in the clinical laboratory industry. CS First Boston examined
certain publicly available financial data for these companies, including the
multiple of adjusted market value (defined as equity market value adjusted by
adding total debt and subtracting cash, marketable securities and estimated
cash proceeds from the exercise of certain stock options) to total revenues,
EBITDA, earnings before interest and taxes ("EBIT"), and the multiple of
equity market value to net income and tangible book value. CS First Boston
then applied certain of these multiples to publicly available estimates of
Nichols' revenues, EBITDA, EBIT and tangible book value for the period of
twelve months prior to March 31, 1994; and net income for the forecasted
periods of fiscal year end 1994 and 1995. This analysis resulted in an equity
value reference range per share of Nichols Common Stock from $4.65 to $9.95.
Comparable Acquisition Analysis. CS First Boston also reviewed the
consideration paid or proposed to be paid in other recent acquisitions of
clinical laboratory companies. While CS First Boston reviewed comparable
clinical laboratory company acquisitions for the past seven years, CS First
Boston focused on the following target/acquiror transactions: Allied Clinical
Laboratories, Inc./National Health Laboratories Incorporated (announced May
1994, pending), and Damon Corporation/Corning Inc. (announced June 1993;
completed), as these more recent transactions of public companies better
reflect current business and financial conditions in the clinical laboratory
industry. The analysis considered the multiple of adjusted market value to
revenues, EBITDA and EBIT and the multiple of equity market value to net
income and tangible book value for the period of twelve months prior to March
31, 1994. This analysis resulted in an equity value reference range per share
of Nichols Common Stock from $8.45 to $14.50.
CS First Boston is an internationally recognized investment banking firm
engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions and for other purposes. CS First Boston was
selected as financial advisor to Nichols based on such expertise.
In the ordinary course of its business, CS First Boston may trade the debt
and equity securities of Nichols for CS First Boston's own account and for
the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities. Further, John M. Hennessy, Chairman of
the Executive Board and Chief Executive Officer of CS First Boston, is a
member of Corning's Board.
Fee paid to CS First Boston. Nichols has agreed to pay CS First Boston a fee
of $750,000 in consideration of CS First Boston's services, $250,000 of which
was payable at the time of delivery of its fairness opinion to Nichols, and
$500,000 of which will be payable upon consummation of the Merger. Nichols
has also agreed to reimburse CS First Boston for its out-of-pocket expenses,
including reasonable fees and disbursements of counsel. Nichols has agreed to
indemnify CS First Boston and its affiliates, their respective directors,
officers, partners, agents and employees and each person, if any, controlling
CS First Boston or any of its affiliates against certain liabilities,
including certain liabilities under the federal securities laws, relating to
or arising out of its engagement.
Fee paid to PJSC. If the Merger is consummated, Nichols has agreed to pay
PJSC a fee equal to 1-1/2% of the Aggregate Consideration in the Merger, less
$500,000. For the purpose hereof, the term Aggregate Consideration means the
total amount of cash and the fair market value (on the date of payment) of
all other property paid or payable, directly or indirectly, to or by Nichols
or to Nichols' security holders in connection with the Merger (including,
without limitation, amounts paid by Nichols or any other party to holders of
any warrants, stock purchase rights, convertible securities, Nichols
Preferred Stock or similar rights of Nichols and to holders of any options or
stock appreciation rights issued by Nichols whether or not vested). Aggregate
Consideration shall also include
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the value of any short-term debt and long-term liabilities (including the
principal amount of indebtedness for borrowed money) repaid or retired in
connection with or in anticipation of the Merger or existing on the balance
sheet of Nichols at the Effective Time.
Corning's Reasons for the Merger
The Corning Board believes that the Merger is in the best interests of
Corning and its stockholders because it strategically positions and
differentiates MetPath, Inc. ("MetPath"), the clinical laboratory testing
unit of Corning, for growth in the hospital reference testing market, while
expanding MetPath's presence in both complementary and new geographies.
MetPath will benefit through geographic synergy in the south central region
and midwest, and will add several new territories in the far west. The
hospital market, with health-care reform, will present a significant
opportunity for a medically and scientifically driven, low-cost laboratory.
Nichols enjoys an outstanding reputation for its medical and scientific
expertise, as well as a strong position in the hospital reference testing
market.
THE MERGER
The description of the Merger Agreement and the Merger set forth below does
not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement and to the Dr. Nichols Letter Agreement, copies of which
are attached as Appendix A and Appendix B, respectively, to this Proxy
Statement/Prospectus and incorporated by reference herein.
Terms of the Merger
The Merger. Subject to the terms and conditions of the Merger Agreement,
Merger Sub will merge with and into Nichols at the Effective Time. The
separate corporate existence of Merger Sub will then cease, and the internal
corporate affairs of Nichols (the "Surviving Corporation") will continue to
be governed by the laws of the State of Delaware.
Effective Time. Subject to the provisions of the Merger Agreement, as soon as
practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions
of the DGCL and shall make all other filings or recordings required under the
DGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or at such other
time as Merger Sub and Nichols shall agree should be specified in the
Certificate of Merger (the date and time of such filing, or such later date
or time as may be set forth therein, being the Effective Time).
Certificate of Incorporation and By-Laws. The Merger Agreement provides that
the certificate of incorporation of Merger Sub as in effect immediately prior
to the Effective Time will become the certificate of incorporation of the
Surviving Corporation (except that such certificate of incorporation shall be
amended at the Effective Time to provide that the name of the Surviving
Corporation shall be "Nichols Institute"). The by-laws of Merger Sub in
effect at the Effective Time will become the by-laws of the Surviving
Corporation.
Directors. The directors of Merger Sub at the Effective Time shall continue
as the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
Officers. The officers of Nichols immediately prior to the Effective Time
shall become the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Effect on Capital Stock
Conversion of Nichols Common Stock in the Merger. At the Effective Time, by
virtue of the Merger and without any action on the part of Corning, Merger
Sub, Nichols, or the holders of any shares of Nichols Common Stock or any
shares of capital stock of Merger Sub: (i) each share of the capital stock of
Merger Sub outstanding as of the Effective Time shall be converted into and
exchanged for one fully paid and nonassessable share of common stock of the
Surviving Corporation; and (ii) each share of Nichols Common Stock that is
owned by Nichols or by any subsidiary of Nichols and each share of Nichols
Common Stock that is owned by Corning, Merger Sub or any other subsidiary of
Corning immediately prior to the Effective Time shall automatically be
cancelled and retired without any conversion thereof and no consideration
shall be delivered with respect thereto.
Each share of Nichols Common Stock issued and outstanding as of the Effective
Time (other than shares to be cancelled in accordance with (ii) above and
shares of Class B Common Stock as to which appraisal rights shall have been
perfected) shall be converted, subject to the terms explained in "No
Fractional Shares", into the right to receive that number (the Exchange
Ratio) of Corning Common Shares, rounded to the nearest thousandth, or
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if there shall not be a nearest thousandth, to the next lower thousandth,
equal to the quotient derived by dividing $13.00 by the average of the per
share closing prices on the NYSE of Corning Common Shares (as reported in the
NYSE Composite Transactions) during the 10 consecutive trading days ending on
the fifth trading day prior to the Special Meeting; provided, however, that
in no event will the Exchange Ratio be greater than 0.491 and if the Exchange
Ratio, as calculated, would be above that limit, then it shall be fixed at
such maximum limit; provided, further, that in the event the Exchange Ratio,
as calculated (without reference to the foregoing proviso), would equal or be
greater than 0.638, then Nichols may, but shall not be obligated to,
terminate the Merger Agreement. Each share of Nichols' Preferred Stock (other
than shares of Nichols Preferred Stock as to which appraisal rights shall
have been perfected) shall be converted in the Merger into Corning Common
Shares in the manner and amount provided for pursuant to the terms of the
Nichols Preferred Stock. See "DESCRIPTION OF NICHOLS STOCK--Preferred Stock."
If, prior to the Effective Time, Corning should split or combine the Corning
Common Shares, or pay a stock dividend or other stock distribution in Corning
Common Shares, then the Exchange Ratio (including the maximum limit thereof)
will be appropriately adjusted to reflect such split, combination, dividend
or other distribution. Each Corning Common Share issued pursuant to this
conversion shall be accompanied by one Right, unless the Rights shall not be
outstanding as of the Effective Time.
As of the Effective Time, all such shares of Nichols Common Stock and Nichols
Preferred Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each certificate
previously representing any such shares (including any certificate
theretofore representing Nichols Preferred Stock) shall thereafter represent
the right to receive a certificate representing the Corning Common Shares
into which such Nichols Common Stock was converted in the Merger. The holders
of such certificates previously evidencing such shares of Nichols Common
Stock and Nichols Preferred Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Nichols Common Stock or Nichols Preferred Stock as of the Effective Time
except as otherwise provided in the Merger Agreement or by law. Such
certificates previously representing shares of Nichols Common Stock and
Nichols Preferred Stock shall be exchanged for certificates representing
whole Corning Common Shares issued in consideration therefor upon the
surrender of such certificates in accordance with the provisions of "Exchange
of Certificates," without interest. No fractional Corning Common Share shall
be issued, and in lieu thereof a cash payment shall be made. See "No
Fractional Shares."
Exchange of Certificates. Prior to the Effective Time, Corning shall enter
into an agreement with Harris Trust and Savings Bank, as Exchange Agent, and
as contemplated by such agreement, Corning shall deposit, or shall cause to
be deposited, with the Exchange Agent as of the Effective Time (or otherwise
when requested by the Exchange Agent from time to time in order to effect any
exchange pursuant to this Section) for the benefit of the holders of shares
of Nichols Common Stock, for exchange through the Exchange Agent,
certificates representing the Corning Common Shares issuable pursuant to the
terms of the Merger Agreement described in "Effect on Capital Stock" in
exchange for outstanding shares of Nichols Common Stock (such certificates
representing Corning Common Shares, together with any dividends or
distributions with respect thereto, being collectively referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Corning Common Shares contemplated to be issued
pursuant to the terms of the Merger Agreement described in "Effect on Capital
Stock" out of the Exchange Fund. Except as contemplated by the terms of the
Merger Agreement described in "No Fractional Shares," the Exchange Fund shall
not be used for any other purpose.
As soon as reasonably practicable after the Effective Time, Corning shall
instruct the Exchange Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of Nichols Common Stock or Nichols Preferred Stock (the
"Certificates"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent and which shall be in a customary form) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing Corning Common Shares. Until surrendered as contemplated by the
terms of the Merger Agreement described in this Section, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the certificate evidencing whole Corning
Common Shares (and the accompanying Rights), cash in lieu of any fractional
Corning Common Shares to which such holder is entitled and any dividends or
other distributions to which such holder is entitled pursuant to the terms of
the Merger Agreement. No interest will be paid or will accrue on any cash
payable pursuant to the provisions of the Merger Agreement concerning
unexchanged shares and fractional shares.
No dividends or other distributions declared or made after the Effective Time
with respect to Corning Common Shares with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Corning Common Shares represented thereby, and no cash payment
in lieu of fractional shares shall be paid to any such holder, in each case
until the surrender of such Certificate in accordance with the terms of the
Merger Agreement described in this Section.
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All Corning Common Shares issued upon the surrender for exchange of
Certificates in accordance with the terms of the Merger Agreement shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Nichols Common Stock and Nichols Preferred Stock
theretofore represented by such Certificates, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Nichols on such shares of Nichols Common Stock or
Nichols Preferred Stock in accordance with the terms of the Merger Agreement
or prior to the date of the Merger Agreement and which remain unpaid at the
Effective Time and have not been paid prior to surrender. At the Effective
Time, the stock transfer books of Nichols shall be closed, and there shall be
no further registration of transfers of shares of Nichols Common Stock or
Nichols Preferred Stock thereafter on the records of Nichols.
No Fractional Shares. No certificates or scrip representing fractional
Corning Common Shares shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Corning. Following the
Effective Time, Corning shall instruct the Exchange Agent to determine the
excess of (x) the number of full Corning Common Shares delivered to the
Exchange Agent by Corning over (y) the aggregate number of Corning Common
Shares to be distributed to holders of Certificates (such excess being the
Excess Shares). As soon after the Effective Time as practicable, the Exchange
Agent, as agent for such holders of Certificates, shall sell the Excess
Shares at the then prevailing prices on the NYSE. Until the net proceeds of
such sale or sales have been distributed to such holders of Certificates, the
Exchange Agent will hold such proceeds in trust for such holders of
Certificates (the "Trust"). The Exchange Agent shall determine the portion of
the Trust to which each holder of one or more Certificates shall be entitled,
if any, and shall promptly pay such amounts to such holders of Certificates
subject to and in accordance with the terms of the Merger Agreement.
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by Nichols as to (i) the corporate organization, standing and power of
Nichols and its subsidiaries, (ii) approvals by the Nichols Board and
fairness opinions received by Nichols, (iii) its capitalization, (iv) the
authorization of the Merger Agreement, (v) pending or threatened litigation,
(vi) the Merger Agreement's noncontravention of any agreement, law or charter
or by-law provision and the absence of the need (except as specified) for
governmental or third-party consents to the Merger, (vii) the terms,
existence, operations, liabilities and compliance with applicable laws of
Nichols employee plans, and certain other matters relating to the Employee
Retirement Income Security Act of 1974, as amended, (viii) payment of taxes,
(ix) ownership of and rights to use certain intellectual property, (x) the
accuracy of Nichols' financial statements and filings with the Commission,
(xi) the conduct of Nichols' business in the ordinary and usual course and
the absence of any material adverse change in the financial condition,
business, results of operations, properties, assets, liabilities or prospects
of Nichols, (xii) certain contracts and leases of Nichols and its
subsidiaries, (xiii) certain transactions with affiliates, (xiv) brokers and
finders employed by Nichols, (xv) the accuracy of information to be supplied
by Nichols for inclusion in this Proxy Statement/Prospectus and in the
Registration Statement, and (xvi) certain tax matters.
For purposes of the Merger Agreement "material adverse change" or "material
adverse effect" means, when used in connection with Nichols or Corning, any
change or effect (or any development that, insofar as can reasonably be
foreseen, is likely to result in any change or effect) that is materially
adverse to the business, financial condition or results of operations of such
party and its subsidiaries taken as a whole; provided, however, that the
existence or occurrence of the following events and circumstances shall not
individually constitute "material adverse change" or "material adverse
effect": (i) any change in laws and rules regulating the performance,
marketing and/or billing of laboratory tests, or limiting the reimbursements
or payments therefor; (ii) changes relating to the economy in general or to
Nichols' industry in general and not specifically relating to Nichols; (iii)
changes relating to the cancellation or termination by customers of Nichols
of their relationships with Nichols or the voluntary termination by existing
general managers, or sales representatives from and after the date of the
public announcement of this agreement unless such cancellations or
terminations are attributable in large respect to factors other than the
transactions contemplated by the Merger Agreement; (iv) the assessment from
the Internal Revenue Service relating to the amortization of certain
intangible items or any future assessment based on the same factual
circumstances for subsequent years, unless such change or effect results from
a state of facts known or which ought to be known to the officers of Nichols
on the date of the Merger Agreement and not disclosed to Corning prior to the
execution thereof; or (v) the subpoena received by Nichols in August 1993
from the Office of Inspector General and the United States Attorney's Office
for the Southern District of California relating to Medicare billing
practices, or any developments, investigations, or charges arising therefrom
or payments or settlements relating thereto, unless (x) such matters would
have a reasonable probability of resulting in a material penalty being
imposed against Nichols or
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in a referral to a grand jury or similar authority being made with respect to
Nichols or in exclusion of Nichols from participation in Medicare, Medicaid
or any other federal or state health care program or (y) such change or
effect results from a state of facts known or which ought to be known to the
officers of Nichols on the date of the Merger Agreement and not disclosed to
Corning prior to the execution thereof.
The Merger Agreement also includes representations and warranties by Corning
and Merger Sub as to: (i) the corporate organization, standing and power of
Corning and its subsidiaries; (ii) the authorization of the Merger Agreement;
(iii) Corning's capitalization; (iv) the authorization of the Corning Common
Shares to be issued pursuant to the Merger Agreement; (v) pending or
threatened litigation; (vi) the Merger Agreement's noncontravention of any
agreement, law or charter or by-law provision and the absence of the need
(except as specified) for governmental or third-party consents to the Merger;
(vii) the accuracy of Corning's financial statements and filings with the
Commission; (viii) the absence of any material adverse change in the
business, financial condition, results of operations, properties, assets,
liabilities or prospects of Corning; (ix) certain contracts and leases of
Corning and its subsidiaries; (x) the ownership, activities and assets of
Merger Sub; (xi) brokers and finders employed by Corning; (xii) the accuracy
of information to be supplied by Corning for inclusion in this Proxy
Statement/Prospectus and in the Registration Statement; (xiii) the ownership
of shares of Nichols Common Stock by Corning; and (xiv) certain tax matters.
Certain Covenants
Conduct of Business by Nichols. The Merger Agreement provides that between
the date of the Merger Agreement and the Effective Time, Nichols shall, and
shall cause its subsidiaries to, carry on their respective businesses in the
ordinary course and use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them. The Merger Agreement
further provides, without limiting the generality of the foregoing, that
between the date of the Merger Agreement and the Effective Time, except as
contemplated by the Merger Agreement, Nichols shall not, and shall not permit
any of its subsidiaries, without the prior written approval of Corning, to:
(i) (A) declare, set aside or pay (whether in cash, stock, property, or
otherwise) any dividends on, or make any other distributions in respect of,
any of its capital stock, other than dividends and distributions by any
direct or indirect wholly owned subsidiary of Nichols to its parent, (B)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of Nichols or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; (ii) other than the
issuance of Nichols Common Stock upon the exercise of the Warrants or Stock
Options outstanding on the date of the Merger Agreement in accordance with
their present terms or in accordance with the present terms of any employment
agreements existing on the date of the Merger Agreement or upon conversion of
Nichols Preferred Stock or the Convertible Notes, (A) issue, deliver, sell,
award, pledge, dispose of or otherwise encumber or authorize or propose the
issuance, delivery, grant, sale, award, pledge or other encumbrance
(including limitations in voting rights) or authorization of, any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities, (B) amend or otherwise modify the terms
of any such rights, warrants or options (except as expressly contemplated by
the Merger Agreement) or (C) accelerate the vesting of any of the Stock
Options; (iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents; (iv) acquire or agree to
acquire (for cash or shares of stock or otherwise) (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof or
(B) any assets except purchases of inventory in the ordinary course of
business consistent with past practice; (v) mortgage or otherwise encumber or
subject to any Lien, or sell, lease, exchange or otherwise dispose of any of
its properties or assets, except for sales of its properties or assets in the
ordinary course of business consistent with past practice and except for the
purpose of securing indebtedness permitted pursuant to subparagraph (vi)(A)
below; (vi)(A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Nichols or any of
its subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the economic
effect of any of the foregoing except for the incurrence of indebtedness to
finance Nichols' working capital needs (which may include mandatory payments
under the Senior Notes) which, in the aggregate, does not exceed $15,000,000
provided that the terms of any such indebtedness (including any prepayment
penalty) shall be subject to the approval of Corning (which approval shall
not be unreasonably withheld), or (B) make any loans, advances or capital
contributions to, or investments in, any other person, other than to Nichols
or any direct or indirect wholly owned subsidiary of Nichols; (vii) make or
agree to make any new capital expenditures which, individually, exceed
$250,000 or which, in the
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aggregate, exceed $2,000,000; (viii) make or rescind any express or deemed
election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, or change any of its methods of reporting income or
deductions for Federal income tax purposes from those employed in the
preparation of its Federal income tax return for the taxable year ending
1990, except as may be required by applicable law; (ix) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of Nichols included in the
documents filed with the Commission or incurred in the ordinary course of
business consistent with past practice; (x) (A) increase the rate or terms of
compensation payable or to become payable generally to any of Nichols'
directors, officers or employees, (B) pay or agree to pay any pension,
retirement allowance or other employee benefit not provided for by any
existing Pension Plan, Benefit Plan or employment agreement described in
documents filed by Nichols with the Commission prior to the date of the
Merger Agreement, (C) commit itself to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
continuation pay, termination pay, retirement or other employee benefit plan,
agreement or arrangement, or increase the rate or terms of any employee plan
or benefit arrangement, (D) enter into any employment agreement with or for
the benefit of any person or (E) increase the rate of compensation under or
otherwise (except as expressly contemplated by the Merger Agreement) change
the terms of any existing employment agreement; provided, however, that
nothing in this clause (x) shall preclude payments under the terms of the
existing incentive compensation plans of Nichols in accordance with past
practice; (xi) except in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable business
efforts to renew any material contract or agreement to which Nichols or any
subsidiary is a party or waive, release or assign any material rights or
claims; or (xii) authorize any of, or commit or agree to take any of the
foregoing actions.
Conduct of Business by Corning. During the period from the date of the Merger
Agreement to the Effective Time, Corning has agreed that it shall, and shall
cause its subsidiaries to, carry on their respective businesses in the
ordinary course and use all reasonable efforts to preserve their
relationships with customers, suppliers and others having business dealings
with them; provided that the foregoing shall not prevent Corning or any of
its subsidiaries from discontinuing or disposing of any part of its assets or
business or from acquiring any assets or businesses or from entering into any
financing transactions if such action is, in the judgment of Corning,
desirable in the conduct of the business of Corning and its subsidiaries.
Without limiting the generality of the foregoing, during the period from the
date of the Merger Agreement to the Effective Time, except as (i)
contemplated by the Merger Agreement or (ii) as set forth in a writing
delivered to Nichols prior to the execution hereof, Corning has agreed that
it shall not, and shall not permit any of its subsidiaries to:
(i) (A) declare, set aside or pay (whether in cash or property, but
excluding stock dividends) any dividends on, or make any other distributions
in respect of, any capital stock other than dividends and distributions by
any direct or indirect wholly owned subsidiary of Corning to its parent and
except for regular quarterly cash dividends (in an amount determined in a
manner consistent with Corning's past practice) declared by the Corning Board
with customary record and payment dates, (B) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
Corning's capital stock or (C) purchase, redeem or otherwise acquire any
Corning Common Shares;
(ii) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents in a manner which would reasonably be
expected to be materially adverse to the stockholders of Nichols;
(iii) amend the Rights or the agreements under which the Rights are issued
in any manner adverse to the stockholders of Nichols;
(iv) change its fiscal year; or
(v) authorize, or commit or agree to take any of, the foregoing actions.
No Solicitation. (a) In light of the consideration given by the Nichols Board
prior to the execution of the Merger Agreement to, among other things, the
transactions contemplated thereby and by the requirement of Corning that the
Dr. Nichols Letter Agreement be executed concurrently with the execution of
the Merger Agreement as a condition of Corning's entering into the Merger
Agreement, and to various alternatives to the transactions contemplated by
the Merger Agreement, and in light of the fairness opinion issued to Nichols
by First Boston as provided for in the Merger Agreement and the information
provided to Nichols by its financial advisor, PJSC regarding potential
alternative opportunities for the sale of Nichols, Nichols agreed that it
shall not, nor shall it permit any
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of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor
or representative of, Nichols or any of its subsidiaries to, solicit or
initiate, or encourage the submission of, any Takeover Proposal, or
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Takeover Proposal. For purposes of
the Merger Agreement, "Takeover Proposal" means any proposal (whether or not
in writing and whether or not delivered to Nichols' stockholders generally)
for a merger or other business combination involving Nichols or any of its
material subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of, or a
substantial portion of the assets of Nichols or any of its material
subsidiaries, other than the transactions contemplated by the Merger
Agreement. Nothing contained in the Merger Agreement prohibits Nichols from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) under the Exchange Act with respect to a Takeover Proposal by means
of a tender offer.
(b) Nichols has agreed to promptly advise Corning orally and in writing of
any request for information or of any Takeover Proposal, or any inquiry with
respect to or which could lead to any Takeover Proposal, the material terms
and conditions of such request, Takeover Proposal or inquiry, and the
identity of the person making any such Takeover Proposal or inquiry. Nichols
has agreed to keep Corning informed of the status and details of any such
request, Takeover Proposal or inquiry.
Repayment of Senior Notes. Pursuant to the Merger Agreement, at the Closing,
Corning shall repay, or cause the Surviving Corporation to repay, in full the
outstanding principal amount under Nichols' 10.12% senior notes due 2001,
10.75% senior notes due 1998 and 10.43% senior notes due 1999 (collectively,
the "Senior Notes") together with interest accrued but unpaid thereon, but
without any prepayment penalty, to the holders of the Senior Notes. The
Merger Agreement also provides that prior to the Closing Date, Nichols shall
secure the waiver by the requisite majority of the holders of the Senior
Notes of any penalty due under the terms of the Senior Notes upon the
prepayment thereof by Corning or the Surviving Corporation.
Restrictions on Corning's Business. The Merger Agreement provides that prior
to the Closing Date, Nichols shall take all actions necessary and appropriate
to eliminate any restrictions on the business and operations of Corning that
are material to the business or results of operations of Corning or CLSI
which may arise upon the consummation of the Merger as a result of any
agreement between Nichols and any other person.
Benefit Plans. The Merger Agreement states that Corning currently intends to
cause the Surviving Corporation to maintain for a period of three years after
the Effective Time the benefit plans of Nichols in effect on the date thereof
(other than Option Plans) or to provide benefits to employees of Nichols that
are no less favorable in the aggregate to such employees than those in effect
on the date thereof.
Employment Agreements. Prior to the Closing Date, Nichols will take all
actions necessary and appropriate to amend the employment agreements between
Nichols and certain of its employees identified in and in the manner
described in an exhibit to the Merger Agreement. Corning or persons acting on
its behalf shall meet with these employees of Nichols to discuss with such
employees their employment arrangements and their opportunities and
responsibilities after the Closing Date. See "Interests of Certain Persons in
the Merger." Corning shall also cause the Surviving Corporation to honor
without modification (except as provided in the section of the Merger
Agreement described above) all terms and provisions of all employment
agreements of these individuals in the form existing as of the date of the
Merger Agreement.
Closing Conditions
Conditions to Each Party's Obligations to Effect the Merger. The Merger
Agreement makes the respective obligation of each party to effect the Merger
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(i) the Nichols stockholders shall have adopted the Merger Agreement;
(ii) the Corning Common Shares issuable to the Nichols stockholders
pursuant to the Merger Agreement and under the Stock Option Plans shall have
been approved for listing on the NYSE, subject to official notice of
issuance;
(iii) no litigation brought by a Governmental Entity shall be pending, and
no litigation shall be threatened by any Governmental Entity, which seeks to
enjoin or prohibit the consummation of the Merger, and no temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect. For
the purposes of the Merger Agreement a litigation shall be deemed to be
"threatened" by the Federal Trade
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Commission only if the Federal Trade Commission shall have publicly announced
or shall have advised Corning, Merger Sub or Nichols that the Federal Trade
Commission has authorized its staff to commence proceedings in Federal court
seeking injunctive relief against, or to commence administrative proceedings
challenging, the transactions contemplated by the Merger Agreement;
(iv) the Form S-4 shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or, to the knowledge of Corning or Nichols, threatened by
the SEC;
(v) the applicable waiting period (and any extension thereof) under the HSR
Act shall have expired or been terminated;
(vi) other than the filing of merger documents in accordance with the DGCL,
all authorizations, consents, waivers, orders or approvals required to be
obtained, and all filings, notices or declarations required to be made, by
Corning, Merger Sub and Nichols prior to the consummation of the Merger and
the transactions contemplated hereunder shall have been obtained from, and
made with, all required Governmental Entities except for such authorizations,
consents, waivers, orders, approvals, filings, notices or declarations the
failure to obtain or make which would not have a material adverse effect, at
or after the Effective Time, on the Surviving Corporation or Corning.
Additional Conditions to Obligations of Corning and Merger Sub. The Merger
Agreement also makes the obligations of Corning and Merger Sub to effect the
Merger subject to the following conditions:
(i) each of the representations and warranties of Nichols contained in the
Merger Agreement shall, as of the Closing Date as though made on and as of
the Closing Date, be true and correct except for such failures to be true and
correct as could not, individually or in the aggregate, reasonably be
expected to result in (i) a material adverse effect on Nichols or on Corning
(except that where any statement in a representation or warranty, expressly
includes a standard of materiality, such statement shall be true and correct
in all respects giving effect to such standard) or (ii) an adverse effect on
the ability of the parties to consummate the transactions contemplated by the
Merger Agreement; provided that those representations and warranties which
address matters only as of a particular date shall remain true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall
be true and correct in all respects giving effect to such standard) as of
such date;
(ii) Nichols shall have performed or complied in all material respects with
the agreements and covenants required by the Merger Agreement to be performed
or complied with by it on or prior to the Closing Date;
(iii) Nichols shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the Merger
under all loan or credit agreements, notes, mortgages, indentures, leases or
other agreements or instruments to which it or any of its Material
Subsidiaries is a party, except those for which failure to obtain such
consents and approvals would not have a material adverse effect on Nichols
prior to or after the Effective Time or a material adverse effect on Corning
after the Effective Time;
(iv) Corning shall have received from Price Waterhouse, as independent
auditors of Corning, on the date of the Proxy Statement and on the Closing
Date, letters, in each case dated as of such respective dates, addressed to
Corning, in form and substance reasonably acceptable to Corning and to the
effect that the business combination to be effected by the Merger is required
to be accounted for as a pooling-of-interests by Corning for purposes of its
consolidated financial statements under generally accepted accounting
principles and applicable SEC rules and regulations. No action shall have
been taken by any Governmental Entity or any statute, rule, regulation or
order enacted, promulgated or issued by any Governmental Entity, or any
proposal made for any such action by any Governmental Entity which is
reasonably likely to be put into effect, that would prevent Corning from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests;
(v) Corning shall have received from each person who may be deemed to be an
affiliate of Nichols (under Rule 145 of the Securities Act or otherwise under
applicable SEC accounting releases with respect to pooling-of-interests
accounting treatment) on or prior to the Closing Date a signed agreement
substantially in the form of Exhibit 5.10 to the Merger Agreement.
Additional Conditions to Obligations of Nichols. The Merger Agreement also
makes the obligations of Nichols to effect the Merger subject to the
following conditions:
(i) each of the representations and warranties of Corning contained in the
Merger Agreement shall, as of the Closing Date as though made on and as of
the Closing Date, be true and correct except for such failures
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to be true and correct as could not, individually or in the aggregate,
reasonably be expected to result in (i) a material adverse effect on Corning
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct
in all respects giving effect to such standard) or (ii) an adverse effect on
the ability of the parties to consummate the transactions contemplated by the
Merger Agreement; provided that those representations and warranties which
address matters only as of a particular date shall remain true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall
be true and correct in all respects giving effect to such standard) as of
such date;
(ii) Corning shall have performed or complied in all material respects with
the agreements and covenants required by the Merger Agreement to be performed
or complied with by it on or prior to the Closing Date; and
(iii) Nichols shall have received the opinion of Fulbright & Jaworski
L.L.P., counsel to Nichols, dated the date of the Proxy Statement, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), which opinion shall
not have been withdrawn or modified in any material respect. The issuance of
such opinion shall be conditioned on the receipt of customary representation
letters.
Amendment; Termination
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of Nichols:
(i) by mutual written consent of Corning and Nichols;
(ii) by Corning, upon a breach of any representation, warranty, covenant or
agreement, on the part of Nichols set forth in the Merger Agreement, or if
any representation or warranty of Nichols shall have become untrue, in either
case such that the conditions set forth in the sections of the Merger
Agreement pertaining to the continued accuracy of Nichols' representations
and warranties and Nichols' continued performance or compliance with all its
covenants and agreements contained therein, as the case may be, would be
incapable of being satisfied by November 30, 1994; provided that, in any
case, a willful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of termination of the Merger
Agreement by Corning;
(iii) by Nichols, upon a breach of any representation, warranty, covenant
or agreement on the part of Corning set forth in the Merger Agreement, or if
any representation or warranty of Corning shall have become untrue, in either
case such that the conditions set forth in the sections of the Merger
Agreement pertaining to the continued accuracy of Corning's representations
and warranties and Corning's continued performance or compliance with all its
covenants and agreements contained therein, as the case may be, would be
incapable of being satisfied by November 30, 1994; provided that in any case
a willful breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of termination of the Merger Agreement by
Nichols;
(iv) by either Corning or Nichols, if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the
Merger and such order, decree or ruling or other action shall have become
final and nonappealable;
(v) by either Corning or Nichols, if the Merger shall not have occurred by
November 30, 1994, unless the failure to consummate the Merger is the result
of a breach of a covenant set forth in the Merger Agreement or a willful and
material breach of any representation or warranty set forth in the Merger
Agreement by the party seeking to terminate the Merger Agreement;
(vi) by Nichols, should the Exchange Ratio as calculated equal or exceed
0.638 (see "Effect on Capital Stock"); or
(vii) by Corning at any time if Dr. Nichols loses control of sufficient
shares of Nichols Common Stock such that the representations set forth in the
Merger Agreement to the effect that the vote of Dr. Nichols' shares in favor
of the Merger Agreement is sufficient to approve the Merger Agreement cease
to be true and correct in all respects.
Effect of Termination. In the event of termination of the Merger Agreement by
either Nichols or Corning as provided in the terms of the Merger Agreement
described in "Amendment; Termination," the Merger Agreement shall forthwith
become void and have no effect, without any liability or obligation on the
part of Corning, Merger
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Sub or Nichols, other than the provisions of the Merger Agreement relating to
Nichols' and Corning's representations as to their employment of brokers,
their confidentiality agreement, their agreement as to fees and expenses, and
certain general provisions of the Merger Agreement and except to the extent
that such termination results from the willful and material breach by a party
of any of its representations, warranties, covenants or agreements set forth
in the Merger Agreement.
Amendment. The Merger Agreement may be amended by the parties at any time
before or after Nichols Stockholder Approval; provided, however, that after
Nichols Stockholder Approval there shall not be made any amendment that by
law requires further approval by the stockholders of Nichols without the
further approval of such stockholders. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
Extension; Waiver. At any time prior to the Effective Time, the parties may
(a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement or (c) subject to the proviso of the section
of the Merger Agreement described in "Amendment; Termination", waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing, signed
on behalf of such party. The failure of any party to the Merger Agreement to
assert any of its rights under the Merger Agreement or otherwise shall not
constitute a waiver of those rights.
Procedure for Termination, Amendment, Extension or Waiver. A termination of
or amendment to the Merger Agreement or an extension or waiver pursuant to
its terms shall, in order to be effective, require in the case of Corning,
Merger Sub and Nichols, action by the relevant Board of Directors or the duly
authorized designee of such Board of Directors.
Agreement of Dr. Nichols to Vote in Favor of the Merger
Concurrently with the execution of the Merger Agreement, Corning entered into
the Dr. Nichols Letter Agreement, pursuant to which Dr. Nichols agreed to
vote all shares of Nichols Common Stock that he has the right to vote in
favor of approval of the Merger Agreement and the Merger at the Special
Meeting. As of June 1, 1994, Dr. Nichols had the power to vote shares
representing approximately 60% of the voting power of the Nichols Common
Stock.
In the Dr. Nichols Letter Agreement, Dr. Nichols also agreed, among other
things, that until the Dr. Nichols Letter Agreement is terminated in
accordance with its terms, he will not, and will not permit any entity
controlled by him to, (i) convert any of his shares of Class B Common Stock
into Class A Common Stock, (ii) contract to sell, sell or otherwise transfer
or dispose of any of his shares or any interest therein or securities
convertible thereinto or any voting rights with respect thereto, other than
(x) pursuant to the Merger, (y) with Corning's prior written consent or (z)
the use of shares as collateral pursuant to any loan arrangement previously
disclosed to Corning to secure indebtedness up to specified limits, (iii)
consent to any amendment to the certificate of incorporation of Nichols which
would effectively reduce the proportionate voting power of his shares or (iv)
to the extent any of his shares are subject to any encumbrances disclosed in
writing to Corning, increase the amount of indebtedness secured by such
shares beyond specified limits.
A copy of the Dr. Nichols Letter Agreement is attached as Exhibit 5.16 to the
Merger Agreement, a copy of which is attached as Appendix A.
Certain Federal Income Tax Consequences
It is a condition to the obligation of Nichols to consummate the Merger that
Nichols receive an opinion from Fulbright & Jaworski L.L.P., tax counsel for
Nichols, to the effect that (i) the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, (ii) no gain or loss will be recognized by Nichols as a result of the
Merger and (iii) no gain or loss will be recognized by a Nichols stockholder
as a result of the Merger with respect to shares of Nichols Common Stock
converted solely into Corning Common Shares. The effects of any cash received
in lieu of fractional share interests and any Real Property Tax Payments (as
hereinafter defined) are discussed below.
Based upon the advice of their respective counsel, Corning and Nichols expect
that the Merger will qualify as a reorganization under the Code with the
consequences set forth above. Assuming that the Merger so qualifies, the tax
basis of the Corning Common Shares received by Nichols stockholders in the
Merger will be the same, in each instance, as the tax basis of the Nichols
Common Stock surrendered in exchange therefor, excluding any basis allocable
to fractional share interests in Corning Common Shares for which cash is
received. In addition, the holding period of the Corning Common Shares
received in the Merger by Nichols stockholders will include the
<PAGE>
<PAGE>
period during which the shares of Nichols Common Stock surrendered in
exchange therefor were held, provided that such shares of Nichols Common
Stock were held as capital assets at the Effective Time.
Holders of Nichols Common Stock who receive cash in the Merger as a result of
the rounding off of fractional share interests in Corning Common Shares will
be treated, in each instance, as having received the fractional share
interests and then as having sold such interests for the cash received. This
sale will result in the recognition of gain or loss for federal income tax
purposes, measured by the difference between the amount of cash received and
the portion of the basis of the share of Nichols Common Stock allocable to
such fractional share interests. Such gain or loss will be capital gain or
loss, provided that such share of Nichols Common Stock was held as a capital
asset at the Effective Time, and will be long-term capital gain or loss if
such share of Nichols Common Stock has been held for more than one year.
Certain states and localities impose a tax on certain transfers (which
include the Merger) of an interest in real property (including leases)
located therein. Any returns required to be filed in connection with such tax
will be filed by Nichols on behalf of the Nichols stockholders, and Nichols
will pay any tax due thereon. The portion of any such payment attributable to
a Nichols stockholder is referred to herein as a "Real Property Tax Payment."
A Real Property Tax Payment, if any, should result in a deemed distribution
by Nichols to a Nichols stockholder, which distribution would be taxed to
such stockholder as a dividend to the extent of Nichols' current and
accumulated earnings and profits as determined for federal income tax
purposes (and thereafter would reduce the tax basis in his or her Nichols
Common Stock and, if such basis is reduced to zero, would then be taxed as
gain from the sale or exchange of such Nichols Common Stock). Any tax on such
deemed distribution will be the responsibility of the Nichols stockholder.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR NICHOLS STOCKHOLDER SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND
STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF NICHOLS COMMON STOCK PURSUANT TO
THE EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF STOCK OPTIONS ARE
NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS
THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE
HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. NICHOLS STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
Regulatory Approvals
HSR Act and Antitrust. Corning and Nichols, and Dr. Nichols with respect to
his acquisition of Corning Common Shares in the Merger, were required to
observe the notification and waiting period requirements of the HSR Act
before the Merger may be consummated. The HSR Act provides for an initial
30-calendar day waiting period following the filing with the FTC and the
Antitrust Division of certain Notification and Report Forms by the parties to
the Merger and certain other parties. The HSR Act further provides that if,
within the initial 30-calendar day waiting period, the FTC or the Antitrust
Division issues a request for additional information or documentary material,
the waiting period will be extended until 11:59 p.m. on the twentieth day
after the date of substantial compliance by the filing parties with such
request. Only one such extension of the initial waiting period is permitted
under the HSR Act; however, the filing parties may agree not to close the
transaction before a designated date.
Corning, Nichols and Dr. Nichols have made the requisite filings under the
HSR Act in connection withthe Merger, and the initial waiting periods with
respect to such filings expired at 11:59 p.m., Eastern Time, onJuly 17, 1994.
Resale of Corning Common Shares Issued in the Merger; Affiliates
The Corning Common Shares to be issued to Nichols stockholders in connection
with the Merger will be freely transferable under the Securities Act, except
for Corning Common Shares issued to any person deemed to be an
<PAGE>
<PAGE>
affiliate of Nichols for purposes of Rule 145 under the Securities Act at the
time of the Special Meeting ("Affiliates"). Affiliates may not sell their
Corning Common Shares acquired in connection with the Merger except pursuant
to an effective registration statement under the Securities Act covering such
shares, or in compliance with Rule 145 promulgated under the Securities Act
or another applicable exemption from the registration requirements of the
Securities Act. Pursuant to the Merger Agreement, Nichols has agreed that
prior to the Effective Time it will deliver to Corning a letter identifying
all persons who at the time of the Special Meeting may be deemed to be
Affiliates. Nichols has further agreed to use all reasonable efforts to cause
each person who is so identified as an Affiliate in such letter to deliver to
Corning on or prior to the date of this Proxy Statement/Prospectus a written
agreement that such Affiliate will not sell, pledge, transfer or otherwise
dispose of any Corning Common Shares received in the Merger in violation of
the Securities Act, and that such Affiliate will not sell any Corning Common
Shares or any shares of Nichols Common Stock until after such time as
consolidated financial statements which reflect at least 30 days of
post-Merger operations have been published by Corning (the date of such
publication, the "Publication Date"). See "THE MERGER--Accounting Treatment."
Accounting Treatment
It is expected that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. It is a condition
to the obligation of Corning to consummate the Merger that Corning receive
the opinion of Price Waterhouse that the Merger can be accounted for as a
pooling of interests. See "THE MERGER--Closing Conditions."
Interests of Certain Persons in the Merger
General. Nichols will be the Surviving Corporation in the Merger and,
following the Merger, will be a wholly owned subsidiary of Corning. It is
currently anticipated that certain executives of Nichols will continue in
their current capacities.
Dr. Nichols Employment Agreement. Concurrently with or as promptly as
practical after the Effective Time, Corning will cause Nichols to enter into
an employment agreement (the "Employment Agreement") with Dr. Nichols,
Chairman of the Board of Nichols, pursuant to which Dr. Nichols will serve as
Chairman Emeritus of the Surviving Corporation and will be a member of the
Board of Directors of CLSI. The term of the Employment Agreement will be for
a two-year period commencing on the Effective Time, subject to an additional
three-year extension (the "Additional Term") if mutually agreed upon. As
consideration for the Surviving Corporation's entering into the Employment
Agreement, Dr. Nichols will agree to waive all rights to severance pay,
damages or other payments due to the termination of his employment with the
Surviving Corporation or as a result of the Merger, other than as set forth
in the Employment Agreement. During the term of the Employment Agreement, Dr.
Nichols will receive a base salary of $250,000 per year, payable in monthly
installments. In addition, for each of the five years following the Effective
Time, Dr. Nichols will receive a guaranteed lump sum bonus of $500,000,
payable in arrears. At the end of the initial two-year employment period, Dr.
Nichols will be eligible for an incentive bonus of between $1,000,000 and
$2,000,000 based upon achievement of certain performance criteria for the
Surviving Corporation. If the term of his employment is extended for the
Additional Term, Dr. Nichols will be eligible for a similar incentive bonus
in an amount to be agreed upon based on achievement of certain performance
criteria for the Additional Term. Pursuant to the Employment Agreement, Dr.
Nichols will also agree that, for a period of five years from the Effective
Time, he will not compete with Corning in the clinical laboratory testing
industry (including diagnostic testing) in the United States and he will not
disclose any confidential information concerning the Surviving Corporation.
Employment Agreement Amendments. In addition, to seek to assure Corning that
certain key employees, including certain executive officers, some of whom are
also directors, of Nichols, would remain with the Surviving Corporation
during the critical transition period immediately subsequent to the Merger,
Nichols, at Corning's request, agreed in the Merger Agreement to take all
steps necessary and appropriate to amend the employment arrangements between
Nichols and these key employees. It is anticipated that these will include:
(i) an amendment to Mr. Bragg's (Chief Executive Officer) employment
arrangement pursuant to which he will agree to waive severance benefits for
voluntary departure within six months of the closing of the Merger and,
thereafter, existing severance arrangements will apply; (ii) an amendment to
Mr. Bellamy's (Chief Financial Officer and Senior Vice President) employment
arrangement pursuant to which he will agree to waive severance benefits for
voluntary departure within six months of the closing of the Merger and,
thereafter, existing severance arrangements will apply; (iii) an amendment to
Dr. Roberts' (Senior Vice President, Human Resources) employment arrangement
pursuant to which he will agree to waive severance benefits for voluntary
departure within six months of the closing of the Merger and, thereafter,
existing severance arrangements will apply; (iv) an amendment to Dr.
Harrington's (President, Reference Laboratories) employment arrangement
pursuant to which he will agree to waive severance benefits for voluntary
departure within two years of the closing of the Merger and, at the closing
of the Merger, he will be offered a two-year employment contract (preserving
existing severance arrangements for voluntary departure after two years)
including participation in stock incentive plans; and (v) an amendment to Dr.
Fisher's
<PAGE>
<PAGE>
(President, Nichols Academic Associates and Chief Science Officer) employment
arrangement pursuant to which he will agree to waive severance benefits for
voluntary departure within two years of the closing of the Merger and, at the
closing of the Merger, he will be offered a two year employment contract
(preserving existing severance arrangements for voluntary departure after two
years) including participation in stock incentive plans. It is also intended
that these amendments may include similar agreements with other key
employees, including certain other executive officers.
Stock Options. The Merger Agreement provides that, at the Effective Time,
each option to purchase shares of Nichols Common Stock ("Stock Option")
issued pursuant to any stock option plan of Nichols ("Option Plans") and then
outstanding, whether or not vested or exercisable, will be assumed by Corning
and will constitute an option to acquire, on the same terms and conditions as
were applicable under such assumed Stock Option (other than to the extent
accelerated pursuant to the terms of such Stock Option or in accordance with
the present terms of any employment agreement existing as of the date of the
Merger Agreement, which Stock Options will remain exercisable following the
Effective Time in accordance with the provisions of the Option Plan under
which they were granted), that number of Corning Common Shares equal to the
product of the Exchange Ratio and the number of shares of Nichols Common
Stock subject to such Stock Option, at a price per share equal to the
aggregate exercise price for the shares of Nichols Common Stock subject to
such Stock Option divided by the number of full Corning Common Shares deemed
to be purchasable pursuant to such Stock Option; provided, however, that the
number of Corning Common Shares that may be purchased upon exercise of such
Stock Option will not include any fractional share. The vesting of certain
Stock Options held by certain executive officers, some of whom are also
directors, of Nichols to acquire shares of Class A Common Stock and Class C
Common Stock accelerated upon execution of the Merger Agreement and certain
other Stock Options will accelerate upon consummation of the Merger.
The Merger Agreement provides that prior to the Closing the Nichols Board (or
the relevant committee thereof) shall adopt such resolutions and Nichols
shall obtain such written consents as may be necessary to rescind a pending
amendment to the 1993 Non-Employee Director Stock Option Plan and all Stock
Options granted thereunder to provide that the vesting of such Stock Options
shall not be accelerated as a result of the Merger Agreement or the Merger.
All necessary actions to rescind this pending amendment have been taken.
As of June 30, 1994, Stock Options to purchase 74,990 and 2,416.416 shares of
Class A Common Stock and Class C Common Stock, respectively, were outstanding
under the Option Plans at exercise prices ranging from $4.125 to $15.125 per
share. Based on the number of shares of Nichols Common Stock outstanding on
the Record Date, assuming the exercise of all outstanding Stock Options
(whether or not currently exercisable), and based upon the maximum Exchange
Ratio permitted by the Merger Agreement, a maximum of 9,766,033 Corning
Common Shares may be issued in connection with the Merger. For additional
information regarding the Stock Options held by officers and directors, see
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NICHOLS."
Indemnification of Directors and Officers Pursuant to the Merger
Agreement. From and after the Effective Time, the Surviving Corporation will
indemnify, defend and hold harmless the present and former officers,
directors and employees of Nichols and its subsidiaries against all losses,
expenses, claims, damages or liabilities arising out of actions or omissions
occurring on or prior to the Effective Time to the full extent permitted or
required under applicable law (except to the extent of directors' and
officers' liability insurance coverage and actual payment with respect
thereto). Corning has agreed to maintain for not less than six years the
current (or appropriate replacement) policies of directors' and officers'
liability insurance maintained by Nichols and its subsidiaries with respect
to matters occurring prior to the Effective Time. Corning is not required to
pay an annual premium for such insurance in excess of double the last annual
premium paid prior to June 1, 1994, but will, in such case, purchase as much
coverage as possible for such amount.
Management and Operations of Nichols after the Merger
After the Merger, the Surviving Corporation will be a wholly owned subsidiary
of Corning. Nichols will operate as one of Corning's business units within
the CLSI group, and Corning currently intends to retain Nichols' corporate
headquarters in San Juan Capistrano, California.
Expenses and Fees
Whether or not the Merger is consummated, Corning and Nichols will each pay
their own expenses in connection with the Merger.
Appraisal Rights for Unlisted Stock Only
Under the DGCL, holders of Class A Common Stock and Class C Common Stock will
not be entitled to appraisal rights as a result of the Merger. Under the
DGCL, appraisal rights are unavailable in a merger for shares of any class of
stock which on the applicable record date for the stockholder vote on such
merger are listed on a national securities exchange and which are to be
converted into shares of stock of any other corporation listed on the
effective date of the
<PAGE>
<PAGE>
merger on a national securities exchange. On the Record Date, the Class A
Common Stock and Class C Common Stock are listed on the AMEX and it is a
condition to consummation of the Merger that the Corning Common Shares
continue to be listed on the NYSE. Accordingly, holders of the Class A Common
Stock and the Class C Common Stock will not be entitled to appraisal rights
as a result of the Merger. Further, stockholders who vote in favor of a
merger are not entitled to appraisal rights under the DGCL as a result of
such merger.
Holders of record of the Class B Common Stock and of Nichols Preferred Stock
(collectively, the "Unlisted Shares") who comply with the applicable
statutory procedures summarized herein will be entitled to appraisal rights
under Section 262 of the DGCL. A person having a beneficial interest in any
Unlisted Shares held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
The following discussion is not a complete statement of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 which is reprinted in its entirety as Appendix D to this
Proxy Statement/Prospectus. All references in Section 262 and in this summary
to a "stockholder" are to the record holder of the Unlisted Shares as to
which appraisal rights are asserted.
Under the DGCL, holders of Unlisted Shares who follow the procedures set
forth in Section 262 will be entitled to have their Unlisted Shares appraised
by the Delaware Chancery Court and to receive payment in cash of the "fair
value" of such Unlisted Shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair
rate of interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Proxy Statement/Prospectus constitutes such notice to the holders of
Unlisted Shares and the applicable statutory provisions of the DGCL are
attached to this Proxy Statement/Prospectus as Appendix D. Any stockholder
who wishes to exercise such appraisal rights or who wishes to preserve his
right to do so should review the following discussion and Appendix D
carefully because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A holder of Unlisted Shares wishing to exercise such holder's appraisal
rights (i) must, in the case of shares of Class B Common Stock, not vote in
favor of adoption of the Merger Agreement and (ii) must, in the case of any
Unlisted Shares, deliver to Nichols prior to the vote on the Merger Agreement
at the Special Meeting to be held on August 31, 1994 a written demand for
appraisal of such holder's Unlisted Shares. A holder of Unlisted Shares
wishing to exercise such holder's appraisal rights must be the record holder
of such Unlisted Shares on the date the written demand for appraisal is made
and must continue to hold such Unlisted Shares of record until the Effective
Time of the Merger. Accordingly, a holder of Unlisted shares who is the
record holder of Unlisted Shares on the date the written demand for appraisal
is made, but who thereafter transfers such Unlisted Shares prior to the
Effective Time of the Merger, will lose any right to appraisal in respect of
such Unlisted Shares.
Only a holder of record of Unlisted Shares is entitled to assert appraisal
rights for the Unlisted Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully
and correctly, as such holder's name appears on such holder's stock
certificates. If the Unlisted Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the
demand should be made in that capacity, and if the Unlisted shares are owned
of record by more than one person as in a joint tenancy or tenancy in common,
the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand
for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is agent for such owner or owners. A record
holder such as a broker who holds Unlisted shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the Unlisted
Shares held for one or more beneficial owners while not exercising such
rights with respect to the Unlisted Shares held for other beneficial owners;
in such case, the written demand should set forth the number of Unlisted
shares as to which appraisal is sought and where no number of Unlisted Shares
is expressly mentioned the demand will be presumed to cover all Unlisted
Shares held in the name of the record owner. Stockholders who hold their
Unlisted Shares in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal
by such a nominee.
All written demands for appraisal should be sent or delivered to Nichols
Institute, 33608 Ortega Highway, San Juan Capistrano, CA 92690, Attention:
Corporate Secretary.
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<PAGE>
Within 120 days after the Effective Time of the Merger, but not thereafter,
the Surviving Corporation or any stockholder who has complied with the
statutory requirements summarized above may file a petition in the Delaware
Chancery Court demanding a determination of the fair value of the Unlisted
Shares. Nichols is under no obligation to and has no present intention to
file a petition with respect to the appraisal of the fair value of the
Unlisted Shares. Accordingly, it is the obligation of the stockholders to
initiate all necessary action to perfect their appraisal rights within the
time prescribed in Section 262.
Within 120 days after the Effective Time of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Class B Common
Stock not voted in favor of adoption of the Merger Agreement, the aggregate
number of Unlisted Shares with respect to which demands for appraisal have
been received and the aggregate number of holders of such Unlisted Shares.
Such statements must be mailed within ten days after a written request
therefor has been received by the Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of their
Unlisted Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should be aware that the fair
value of their Unlisted Shares as determined under Section 262 could be more
than, the same as or less than the consideration they would receive pursuant
to the Merger Agreement if they did not seek appraisal of the Unlisted Shares
and that investment banking opinions as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in the appraisal
proceedings.
The Court will determine the amount of interest, if any, to be paid upon the
amounts to be received by a person whose Unlisted Shares have been appraised.
The costs of the action may be determined by the Court and taxed upon the
parties as the Court deems equitable. The Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Unlisted Shares entitled to
appraisal.
Any holder of shares of Class B Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time
of the Merger, be entitled to vote the shares of Class B Common Stock subject
to such demand for any purpose. Any holder of Unlisted Shares who has duly
demanded an appraisal in compliance with Section 262 will not, after the
Effective Time of the Merger, be entitled to the payment of dividends or
other distributions on those Unlisted Shares (except dividends or other
distributions payable to holders of record of Unlisted Shares as of a record
date prior to the Effective Time of the Merger).
If any stockholder who properly demands appraisal of his Unlisted Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his
right to appraisal, as provided in the DGCL, the Unlisted Shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such Unlisted Shares in accordance with the Merger
Agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the Effective Time of the Merger, or
if the stockholder delivers to the Surviving Corporation a written withdrawal
of his demand for appraisal and acceptance of the Merger. Any such attempt to
withdraw an appraisal demand more than 60 days after the Effective Time of
the Merger will require the written approval of the Surviving Corporation.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a stockholder will be entitled to receive the consideration receivable
to such Unlisted Shares in accordance with the Merger Agreement).
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DIVIDENDS ON AND MARKET PRICES OF
CORNING COMMON SHARES AND NICHOLS COMMON STOCK
Corning
The Corning Common Shares are listed and primarily traded on the NYSE under
the symbol "GLW". The table below sets forth for the fiscal periods indicated
the high and low sale prices per Corning Common Share in the NYSE Composite
Transactions (as reported in published financial sources) and the dividends
declared per Corning Common Share.
<TABLE>
<CAPTION>
Corning Common Shares (a)
(b)
Dividends
High Low per Share
<S> <C> <C> <C>
Fiscal 1991
First quarter $31.000 $21.063 $0.125
Second quarter 31.750 28.375 0.125
Third quarter 35.750 31.250 0.125
Fourth quarter 43.125 33.563 0.300(c)
Fiscal 1992
First quarter 40.313 28.750 0.150
Second quarter 38.625 31.500 0.150
Third quarter 38.625 34.375 0.150
Fourth quarter 39.750 34.750 0.170
Fiscal 1993
First quarter 39.000 29.000 0.170
Second quarter 35.875 31.500 0.170
Third quarter 35.125 26.875 0.170
Fourth quarter 28.250 24.000 0.170
Fiscal 1994
First quarter 33.125 27.625 0.170
Second quarter 34.125 30.250 0.170
Third quarter (through July 29,
1994) 0.170(d)
</TABLE>
(a) Adjusted for the two-for-one stock split effective January 13, 1992.
(b) Corning's fiscal year ends on the Sunday closest to December 31 of each
year.
(c) Includes a special dividend of $0.15 per share in the fourth quarter of
1991.
(d) On July 6, 1994 Corning declared a $0.17 per share dividend payable on
September 30, 1994 to holders of record on September 9, 1994.
On May 31, 1994, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported NYSE Composite Transactions
closing price per Corning Common Share was $32.875. On July 29, 1994, the
most recent available date prior to printing this Proxy Statement/Prospectus,
the reported NYSE Composite Transactions closing price per Corning Common
Share was $ . Nichols stockholders are urged to obtain current market
quotations.
<PAGE>
<PAGE>
Nichols
The shares of Class A Common Stock and the Class C Common Stock are listed
and traded on the AMEX under the symbols "LABA" and "LABC," respectively. The
table below sets forth for the fiscal periods indicated the high and low sale
prices per share of the Class A Common Stock and the Class C Common Stock on
the AMEX Composite Transactions as reported in published financial sources.
<TABLE>
<CAPTION>
Nichols Class
A
Common Stock Nichols Class C
(a) Common Stock
High Low High Low
<S> <C> <C> <C> <C>
Fiscal 1991
First quarter (b) $16.875 $ 9.000 N/A N/A
Second quarter 14.750 10.500 $12.500 $ 9.375
Third quarter 16.875 11.250 16.750 10.250
Fourth quarter 16.125 10.875 16.000 11.125
Fiscal 1992
First quarter 15.125 9.000 15.000 8.625
Second quarter 10.000 7.375 9.875 7.250
Third quarter 10.000 7.125 9.250 7.250
Fourth quarter 9.625 4.750 8.875 4.500
Fiscal 1993
First quarter 7.625 4.250 6.625 4.125
Second quarter 7.125 4.375 6.750 4.125
Third quarter 8.625 5.000 7.750 5.000
Fourth quarter 8.750 5.000 7.875 4.750
Fiscal 1994
First quarter 6.250 4.875 5.875 4.500
Second quarter 12.250 4.500 12.250 3.875
Third quarter (through July 29,
1994)
</TABLE>
(a) Adjusted for the one-for-two reverse stock split effective June 4, 1991.
(b) From May 10, 1985 until June 4, 1991, the Class A Common Stock (then
designated "Common Stock") was listed and traded on the AMEX under the symbol
"LAB".
There is no established public trading market for the Class B Common Stock or
the Nichols Preferred Stock.
Nichols has never paid cash dividends on shares of Nichols Common Stock.
Furthermore, Nichols' senior note agreements currently prohibit Nichols from
paying cash dividends due to violations of certain financial covenants
contained in these agreements. See "NICHOLS MANAGEMENT DISCUSSION AND
ANALYSIS--Liquidity and Capital Requirements--Default on Senior Notes and
loss of line of credit" and Note 3 in the consolidated financial statements
of Nichols appearing elsewhere in this Proxy Statement/Prospectus. The Merger
Agreement also restricts Nichols' ability to pay cash dividends between the
date of the Merger Agreement and the Effective Time.
On May 31, 1994, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported AMEX Composite Transactions
closing price per share of Class A Common Stock was $4.813 and the last
reported AMEX Composite Transactions closing price per share of Class C
Common Stock was $4.125. On July 29, 1994, the most recent available date
prior to printing this Proxy Statement/Prospectus, the reported AMEX closing
price per share of Class A Common Stock was $ and the reported AMEX
Composite Transactions closing price per share of Class C Common Stock was
$ . Nichols stockholders are urged to obtain current market quotations.
<PAGE>
<PAGE>
CORNING UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Financial Information (the "Unaudited Pro
Forma Information") is presented to reflect the estimated impact on Corning's
Financial Statements of the Corning Transactions as follows:
* The acquisition of Nichols for an estimated 6.7 million Corning Common
Shares and options to purchase approximately 1 million Corning Common Shares
contemplated by this Proxy Statement/Prospectus. The acquisition will be
accounted for as a pooling of interests.
* The acquisition of Damon in August 1993, at a total purchase price of
approximately $405 million, including acquisition expenses. The transaction
has been accounted for as a purchase.
* The acquisition of Costar in September 1993, the transaction with Unilab in
November 1993, and other acquisitions completed in 1993 (collectively, the
"Other 1993 Transactions") which individually and in the aggregate are not
significant. The Costar merger and the Unilab transaction are described in
Notes 4 and 5, respectively.
* The acquisition of the optical-fiber and optical-cable businesses of NTL by
Corning and Siecor for $131 million in February 1994, the Vitro transaction
completed in January 1994 and the merger with Maryland Medical for 4.5
million Corning Common Shares in June 1994 (collectively, the "Completed 1994
Acquisitions"). The NTL transaction has been accounted for as a purchase and
the Maryland Medical transaction will be accounted for as a pooling of
interests. The Vitro transaction is described in Note 6. The NTL and Vitro
transactions were financed by the issuance of 8.0 million Corning Common
Shares in February 1994.
* The issuance (the "MIPS Offering") by Corning Delaware L.P. ("Corning
Delaware") of $373.8 million aggregate principal amount of Convertible
Monthly Income Preferred Securities (the "Preferred Securities") completed in
July 1994 and the use of the net proceeds thereof by Corning to retire the
indebtedness incurred in connection with the Damon transaction.
The Unaudited Pro Forma Combined Statements of Income for the year ended
January 2, 1994, and the twenty-four weeks ended June 19, 1994, assume that
the Corning Transactions had been completed on January 4, 1993. The Unaudited
Pro Forma Combined Balance Sheet at June 19, 1994, assumes that the Corning
Transactions had been completed by that date. Corning's consolidated
financial statements for periods prior to the pooling of interests
transactions will not be restated since the acquisitions are not material to
Corning's financial position or results of operations.
The Unaudited Pro Forma Information gives effect only to the adjustments set
forth in the accompanying notes and does not reflect any synergies
anticipated by Corning's management as a result of these acquisitions. The
Unaudited Pro Forma Information is not necessarily indicative of the results
of operations or financial position which would have been achieved had the
Corning Transactions been completed as of the beginning of the earliest
period presented, nor is it necessarily indicative of Corning's future
results of operations or financial position.
Corning has completed or has pending several business dispositions in 1994
which individually and in the aggregate are not significant to Corning's
consolidated financial statements. As such, pro forma data on these
transactions are not presented.
The Unaudited Pro Forma Information should be read in conjunction with the
historical financial statements of Corning and Damon incorporated by
reference into this Proxy Statement/Prospectus and the historical financial
statements of Nichols included elsewhere in this Proxy Statement/Prospectus.
<PAGE>
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED JANUARY 2, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED
OTHER 1993 1994
CORNING NICHOLS DAMON TRANSACTIONS ACQUISITIONS ADJUSTMENTS
AS
(1) (2) (3) (4) (5) (6) ADJUSTED (7)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Net sales $4,004.8 $279.6 $199.9 $146.1 $168.5 $4,798.9
Royalty, interest
and dividend income 29.9 29.9
Non-operating gains 4.2 4.2
4,038.9 279.6 199.9 146.1 168.5 4,833.0
Deductions
Cost of sales 2,597.0 175.3 129.4 105.4 128.2 $ 14.3 (a) 3,149.6
Selling, general and
administrative
expenses 774.0 75.2 58.1 23.1 32.0 962.4
Research and
development
expenses 173.1 4.2 2.2 1.8 181.3
Provision for
restructuring and
other special
charges 207.0 16.0 (48.5)(b) 174.5
Interest expense 88.2 11.7 5.6 3.6 1.5 14.2 (c)
(17.9)(d) 106.9
Other, net 42.9 2.6 1.0 0.6 (0.2) (1.0)(e) 45.9
Income (loss) before
taxes on income 156.7 (5.4) 5.8 11.2 5.2 38.9 212.4
Tax provision
(benefit) 35.3 (1.0) 2.1 3.9 1.0 18.2 (f) 59.5
Income (loss) before
minority interest
and equity earnings 121.4 (4.4) 3.7 7.3 4.2 20.7 152.9
Minority interest in
earnings of
subsidiaries (16.6) (2.2) (15.1) 0.8 (g) (33.1)
Dividends on
convertible
preferred
securities of
subsidiary (14.6)(h) (14.6)
Equity in earnings
(loss) of
associated
companies (120.0) 19.0 (101.0)
Net Income (Loss) $ (15.2) $ (4.4) $ 1.5 $ 7.3 $ 8.1 $ 6.9 $ 4.2
Weighted Average
Shares Outstanding 191.963 23.525 (i) 215.488
Earnings Per Common
Share:
Net Income (Loss) $ (0.09) $ 0.01
</TABLE>
(1) Represents the historical results of operations of Corning for the year
ended January 2, 1994.
(2) Represents the historical results of operations of Nichols for the year
ended December 31, 1993.
(3) Represents the historical results of operations of Damon for the seven
months ended July 31, 1993.
(4) Represents the historical results of operations of the businesses
involved in the Other 1993 Transactions through the respective acquisition
dates.
(5) Represents the historical results of operations of the businesses
involved in the Completed 1994 Acquisitions for the year ended January 2,
1994.
(6) See Note 2 to the Unaudited Pro Forma Information--Statement of Income.
(7) Reflects the results of operations of Corning on a pro forma basis
assuming the Corning Transactions had been completed on January 4, 1993.
<PAGE>
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWENTY-FOUR WEEKS ENDED JUNE 19, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED
1994
CORNING NICHOLS ACQUISITIONS ADJUSTMENTS AS
(1) (2) (3) (4) ADJUSTED (5)
<S> <C> <C> <C> <C> <C>
Revenues
Net sales $2,054.6 $137.9 $49.4 $2,241.9
Royalty, interest
and dividend income 11.2 11.2
2,065.8 137.9 49.4 2,253.1
Deductions
Cost of sales 1,318.2 91.1 32.4 $ 1.3 (a) 1,443.0
Selling, general and
administrative
expenses 388.0 37.5 16.1 441.6
Research and
development
expenses 79.3 2.0 0.5 81.8
Provision for
restructuring and
other special
charges 17.8 17.8
Interest expense 51.7 5.4 0.7 (5.8) (d) 52.0
Other, net 8.8 1.3 (0.2) 9.9
Income (loss) before
taxes on income 219.8 (17.2) (0.1) 4.5 207.0
Tax provision
(benefit) 83.0 (5.5) (0.1) 1.8 (f) 79.2
Income (loss) before
minority interest
and equity earnings 136.8 (11.7) 0.0 2.7 127.8
Minority interest in
earnings of
subsidiaries (17.9) (0.3) (0.1)(g) (18.3)
Dividends on
convertible
preferred
securities of
subsidiary (6.7)(h) (6.7)
Equity in earnings
of associated
companies 50.5 50.5
Net Income (Loss) $ 169.4 $(11.7) $(0.3) $ (4.1) $ 153.3
Weighted Average
Shares Outstanding 204.286 12.234 (i) 216.520
Earnings Per Common
Share:
Net Income $ 0.82 $ 0.70
</TABLE>
(1) Represents the historical results of operations of Corning for the
twenty-four weeks ended June 19, 1994.
(2) Represents the historical results of operations of Nichols for the six
months ended March 31, 1994.
(3) Represents the historical results of operations of the businesses
involved in the Completed 1994 Acquisitions through the earlier of June 19,
1994, or the respective acquisition dates.
(4) See Note 2 to the Unaudited Pro Forma Information--Statement of Income.
(5) Reflects the results of operations of Corning on a pro forma basis
assuming the Corning Transactions had been completed on January 4, 1993.
<PAGE>
<PAGE>
CORNING
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 19, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
CORNING NICHOLS ADJUSTMENTS AS ADJUSTED
(1) (2) (3) (4)
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and short-term investments $ 121.0 $ 13.5 $ 134.5
Receivables, net 845.6 55.6 901.2
Inventories 408.7 11.2 419.9
Deferred taxes on income and other
current assets 224.3 9.8 234.1
Total Current Assets 1,599.6 90.1 1,689.7
Investments 676.6 676.6
Plant and Equipment, net 1,797.5 88.6 1,886.1
Goodwill and Intangibles, net 1,217.1 66.9 1,284.0
Other Assets 330.3 1.8 332.1
$5,621.1 $247.4 $5,868.5
Liabilities and Stockholders' Equity
Current Liabilities
Loans payable $ 238.5 $ 64.9 $ 303.4
Accounts payable 143.4 20.1 163,5
Other accrued liabilities 681.8 22.8 704.6
Total Current Liabilities 1,063.7 107.8 1,171.5
Other Liabilities 665.9 10.9 676.8
Loans Payable Beyond One Year 1,605.6 38.0 $(365.4)(j) 1,278.2
Minority Interest in Subsidiary
Companies 186.2 186.2
Convertible Preferred Securities of
Subsidiary 365.4 (j) 365.4
Convertible Preferred Stock 25.0 25.0
Common Stockholders' Equity 2,074.7 90.7 2,165.4
$5,621.1 $247.4 $5,868.5
</TABLE>
(1) Represents the historical financial position of Corning at June 19, 1994.
(2) Represents the historical financial position of Nichols at March 31,
1994.
(3) See Note 2 to Unaudited Pro Forma Information--Balance Sheet.
(4) Reflects the financial position of Corning on a pro forma basis assuming
the Corning Transactions had been completed by June 19, 1994.
<PAGE>
<PAGE>
CORNING
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1. -- Basis of Presentation:
The Unaudited Pro Forma Combined Statements of Income reflect Corning's
results of operations for the year ended January 2, 1994, and the twenty-four
weeks ended June 19, 1994, on a pro forma basis assuming the Corning
Transactions had been completed as of January 4, 1993. The Unaudited Pro
Forma Combined Balance Sheet at June 19, 1994, assumes that the Corning
Transactions had been completed by that date.
Corning's management believes that the assumptions used in preparing the
Unaudited Pro Forma Information provide a reasonable basis for presenting all
of the significant effects of the Corning Transactions, that the pro forma
adjustments give appropriate effect to those assumptions and that the pro
forma adjustments are properly applied in the Unaudited Pro Forma
Information.
Note 2. -- Pro Forma Adjustments:
Statement of Income
(a) The pro forma adjustment to cost of sales represents the increase in
amortization of the excess of cost over fair value of tangible net assets
acquired in the Damon transaction, the Other 1993 Transactions and the
Completed 1994 Acquisitions of $6.5 million, $1.8 million, and $6.0 million,
respectively, for the year ended January 2, 1994, and $1.3 million for the
Completed 1994 Acquisitions for the twenty-four weeks ended June 19, 1994.
The excess of cost over fair value of tangible net assets acquired in the
Damon transaction is $603 million. The excess of cost over fair value of
tangible net assets acquired has been allocated to goodwill with a life of
forty years. Management believes that fair value approximates book value for
all tangible assets acquired in the Damon transaction.
Goodwill totaling $258 million and $190 million resulted from the Other 1993
Transactions and the Completed 1994 Acquisitions, respectively, and is being
amortized over 25 to 40 years.
(b) The pro forma adjustment represents the elimination of one-time
restructuring costs of $40.6 million related to closing MetPath facilities as
a result of the integration of Damon and MetPath and $7.9 million of Costar
transaction costs recorded in Corning's results for the year ended January 2,
1994.
(c) The pro forma adjustment to interest expense represents the interest on
the debt incurred in connection with the Damon transaction and the Other 1993
Transactions of $11.9 million and $2.3 million, respectively, for the year
ended January 2, 1994. The weighted average interest rate on the debt
incurred in connection with the Damon transaction is 4.9% and on the Other
1993 Transactions ranges from 3.5% to 6.7%.
Corning financed the Damon acquisition and the refinancing of approximately
$167 million of indebtedness of Damon under short-term financing agreements
entered into with certain banks to effect this transaction. During the third
quarter of 1993, Corning refinanced a portion of this short-term financing by
issuing approximately $200 million of longer-term debt. During the fourth
quarter of 1993, Corning extended the terms of the financing agreements to
December 31, 1995. The pro forma adjustment to interest expense related to
the Damon transaction is calculated as the weighted average of short-term and
longer-term interest rates.
(d) The pro forma adjustment to interest expense reflects the decrease in
interest expense assuming the issuance by Corning Delaware on January 4,
1993, of $373.8 million of Preferred Securities pursuant to the MIPS Offering
(net of an estimated $8.4 million of underwriting commissions and expenses),
and the use of the net proceeds thereof by Corning to retire the indebtedness
incurred in connection with the Damon transaction.
(e) The pro forma adjustment represents the elimination of approximately $1
million of one-time costs incurred by Damon in connection with a terminated
merger agreement with National Health Laboratories Incorporated which were
charged to results of operations for the seven months ended July 31, 1993.
(f) The pro forma adjustment to tax expense represents the tax effect of the
adjustments detailed in notes (a), (b), (c), (d) and (e) above. In addition,
tax expense has been adjusted to provide taxes on the income of one of the
Completed 1994 Acquisitions which was previously a Subchapter S corporation.
These adjustments are calculated at Corning's historical effective tax rate.
(g) The pro forma adjustment to minority interest represents the applicable
minority interest on the historical earnings and pro forma adjustments of the
Other 1993 Transactions and the Completed 1994 Acquisitions.
(h) The pro forma adjustment to dividends on convertible preferred securities
of subsidiary represents the after-tax dividends payable on the $373.8
million of Preferred Securities pursuant to the MIPS Offering.
<PAGE>
<PAGE>
(i) The pro forma adjustment to weighted average shares outstanding
represents the issuance of 5.5 million shares to complete the Costar
acquisition in September 1993, 12.5 million shares in conjunction with the
Completed 1994 Acquisitions and an estimated 6.7 million shares to be issued
in conjunction with the Merger.
The number of shares to be issued in the Merger is dependent on the price per
Corning Common Share during a 10-day period prior to the date of the Nichols
stockholders meeting to be held to approve the transaction. For purposes of
this pro forma presentation, it is assumed that 6.7 million shares will be
issued (based on a price of $33 per Corning Common Share and the current
number of shares of Nichols Common Stock and options to purchase Nichols
Common Stock outstanding). Pursuant to the agreement with Nichols, the
maximum number of Corning Common Shares which could be issued is
approximately 9.7 million shares (assuming the maximum Exchange Ratio of
0.491 and exercise of all outstanding options). An increase in the number of
shares to 9.7 million shares would not materially impact the pro forma
earnings per share presented in the Unaudited Pro Forma Combined Statements
of Income.
Balance Sheet
(j) The pro forma adjustment to loans payable beyond one year and preferred
securities of subsidiaries assumes the issuance on June 19, 1994, of $373.8
million of Preferred Securities pursuant to the MIPS Offering (net of an
estimated $8.4 million of underwriting commissions and expenses), and the use
of the net proceeds thereof by Corning to retire the indebtedness incurred in
connection with the Damon transaction.
Note 3. -- Earnings Per Share:
Earnings per common share are computed by dividing net income less preferred
dividends on Corning's Series B Preferred Stock by the weighted average of
common shares outstanding during each period. Preferred dividends amounted to
$2.1 million and $1.0 million during the year ended January 2, 1994, and the
twenty-four weeks ended June 19, 1994, respectively.
Note 4. -- Costar Merger:
In September 1993, Corning acquired all of the outstanding shares of common
stock and options to purchase common stock of Costar for approximately 5.5
million Corning Common Shares and options to purchase approximately 300,000
Corning Common Shares. This acquisition has been accounted for as a pooling
of interests. Corning's consolidated financial statements for periods prior
to the acquisition have not been restated since the acquisition is not
material to Corning's financial position or results of operations.
Note 5. -- Unilab Transaction:
Corning, through a wholly owned subsidiary, owned 43% of Unilab. In November
1993, Corning acquired 100 percent of certain Unilab facilities in exchange
for a majority of the Unilab shares owned by Corning, the assumption of
approximately $70 million of Unilab debt and Corning's investment in J.S.
Pathology PLC ("J.S. Pathology"). Corning retained a 12% equity investment in
Unilab.
Note 6. -- Vitro Transaction:
On January 2, 1992, Corning entered into an alliance with Vitro, by
transferring 49% of its consumer-housewares businesses to Vitro, in exchange
for 49% of Vitro's consumer-products businesses and approximately $137
million in cash. The alliance consisted of two jointly owned companies.
Corning owned 51% of Corning Vitro Corporation ("Corning Vitro") and
consolidated its financial statements and 49% of Vitro Corning, S.A. de C.V.
("Vitro Corning") and accounted for its investment under the equity method.
In December 1993, Vitro and Corning reached an agreement whereby, in two
separate transactions, Vitro purchased in December 1993, the shares of
capital stock of Vitro Corning owned by Corning and Corning purchased in
February 1994 the shares of capital stock of Corning Vitro held by Vitro. The
net cost to Corning of the two transactions was $131 million. Corning and
Vitro are continuing their consumer products alliance through cross-
distribution and supply agreements.
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA OF CORNING
<TABLE>
<CAPTION>
Twenty-four
Weeks Ended Fiscal Year Ended
Jun. Jun. Dec. Dec.
19, 20, Jan. 2, Jan. 3, 29, 30, Dec. 31,
1994 1993 1994 1993 1991 1990 1989
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues
Net sales $2,054.6 $1,723.8 $4,004.8 $3,708.7 $3,259.2 $2,940.5 $2,439.2
Royalty, interest and
dividend income 11.2 12.4 29.9 35.3 27.6 39.9 29.6
Non-operating gains 4.2 4.2 7.0 8.1 69.2 107.1
2,065.8 1,740.4 4,038.9 3,751.0 3,294.9 3,049.6 2,575.9
Deductions
Cost of sales 1,318.2 1,100.5 2,597.0 2,411.3 2,121.6 1,925.7 1,600.9
Selling, general and
administrative expenses 388.0 345.3 774.0 692.2 622.5 581.8 491.8
Research and development
expenses 79.3 77.5 173.1 151.1 130.7 124.5 109.6
Provision for
restructuring costs and
other special charges 207.0 63.3 54.4
Interest expense 51.7 35.1 88.2 62.6 58.1 54.0 44.5
Other, net 8.8 11.5 42.9 33.9 34.6 35.5 20.9
Income before taxes on
income 219.8 170.5 156.7 336.6 327.4 328.1 253.8
Taxes on income 83.0 58.6 35.3 92.5 110.6 136.1 116.9
Income before minority
interest and equity
earnings 136.8 111.9 121.4 244.1 216.8 192.0 136.9
Minority interest in
earnings of subsidiaries (17.9) (6.9) (16.6) (21.6) (17.3) (10.4) (4.2)
Equity in earnings
(losses) of associated
companies before
cumulative effect of
changes in accounting
methods 50.5 34.6 (120.0) 43.8 111.7 107.5 126.7
Income (Loss) before
Extraordinary Credit and
Cumulative Effect of
Changes in Accounting
Methods 169.4 139.6(a) (15.2)(c) 266.3(d) 311.2(f) 289.1(g) 259.4(h)
Tax benefit of loss
carryforwards 7.7 5.6 2.9 1.6
Cumulative effect of
changes in accounting
methods (286.6)
Net Income (Loss) $ 169.4 $ 139.6(b) $ (15.2)(b) $ (12.6)(e) $ 316.8 $ 292.0 $ 261.0
Balance Sheet Data:
Total assets $5,621.1 $4,434.7 $5,231.7 $4,286.3 $3,852.6 $3,512.0 $3,360.7
Working capital 535.9 634.1 451.4 465.2 521.0 458.4 487.3
Loans payable beyond one
year 1,605.6 970.8 1,585.6 815.7 700.0 611.2 624.5
Common stockholders'
equity 2,074.7 1,859.0 1,685.8 1,803.8 2,018.8 1,850.3 1,711.2
Per Common Share Data:(i)
Income (loss) before
extraordinary credit and
cumulative effect of
changes in accounting
methods $ 0.82 $ 0.73 $ (0.09) $ 1.40 $ 1.66 $ 1.53 $ 1.39
Net income (loss) 0.82 0.73 (0.09) (0.08) 1.69 1.55 1.40
Common dividends
declared(j) 0.34 0.34 0.68 0.62 0.68 0.46 0.53
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
(a) During the first quarter 1993, Corning recognized a non-operating gain
totaling $4.2 million ($2.6 million after-tax).
(b) Effective January 4, 1993, Corning and its subsidiaries adopted Financial
Accounting Standard No. 109, " Accounting for Income Taxes" ("FAS 109") and
Financial Accounting Standard No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"). The impact of adopting FAS 109 and FAS
112 was not material to the financial statements.
(c) In 1993, Corning recognized net non-recurring losses from consolidated
operations totaling $202.8 million ($117.9 million after-tax and minority
interest), including a non-operating gain of $4.2 million ($2.6 million
after-tax), a restructuring charge of $156.0 million ($88.1 million after-tax
and minority interest) as a result of costs to integrate the Damon
acquisition and a planned company-wide program to reduce assets and overhead
costs during the next year and other special charges of $51.0 million ($32.4
million after-tax). The other special charges primarily included $36.5
million for the settlement and related legal expenses incurred in the
compromise agreement between MetPath and the Civil Division of the Department
of Justice and $8.0 million of transaction expenses related to the Costar
acquisition.
Corning also recorded a $203.1 million reduction in equity earnings as a
result of a charge taken by Dow Corning Corporation ("Dow Corning") related
to breast-implant litigation and a $9.5 million reduction in equity earnings
as a result of a restructuring charge taken by Vitro Corning.
(d) In 1992, Corning recognized net non-operating gains from consolidated
operations totaling $7.0 million ($21.7 million after- tax), including a gain
of $10.1 million (before- and after-tax) from the sale of an additional
equity interest in Corning Japan K.K. and a pre-tax loss of $7.3 million
($9.0 million after-tax gain) from the formation of the consumer housewares
venture with Vitro. Corning also recorded a provision of $63.3 million ($32.1
million after-tax of $22.9 million and minority interest of $8.3 million) as
a result of Corning Vitro's decision to restructure its Brazilian operations.
Corning also recognized a $37.7 million reduction in equity earnings which
included $24.5 million of costs associated with Dow Corning's terminated
breast implant business and $13.2 million of restructuring charges associated
with Dow Corning's exit from its Brazilian operations and other
cost-reduction programs.
(e) Effective December 30, 1991, Corning and its subsidiaries adopted
Financial Accounting Standard No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("FAS 106"). The cumulative
effect of adopting FAS 106 resulted in a charge of $294.8 million (after-tax
and minority interest), or $1.56 per share, in 1992. In addition, an $8.2
million gain, or $0.04 per share, from an equity company's adoption of FAS
109 was recognized in 1992.
(f) In 1991, Corning recognized net non-operating gains from consolidated
operations totaling $8.1 million ($14.6 million after-tax) which included a
gain of $5.3 million (before- and after-tax) on the sale of a less than 10%
equity interest in Corning Japan. Corning also recognized an $8.2 million
reduction in equity earnings to reflect a charge recorded by Dow Corning for
costs associated with its breast implant business.
(g) In 1990, Corning recognized non-operating gains totaling $69.2 million
($29.2 million after-tax) on the sales of certain investments, including a
gain on the sale of substantially all Corning's investment in Iwaki Glass
Company Ltd. totaling $51.1 million ($19.4 million after-tax).
(h) In 1989, Corning recognized non-operating gains totaling $107.1 million
($61.9 million after-tax), including a gain on the sale of its 50% interest
in Ciba Corning Diagnostics Corp. of $75.7 million ($41.0 million after-tax)
and a gain of $21.7 million ($13.7 million after-tax) related to patent
infringement matters in the optical-fiber business.
Also in 1989, Corning provided $54.4 million ($45.0 million after-tax) for
the repositioning of certain businesses and facilities. The provision related
primarily to consumer product operations worldwide, and to certain other
operations in Europe.
(i) Per share amounts have been adjusted for the two-for-one stock split
effective January 13, 1992.
(j) Includes special dividends of $0.15 and $0.1125 per common share in 1991
and 1989, respectively.
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA OF NICHOLS
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Net sales $ 69.6 $ 71.6 $279.6 $284.2 $236.3 $174.8 $129.7
Deductions
Cost of sales 46.5 44.4 175.3 179.2 148.7 108.3 80.6
Selling, general and administrative
expenses 18.5 18.7 75.2 75.8 63.4 47.3 34.0
Research and development expenses .9 1.1 4.2 5.0 3.0 2.7 2.6
Academic Associates fees and
royalties .7 .7 2.8 2.5 3.0 2.6 2.1
Interest expense 2.6 3.1 11.7 12.2 6.7 2.9 3.3
Unusual charges 1.8 3.2
Provision for restructuring 12.8 13.0 .9
Equity in restructuring provision of
partnership 2.9
Equity in loss of partnership, net of
restructuring provision 1.3 2.2 0.2
Other income (0.1) (0.2) (0.2) (0.4) (0.9) (1.0) (0.8)
Income (loss) before income taxes (1.3) 3.8 (5.4) (4.4) 6.4 11.8 7.9
Provision (credit) for income taxes
(a) .2 1.7 (1.0) (.1) 3.0 4.9 3.1
Income (loss) before cumulative effect
of a change in accounting principle (1.5) 2.1 (4.4) (4.3) 3.4 6.9 4.8
Cumulative effect of a change in
accounting principle
Net Income (Loss) (a) ($ 1.5) $ 2.1 ($ 4.4) ($ 4.3) $ 3.4 $ 6.9 $ 4.8
Balance Sheet Data:
Working capital (deficit) ($ 17.8) $ 41.4 ($ 19.2) $ 35.9 $ 27.8 $ 38.3 $ 23.9
Total assets 247.4 261.6 247.2 263.7 232.4 138.6 91.2
Long-term debt (b) 38.0 102.7 38.2 103.5 98.3 33.2 33.9
Stockholders' equity 90.7 99.0 92.2 96.6 84.5 76.1 38.8
Per Common and Common Equivalent Share
Data: (c)
Income (loss) before cumulative effect
of a change in accounting method ($ 0.09) $ 0.12 ($ 0.28) ($ 0.28) $ 0.23 $ 0.49 $ 0.43
Net income (loss) (a)(c)(d) (0.09) 0.12 (0.28) (0.28) 0.23 0.49 0.43
Common dividends declared --
-- -- -- -- -- --
</TABLE>
(a) During 1992 and 1994, Nichols adopted the standards specified in
Statements of Financial Accounting No. 109 "Accounting for Income Taxes"
(SFAS 109) and No. 112 "Employers' Accounting for Postemployment Benefits"
(SFAS 112), respectively. The adoption of SFAS 109 and SFAS 112 did not have
a significant impact on previously reported amounts.
(b) As of December 31, 1993 Nichols was not in compliance with certain
covenants of its senior note agreements. The agreements provide that, as a
result of the failure to comply with the covenants the holders of the senior
notes have the right to declare the entire unpaid balance ($62.2 million)
immediately due and payable. Accordingly, the senior notes have been
classified as current, resulting in Nichols' reporting of a working capital
deficit as of December 31, 1993 and as of March 31, 1994.
(c) Net income (loss) per common and common equivalent share is based on the
weighted average number of shares of Nichols Common Stock and, in 1989, 1990
and 1991 and the three months ended March 31, 1993, common equivalent shares
outstanding during the period. Common equivalent shares relate to Nichols
Common Stock issuable upon the conversion of the Nichols Preferred Stock,
upon the exercise of stock options and warrants and to be issued as future
consideration for covenants not to compete.
(d) In 1989, Nichols distributed a 5% stock dividend and then a 100% stock
dividend. In 1990, Nichols distributed a 4% stock dividend. Per share
information presented above has been adjusted to give retroactive effect to
these dividends.
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NICHOLS MANAGEMENT DISCUSSION AND ANALYSIS
Traditionally, business acquisitions, primarily of Nichols' network of
regional laboratories (the "Regional Laboratories"), have provided Nichols
with significant strategic growth opportunities. Acquisitions contributed
significantly to net revenue growth in 1991, continuing into the first half
of 1992. During the latter half of 1992 and continuing into 1993, Nichols
redirected its efforts to focus on improving the profitability and
competitiveness of its existing operations rather than expanding its business
through acquisitions. However, during 1992 and continuing into 1993, revenue
growth was adversely impacted by intensified competitive industry pricing,
increased consolidation and internalization of testing by clients, the
continued industry trend to lower priced managed care plans and reduced tests
per patient. Nichols believes these pressures on revenues will continue into
1994 and subsequent years. In addition, in 1993 the government announced a
reduction in reimbursement rates under its Medicare programs from 88%, which
had been in effect for the past three years, to 76% of the fee schedule
national ceilings effective over a two year period. Revenues, net of
contractual allowances, from the Medicare and Medicaid programs approximated
12% of total net revenues during 1991 and 13% during 1992 and 1993,
respectively. Nichols believes pressure from reduced Medicare and Medicaid
reimbursement rates will continue in the future.
Nichols faces uncertainty with regard to the impact on its operations of
federal and local legislation and proposed legislation such as the healthcare
plan proposed by the Clinton Administration and other proposed plans. Until
one of these plans or some form thereof is enacted into law, Nichols cannot
make any assessment of the impact any such plans would have on Nichols, which
could be material. Additionally, uncertainty exists as to how many tests will
be affected by changes in its reimbursement policy of the Health Care
Financing Administration ("HCFA") for certain medical diagnostic procedures
ordered in connection with groups of tests recognized by HCFA for Medicare
billing purposes and the pending investigation of industry practices with
respect to such tests. See "BUSINESS OF NICHOLS--General--Healthcare
Reimbursement," "--OIG Investigation" and "Liquidity and Capital
Requirements--Contingencies." As a result, Nichols is unable to determine the
extent of any adverse effect on Nichols' future revenues and profits from
these matters.
Results of Operations
Three Months Ended March 31, 1994 Compared With Three Months Ended March 31,
1993
Net revenues. Net revenues for the three months ended March 31, 1994
declined to $69.6 million from $71.6 million in 1993, a decline of $2.0
million or 2.8%. The revenues of the Regional Laboratories declined $1.3
million or 3.4%, which was somewhat offset by marginally increased revenues
of Nichols' centralized reference laboratories (the "Reference
Laboratories"). The revenues of Nichols' diagnostics test kit division
("Diagnostics") increased $0.7 million or 11.7% in the first quarter of 1994
excluding the revenues associated with a ($1.2 million) contracted research
and development arrangement and a separate licensing agreement undertaken in
the first quarter of 1993 with a third party distributor. Nichols' operations
have historically experienced a degree of seasonality with a softening in
demand during the summer months and fourth quarter holiday season.
After experiencing a sharp revenue decline early in the first quarter of 1994
due to unseasonably cold weather, the Reference Laboratories' revenues
strengthened late in the quarter largely from a change in the mix of tests
performed. Nichols believes continued introduction of new and upgraded tests
and the ability to differentiate its services from those of its competitors
on the basis of quality and clinical correlations provide demand for the
Reference Laboratories' services that are not as price sensitive as those
laboratories which perform primarily routine tests such as the Regional
Laboratories.
Diagnostics' net revenues increased due to the continuing expansion of
diagnostics test kit offerings during the past several years.
Cost of sales. Cost of sales increased to $46.5 million in 1994 from $44.4
million in 1993, an increase of $2.2 million or 4.9%. In 1993 significant
provisions were recorded for management incentive compensation and other
employee benefit expenses. No similar provisions were recorded in 1994.
Excluding these provisions and the revenues recorded in 1993 relating to
Diagnostics' contracted research and development arrangement and the separate
licensing agreement, cost of sales as a percentage of revenues was 66.8% in
1994 compared to 61.7% in 1993. In absolute dollars, the cost increase was
due to increased payroll expenses for merit and other labor related items,
and, to a lesser extent, increased material costs due to vendor price
increases. The cost of sales percentage increase was attributable to those
cost increases spread over a declining 1994 revenue base.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $18.5 million in 1994 from $18.7 million
in 1993, a decrease of $0.2 million or 1.1%. Excluding the revenues
associated with Diagnostics' contracted research and development arrangement
and the separate licensing agreement, and the 1993 provisions for management
incentives and other employee benefits which were not provided for in
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<PAGE>
1994, selling, general and administrative expenses, expressed as a percentage
of revenues, marginally increased to 26.5% in 1994 from 25.6% in 1993. In
absolute dollars, excluding the 1993 provisions for management incentives and
other employee benefits, selling, general and administrative expenses
increased in 1994 as the result of increases for merit and other labor
related payroll expenses and, to a lesser extent, higher legal fees incurred
in connection with Nichols' proposed public debt offering. Additionally,
Diagnostics incurred higher sales and marketing costs as a result of the
introduction of several of its new direct-chemiluminescent-technology-based
products.
Research and development. Research and development expenditures declined to
$0.9 million in 1994 from $1.1 million in 1993, a decrease of $0.2 million or
17.4%. This decrease was primarily due to the completion of Diagnostics'
activities in April 1993 under its contracted research and development
arrangement with a third party distributor.
Interest. Interest costs decreased to $2.7 million in 1994 from $3.1 million
in 1993, a decrease of $0.4 million or 14.3%. This decline was the result of
Nichols having no short-term borrowings outstanding during 1994 and reducing
its long-term debt on scheduled principal repayments since the first quarter
of 1993.
Unusual charges. During the three months ended March 31, 1994 Nichols
recorded unusual charges of $1.8 million consisting of significant legal and
other related costs associated with the subpoena received in August 1993 from
the Office of the Inspector General ("OIG") ($1.3 million) and professional
and loan commitment fees in connection with its efforts to secure alternative
financing ($0.5 million). Nichols expects these costs to continue through the
end of 1994. See "Liquidity and Capital Requirements--Contingencies" and
"Default on Senior Notes and loss of line of credit."
Income taxes. Nichols recorded a $0.2 million tax provision in 1994 on
pre-tax loss of $1.3 million compared to a provision of $1.7 million in the
first quarter of 1993, representing 45.0% of its recorded pre-tax income of
$3.8 million during that period. Although Nichols recorded a pre-tax loss for
1994, a provision for income taxes was recorded as a result of significant
amortization of goodwill, which is not tax deductible, originating from
previous business acquisitions.
1993 Compared to 1992
Net revenues Net revenues declined to $279.6 million in 1993 from $284.2
million in 1992, a decline of $4.6 million or 1.6%. Reference Laboratories'
net revenues remained relatively constant in 1993 compared to 1992 and
Regional Laboratories' net revenues declined in 1993.
The decline in Regional Laboratories' net revenues was primarily due to the
restructuring of Nichols' Dallas operations during 1992 and continuing
through September 1993 (see Note 10 in the accompanying consolidated
financial statements) and the significant revenue decline experienced by
Nichols' other laboratories in Texas due to lost business, as the protracted
period of uncertainty during negotiations concerning the sale of all of
Nichols' Texas operations led to increased customer and staff attrition.
Diagnostics revenues increased in 1993, primarily due to an ongoing extension
of product offerings and expansion of international and domestic marketing
efforts.
Cost of sales. Cost of sales declined to $175.3 million in 1993 from $179.2
million in 1992, a decline of $3.9 million or 2.1%. Expressed as a percentage
of net revenues, the 1993 cost of sales percentage of 62.7% remained
relatively constant in comparison to the 1992 cost of sales percentage of
63.0%.
Although Nichols realized cost reductions in late 1992 and 1993 (see Selling,
general and administrative expenses), the cost of sales percentage remained
relatively constant between 1992 and 1993 largely as the result of laboratory
costs which were spread over a declining 1993 revenue base. In absolute
dollars, the decline in cost of sales during 1993 was primarily attributable
to Company-wide cost reduction programs including reduced headcount,
purchasing economies and restructuring of Nichols' Dallas operations (see
Note 10 to the accompanying consolidated financial statements).
Selling, general and administrative expenses. Selling, general and
administrative expenses declined to $75.2 million in 1993 from $75.8 million
in 1992, a decline of $0.6 million or 0.8%. Expressed as a percentage of net
revenues, selling, general and administrative expenses remained relatively
constant at 26.9% in 1993 compared to 26.7% in 1992.
Cost reduction programs implemented in late 1992 and in 1993 were largely
offset by an increase in the cost of Nichols' self-insured group insurance
program, higher bad debt expense, a full year's amortization of capitalized
costs relating to the purchase of London Diagnostics, Inc. and an increase in
professional fees. The cost reduction measures implemented in late 1992
included salary reductions and freezes and suspension of vacation accruals
and 401(k) matching contributions. Salary reductions were eliminated and
vacation accruals were reinstated in January
<PAGE>
<PAGE>
1993, and salary freezes were lifted in April 1993. Additional cost reduction
measures were implemented in August 1993, including the suspension of
vacation benefits and executive salary reductions, which remained in effect
through late November 1993. Additionally, there were no 401(k) matching
contributions in 1993.
Research and development. Research and development expenses declined to $4.2
million in 1993 from $5.0 million in 1992, a decrease of $0.8 million or
14.7%.
The decline was due primarily to the integration of London Diagnostics'
research and development efforts with those of Nichols' existing kit research
and development activities and the completion of activities under its
contracted research and development arrangement (see Note 9 to the
accompanying consolidated financial statements).
Academic Associate fees and royalties. Academic Associate fees and royalties
increased to $2.8 million in 1993 from $2.5 million in 1992, an increase of
$0.3 million or 8.6%.
The increase was primarily due to the inclusion of compensation paid to
Nichols' Chief Science Officer, who became primarily responsible for
coordinating Nichols' Academic Associates efforts during that year. Prior to
1993, the Chief Science Officer's compensation was recorded in selling,
general and administrative expenses.
Interest. Interest costs decreased to $11.7 million in 1993 from $12.2
million in 1992, a decrease of $0.5 million or 4.1%.
The decline was the result of a substantial reduction in Nichols' average
borrowings under its short-term financing arrangements. Nichols had no
borrowings outstanding under its $15.0 million short-term financing
arrangement from April 1993 through December 1993. The decline was partially
offset by higher interest costs on Nichols' senior notes as a result of the
full year's effect of the $10.0 million of senior notes issued in June 1992
and the interest rate modifications on Nichols' $30.0 million and $27.0
million senior notes effective in 1992 (see Note 3 in the accompanying
consolidated financial statements).
Provisions for restructuring and unusual charges. In 1993, Nichols recorded
provisions for restructuring and unusual charges of $12.8 million and $3.2
million, respectively, and in 1992 a provision for restructuring of $13.0
million. See "Restructuring and unusual charges--1991, 1992 and 1993" and see
Note 10 to the accompanying consolidated financial statements.
Equity in losses of partnership, net of restructuring provision. Nichols
recorded equity in losses of partnership of $1.4 million in 1992. See "Equity
in losses of partnership--1991 and 1992."
Other income. Other income decreased to $0.2 million in 1993 from $0.4
million in 1992.
Income taxes. Nichols recorded a $1.0 million income tax benefit in 1993,
representing 19.1% of its recorded pre-tax loss in 1993 of $5.5 million,
compared to a benefit of $0.1 million in 1992, representing 3.1% of its
pre-tax loss of $4.4 million.
Several factors had significant impacts on the effective tax rates reported
by Nichols. For a reconciliation between the provision (benefit) for income
taxes computed by applying the federal statutory tax rate to income (loss)
before taxes and the actual provision (benefit) for income taxes, see Note 8
in the accompanying consolidated financial statements. The benefit for income
taxes was reduced as a result of amortization of goodwill originating from
business acquisitions.
As of December 31, 1993, Nichols had a net deferred tax asset of $0.4
million. Although Nichols recorded net losses during 1992 and 1993
principally as a result of restructuring charges recorded during those years
(see "Restructuring and unusual charges--1991, 1992 and 1993"), Nichols
expects to realize the benefit of the deferred tax asset through income from
future operations and/or carryback to previous years.
1992 Compared to 1991
Net revenues. Net revenues increased to $284.2 million in 1992 from $236.3
million in 1991, an increase of $47.9 million or 20.3%.
Reference Laboratories' net revenues increased in 1992 compared to 1991 due
to the expansion of testing capabilities and increased sales of existing
tests. Regional Laboratories' net revenues increased in 1992 largely due to
the inclusion of full period results of businesses acquired in 1991 and an
increase in the volume of tests performed. Diagnostics' net revenues
increased in 1992 due to an increase in the volume of kits sold and the
acquisition of London Diagnostics, Inc. in 1992 (see Notes 9 and 12 to the
accompanying consolidated financial statements).
<PAGE>
<PAGE>
Cost of sales. Cost of sales increased to $179.2 million in 1992 from $148.7
million in 1991, an increase of $30.5 million or 20.5%. Expressed as a
percentage of net revenues, the 1992 cost of sales percentage of 63.0%
remained relatively constant in comparison to the 1991 cost of sales
percentage of 62.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $75.8 million from $63.4 million in
1991, an increase of $12.4 million or 19.5%. Expressed as a percentage of net
revenues, selling, general and administrative expenses remained relatively
constant at 26.7% in 1992 versus 26.8% in 1991.
The increase in selling, general and administrative expenses in 1992 was
primarily due to the full year's occupancy of Nichols' new San Juan
Capistrano facilities (see Note 4 in the accompanying consolidated financial
statements), and, to a lesser extent, higher bad debt expense, the
amortization of capitalized costs relating to the purchase of London
Diagnostics, Inc., in 1992 and the relatively higher selling, general and
administrative expenses of Nichols' newly acquired Bay Area (Oakland)
laboratory. In addition, Nichols realized benefits from cost reduction
measures implemented during the fourth quarter of 1992, including salary
reductions and freezes, and the suspension of vacation accruals and 401(k)
matching contributions offset somewhat by costs associated with a
reorganization of Nichols' management structure. The salary reductions were
eliminated and vacation accruals were restored in January 1993.
Research and development. Research and development expenditures increased to
$5.0 million in 1992 from $3.0 million in 1991, an increase of $2.0 million
or 67.6%.
The increase was primarily due to the acquisition of London Diagnostics, Inc.
in 1992, which performed contract research and development for one of its
customers (see Notes 9 and 12 to the accompanying consolidated financial
statements).
Academic Associate fees and royalties. Academic Associate fees and royalties
decreased to $2.5 million in 1992 from $3.0 million in 1991, a decrease of
$0.5 million or 16.2%.
The decrease was due to the expiration of certain royalty contracts in late
1991.
Interest. Interest costs increased to $12.2 million in 1992 from $6.7
million in 1991, an increase of $5.5 million or 82.9%.
The increase was largely due to the inclusion of a full year's effect of
interest on the capital lease for the San Juan Capistrano facilities and on
the $30.0 million senior notes issued in 1991. In addition, Nichols increased
its average borrowings under its $15.0 million short-term financing
arrangement, issued an additional $10.0 million of senior notes in June 1992
and assumed additional debt in connection with the consolidation of the
Dallas operations (see Note 10 to the accompanying consolidated financial
statements).
Provision for restructuring and equity in restructuring provision of
partnership. In 1992 and 1991 Nichols recorded provisions for restructuring
of $13.0 million and $0.9 million, respectively. In addition, Nichols
recorded equity in restructuring provision of partnership of $2.9 million in
1991 (see "Restructuring and unusual charges--1991, 1992 and 1993").
Equity in losses of partnership, net of restructuring provision. Nichols
recorded equity in losses of partnership of $1.4 million in 1992 and $2.2
million (net of restructuring provision of $2.9 million) in 1991 (see "Equity
in losses of partnership--1991 and 1992" and "Restructuring and unusual
charges--1991, 1992 and 1993").
Other income. Other income decreased to $0.4 million in 1992 from $0.9
million in 1991 primarily due to lower interest income.
Income taxes. Nichols recorded a $0.1 million income tax benefit in 1992,
representing 3.1% of its recorded pre-tax loss in 1992 of $4.4 million,
compared to income taxes of $3.0 million in 1991, representing 47.2% of its
recorded pre-tax income of $6.4 million in 1991.
Several factors had significant impacts on the effective tax rates reported
by Nichols. For a reconciliation between the provision (benefit) for income
taxes computed by applying the federal statutory tax rate to income (loss)
before taxes and the actual provision (benefit) for income taxes, see Note 8
in the accompanying consolidated financial statements. Although Nichols
recorded a pre-tax loss for 1992, the benefit for income taxes was only 3.1%
of the pre-tax loss largely as a result of amortization of goodwill
originating from business acquisitions. The 1992 benefit for income taxes was
also reduced as a result of significant goodwill write-offs recorded in that
year.
Equity in losses of partnership--1991 and 1992
During 1990 Nichols formed a joint venture partnership, Nichols Institute
Laboratories North Texas, Ltd. (the "Dallas operations"), of which Nichols
was the general partner.
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<PAGE>
During 1991 Nichols' share (based upon its share of equity) in the losses of
the Dallas operations increased to $5.1 million due to substantial operating
losses and restructuring charges associated with the write-down of customer
lists and fixed assets and provisions for closing certain facilities.
Nichols' recorded share of the Dallas operations' restructuring charges ($2.9
million) substantially exceeded its proportionate interest in such costs.
This condition resulted from the exhaustion of the joint venture partners'
capital contributions during 1991 and a provision of the partnership
agreement which required that Nichols, as general partner, absorb 100% of
cumulative losses in excess of partner contributions.
During the first quarter of 1992, the Dallas operations continued to
experience significant operating losses, which Nichols fully absorbed. In
order to obtain the control necessary to stem the significant operating
losses of the Dallas operations, in April 1992 Nichols acquired the limited
partners' interests in the operations in exchange for 225,000 shares of Class
C Common Stock valued at $2.1 million. As of that date, the assets and
liabilities of the Dallas operations were consolidated with those of Nichols,
as were the Dallas operations' revenues and operating losses through the end
of the second quarter. Nichols' equity in losses of the Dallas operations
prior to its consolidation was $1.4 million in 1992. See "Restructuring and
unusual charges--1991, 1992 and 1993."
Restructuring and unusual charges--1991, 1992 and 1993
In addition to recording its equity in losses of the Dallas operations (see
"Equity in losses of partnership--1991 and 1992"), in 1991 Nichols recorded a
direct restructuring charge of $0.9 million relative to its Dallas operations
relating primarily to provisions for severance pay.
In 1992, Nichols decided that operating losses of the Dallas operations could
only be reduced by significantly downsizing the Dallas operation.
Accordingly, Nichols recorded a restructuring charge of $13.0 million as of
June 30, 1992 to provide for the estimated costs of effecting the downsizing.
Nichols continued to refine the components of the restructuring charge until
December 31, 1992, at which time the restructuring charge was composed of a
provision for write-downs of assets that were expected to be impaired as a
result of the downsizing of the Dallas operations ($1.5 million), a partial
write-down of customer lists ($2.4 million) and write-down of goodwill
established upon the purchase of the limited partners' interest in the Dallas
operations ($2.7 million), provisions for future losses of the Dallas
operations through the estimated date of completion of the downsizing ($4.4
million), severance pay and related costs ($0.5 million), costs associated
with subleasing the Dallas facility ($0.7 million), professional fees ($0.5
million) and other related costs ($0.3 million). The downsizing of the Dallas
operations contemplated by the 1992 restructuring was largely complete as of
September 30, 1993, with the Dallas operations essentially closed down and
retaining only a limited local presence. The amounts ultimately incurred
related to the 1992 restructuring charge were not significantly different
than those contemplated by Nichols.
The 1992 restructuring charge contemplated that Nichols would sublet the
entire Dallas facility to an interested third party. These negotiations,
however, were terminated in late 1993. Subsequently, Nichols decided it was
not practicable to continue pursuing the sublease opportunities and paid $1.8
million as settlement to terminate the lease on January 31, 1994. Termination
costs of the lease, in excess of those contemplated during the 1992
restructuring, are included in the restructuring charge recorded by Nichols
in 1993 as described below.
Beginning in the third quarter of 1992 Nichols was also in discussions with
prospective buyers for all of the Texas operations. Nichols ultimately
decided not to sell because it could not reach agreement with any buyer on
terms which it considered acceptable. While the sale discussions were
pending, each of the Texas laboratories experienced a decline in revenues and
increased operating losses. In 1994, Nichols' Texas operations have begun to
recover the revenues lost during the sales discussions.
During 1993, Nichols initiated standardization of those operating,
administrative and financial processes necessary to implement the
consolidation and integration required to significantly improve the
profitability of its various acquired laboratories, and in the fourth quarter
of 1993 recognized a restructuring charge of $12.8 million in connection with
Nichols' plan to consolidate its Texas, Bay Area (Oakland) and Upper Midwest
regional laboratory operations, further automate the operations of the
Reference Laboratories and abandon efforts to sublease its primary Dallas
facility, as noted above. This plan resulted in Nichols establishing a $12.8
million restructuring reserve in the fourth quarter of 1993. The charge
included write-offs of customer lists of Regional Laboratories impaired as a
result of the restructuring ($1.9 million) and write-offs of property and
other assets ($1.5 million) impaired as a result of the downsizing in certain
of the locations, as well as provisions for severance pay, outplacement fees
and related costs ($4.4 million), costs of terminating excess facilities and
equipment leases ($3.0 million, which included $1.8 million paid as
settlement for terminating the Dallas facility lease on January 31, 1994),
strategic and financial consulting services incurred as of December 31, 1993
($0.9 million), professional fees ($0.3 million) and other costs associated
with the restructuring of Nichols' operations ($0.8 million). In evaluating
the permanent impairment of assets as a result of the restructuring, Nichols
considered whether the fair value exceeded the net
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<PAGE>
book value of the assets to be sold, abandoned or which were duplicative in
nature or, in the case of intangibles, whether future anticipated cash flows
from the assets would support the remaining carrying value.
The consolidation and automation efforts contemplated in the 1993
restructuring charge are intended to eliminate duplicative functions and
equipment, reduce labor, facilities and other operating costs and are
intended to provide for improved operating and marketing efficiencies.
Nichols expects that the implementation of the restructuring plan will result
in the consolidation of its facilities in Houston, San Antonio and El Paso,
Texas; Mankato and St. Cloud, Minnesota; Des Moines, Iowa; and Bay Area
(Oakland), California. Additionally, Nichols expects the number of management
and staff employees to be reduced by approximately 10%.
Implementation of the 1993 restructuring programs is presently under way and
is expected to be substantially complete by the end of 1994. These programs
will require significant cash expenditures which Nichols estimates will
approximate $9.6 million, of which approximately $1.8 million was expended
during 1993, approximately $7.0 million is expected to be expended during
1994 and the remainder is expected to be expended thereafter. Nichols
anticipates that the cash requirements of the 1993 restructuring plan will be
satisfied through cash generated from operations. During the three months
ended March 31, 1994, approximately $2.3 million was expended. Nichols
anticipates that successful implementation of the restructuring programs,
largely through consolidation and integration of certain of its currently
decentralized and fragmented operations, should both significantly improve
sales and marketing efforts and result in expense reductions. As Nichols
continues to standardize on to common marketing, operating and administrative
platforms, it expects to realize expense reductions exceeding $9.0 million
annually, with $4.0 million realizable in 1994. The most significant expense
reductions will be derived from the reductions in workforce and facilities
which Nichols anticipates will provide 1994 expense reductions of $3.1
million and $0.7 million, respectively, and, thereafter, $7.7 million and
$0.9 million, respectively. Cash flow benefits are expected to approximate
those of the expense reductions. The adequacy of the balance of the
restructuring reserve as of March 31, 1994 and the realization of the
anticipated future benefits depends largely on Nichols' ability to
successfully complete the downsizing and consolidation of certain of its
laboratories, particularly those in Texas. To date, the 1993 restructuring
programs are largely progressing as was contemplated when the restructuring
charge was recorded in the fourth quarter of 1993.
In the fourth quarter of 1993, Nichols recorded unusual charges of $3.2
million consisting primarily of the write-off of impaired assets, including
customer lists of approximately $1.6 million acquired in connection with
Nichols' Bay Area (Oakland) laboratory and certain fixed assets of
approximately $0.6 million, the value of which had been impaired. The charge
also included the expenses incurred through December 31, 1993 with respect to
responding to the OIG subpoena (see "BUSINESS OF NICHOLS--General--OIG
Investigation" and Note 11 to the accompanying consolidated financial
statements). Substantial additional costs are expected to be incurred during
1994 in connection with responding to the OIG subpoena.
Liquidity and Capital Requirements
Default on senior notes and loss of line of credit. Nichols' senior note
agreements (see Note 3 in the accompanying consolidated financial statements)
require that Nichols satisfy certain financial and other covenants. As a
result of operating losses in both the fourth quarter of 1993 and in the
first quarter of 1994, Nichols was in violation of certain financial
covenants under its senior note agreements at December 31, 1993 and March 31,
1994. Although Nichols has made substantial improvements in its cash position
over the past year, Nichols does not expect to meet existing or future
financial covenant requirements under the senior note agreements. The senior
note agreements provide that, as a result of Nichols' failure to meet the
covenants, the senior noteholders have the right to declare the outstanding
balance of all of the senior notes immediately due and payable, and if that
were to occur, Nichols would not have the funds required to retire the debt
unless alternative financing is obtained. Pursuant to the terms of the Merger
Agreement, Corning has agreed to repay, or cause the Surviving Corporation to
repay, the Senior Notes. The accompanying condensed consolidated financial
statements have been prepared assuming that Nichols will continue as a going
concern. This basis contemplates the realization of Nichols' assets and
satisfaction of liabilities in the normal course of conducting business. The
financial statements do not include any adjustments that might result in the
event the debt is accelerated except for the classification of amounts due
under the senior notes as current. No assurances can be given that the senior
note holders will not accelerate the senior notes prior to the expected
repayment and, if the Merger is not consummated, no assurances can be given
that alternative financing can be obtained.
To date, Nichols has made all payments required under the terms of its senior
note agreements and all of its other debt instruments. Nichols is scheduled
to make principal and interest payments on the senior notes of $7.7 million
and $3.0 million in the second and fourth quarters of 1994, respectively, and
$11.7 million in the second quarter of 1995. Although Nichols believes that
near term senior note obligations will be satisfied by cash generated
internally from operations assuming the senior notes are not accelerated, no
assurances can be given that these obli
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gations will be met. In the event the senior noteholders exercise the right
to accelerate payment on the remaining senior note balances, Nichols will not
be able to satisfy its obligations scheduled under the senior notes
agreements on a timely basis unless alternative financing arrangements are
secured.
During 1993, Nichols renewed its $15.0 million credit agreement with a
domestic bank. The agreement, which was to expire on June 1, 1994, provided
for unsecured borrowings at the prime interest rate plus one-fourth of one
percent. No borrowings had been outstanding under the agreement since April
1993. As a result of Nichols' operating loss during the fourth quarter of
1993, Nichols was in default under the terms of the credit agreement and the
line was canceled. If the Merger is not consummated, Nichols considers the
availability of a bank line to be prudent to insure its ability to satisfy
its working capital needs and meet other short-term obligations. No
assurances can be given that a bank line would be available. Nichols also had
a revolving credit agreement with a German bank which expired as of December
31, 1993.
Capital requirements. Traditionally, Nichols' principal capital requirements
have been for debt service and capital expenditures. During 1993 and
continuing into the first quarter of 1994, property additions significantly
declined over 1992 and prior years as a result of capital spending control
measures observed by Nichols. Although these measures will continue through
the remainder of 1994, Nichols anticipates investing substantial sums in
computer systems, hardware and software in the future. Business acquisitions
represented a significant portion of Nichols' capital requirements in 1991
and 1992; however, Nichols did not engage in any new acquisitions in 1993 or
in the first quarter of 1994 as it pursued a strategy of improving existing
operations. Nichols has financed its capital requirements over the last three
years primarily with cash generated from operations and borrowings. Capital
requirements during the first quarter of 1994 were financed with cash
generated from operations.
During the past several years, Nichols has invested significant resources to
expand the computerization of its various laboratory, manufacturing and
financial and communications information systems which increasingly represent
a significant competitive factor in the laboratory testing industry. Nichols
is undertaking a comprehensive review of its systems with the intention of
implementing a complete upgrade and integration of its laboratory, financial
information and other communications systems consistent with the need to
provide prompt diagnostic information at lower cost.
Repayment of Nichols' debt, including the senior notes, the repayment of
other obligations, the need to continue to improve, integrate and standardize
its laboratory operations, information systems, administration and marketing
activities, the development and integration of new computerization of its
laboratory, financial information and communications systems, the further
automation of operations and the implementation of other operational and
strategic changes, including the 1993 restructuring plan, will require
substantial cash expenditures in the future.
Assuming that the senior notes are not accelerated, Nichols believes that
present cash flow from operations, supplemented with cost reduction measures
being undertaken by Nichols, should be sufficient to meet operating and
capital requirements in the short term. Additionally, Nichols continues to
evaluate its capital structure in light of its anticipated future needs to
move Nichols forward competitively. If the Merger is not consummated, Nichols
would consider it prudent to obtain a working capital line for any major
unforeseen short term cash shortfalls. No assurances can be given that a
working capital line could be obtained. Regardless of whether the senior
noteholders accelerate their notes, Nichols cannot assure that the remaining
obligations under the senior note agreements will be satisfied on a timely
basis if the senior notes are not repaid in connection with the Merger.
Cash flows from operating activities. Cash flows from operations decreased
to $6.0 million for the three-month period ended March 31, 1994 from $7.6
million for the three-month period ended March 31, 1993. The decrease was due
to earnings decline of $3.7 million largely offset by an increase in accounts
payable associated with the continued strengthening of cash management
practices.
Cash flows from operations increased to $28.3 million in the year ended
December 31, 1993 from $19.5 million in the year ended December 31, 1992
primarily due to a decrease in working capital. The working capital decrease
arose principally from a decline in accounts receivable relating to lower
sales levels during the latter part of 1993 as compared to 1992, and
increased accounts payable associated with strengthened cash management
practices, partially offset by inventory increases associated with the growth
in Diagnostics' product and instrumentation offerings and a net decrease in
accrued liabilities relating to the timing of payment of payroll, interest,
and restructuring and unusual charges. Cash flows from operations increased
to $19.5 million in the year ended December 31, 1992 from $12.0 million in
the year ended December 31, 1991 primarily due to increased revenues in 1992.
Cash flows from investing activities. Net cash used by investing activities
amounted to $1.5 million for the three-month period ended March 31, 1994 and
$1.7 million for the three-month period ended March 31, 1993. Dur
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ing the three months ended March 31, 1993, Nichols expended cash of $0.4
million for payments made in connection with previous business acquisitions,
exclusive of repayments of acquisition indebtedness. No such payments have
been made in 1994. Additionally, Nichols expended $1.5 million and $1.3
million for equipment purchases during the three months ended March 31, 1994
and 1993, respectively. For each of the three-month periods ended March 31,
1993 and March 31, 1994, cash requirements for covenant payments, and
acquisitions of property and equipment were satisfied through cash from
operations.
Net cash used by investing activities amounted to $59.5 million in the year
ended December 31, 1991, $21.1 million in the year ended December 31, 1992
and $8.4 million in the year ended December 31, 1993.
As discussed in Note 4 in the accompanying consolidated financial statements,
Nichols relocated its San Juan Capistrano based Reference Laboratories,
research and development and administrative activities to new facilities
during the third quarter of 1991. The agreements between Nichols and the
developer of these facilities include a lease of a portion of Nichols' land
to the developer and a leaseback of the land and buildings by the developer
to Nichols. The amount of rent payable under the leaseback is approximately
$3.8 million per year. The transaction has been accounted for as a capital
lease commencing in August 1991. The total cost of the new facilities,
including water and sewer facilities which are maintained and operated by the
utility company and significant amounts of fixtures, equipment and
furnishings, approximated $61.0 million, of which approximately $8.0 million
(land and development costs) was incurred prior to 1991. Of the 1991 costs,
approximately $32.5 million was financed under the capital lease.
During the three years ended December 31, 1993, Nichols expended cash of
$19.8 million, $3.2 million and $0.4 million, respectively, in connection
with business acquisitions (see Note 12 in the accompanying consolidated
financial statements), exclusive of repayments of acquisition indebtedness.
The cash requirements for 1991 business acquisitions were satisfied
principally using a portion of the proceeds of a 1990 stock offering and the
1991 senior debt issuance (see "Cash flows from financing activities").
Amounts expended during 1992 were satisfied using proceeds of the 1991 and
1992 senior debt issuances and borrowings under Nichols' bank financing
agreement. The 1993 cash requirements were satisfied through cash from
operations. In connection with its acquisition of London Diagnostics, Inc. in
1992, Nichols gained access to a non-isotopic methodology which has been
incorporated into its line of diagnostic test kits, which is being used with
semi-automated instrumentation. Nichols is considering development of fully
automated instrumentation which will allow the processing of patient
specimens that would significantly enhance the benefits of this techology
without significant incremental labor expense. Development of the fully
automated instrumentation would require Nichols to commit substantial
financial resources and to obtain financing to fulfill the capital
requirements. However, Nichols currently has no formal plan to develop or
fund such fully automated instrumentation.
In connection with the financing of the Dallas operations, Nichols made
capital contributions and advances totaling $3.0 million and $0.4 million,
respectively, through April 13, 1992, the date at which Nichols purchased the
limited partners' interests in the Dallas operations. Commencing at that time
the assets, liabilities, and operating results of the Dallas operations were
consolidated with those of Nichols. See "Results of Operations--Equity in
losses of partnership--1991 and 1992" and "Results of
Operations--Restructuring and unusual charges--1991, 1992 and 1993."
Cash flows from financing activities. Net cash used by financing activities
was $0.6 million for the three-month period ended March 31, 1994 and $5.9
million for the three-month period ended March 31, 1993. During the three
months ended March 31, 1994, Nichols made scheduled principal payments on its
long-term debt of $0.7 million. During the three months ended March 31, 1993,
Nichols made net repayments under bank financing arrangements of $3.6
million, and principal payments on long-term debt and capital leases of $2.3
million. The cash used by investing activities for both periods were
satisfied by cash generated from operations.
Net cash provided (used) by financing activities was $35.8 million in the
year ended December 31, 1991, ($0.6) million in the year ended December 31,
1992 and ($13.8) million in the year ended December 31, 1993.
On June 7, 1991, Nichols issued $30.0 million of senior notes. The proceeds
of this issuance were used principally to finance business acquisitions and
certain costs of the then new San Juan Capistrano facilities. On June 18,
1992 Nichols issued an additional $10.0 million of senior notes. The proceeds
of this issuance were used primarily to repay a portion of Nichols'
borrowings under its then $15.0 million short-term bank financing
arrangement.
Contingencies
IRS. The Internal Revenue Service ("IRS") is examining Nichols' tax returns
for the calendar years 1988 through 1992. The IRS has challenged certain
deductions of Nichols relating primarily to acquired customer lists
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and covenants not to compete entered into in connection with business
acquisitions. Although the amounts involved would be significant if the
deductions are ultimately disallowed, Nichols believes that the deductions
were valid and that this matter will not have a material adverse effect on
its financial condition or results of operations. On October 20, 1993 Nichols
filed a protest with the IRS against the disallowance of these tax deductions
and has requested a hearing with the IRS Appellate Conference on the matter.
In April 1994, Nichols received a proposed settlement from the IRS regarding
the deduction of customer lists acquired in connection with Nichols' Dallas
operations which have been closed down. Nichols is currently evaluating the
settlement offer.
Although Nichols is unable to predict the outcome of this matter and has
therefore not recorded any losses associated with this examination, Nichols
does not believe resolution of this matter will have a material adverse
effect on its financial condition or results of operations.
OIG Investigation. On August 30, 1993, Nichols received a subpoena from the
Office of the Inspector General of the DHHS requesting documents in
connection with an investigation and internal review concerning the possible
submission of false or improper claims to, and their payments by, the
Medicare and Medicaid programs. Other independent clinical laboratories have
received similar subpoenas which Nichols believes are related to a nationwide
audit and investigation of certain clinical laboratory industry practices.
The subpoena specifically requests documents relating to 14 tests performed
by Nichols in conjunction with a recognized group of tests known as a
chemistry panel and paid for under these federal programs. Nichols has not
been charged with any violation and is fully cooperating in the government's
investigation. At this time, it is too early to predict the results of the
investigation or its impact, if any, on Nichols' financial condition or
results of operations. See "BUSINESS OF NICHOLS--General--OIG Investigation"
and Note 11 to the accompanying consolidated financial statements. Nichols
has incurred significant costs in 1993 responding to requests in connection
with this investigation and expects these costs to increase during 1994.
BUSINESS OF CORNING
General
Corning traces its origin to a glass business established by the Houghton
family in 1851. The present corporation was incorporated in the State of New
York in December 1936, and its name was changed from Corning Glass Works to
Corning Incorporated on April 28, 1989.
Corning is an international corporation competing in four broadly based
business segments: Specialty Materials, Communications, Laboratory Services
and Consumer Products. Corning is engaged principally in the manufacture and
sale of products made from specialty glasses and related inorganic materials
having special properties of chemical stability, electrical resistance, heat
resistance, light transmission and mechanical strength. Corning and its
subsidiaries annually produce some 60,000 different products at 44 plants in
eight countries. In addition, Corning, through subsidiaries and affiliates,
engages in laboratory services businesses, including life and environmental
sciences and clinical-laboratory testing at more than 50 facilities in ten
countries.
Corning's strategy includes growth from new products developed from Corning's
long-standing commitment to research and development and from mergers and
acquisitions. Accordingly, Corning continuously reviews potential acquisition
opportunities, primarily in the laboratory services and communications areas.
However, there can be no assurance that Corning will pursue any such
acquisition opportunity.
In addition to the restructuring programs already under way, Corning is
currently engaged in a comprehensive review of its business and cost
structure. Corning expects this review to be substantially completed by the
end of 1994.
Specialty Materials. Corning's Specialty Materials segment sells more than
40,000 products and has evolved from Corning's historical business base in
materials development. The major business units within the Specialty
Materials segment are: automotive substrates, ophthalmic and optical
products, automotive lighting, science products, and other advanced
materials. Products manufactured by these businesses include cellular
ceramics for automotive and stationary emission-control devices, plastic and
glass ware for laboratory applications and glass optical lenses.
Corning's long-standing commitment to research, development and engineering
has driven the introduction of new products and technologies. In the 1970's
Corning developed the technology and created products for the substrates used
in emission control systems. Today the environmental products business
continues to be a driving force within the Specialty Materials segment.
Corning continues to develop new products and technologies to meet increasing
demand as a result of tightened regulations in the United States and Europe
and new regulations in other parts of the world. For example, to meet
tightening clean air standards, Corning has developed as a prototype an
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electrically heated automotive catalytic converter substrate that begins
working within seconds of ignition, which is when most of the pollutants are
generated. Corning has developed a new family of materials, glass-polymers,
the properties of which make them well suited for components in automobiles,
aircraft, lighting systems and electronic devices.
Corning's equity company investments in this segment include Dow Corning,
Pittsburgh Corning Corporation and Cormetech, Inc., an equity company which
manufactures and sells stationary emission control devices for power plants.
Communications. Corning's Communications segment consists of the following
major product lines: optical fiber, optical cable, optical components,
liquid-crystal display glass, television bulbs, lenses for projection
television, and magnetic memory disks.
Corning's Communications segment also originates from Corning's commitment to
research and development in new materials. Corning led the development of the
modern opto-electronics market with its invention of optical fiber in the
late 1960's and is the leading supplier of optical fiber and such supporting
components as couplers and signal splitters. Corning is also a leading
supplier of optical cable through its 50% ownership of Siecor. In addition,
Corning has several equity investments in companies that produce optical
fiber internationally.
Approximately two-thirds of the revenues in the Communications segment are
generated by sales of opto-electronic products. Today, optical fiber is
penetrating the communications market as optical fiber is rapidly becoming
the preferred way to transmit telephone, cable-TV and computer data
worldwide. Optical fiber permits the transmission of substantially more data
over greater distances with less distortion than does copper, the product it
is principally replacing. As users of optical fiber increase applications and
expand services, Corning continues to provide new and improved optical-fiber
products and corollary components to an expanding market. During the next few
years, management believes that more fiber will be deployed in distribution
cables and that utilization of fiber to the home will increase.
Corning continues to be a leading producer of glass panels and funnels for
television picture tubes through Corning Asahi Video Products Company, and is
also a world leader in the production of projection television lenses through
its wholly owned subsidiary, U.S. Precision Lens Inc.
The market for liquid-crystal display glass continues to grow, currently
driven by notebook computer and portable-TV sales. Future applications are
expected to include desktop-computer displays, projection-TV systems, video
phones and automotive applications. Corning is the world's leading supplier
in this market.
Also included in this segment is Biosym Technologies Inc., which develops and
markets computer-aided molecular design software.
Laboratory Services. Corning entered the laboratory services market in the
early 1970s with its initial investment in MetPath, a regional U.S. clinical
laboratory which Corning acquired in 1982. Since 1982, Corning has made
several other acquisitions in the clinical, biological, pharmaceutical and
environmental-services industries. In 1991 Corning combined its
laboratory-service business units into a wholly owned subsidiary, CLSI, to
better manage the development of its business in this rapidly growing area.
Today CLSI, through subsidiaries and affiliates, operates more than 50
facilities in ten countries that provide clinical, pharmaceutical and
environmental testing services.
CLSI's clinical testing subsidiary, MetPath, performs more than 1,400
different clinical tests for physicians, hospitals, laboratories, industries,
health-maintenance organizations and other managed-care providers through a
quick-response network of regional U.S. laboratories. MetPath is a leader in
providing cost-effective and reliable clinical diagnostic testing services.
See "--Recent Developments--Department of Justice Investigation."
In August 1993, Corning acquired all of the outstanding shares of common
stock of Damon in a transaction accounted for as a purchase. The total
purchase price of this transaction was approximately $405 million, including
acquisition expenses. In addition, approximately $167 million of indebtedness
of Damon has been refinanced. Corning has financed the acquisition of Damon
and the refinancing of Damon's debt with financing agreements entered into
with certain commercial banks. Approximately $200 million of such financing
was retired with the proceeds from the issuance of long-term debt of Corning.
Corning retired the remaining acquisition debt with the net proceeds of the
MIPS Offering.
Damon's principal line of business is clinical-laboratory testing, providing
to the medical profession a full range of routine and esoteric testing
services that are used in the diagnosis, monitoring and treatment of disease.
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Damon provides its services to physicians, hospitals, nursing homes, managed
care institutions, corporations and governmental agencies, including agencies
of the United States of America.
On June 7, 1994, Corning acquired all of the outstanding shares of Maryland
Medical and several affiliates for approximately 4.5 million shares of
Corning Common Stock in a pooling-of-interests transaction.
CLSI's pharmaceutical-testing businesses are conducted by MetPath's wholly
owned subsidiaries, G.H. Besselaar Associates, Hazelton Corporation and
SciCor Inc. These businesses perform chemical and biological testing,
clinical research and data management services primarily for the
pharmaceutical industry. Corning's environmental-laboratory testing business
is conducted by MetPath's Enseco division and provides tests for
environmental contaminants in soil, water and air for industry and
government. On June 28, 1994, Corning and International Technology
Corporation created a jointly owned company to provide environmental testing
and related services, to which Corning transferred the net assets of
MetPath's environmental testing laboratory business, and International
Technology Corporation transferred the assets of its IT Analytical Services
business. Corning and International Technology Corporation each own 50
percent of the new company. See "-- Recent Developments--Creation of
Environmental Testing Services Company."
Corning's Laboratory Services segment is being affected by new federal
legislation implemented in January 1994. The new legislation reduces Medicare
reimbursement rates and will limit future laboratory fee increases. In
addition, the Clinton Administration's health-care plan calls for managed
competition with limitations on total national health-care expenditures and
on the annual growth of such expenditures. A health-care reform model based
on managed competition will likely reduce reimbursements for clinical
laboratory services as managed care networks continue to proliferate. As the
plan also calls for insurance coverage for some 37 million people who
currently have no such coverage, it is expected that demand for such services
will increase. Demand should also increase as a result of a stronger emphasis
on testing as a preventative measure. It is not clear how quickly or to what
extent Medicare and Medicaid programs will be incorporated into the health
reform system. Management believes that while the entire health-care industry
faces dramatic challenges to build a more effective means of delivery of
services, MetPath's leading market position in major geographic areas will
allow Corning to continue to benefit from the ongoing and increasing
consolidation in the industry.
Consumer Products. Corning is well known for its line of consumer housewares
with strong brand names and consumer franchise. Key product lines are
Pyrex((r)) glassware, Corelle((r)) tableware, Corning Ware((r)), Visions((r))
cookware, and Revere Ware((r)) cookware. Other Corning consumer products
include the prestigious Steuben((r)) crystal and Serengeti((r)) sunglasses.
Corning's executive offices are located at One Riverfront Plaza, Corning, New
York 14831, and its telephone number at such offices is (607) 974-9000.
Recent Developments
Disposition of Clinical Laboratory Testing Operations. On April 4, 1994,
MetPath sold the clinical laboratory testing operations of Damon in
California for approximately $51 million in cash. No gain or loss will be
recognized as a result of this transaction. The proceeds from the transaction
were used to retire a portion of the debt incurred in connection with the
acquisition of Damon in August 1993.
Creation of Environmental Testing Services Company. On June 28, 1994, Corning
and International Technology Corporation created a jointly owned company to
provide environmental testing and related services, to which Corning
transferred the net assets of its environmental testing laboratory business
and International Technology Corporation transferred the assets of its IT
Analytical Services business. Corning and International Technology
Corporation each own 50 percent of the company. Corning will account for its
investment in the newly created company using the equity method of accounting
for investments. The impact of the transaction is not expected to be material
to Corning's financial statements.
Acquisition of Clinical Laboratory Testing Businesses. On June 7, 1994,
Corning acquired all of the outstanding shares of Maryland Medical for
approximately 4.5 million Corning Common Shares in a pooling of interests
transaction.
Corning's consolidated financial statements for periods prior to the Nichols
and Maryland Medical transactions will not be restated since the acquisitions
are not material to Corning's financial position or results of operations.
Corning will likely record a one-time charge of up to $10 million after-tax
in the third quarter for transaction costs associated with these acquisitions
and may possibly record an additional one-time charge of up to $25 million
after-tax in the second half of 1994 for the integration of the Nichols and
Maryland Medical operations into MetPath.
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Sale of Parkersburg Plant. In May 1994, Corning sold its Parkersburg, W. Va.,
glass-tubing products plant to Schott Scientific Glass, Inc., a subsidiary of
the Schott Group, for $57 million and decided to exit several minor product
lines in the specialty materials segment. The net gain from these
transactions is not material.
MIPS Offering. On July 21, 1994, Corning and Corning Delaware, a Delaware
special purpose limited partnership in which Corning is the sole general
partner, completed the MIPS Offering of $373.8 million aggregate principal
amount of Preferred Securities.
Dividends on the Preferred Securities will be cumulative and will be payable
monthly at an annual rate of six percent. In certain circumstances, holders
of the Preferred Securities, voting as a class or by written consent, may
cause the exchange of the Preferred Securities for shares of Corning's Series
C Convertible Preferred Stock, par value $100 per share ("Series C Preferred
Stock"), at a rate of one share of Series C Preferred Stock for every two
Preferred Securities. Each Preferred Security is convertible at the option of
the holder into Corning Common Shares at the rate of 1.2821 shares of Corning
Common Stock for each Preferred Security (equivalent to a conversion price of
$39.00 per share of Corning Common Stock), subject to adjustment in certain
circumstances. From time to time after four years from the date of issuance,
the Preferred Securities will be redeemable, at the option of Corning
Delaware, in whole or in part, for cash at stated redemption prices. The
Preferred Securities are subject to mandatory redemption on the 30th
anniversary of the date of original issuance at a redemption price of $50 per
Preferred Security together with accumulated and unpaid dividends (whether or
not earned or declared). Holders of the Preferred Securities do not have any
voting rights, except in certain instances of default.
The Series C Preferred Stock will have dividend, conversion, optional
redemption, and other terms substantially similar to the terms of the
Preferred Securities, except that, among other things, the Series C Preferred
Stock will not be subject to mandatory redemption. See "DESCRIPTION OF
CORNING CAPITAL STOCK--Series C Preferred Stock."
The proceeds received from the MIPS Offering were used by Corning to retire
the debt incurred to acquire Damon, as described under "CORNING UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION."
Breast Implant Litigation. Corning continues to be a defendant in two types
of cases previously reported involving the silicone-gel breast implant
products or materials formerly manufactured or supplied by Dow Corning or a
Dow Corning subsidiary. These cases include (1) several purported federal
securities class action lawsuits and shareholder derivative lawsuits filed
against Corning by shareholders of Corning alleging, among other things,
misrepresentations and omissions of material facts, breach of duty to
shareholders and waste of corporate assets relative to the silicone-gel
breast implant business conducted by Dow Corning and (2) as of May 23, 1994
over 3,490 lawsuits filed in various state courts against Corning and others
(including Dow Corning) by persons claiming injury from the silicone-gel
breast implant products or materials formerly manufactured by Dow Corning or
a Dow Corning subsidiary. Several of such suits have been styled as class
actions and others involve multiple plaintiffs.
All of the more than 3,000 tort lawsuits filed against Corning in federal
courts were consolidated in the United States District Court, Northern
District of Alabama, and in early December 1993, Corning was dismissed from
these cases. This decision by the District Court is non-appealable and,
although the District Court noted that it was "highly unlikely" that
additional discovery would produce new evidence, the decision is subject to
reconsideration if additional information is discovered or if there is a
change in state law. Certain state court tort cases against Corning have also
been consolidated for the purposes of discovery and pretrial matters. During
1994, Corning has made several motions for summary judgment in state courts
and judges have dismissed Corning from all of the over 2,500 tort cases filed
in California, Michigan, New York and Pennsylvania, some of which are on
appeal. Corning's motions seeking dismissal remain pending in various other
states. The federal securities suits are all pending in the United States
District Court for the Southern District of New York.
Corning's management does not believe that the purported securities class
action lawsuits or the purported shareholder derivative lawsuits or the tort
actions filed against Corning described above will have a material adverse
effect on Corning's financial condition or the results of its operations.
Dow Corning has informed Corning that as of July 8, 1994, Dow Corning has
been named in 45 purported breast implant product liability class action
lawsuits and approximately 15,900 individual breast implant product liability
lawsuits (which number includes all or substantially all of the 3,490
lawsuits referred to above) and that Dow Corning anticipates that it will be
named as a defendant in additional breast implant lawsuits in the future. Dow
Corning has also stated that it is vigorously defending this litigation.
Verdicts in breast implant litigation against Dow Corning and other
defendants which have gone to judgment have varied widely, ranging from
dismissal to the award of significant compensatory and punitive damages.
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Dow Corning has also informed Corning that Dow Corning believes that a
substantial portion of the indemnity and defense costs related to the breast
implant litigation brought and to be brought against it is and will be
covered by product liability insurance available to it but that the insurance
companies issuing the policies in question have reserved the right to deny
coverage under various theories and in many cases have refused to pay defense
and indemnity costs which have been incurred by Dow Corning. In this regard,
on June 30, 1993, Dow Corning instituted litigation in California against
certain insurance companies which had issued product liability insurance
policies to it from 1962 through 1985 seeking declaratory judgments that the
insurance company defendants are liable to indemnify Dow Corning for such
liabilities and costs and, in the case of certain insurance company
defendants, damages including punitive damages. In September 1993, several of
Dow Corning's insurers filed a complaint against Dow Corning and other
insurers for declaratory relief in Michigan and moved for the action brought
by Dow Corning in California to be dismissed in favor of the Michigan
litigation. In October 1993, this motion was granted. In March 1994, the
Michigan court ruled that certain of Dow Corning's primary insurers had a
duty to defend Dow Corning with respect to certain breast implant product
liability lawsuits. These insurers were directed to reimburse Dow Corning for
certain defense costs previously incurred. Dow Corning has informed Corning
that it is continuing negotiations with such insurance companies to obtain an
agreement on a formula for the allocation among these insurers of payments of
defense and indemnity expenses related to breast implant products liability
lawsuits and claims.
In March 1994, Dow Corning, along with other defendants and representatives
of breast implant litigation plaintiffs, signed a Breast Implant Litigation
Settlement Agreement (the "Settlement Agreement"). The Settlement Agreement
is subject to court approval and to withdrawal by Dow Corning and other
defendants and plaintiffs. Under the Settlement Agreement and related
agreements, industry participants (the "Funding Participants") would
contribute approximately $4.2 billion over a period of more than thirty years
to establish several special purpose funds. The Settlement Agreement, if
implemented, would provide for a claims based structured resolution of claims
arising out of silicone breast implants, define the circumstances under which
payments from the funds would be made and include a number of other
provisions related to claims and administration. The Settlement Agreement
defines periods during which breast implant plaintiffs may elect not to
settle their claims by way of the Settlement Agreement and to continue their
individual breast implant litigation against manufacturers and other
defendants (the "Opt Out Plaintiffs"). In certain circumstances, if Dow
Corning considers the number of Opt Out Plaintiffs to be excessive, Dow
Corning is entitled to withdraw from participation in the Settlement
Agreement. Corning is not a party to the Settlement Agreement and will not
make any contribution to the settlement contemplated thereby.
In April 1994, the United States District Court for the Northern District of
Alabama preliminarily approved the Settlement Agreement and temporarily
stayed and suspended federal and state class action certification or notice
proceedings relative to federal or state class action lawsuits filed by
plaintiffs included in the settlement class.
In April 1994, the Court also notified the breast implant plaintiffs eligible
to participate in the settlement of a 60-day period during which they have
the ability to become initial Opt Out Plaintiffs. Unless the current schedule
is extended by the Court, Dow Corning would expect to decide whether or not
to exercise its option to withdraw from the Settlement Agreement by
mid-August 1994. A Court-supervised fairness review process of the Settlement
Agreement must be completed before the Settlement Agreement can be
implemented. Once the Settlement Agreement is approved by the Court, claims
can then be validated. The Court's approval of the Settlement Agreement would
be subject to appeal.
Dow Corning recorded a pre-tax charge of $640 million ($415 million after
tax) against its earnings for the fourth quarter of 1993 to reflect its best
estimate as of January 1994 of the net present value of its net liabilities
and costs as a result of its involvement in breast implant litigation and, as
a result of Dow Corning's decision to take this charge, Corning recorded a
charge of $203 million after tax against its equity in earnings of associated
companies for the fourth quarter of 1993 and against the carrying value of
its investment in Dow Corning at the end of fiscal 1993.
If the tort actions filed against Dow Corning or any settlement of the breast
implant controversy should require Dow Corning to record any additional
charges against income, the effect on Corning of any such additional charges
would be limited to their consequent impact (in the amount of approximately
50% of the amount thereof) on Corning's reported equity in earnings of
associated companies for the period such charges were recognized, on the book
value of Corning's equity investment in Dow Corning and on Corning's retained
earnings. Corning does not believe that its share of any additional charges
taken by Dow Corning resulting from the breast implant controversy will have
a material adverse effect upon Corning's financial condition. However, it is
possible that Corning's share of any such additional charges taken by Dow
Corning could have a material adverse effect upon Corning's earnings in the
quarters in which any such charges were recognized by Dow Corning.
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Other Dow Corning Matters. Dow Corning received a request dated July 9, 1993
from the Boston Regional Office of the Commission for certain documents and
information related to silicone breast implants. The request stated that the
Boston Regional Office was conducting an informal investigation which
"concerns Dow Corning, its subsidiary Dow Corning Wright and parent
corporations, Dow Chemical Co. and Corning Inc." Dow Corning has informed
Corning that Dow Corning has responded to this request enclosing the
documents and information requested along with related information and
continues to cooperate with the Boston Regional Office.
During the first quarter of 1993, Dow Corning received two federal grand jury
subpoenas initiated by the United States Department of Justice ("DOJ")
seeking documents and information related to silicone breast implants. Dow
Corning has informed Corning that it has delivered the documents and
information requested and continues to cooperate with the DOJ as this grand
jury investigation proceeds.
On July 12, 1994, Reuters Information Services, Inc. published a report
indicating that results of preliminary experiments by researchers at the U.S.
National Cancer Institute showed that silicon gel from Dow Corning breast
implants injected into genetically susceptible mice causes a form of cancer.
The Reuters report indicated that this study was to be published in the July
20, 1994 edition of the Journal of the National Cancer Institute. Dow Corning
has not yet had an opportunity to review this study or assess the study's
potential impact on its financial condition or results of operations.
On July 21,1994, Moody's Investors Service downgraded the senior long-term
debt ratings on Dow Corning's debentures, industrial revenue bonds, and
medium-term notes to Ba1 from Baa1. Dow Corning's commercial paper rating was
also downgraded to Not-Prime from Prime-2. Moody's stated that this action
reflects its view of the increased risk facing Dow Corning in view "of the
unexpectedly large number of opt-outs from the proposed global settlement of
silicone breast implant litigation."
Department of Justice Investigations. In September 1993, MetPath and MetWest
Inc. ("MetWest"), a wholly owned subsidiary of Unilab, in which Corning had
at the time an interest of approximately 43%, entered into a Settlement
Agreement (the "MetPath Settlement Agreement") with the DOJ and the Inspector
General of the Department of Health and Human Services (the "Inspector
General"). Pursuant to the MetPath Settlement Agreement, MetPath and MetWest
paid to the United States a total of $39.8 million in settlement of civil
claims by the DOJ and the Inspector General that MetPath and MetWest had
wrongfully induced physicians to order certain laboratory tests without
realizing that such tests would be billed to Medicare at rates higher than
those the physicians believed were applicable.
Several state and private insurers have made claims based on the practices
covered by the MetPath Settlement Agreement. Several have settled but it is
not clear at this time what, if any, additional exposure Corning may have to
these entities and to other persons who may assert claims on the basis of
these or other practices.
During August 1993, MetPath, MetWest and Damon (which was acquired by Corning
in that month) together with other participants in the industry received
subpoenas from the Inspector General seeking information regarding their
practices with respect to 14 enumerated tests offered in conjunction with
automatic chemical test panels. Of these 14 tests, five were covered by the
MetPath Settlement Agreement and consequently MetPath and MetWest are not
being required to provide further information with regard to them. MetPath,
MetWest and Damon have completed this process of complying with these
subpoenas. Metpath also received in May 1994 two subpoenas from the Inspector
General concerning, in one case, an investigation into billings for tests not
performed or reported for which MetPath had voluntarily made corrective
payments in 1993 and, in the other, an investigation into whether separate
billings for tests which should have been grouped together had occurred. In
addition, a federal grand jury in New Jersey is investigating the billings
for tests not performed or reported. The results of these investigations
cannot currently be predicted but the possibility that they may result in
additional claims by the DOJ or the Inspector General or additional claims or
settlements with parties other than the DOJ and the Inspector General cannot
be excluded.
Other Legal Proceedings. During September 1993, two individuals filed in the
Supreme Court of the State of New York (one in New York County and one in
Suffolk County) separate purported derivative actions against Corning, as
nominal defendant, and Corning's Directors and certain of its officers
seeking on behalf of Corning compensatory and punitive damages in unspecified
amounts (and plaintiffs' costs and disbursements including attorneys' and
experts' fees) by reason of the alleged responsibility of the actual
defendants for the conduct which gave rise to the settlement in the MetPath
litigation described above and their alleged failure to cause Corning to make
timely disclosure thereof. The parties have agreed to consolidate such
actions in a single action before the Supreme Court of the State of New York
in New York County.
During October 1993, two individuals instituted in the United States District
Court for the Southern District of New York separate purported class actions
on behalf of purchasers of Corning securities in the open market during
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the period from September 17 to October 6, 1993 against Corning, certain of
its Directors and officers and the underwriters of Corning's offering, on
September 17, 1993, of $100 million of 6.75% Debentures due on September 15,
2013. The complaints generally allege that the defendants failed to make
timely disclosures of adverse developments in Corning's business and seek
compensatory and punitive damages in unspecified amounts (and plaintiffs'
costs and expenses including attorneys' fees and disbursements). These two
actions, with respect to which the underwriters have been dismissed, have
been consolidated.
Two class actions have been filed in the Court of Chancery for the State of
Delaware against Damon and certain of its officers and directors. These suits
allege damages arising from Damon's failure to mention in the press release
that announced the initial merger agreement it had reached with a company
other than Corning that an unnamed bidder (Corning) had also expressed
interest in acquiring Damon. The class of plaintiffs are those who sold their
stock at the price offered by the other company, rather than the higher
amount later offered and paid by Corning.
Corning's management does not believe that the purported class action
lawsuits or the purported shareholder derivative lawsuits described above
will have a material adverse effect on Corning's financial condition or the
results of its operations.
BUSINESS OF NICHOLS
General
Nichols provides clinical testing services to hospitals, laboratories and
physicians on a nationwide basis through the Reference Laboratories, the
Regional Laboratories, Diagnostics and its substance abuse testing laboratory
("NISAT"). Nichols offers a comprehensive line of tests consisting of over
1,100 tests or "assays," substantially all of which are performed in Nichols'
facilities. These tests are used principally as aids in the diagnosis and
treatment of a wide variety of medical conditions such as cancer, AIDS,
endocrine disorders, cardiac disorders and genetic diseases.
Nichols was incorporated in 1981 for the purpose of combining the businesses
of Nichols Institute Reference Laboratories, incorporated in 1971, and
Nichols Institute Diagnostics, incorporated in 1974, under a single holding
company. Nichols acquired its Regional Laboratories between 1985 and 1991 and
organized NISAT in 1988. Nichols' corporate headquarters and its Reference
Laboratories are located in San Juan Capistrano (Orange County), California.
Nichols has historically incurred substantial losses relative to its Dallas
operations and more recently its other Texas operations. During 1991 and 1992
Nichols incurred substantial losses relative to its Dallas operations and
recorded restructuring charges of $0.9 million and $13.0 million,
respectively. The restructuring of the Dallas operations was largely
completed as of September 1993. Nichols' remaining Texas operations, all
acquired in 1991, did not perform to expectations and in late 1992 and
continuing into 1993 incurred substantial losses. In the fourth quarter of
1993, Nichols recognized restructuring and unusual charges totaling $16.0
million, including $7.5 million related to further consolidation and
downsizing of its Texas operations. See "NICHOLS MANAGEMENT DISCUSSION AND
ANALYSIS--Results of Operations--Restructuring and unusual charges--1991,
1992, and 1993" for further discussion.
The results of operations in the fourth quarter of 1993, before restructuring
and unusual charges, were not sufficient to meet certain financial covenants
under Nichols' senior notes aggregating $62.2 million as of March 31, 1994.
The senior note agreements provide that, as a result of the failure to comply
with those covenants, the holders of the senior notes have had the right
since December 31, 1993 to declare the entire unpaid balance immediately due
and payable. If that were to occur, Nichols would not have the funds required
to retire the debt unless alternative financing is obtained. Pursuant to the
terms of the Merger Agreement, Corning has agreed to repay, or cause the
Surviving Corporation to repay, the Senior Notes. Additionally, due to the
results of operations in the fourth quarter of 1993, Nichols' $15.0 million
bank line of credit was terminated. While there were no borrowings
outstanding under the line of credit and none had been outstanding since
April 1993, if the Merger is not consummated, Nichols considers the
availability of a bank line of credit to be prudent in order to insure its
ability to satisfy its working capital needs and meet other short-term
obligations. No assurance can be given that such alternative financing will
be obtained.
The Clinical Laboratory Industry
Clinical laboratory tests are used by physicians to diagnose, monitor and
treat diseases and other medical conditions through the detection of
substances and abnormalities in blood and/or tissue samples and other
specimens. Clinical laboratory tests are primarily performed by hospitals
in-house, by physicians in their offices, by physician-owned laboratories or
by independent laboratories. Nichols views the clinical laboratory industry
as highly fragmented with many local and regional competitors.
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Of the approximately 4,000 independent laboratories in the clinical
laboratory industry, the vast majority are local or regional in scope and
perform routine, less sophisticated tests rather than the esoteric tests from
which Nichols derives a substantial portion of its revenues. The complexity
and sophistication of esoteric tests generally require expensive equipment
and materials as well as skilled personnel to perform test procedures and
analyze results. Consequently, esoteric tests are generally priced higher
than routine tests. The volume of esoteric tests required by most hospitals,
physicians and other healthcare providers is relatively low compared to the
volume of routine tests. Because it is generally not cost effective for these
healthcare providers to perform the low volume of esoteric tests in-house, a
significant portion of esoteric tests are referred to independent clinical
laboratories.
Nichols believes that the clinical laboratory industry has and continues to
experience pressures on revenues as healthcare providers respond to the
industry trend toward increased use of managed care programs, fewer test
requisitions per patient and increased governmental regulation. Nichols
believes that these pressures on revenues will continue in the future.
Additionally, continued changes in healthcare reimbursement policies of the
federal government, additional cost containment measures of private insurers
and upward pressure on costs due to increased sophistication of tests are
creating an incentive for hospitals and other healthcare providers to
consolidate laboratory operations through joint ventures or other contractual
arrangements with independent clinical laboratories. However, Nichols
believes that factors such as heightened public concern about health, the
aging of the population, the increased use of preventative screening tests
and scientific advances that have made a greater variety of tests available
will sustain the demand for diagnostic testing.
During recent years, the clinical laboratory industry has experienced
substantial consolidation. Nichols believes that this consolidation will
continue because of existing overcapacity in the industry and the cost burden
on many small laboratories of regulatory requirements with respect to
increased quality standards. See "Healthcare Reimbursement." Physician-owned
laboratories and laboratories located in physicians' offices are expected to
be particularly impacted by the costs required to comply with the new quality
standards, and many of these laboratories may cease to operate or may be
acquired by independent laboratories.
Reference Laboratories
Nichols' esoteric testing is conducted centrally at its Reference
Laboratories. The Reference Laboratories are comprised of 18 individual
laboratory departments, which, in the aggregate, offer approximately 900
individual tests or "assays" in such fields as endocrinology, genetics,
immunology, microbiology, nutrition-metabolism, oncology, serology and
toxicology. The Reference Laboratories offer a comprehensive line of tests.
The Reference Laboratories' testing procedures employ a variety of advanced
analytical technologies, including radioimmunoassays, fluorescent
immunoassays, chemiluminescent immunoassays, monoclonal antibodies, cell
culture technologies and DNA probes. Nichols also supports the efforts of
pharmaceutical and biotechnology companies in the regulatory approval process
for new drugs through its Clinical Studies Center located within the
Reference Laboratories.
Nichols believes that during its 23 years of operation the Reference
Laboratories have established a reputation in the industry as a high quality
provider of accurate and clinically useful tests. Nichols, through its
Reference Laboratories, its association with leading academicians (the
"Academic Associates") and its relationship with biotechnology firms,
believes that it is one of the leaders in transferring technological
innovation from academic laboratories to the marketplace. Nichols was the
first to introduce a number of esoteric tests, including immunoassay methods
for measurement of circulating hormone levels and sensitive tests to predict
breast cancer prognosis. Since 1984, the number of esoteric tests offered by
Nichols has more than doubled. The growth in Nichols' testing capabilities
can be directly attributed to its association with the Academic Associates
through which Nichols develops new esoteric tests for commercial application.
The Academic Associates program is involved with all phases of development of
Nichols' tests, from identifying promising testing methodologies to
implementing and periodically monitoring actual test procedures in Nichols'
laboratories. See "Research and Development--Academic Associates." More
recently, Nichols has relied to a greater degree on its internal resources
for the development of tests, as well as license arrangements and
co-development agreements with biotechnology companies, to provide continued
access to new technology. Among Nichols' more significant recent developments
are tests to detect a variety of tumor types, a common form of mental
retardation, leukemia, cystic fibrosis, osteoporosis, diabetes and to aid in
the diagnosis of Alzheimer's disease.
Nichols has also committed substantial resources in order to provide
effective customer service and rapid turnaround time for its tests. In
addition to maintaining a national network of couriers to pick up specimens,
Nichols has established and maintains a telecommunications network capable of
delivering results expeditiously to personal computers or terminals in the
customer's facility. These capabilities enable Nichols to provide certain
esoteric tests requiring particularly rapid processing which otherwise would
have to be performed locally or in-house. Nichols provides its clients with
access to its highly trained client service representatives, scientific
directors and board certified medical directors by telephone for technical
questions regarding test results twenty-four hours a day, seven days a week.
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Net revenues from Reference Laboratories tests during the years ended
December 31, 1991, 1992 and 1993 accounted for approximately 37%, 35% and
36%, respectively, of Nichols' consolidated net revenues for those periods.
Regional Laboratories
Since 1985, Nichols has acquired a number of Regional Laboratories that
typically perform more routine, non-esoteric tests for hospitals and
healthcare providers located in their geographic areas. Nichols' Regional
Laboratories serve markets in California, the Pacific Northwest, the Midwest,
Texas and Alaska. Certain of these Regional Laboratories have significant
market presence within their localities. The Regional Laboratories allow
Nichols to provide tests on an expedited and economical basis by reducing the
time and expense required to transport specimens. The Regional Laboratories
also enable Nichols to establish and maintain ties with local medical
communities which are important in obtaining and maintaining testing business
for these laboratories and the Reference Laboratories. Nichols estimates that
for the year ended December 31, 1993 approximately 8% of the Reference
Laboratories' revenues resulted directly from referrals by the Regional
Laboratories.
The Regional Laboratories offer a broad spectrum of routine testing services
tailored for the particular markets in which the Regional Laboratories are
located and are responsive to the particular needs of those markets. Such
services include chemistry, hematology, immunology, microbiology, urinalysis,
serology, cytology, histology, anatomic pathology and toxicology testing. The
ability to make available these lines of tests, including the Reference
Laboratories' esoteric tests, allows the Regional Laboratories to meet a wide
range of testing needs.
Acquisitions of Regional Laboratories have contributed significantly to
Nichols' revenue growth from 1985 through 1992. Net revenues from Regional
Laboratories for the years ended December 31, 1991, 1992 and 1993 accounted
for 52%, 53% and 51%, respectively, of Nichols' consolidated net revenues for
such years.
Diagnostics
Diagnostics manufactures and markets clinical laboratory test kits.
Diagnostics' kits are sold to hospitals and clinical laboratories that have
sufficient testing volume to justify the staffing, equipment and supply costs
to perform such tests in-house. Certain of the tests currently performed in
the Reference Laboratories are further refined, simplified and packaged so
that they can be offered as kits to laboratory customers of Nichols. Most of
Diagnostics' kits are targeted to niche markets in an effort to minimize
competition from other kit manufacturers. Diagnostics distributes its
products in many countries throughout the world, with most of its sales
occurring in the United States, Europe and Japan.
Diagnostics' product line consists of 28 radioimmunoassay (isotopic) test
kits and 17 chemiluminescence (non-isotopic) test kits. The test kits yield
results which can be correlated with the results of tests performed by the
Reference Laboratories. Nichols believes that its correlation data, which is
useful in interpreting test results, is an important marketing tool that
distinguishes its kits from those of many of its competitors.
During the past three years Nichols has made two acquisitions which have
enhanced Diagnostics' technological base. In 1991 Nichols acquired Immuno
Technology Services, a small Dutch company engaged in the development,
production and distribution of radioimmunoassay test kits similar to those of
Nichols. During 1992 Nichols acquired London Diagnostics, Inc., a Minnesota
company that manufactured and distributed diagnostic test kits and developed
direct chemiluminescence, a non-isotopic technology. In the past five years,
as a result of regulatory and environmental considerations, the diagnostics
test kit industry has been transitioning from radioisotope technology toward
the use of non-isotopic methods. The acquisition of London Diagnostics, Inc.
has allowed Diagnostics to participate effectively in this change and to
maintain Diagnostics' growth momentum. Seventeen new products based on
chemiluminescence have been developed and introduced to the marketplace since
May 1992. Nichols has incorporated this non-isotopic technology into its line
of diagnostic test kits, which is being used with semi-automated
instrumentation. Nichols is considering development of fully automated
instrumentation which will allow the processing of patient specimens without
significant labor expense and would enhance the benefits of this technology.
Development of the fully automated instrumentation would require Nichols to
commit substantial financial resources and to obtain financing to fulfill the
capital requirements. Nichols currently has no formal plan to develop or fund
such fully automated instrumentation.
Net revenues from Diagnostics, including the revenues recognized under its
contracted research and development and licensing arrangement (see "Other
Contracted Research and Development"), accounted for approximately 8%, 9% and
10% of Nichols' consolidated net revenue during the years 1991, 1992 and
1993, respectively.
NISAT
Nichols began substance abuse testing in 1985, and in 1988 organized NISAT to
own and operate its substance abuse testing laboratory. Certain employees of
governmental agencies, as well as regulated industries such as trans
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portation and nuclear power, are subject to mandatory pre-employment and
continuing random testing. NISAT, located in San Diego, California, was one
of the first substance abuse laboratories in the United States to be
certified by the National Institute on Drug Abuse, a division of the
Department of Health and Human Services ("DHHS"). Today there are nearly 100
DHHS-certified laboratories, which include most of Nichols' principal
competitors. However, Nichols' national courier system enhances its ability
to process samples rapidly, providing Nichols with an important sales
advantage in today's competitive workplace drug testing market.
Net revenues from substance abuse tests performed by NISAT accounted for
approximately 3% of Nichols' consolidated net revenues during each of the
years 1991, 1992 and 1993.
Sales and Marketing
Nichols directs its marketing efforts primarily to physicians, hospital
pathologists, laboratory managers and hospital administrators. Nichols
maintains dedicated and distinct sales and marketing organizations for the
Reference Laboratories, the Regional Laboratories, Diagnostics and NISAT.
The Reference Laboratories' sales and marketing efforts are coordinated
through regional sales and service offices located in the New Jersey,
Chicago, Atlanta, Dallas-Ft. Worth, Oakland and Los Angeles metropolitan
areas. Nichols believes that one of the factors distinguishing it from its
competitors is the advanced technical and clinical knowledge of the Reference
Laboratories sales staff. Each Reference Laboratories sales representative
receives extensive training, including participation in seminars and
workshops, which provides the sales representative with detailed knowledge of
the accuracy and clinical efficacy of Nichols' tests.
The Regional Laboratories and NISAT employ their own direct sales forces. In
addition, Diagnostics' test kits are marketed by direct sales staff
throughout the United States, the United Kingdom, Germany, The Netherlands
and Switzerland and by independent distributors in other international
markets.
Nichols' ability to perform both esoteric tests through the Reference
Laboratories and more routine tests through its Regional Laboratories results
in intracompany test referrals and allows each sales force to market Nichols
as a full service clinical testing laboratory that can meet a customer's
complete testing needs.
Nichols' Academic Associates, scientific directors and medical directors also
play an active role in marketing Nichols' products and services, both
directly and indirectly, through their research activities, contributions to
scientific articles for leading medical journals, participation in medical
and clinical testing seminars and regular speeches to professional
organizations. This active participation by persons associated with Nichols
in the academic and medical community enhances Nichols' reputation as a
provider of quality test services and as a leader in clinical testing
technology. See "Research and Development--Academic Associates." Nichols'
marketing activities also include national advertising in medical journals,
participation in trade shows and distribution of sales materials at national
and regional conferences, and seminars conducted by Nichols' technical staff.
Customer Service
Nichols believes that providing effective customer service is an important
element in maintaining its reputation for quality testing and in increasing
its market share across all lines of its business. To transport the thousands
of test specimens submitted to the laboratories each day, Nichols has
established and maintains a network of couriers which picks up specimens
daily from customers and ships them by air freight or ground transportation
to Nichols' laboratories. Nichols' couriers receive training regarding the
types of tests performed in the laboratories and the proper handling and
transportation of test specimens.
Test results are delivered to customers by Nichols' telecommunications
network, by courier or by overnight delivery. Nichols has developed a system
internally that permits the Reference Laboratories' customers to receive test
results expeditiously via personal computers or terminals linked to Nichols'
own computer system. Nichols also maintains a network through which results
are telecommunicated to regional centers operated by Nichols and then
delivered to the customer by courier. Similarly, each of the Regional
Laboratories has a computerized system to report test results to customers.
Nichols' computer systems also monitor the testing process and the status of
individual specimens; such information being available to answer client
inquiries. To facilitate those inquiries, Nichols provides access to highly
trained client service representatives, scientific directors and
board-certified medical directors 24 hours a day, seven days a week. In
addition, Nichols' Academic Associates are available to consult with clients
when appropriate. Nichols has invested significant resources to increase
laboratory and sales staffing, purchase additional equipment and expand its
computerization of test results and other information provided to customers.
Nichols anticipates that it will continue to invest significant resources in
the future to further enhance and integrate its various laboratory,
communications and financial information systems.
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Research and Development
Nichols believes that an active research and development program is essential
to its success in the esoteric clinical testing industry. As part of its
research and development efforts, Nichols believes that its relationship with
the academic community through its Academic Associates program is unique in
the clinical laboratory industry. At any one time, there are 40 to 50
academic scientists and six to ten biotechnology firms involved with the
Reference Laboratories' scientific staff. Under this program, the Academic
Associates and collaborating scientists work directly with the Reference
Laboratories' staff scientists to monitor existing test procedures and
develop new esoteric test methods. The activities of the Academic Associates
are monitored and directed by Nichols' Chief Science Officer.
Nichols' total direct research and development expenditures, excluding fees
and royalties for Academic Associates, amounted to $3.0 million, $5.0 million
and $4.2 million during the years ended December 31, 1991, 1992 and 1993,
respectively. Research and development expenditures for 1992 and 1993 include
$2.0 million and $0.3 million, respectively, expended under a contracted
research and development arrangement with a third party distributor which was
completed during 1993.
Academic Associates. Nichols licenses the right to use certain tests
developed by Academic Associates and their universities, by biotechnology
firms or by Nichols in conjunction with Academic Associates. In some cases,
the basic technology developed by the Academic Associates has been funded by
government agencies or state-owned universities. As a result, the government
agency or university involved has the right to require that rights to the
technology be licensed to another person or entity if the agency determines,
among other things, that action has not been taken within a reasonable time
to achieve practical application of the technology. Universities are placing
increasing emphasis on realizing income from the commercial applications of
technology developed by their employees and Nichols faces increasing
competition in acquiring technology from universities and biotechnology
firms, whether through the Academic Associates program or otherwise.
The arrangements with Academic Associates and biotechnology firms involve
written contracts, some of which are with the institutions employing Academic
Associates. Academic Associates contracts generally have two to five year
terms, are renewable and are terminable by either party upon 180 days'
notice. The arrangements typically provide for compensation on the basis of a
fixed fee or a percentage of test revenue (with a minimum fee in many cases).
Academic Associate fees and royalties amounted to $3.0 million, $2.5 million
and $2.8 million for the years ended December 31, 1991, 1992 and 1993,
respectively.
Research and Development Partnerships. Nichols' early diagnostic kit
research and development efforts were funded through research and development
partnerships, and focused on the development of diagnostic test kits for
specialized market niches using technologies not easily duplicated by
competitors. However, Nichols currently does not have any arrangements with
research and development partnerships to fund kit research and instead is
financing such research largely with internally-generated funds or other
contracted research. Royalties paid pursuant to research and development
partnerships amounted to $1.4 million, $1.0 million and $0.9 million during
the year ended December 31, 1991, 1992 and 1993, respectively.
Other Contracted Research and Development. In connection with the
acquisition of London Diagnostics, Inc. Nichols entered into an arrangement
with an independent distributor pursuant to which the distributor provided a
portion of the funding to develop certain medical diagnostic kits utilizing
chemiluminescent technology. Revenues from the arrangement were recognized on
the percentage of completion basis. During 1992 and 1993 revenues of
approximately $1.1 million and $0.7 million, respectively, were recognized.
No such revenues are expected in 1994. Research and development costs
expended under the arrangement amounted to $2.0 million during 1992 and $0.3
million during 1993. Under the arrangement Nichols owns all of the rights to
the diagnostic kits developed, and the distributor has the right to purchase
the kits from Nichols, manufacture the kits in conjunction with Nichols, and
market in the Far East any such kits purchased, manufactured or developed.
Under a separate licensing agreement, the distributor was granted rights to
the remaining technology which enabled it to manufacture the kits on a
stand-alone basis. During 1992 and 1993 Nichols received $0.6 million and
$1.0 million, respectively, as a license fee, which was recognized as revenue
when received.
Quality Assurance
Nichols maintains a quality assurance program for its clinical testing which
includes control testing and regular review of test data by Company medical
personnel and Academic Associates. Test results which fall significantly
outside the normal range for such tests are reviewed and often repeated to
help assure accuracy.
The Academic Associates and Nichols' laboratory scientific staff are
continually involved in the review and improvement of test performance and
efficiency. Nichols encourages its scientific directors to participate in
scientific
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meetings and seminars and to present papers, often in conjunction with
Academic Associates. Nichols believes that such active participation in
academic and scientific programs furthers its reputation as a provider of
high-quality clinical laboratory testing.
Nichols also participates in or is subject to various quality control
programs and regulations. Nichols' laboratories are accredited by the College
of American Pathologists, certified by Medicare and Medicaid, accredited by
the Joint Commission on Accreditation of Healthcare Organizations and
licensed by state regulatory authorities. See "Government Regulation" and
"Legal Proceedings."
Competition
Nichols faces competition from numerous commercial, hospital, university and
physician laboratories and test kit manufacturers. In general, the clinical
laboratory industry is highly fragmented and is consolidating, with national
testing laboratories accounting for only a small percentage of the total
clinical tests performed. In addition, many of Nichols' competitors are
larger than Nichols and have substantially greater financial resources.
Several of Diagnostics' competitors offer a broader range of diagnostic test
kits or offer more fully mechanized systems for the processing of patient
specimens than Nichols and may, therefore, have a competitive advantage with
customers who prefer to deal with a single supplier for all of their test kit
needs. Nichols is considering development of fully automated instrumentation
which will allow the processing of patient specimens that would significantly
enhance the benefits of this techology without significant incremental labor
expense. Development of the fully automated instrumentation would require
Nichols to commit substantial financial resources and to obtain financing to
fulfill the capital requirements. However, Nichols currently has no formal
plan to develop or fund such fully automated instrumentation.
Nichols believes that it competes on the basis of quality, service, accuracy,
consistency, rapid turnaround and reporting of test results, the technical
and clinical training of its sales force, and the availability of extensive
clinical correlation data and follow-up consultation with medical and
technical experts. Nichols believes that Diagnostics competes on the basis of
quality, ease of usage of the kits and, to a lesser extent, price. Nichols
markets primarily to competitive pricing and frequently finds it necessary to
adjust its prices in response to price-cutting practices of clinical
laboratory competitors. However, with respect to the testing performed by the
Reference Laboratories, in some cases its prices exceed those of its
competitors. Nichols believes the tests performed by the Reference
Laboratories are differentiated from those of its competitors on the basis of
quality and clinical correlations.
Because Nichols has not yet fully standardized and integrated Company-wide
operating and administrative activities, particularly those of its acquired
businesses, it has not yet realized many of the operating economies, and thus
lower unit costs, enjoyed by many of its competitors. While Nichols ensures a
competitive market position through pricing largely to incremental cost and
market prices, margins have historically suffered. Although Nichols is in the
process of and plans, ultimately, to standardize and integrate its
operations, this process will require substantial resources and at least two
to three years to complete.
The clinical testing industry is characterized by rapid technological change
and a general absence of patent protection. Although Nichols' tests are not
dependent on any one technology, new technologies developed by competitors
could make certain tests offered by Nichols less competitive.
Healthcare Reimbursement
Under law and regulation, for most of the tests performed for Medicare or
Medicaid beneficiaries, Nichols must accept reimbursement from Medicare or
Medicaid as payment in full. In 1984 Congress adopted legislation
establishing a fee schedule reimbursement methodology for testing for
out-patients under Medicare. Additionally, consumer price index adjustments
to fee schedule payments for outpatient clinical diagnostic laboratory
services have in the past been canceled by Congress or largely offset by
reductions in national ceilings on fee schedule payments. For each of 1991,
1992 and 1993, Congress set the consumer price index update for laboratory
fee schedules at 2%. However, the national ceiling was reduced from 100% to
93% of the national median price of tests for 1990. For 1991 through 1993,
the ceiling was reduced to 88% of the national median. In 1994, the national
ceiling will drop to 84% of the national median price of tests and will
further decline in 1995 and 1996 to 80% and 76%, respectively. In addition,
the consumer price index update has been eliminated for 1994 and 1995. Net
revenues recorded from direct billings under the Medicare and Medicaid
programs during the years ended December 31, 1991, 1992 and 1993, after
deducting contractual allowances, were $27.3 million, $37.3 million and $37.2
million, respectively, or 12%, 13% and 13% of total consolidated net
revenues, respectively.
Nichols' hospital clients who participate in the Medicare program are
reimbursed for most services (including laboratory testing) provided to
inpatients on the basis of diagnosis related groups ("DRGs"). Under this
system, hospitals are generally paid only a fixed DRG amount per patient plus
additional amounts for certain specific hospital
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<PAGE>
costs. The DRG amount paid for a particular patient depends on many factors,
including the principal diagnosis of the patient, but is usually independent
of the hospital's actual cost of treating the patient. As a result, hospitals
generally benefit from reductions in the cost of tests provided to their
patients. Hospitals generally are required to bill Medicare and Medicaid
directly for outpatient diagnostic testing services. Because Nichols does not
directly bill Medicare and Medicaid for most testing services it provides to
hospitals and certain clinical laboratories, the actual percentages of
Nichols' testing revenues originating from patients who participate in the
Medicare and Medicaid programs may significantly exceed the amounts indicated
above.
Recent press reports indicate that HCFA is planning to establish national
guidelines for certain tests which it believes are being improperly ordered
as a result of being combined with a recognized group of tests known as
chemistry panels. Such reports also indicate that HCFA is developing a
computer program which will initially deny reimbursement for these tests when
there is a high incidence of their being ordered in conjunction with
automated chemistry panels, as opposed to being ordered individually. The
burden would then shift to the clinical laboratory to show that the tests
were medically necessary in order to receive reimbursement.
HCFA has also indicated that it intends to begin denying reimbursement for
certain medical diagnostic tests ordered in connection with chemistry panels
unless certain conditions are satisfied. Nichols does not know how many tests
will be affected by HCFA's new reimbursement policy and therefore, at this
time, is unable to determine the extent of the impact, if any, on Nichols'
future revenues. See "NICHOLS MANAGEMENT DISCUSSION AND ANALYSIS."
As a result of the changes in the healthcare reimbursement policies of the
federal government, additional cost containment measures of private insurers,
increasing competition in the healthcare industry and upward pressure on
costs resulting from increased sophistication of tests, hospitals, health
maintenance organizations, and other healthcare providers are under
continuing pressure to find ways to reduce the costs of delivering healthcare
services. Nichols believes that the industry has responded, and will continue
to respond, through consolidation and development of healthcare alliances.
Where economically feasible, these consolidated entities and alliance groups
are handling their testing needs in-house. Healthcare providers have also
responded to the need to control costs by ordering fewer tests. In addition,
any reduction in tests performed by hospital laboratories may adversely
affect sales of Diagnostics' test kits. Nichols does not know the extent to
which it has been adversely affected by these industry trends.
On November 20, 1993 the Clinton Administration's healthcare reform proposal,
the Health Security Act (S.1757/H.R. 3600), was introduced in Congress. The
stated principal goals of this proposal are to provide health insurance
coverage to all Americans and to reduce the rate of increase in national
healthcare expenditures. The plan proposes to reduce total healthcare
spending by, among other things, limiting the initial premiums and
year-to-year rates of increase that could be charged by private health plans.
It also would cut the rate of increase in Medicare spending primarily by
reducing reimbursement to medical providers. In addition to the Clinton
Administration's proposal, there are several other competing national
healthcare reform proposals, as well as legislation and proposed legislation
in various states. There can be no assurance as to the ultimate content,
timing or effect of any healthcare reform legislation, nor is it possible at
this time to estimate the impact of potential legislation on Nichols, which
could be material.
The long-term trend in healthcare cost containment involves increasing use of
managed care plans. Managed care plans typically involve prepaid fixed
amounts for substantially all of the healthcare needs of a participating
person coupled with a requirement that a primary care physician review and
direct the healthcare services provided to that person by a network of
specialists and other healthcare providers. Many aspects of billing and other
business arrangements will change as Nichols increasingly deals with managed
healthcare clients. These arrangements typically involve large negotiated
contracts for the testing needs of all or a substantial portion of plan
participants with significant price discounting. Nichols' ability to compete
successfully in an increasingly managed care environment will depend on its
ability to obtain contracts with managed care plans or the other purchasing
and provider alliances that are forming in response to these changes in the
healthcare industry.
Government Regulation
The Reference Laboratories, the Regional Laboratories, the NISAT laboratory
and certain Company personnel are required to be licensed by certain states
in which Nichols does business. Nichols is also certified by HCFA pursuant to
the Clinical Laboratories Improvement Act of 1967 ("CLIA"). CLIA was amended
in 1988 to provide for stricter oversight of laboratories by HCFA and to
establish national standards for laboratory performance and quality. The
regulations adopted pursuant to the 1988 amendment established standards for
the day-to-day operation of laboratories, and subject large numbers of
previously exempt facilities to governmental regulation. The federal and
state certification and licensure programs establish standards for the
day-to-day operation of a medical laboratory, includ
<PAGE>
<PAGE>
ing, but not limited to, personnel and quality control. Compliance with such
standards is verified by periodic inspections by inspectors employed by the
appropriate federal or state regulatory agency. In addition, regulatory
authorities require participation in a proficiency testing program provided
by an external source which involves actual testing of specimens that have
been specifically prepared by the regulatory authority for testing by the
laboratory.
Among the classes of laboratories most affected by the implementation of
these regulations are those located in physicians' offices. Physician-owned
laboratories are also subject to the self-referral provisions of the Omnibus
Budget Reconciliation Act of 1989 ("OBRA"), which, subject to certain
exceptions, prohibit a physician from referring clinical laboratory testing
for Medicare and Medicaid beneficiaries to an entity in which the physician
has an ownership or an investment interest or with which the physician has
compensation arrangements. Other provisions of OBRA also negatively impact
physician-owned and other laboratories which refer large volumes of their
tests to other laboratories for testing. These provisions prohibit such
laboratories from billing for services they do not perform themselves, unless
the referring laboratories actually perform at least 70% of the tests for
which they receive requests.
Because of the foregoing regulatory developments, Nichols believes that many
physician-owned laboratories will incur increased costs due to compliance
with the new regulations and choose to cease operation or be acquired by
independent laboratories. Although Nichols receives test referrals from such
physician-owned laboratories, even if the physician-owned laboratories cease
doing business, Nichols believes that it will continue to obtain such
referral business from the successors to these businesses. Nichols further
believes regulatory requirements do not impose a significant burden on
Nichols, in part because its existing quality standards meet or exceed
current regulatory standards.
In addition to the rules regarding physician-owned laboratories, the
anti-fraud provisions of statutes relating to Medicare and Medicaid
reimbursement contain broad statutory prohibitions on conduct that might
constitute kickbacks or rebates. DHHS has published safe harbor regulations
which specify certain business activities that, if followed, do not violate
the Medicare/Medicaid anti-kickback laws. Failure to fall within a safe
harbor does not constitute a violation of the anti-kickback laws; rather, the
arrangement would remain subject to scrutiny by DHHS.
The Reference Laboratories and the Regional Laboratories are also certified
by HCFA to participate in the Medicare and Medicaid programs. These state and
federal laws and regulations require Nichols to meet various standards
governing the qualifications of laboratory owners and personnel and the
maintenance of proper records, facilities, equipment, test materials and
quality control programs. Nichols has received certification from DHHS for
substance abuse testing. See "NISAT." Nichols is subject to a number of other
state and federal requirements which provide for inspection of Nichols'
facilities and regulations governing the transportation, packaging and
labeling of specimens tested by Nichols. Nichols is also subject to
regulation by those states in which it performs laboratory services, in
particular the State of California, which has established detailed standards
for the operation of clinical laboratories, including requirements for
licensing, training, continuing education, proficiency testing and quality
control.
Nichols uses low-level radioactive isotopes in the performance of
radioimmunoassay tests and in the manufacture of radioimmunoassay kits.
Various federal, state and local governmental entities regulate the use and
disposal of radioactive and other hazardous materials. Nichols has not
experienced any significant problems or liability in connection with such
materials used or generated in connection with Nichols' testing services or
kits. Nichols engages the service of independent licensed contractors to
dispose of such materials and stores certain of its wastes in its own
facilities until such time as the radioactivity of such materials has
decreased sufficiently to allow more economical disposal. There can be no
assurance, however, that Nichols will not at some time in the future
experience significant problems or liability with respect to such
governmental regulations or with respect to claims by third parties.
Certain federal and state laws govern the handling and disposal of infectious
and hazardous wastes. Although Nichols believes that it is currently in
compliance in all material respects with such federal and state laws, failure
to comply could subject Nichols to fines, criminal penalties and/or other
enforcement actions.
Nichols believes that, except as disclosed under "OIG Investigation" below,
it is in compliance in all material respects with all statutes, regulations
and other requirements applicable to its clinical laboratory operations. The
clinical laboratory testing industry is, however, subject to extensive
regulation, and many of those statutes and regulations have not been
interpreted by the courts. There can be no assurance therefore that
applicable statutes and regulations might not be interpreted or applied by a
prosecutorial, regulatory or judicial authority in a manner that would
adversely affect Nichols. Potential sanctions for violation of these statutes
and regulations include significant fines and the loss of various licenses,
certificates and authorizations. Nichols is not aware of any circumstances
<PAGE>
<PAGE>
which in its view are likely to result in any such penalty against it. Any
loss by Nichols, however, of its various federal licenses, its certification
from DHHS, its authorization to participate in the Medicare and Medicaid
reimbursement programs or its licenses under the laws of any state from which
a substantial portion of its revenues are derived would have a material
adverse effect on its business.
The federal Food and Drug Administration (the "FDA") requires Diagnostics to
submit a premarket notification ("510(k)") application to the FDA at least 90
days before marketing any new kit. If the FDA determines that the kit is
substantially equivalent to a device already in commercial distribution in
terms of safety, effectiveness and intended use, it will be recognized by the
FDA for commercial use. If the FDA determines the kit is not substantially
equivalent to a device already in commercial distribution, premarket approval
must be obtained prior to marketing the kit. Premarket approval requires
submission of a detailed application, including the results of clinical
tests, which substantially lengthens the approval process. Diagnostics has
not experienced any significant delays in the introduction of its test kits
to date. There can be no assurance, however, that any future introduction by
Diagnostics of new kits will not be delayed significantly by the FDA review
process. Diagnostics is also required to provide certain information to the
FDA, to maintain certain records, and to permit periodic inspection of its
facilities. In addition, the FDA's enforcement activities with respect to
marketing and promotional activities of diagnostic devices has substantially
increased over the past year.
OIG Investigation
On August 30, 1993, Nichols received a subpoena from the Office of the
Inspector General of the DHHS (the "OIG subpoena") requesting documents in
connection with an investigation and internal review being conducted by the
OIG concerning the possible submission of false or improper claims by Nichols
to, and their payment by, the Medicare and Medicaid programs. Among other
things, the OIG subpoena called for the production of documents regarding 14
blood chemistry tests which were being or had been performed by Nichols in
conjunction with an automated chemistry panel and which were being or had
been billed separately to Medicare or Medicaid. An automated chemistry panel
is a grouping of up to 19 tests that can be performed together and that
Medicare and Medicaid pay for on a flat fee basis. The 14 tests referenced in
the OIG subpoena are typically not part of an automated chemistry panel, and
Medicare and Medicaid pay for these tests as separate items at the lower of
the prices determined by the relevant Medicare and Medicaid fee schedule or
the prices actually billed. Other independent clinical laboratories have
received similar subpoenas which Nichols believes are a part of a nationwide
audit and investigation. Nichols has not been charged with any violation of
any statute or regulation and has been cooperating fully in the
investigation. It is too early to predict the results of the investigation or
its impact, if any, on Nichols' financial condition or results of operations.
Nichols is aware that other clinical laboratory companies have entered into
substantial financial settlements with the government following government
allegations that their billing practices for blood chemistry tests resulted
in the submission to the Medicare and Medicaid programs of claims for
unnecessary services in violation of applicable law. Since none of these
instances resulted in trials or other public proceedings, Nichols cannot
determine the specific nature of the government's allegations or legal
theories. However, based on public reports, Nichols believes that the
government's investigation is primarily focused on two practices. The first
practice consists of offering the automated chemistry panel as a part of a
"standard" blood chemistry profile that also includes one or more of the 14
tests referenced in the OIG subpoena in a manner which is misleading to the
ordering physician or which fails to provide the choice of ordering only the
automated chemistry panel. Representatives of the government have been quoted
in the press as claiming that this practice may lead to the ordering of
"unnecessary" tests. The second practice involves the failure of certain
laboratories to disclose to physicians that the prices charged by those
laboratories to Medicare and Medicaid for many of the tests referenced in the
OIG subpoena were greater than the prices the laboratories charged to the
physicians for those same tests where the tests were performed in conjunction
with an automated chemistry panel. Nichols' Regional Laboratories have
included some of the 14 tests in their respective "standard" blood chemistry
profiles, and also in "custom" profiles created for individual physicians at
their request. Tests performed for Medicare and Medicaid patients are billed
directly to the Medicare and Medicaid programs, and Nichols generally does
not inform physicians of the prices that Medicare and Medicaid are charged
for those tests. Representatives of the government have been quoted in the
press as claiming that undisclosed pricing differences may cause physicians
to believe incorrectly that they are ordering tests at little or no cost to
the Medicare and Medicaid programs, possibly causing tests to be ordered
which are not medically necessary.
If the government were to pursue successfully a claim against Nichols arising
from the investigation, Nichols could be materially adversely affected
because potential sanctions include significant fines, recovery of the
amounts paid to Nichols for the tests involved and mandatory exclusion from
the Medicare and Medicaid programs for a period of at least five years.
Currently, Nichols derives approximately 13% of its revenues from testing
paid for by Medicare and Medicaid. While Nichols understands from published
reports that none of the major clinical labo
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ratory companies that have entered into settlement agreements with the
government have been excluded from participation in the Medicare and Medicaid
programs, there can be no assurance that Nichols or other clinical
laboratories under investigation will be able to negotiate settlement
agreements with similar terms. In addition, the bringing of a criminal
indictment or the filing of a civil fraud or false claims action which, if
successful, would result in the exclusion of Nichols from the Medicare and
Medicaid programs, or any such exclusion, would have the effect of making it
difficult for Nichols to compete for non-Medicare and non-Medicaid business
because clients often want a single laboratory to handle all of their testing
business. As discussed above, however, no claim has been asserted against
Nichols and it is too early to predict the results of the investigation or
its impact on Nichols' financial condition or results of operations.
Accordingly, no provision for losses, if any, that may result upon the
resolution of this investigation has been made in the accompanying financial
statements. Nichols has incurred significant costs in responding to requests
in connection with this investigation and expects such costs to continue
through 1994.
Raw Materials and Supplies
Nichols purchases substantially all of its raw materials (primarily
chemicals) and supplies from various commercial sources in the United States.
Nichols is not dependent upon any one or a limited number of suppliers and
has not experienced any difficulties in obtaining necessary supplies. Nichols
has not experienced any shortage in the available supplies of radioactive
isotopes, used in performing certain tests, and, because Nichols' use of
isotopes is for medical purposes, Nichols does not anticipate that any future
changes in the regulation of these materials would materially adversely
affect its operations.
Employees
On June 30, 1994, Nichols had the equivalent of approximately 3,500 full-time
employees. Nichols' employees have never been covered by a collective
bargaining agreement. Nichols has never experienced any work stoppages,
slowdowns or other serious labor problems and considers relations with its
employees to be good.
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<PAGE>
Properties
The following table summarizes certain information as to Nichols' principal
operating facilities as of June 30, 1994:
<TABLE>
<CAPTION>
Approximate
Square Feet Outstanding
of Mortgage Lease
Location Floor Space Balance Expiration
<S> <C> <C> <C>
Owned Facilities: Sioux
Falls, SD 37,500 $626,000
Mankato, MN 14,800 (1)
St. Cloud, MN 14,800 266,000
Lincoln, NE 9,300 335,000
Leased Facilities:
Anchorage, AK 4,800 1997
Oakland, CA 13,100 1998
San Diego, CA 67,300 2001
San Juan Capistrano,
CA 25,000 1997
San Juan Capistrano,
CA 240,000 2046 (2)
Des Moines, IA 15,600 1995
Kansas City, MO 19,300 1999
Salem, OR 7,800 1994
Tigard, OR 71,400 1998
El Paso, TX 37,400 1999
Houston, TX 25,300 2000
San Antonio, TX 7,100 1994
Wijchen, The
Netherlands 8,500 1995
</TABLE>
(1) The mortgage balance associated with this facility is included in the
mortgage balance for Sioux Falls, SD.
(2) The initial term of this lease expires in 2011, with options to extend
the term through March 2046. For accounting purposes, Nichols has assumed
that the term of the lease will be extended through March 2031.
Certain of the leases summarized above contain provisions for extensions.
Nichols leases other smaller laboratory facilities for local rapid response
laboratories, specimen collection sites, and offices for regional sales
management and couriers in various states, under varying terms of occupancy
including month-to-month tenancies.
Lease of Principal Facility. In order to accommodate its then current and
anticipated future needs, in 1989 Nichols entered into agreements with a
developer for the financing and development of new laboratory and
administrative facilities on approximately 100 acres of real property owned
by Nichols in San Juan Capistrano (Orange County), California.
The agreements include a lease of a portion of the land owned by Nichols to a
developer and a leaseback of the land and buildings by the developer to
Nichols. Nichols relocated its San Juan Capistrano-based laboratory, research
and development and administrative activities to the new facility during the
third quarter of 1991. The transaction has been accounted for as a capital
lease commencing in August 1991, and continuing through March 2031. The total
cost of new facilities, including water and sewer facilities which are
maintained and operated by a local utility company and significant amounts of
fixtures, equipment and furnishings, approximated $61.0 million, of which
approximately $8.0 million (land and development costs) was incurred prior to
1991. Of the costs incurred in 1991, approximately $32.5 million was financed
under the capital lease. The amount of rent payable by Nichols under the
lease is currently approximately $3.8 million per year.
Rent under the lease to Nichols is subject to escalation every five years
based upon changes in a designated consumer price index. Nichols has the
option to purchase the building and terminate the lease at various times
during the lease term at a formula price which varies over time.
Legal Proceedings
From time to time, claims have been made against Nichols relating to the
performance of its business, but Nichols has not previously experienced any
significant liability with respect to such claims or in connection with use
of its diagnostic kits or its substance abuse testing. Although Nichols
maintains insurance against these risks, including medical malpractice and
product liability, there can be no assurance that Nichols will not at some
time in the future experience significant liability in this regard. Nichols
believes that its insurance coverage is adequate.
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF NICHOLS
The following table sets forth as of June 30, 1994, certain information
regarding the beneficial ownership of the Class A Common Stock, Class B
Common Stock, Class C Common Stock and Nichols Preferred Stock by (i) all
those known by Nichols to be beneficial owners of more than 5% of the
outstanding shares of each such class of stock, (ii) certain of Nichols'
executive officers and each of Nichols' directors and (iii) all executive
officers and directors as a group. Except as indicated in the notes to the
table, each person named has sole voting and investment power with respect to
the shares indicated. On June 30, 1994, Nichols had outstanding 6,181,631
shares of Class A Common Stock, 1,593,473 shares of Class B Common Stock,
9,006,431 shares of Class C Common Stock and 14,698 shares of Nichols
Preferred Stock.
<TABLE>
<CAPTION>
Class A Common Class B Common Class C Common Nichols
Stock Stock Stock Preferred Stock
Shares Shares Shares
Bene- Percent Shares Percent Bene- Percent Bene-
ficially of Bene- of ficially of ficially Percent
Owned Class ficially Class Owned Class Owned of Series
Name (1) (1) (7) Owned (7) (2) (2) (7) (3) (3) (7)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albert L.
Nichols, M.D.
(4) 8,818 * 1,334,423 83.7% 1,233,614 13.6% -- --
George L. Bragg -- -- -- -- 17,000 * -- --
Paul H. Bellamy -- -- -- -- 262,443 2.8% -- --
H. Frederick
Christie 3,000 * -- -- 10,128 -- -- --
Rockell N.
Hankin 3,000 * -- -- 16,792 * -- --
Fredric M.
Roberts -- -- -- -- 16,792 * -- --
Delbert A.
Fisher, M.D. 21,979 * 17,198 1.1% 88,905 * -- --
Douglas S.
Harrington,
M.D. 15,410 * -- -- 70,277 * -- --
John Roberts,
Ph.D. 2,000 * -- -- 151,667 1.7% -- --
Thomas R.
Testman 3,000 * -- -- 10,128 -- -- --
Jack O. Vance 3,000 * -- -- 10,128 -- -- --
All Directors
and Executive
Officers as a
Group
(17 persons) 99,727 1.6% 1,355,000 85.0% 2,037,821 20.7% -- --
Robert L.
Breckenridge,
Jr. M.D.
Trust -- -- -- -- -- -- 2,204 15%
John B. Cobb -- -- -- -- -- -- 2,204 15%
Louis A. Allen,
M.D. -- -- -- -- -- -- 2,058 14%
James B.
Durham, M.D. -- -- -- -- -- -- 2,058 14%
Mark T.
Stivers, M.D. -- -- -- -- -- -- 2,058 14%
Kirk R.
Williams,
M.D. Trust -- -- -- -- -- -- 2,058 14%
Earl J. Wright,
M.D. Trust -- -- -- -- -- -- 2,058 14%
Morgan Stanley
Group, Inc.
(5) 310,000 5.0% -- -- -- -- -- --
Wisconsin
Investment --
Board (6) 551,800 8.9% -- -- -- -- --
</TABLE>
(1) Includes shares subject to options exercisable on or before August 30,
1994 as follows: Dr. Nichols--5,000; Dr. Fisher--15,000; and Dr.
Harrington--15,410; and all executive officers and Directors as a
group--46,270.
(2) Includes shares subject to options exercisable on or before August 30,
1994 as follows: Dr. Nichols--86,985; Mr. Bragg--15,000; Mr. Bellamy
- --261,667; Mr. Christie--10,128; Mr. Hankin--16,792; Mr. Roberts--16,792; Dr.
Fisher--64,728; Dr. Harrington--70,277; Dr. Roberts--151,667; Mr.
Testman--10,128; Mr. Vance--10,128; and all executive officers and directors
as a group--820,648.
(3) Holders of Series E Convertible Preferred Stock originally received their
shares in connection with Nichols' acquisition of MAWD Medical Laboratories,
Inc. ("MAWD") in January 1991. All of the holders of Series E Convertible
Preferred Stock indicated above were prior stockholders of MAWD, and each of
their addresses is 6501 E. Commerce Avenue, Suite 101, Kansas City, MO 64120.
(4) Includes 3,818 shares of Class A Common Stock, 42,470 shares of Class B
Common Stock and 45,842 shares of Class C Common Stock held as trustee for
the benefit of certain family members. Because of his ownership of a
substantial amount of the Class B Common Stock, Dr. Nichols may be deemed a
"parent" of Nichols pursuant to regulations adopted by the Securities and
Exchange Commission. Dr. Nichols' business address is 33608 Ortega Highway,
San Juan Capistrano, CA 92690.
(5) Morgan Stanley Group, Inc. ("Morgan Stanley") reported on Schedule 13F
dated March 31, 1994 that it was the beneficial owner of such shares and
stated that it has no voting power with respect to 260,000 such shares
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<PAGE>
and has voting power with respect to 50,000 such shares and shared
dispositive power with respect to such shares. Morgan Stanley is an
investment advisory firm, and its address is 1251 Avenue of the Americas, New
York, New York 10020. Nichols is unaware of any subsequent change in
beneficial ownership.
(6) The State of Wisconsin Investment Board (the "Wisconsin Investment
Board") reported on Schedule 13G dated February 8, 1994, that it was the
beneficial owner of such shares and stated that it has sole voting power and
sole dispositive power with respect to such shares. The Wisconsin Investment
Board's address is P.O. Box 7842, Madison, WI 53707. Nichols is unaware of
any subsequent change in beneficial ownership.
(7) The percentages set forth above are based upon the number of shares
outstanding and do not reflect that (except when they vote as a class on the
election and removal of directors and on other matters required by law)
holders of Class A Common Stock and Class B Common Stock vote together as a
single class or that holders of Class A Common Stock are entitled to
one-tenth of a vote per share and holders of Class B Common Stock are
entitled to one vote per share. As of the date of the table, Albert L.
Nichols, M.D., and the directors and executive officers as a group had
approximately 60.4% and 61.6%, respectively, of the voting power of Class A
Common Stock and Class B Common Stock voting as a single class. Holders of
Class C Common Stock are not entitled to vote except on certain matters where
a class vote is required by law and on certain business combinations. Holders
of Series E Convertible Preferred Stock are also not entitled to vote except
on such matters as are provided by law or the Certificate of Designation of
Powers, Designations, Preferences and Rights by which the Series E
Convertible Preferred Stock was created.
Dr. Nichols has pledged 750,000 of his shares of Class B Common Stock and
700,000 of his shares of Class C Common Stock as collateral for a term loan
(the "Loan") in the current principal amount of approximately $1.4 million to
Dr. Nichols by Citicorp USA, Inc. (the "Lender"). Pursuant to the terms and
conditions of the Loan, an event of default would occur if, among other
things, the loan-to-value ratio under the Loan exceeds 0.4 to 1.00. If the
loan-to-value ratio should exceed 0.4 to 1.00, Dr. Nichols would be required
to reduce the ratio to 0.25 to 1.00 either by pledging additional securities
or by reducing the amount outstanding under the Loan. If Dr. Nichols did not
so reduce the loan-to-value ratio or if other defaults under the Loan were to
occur, the Lender would have the right to sell the pledged shares of Class C
Common Stock or to convert the pledged shares of Class B Common Stock to
Class A Common Stock and to sell shares of Class A Common Stock (but only
after selling the pledged shares of Class C Common Stock), in order to use
the proceeds of any such sales to reduce the amount outstanding pursuant to
the Loan. Based on closing stock prices on the date immediately preceding the
announcement of the Merger, May 31, 1994 ($4.813 per share of Class A Common
Stock and $4.125 per share of Class C Common Stock) and the amount
outstanding under the Loan as of the date of this Proxy Statement/Prospectus
(approximately $2.175 million), the loan-to-value ratio would be 0.33 to
1.00. Based on closing stock prices on June 30, 1994 ($11.875 per share of
Class A Common Stock and $11.75 per share of Class C Common Stock) and the
amount outstanding under the Loan as of the date of this Proxy
Statement/Prospectus (approximately $2.175 million), the loan-to-value ratio
would be 0.13 to 1.00. Assuming the amount outstanding under the Loan
continues to be approximately $2.175 million, the loan-to-value ratio would
not exceed 0.4 to 1.00 unless the average stock price per pledged share fell
to $3.75.
DESCRIPTION OF CORNING CAPITAL STOCK
General
The following is a brief summary of certain provisions of the Restated
Certificate of Incorporation of Corning (the "Restated Certificate") and does
not relate to or give effect to provisions of statutory or other law except
as specifically stated. The Restated Certificate authorizes the issuance of
500,000,000 Corning Common Shares. As of July 14, 1994, 213,736,161 Corning
Common Shares were outstanding. The rights of holders of Corning Common
Shares are governed by the Restated Certificate, Corning's By-Laws and by the
New York Business Corporation Law (the "NYBCL").
Voting Rights
Subject to the voting of any shares of Series Preferred Stock (as defined
below) that may be outstanding, voting power is vested in the Corning Common
Shares, each share having one vote.
Preemptive Rights
The Restated Certificate provides that no holder of Corning Common Shares or
Series Preferred Stock shall have any preemptive rights except as the Corning
Board may determine from time to time. No such rights have been granted by
the Corning Board.
<PAGE>
<PAGE>
Corning Common Shares
Liquidation Rights. Subject to the preferential rights of any outstanding
Series Preferred Stock, in the event of any liquidation of Corning, holders
of Corning Common Shares then outstanding are entitled to share ratably in
the assets of Corning available for distribution to such holders.
Dividend Rights and Restrictions. Subject to any preferential rights of any
outstanding Series Preferred Stock and any outstanding preferred securities
of Corning, such dividends as may be determined by the Corning Board may be
declared and paid on the Corning Common Shares from time to time out of any
funds legally available therefor. Corning has regularly paid cash dividends
since 1881 and currently expects to continue to pay cash dividends. Corning's
current quarterly cash dividend is $.17 per Corning Common Share. The
continued declaration of dividends by the Corning Board is subject to, among
other things, Corning's current and prospective earnings, financial condition
and capital requirements and such other factors as the Corning Board may deem
relevant.
Other Provisions. The Corning Common Shares have no redemption, sinking fund
or conversion privileges applicable thereto and holders of Corning Common
Shares are not liable to assessments or to further call.
Series Preferred Stock
The Restated Certificate authorizes the issuance of up to 10,000,000 shares
of Series Preferred Stock, par value $100 per share (the "Series Preferred
Stock"). The Corning Board has the authority to issue such shares from time
to time, without stockholder approval, and the authority to determine the
designations, preferences, rights, including voting rights, and restrictions
of such shares, subject to the NYBCL. Pursuant to this authority, the Corning
Board has designated 600,000 shares of Series Preferred Stock as Series A
Preferred Stock, 316,822 shares of Series Preferred Stock as Series B
Preferred Stock (the "Series B Preferred Stock"), and an as yet unspecified
number of shares of Series Preferred Stock as Series C Preferred Stock. No
other class of Series Preferred Stock has been designated by the Corning
Board.
Series B Preferred Stock
Cumulative cash dividends at the rate of 8% per annum are payable on shares
of the Series B Preferred Stock that have been issued. Corning has regularly
paid dividends on the Series B Preferred Stock. No dividends may be paid or
declared on the Series A Preferred Stock or the Corning Common Shares unless
all dividends for all prior dividend periods have been paid or declared on
the Series B Preferred Stock, the Series C Preferred Stock and the preferred
securities.
Holders of Series B Preferred Stock are entitled to vote, voting together
with the Corning Common Shares and not as a separate class, on all matters
submitted to holders of the Corning Common Shares, each share of Series B
Preferred Stock having four votes, subject to adjustment.
Holders of Series B Preferred Stock have no preemptive rights. In the event
of a liquidation, dissolution or winding-up of Corning, holders of Series B
Preferred Stock shall be entitled to receive a distribution in the amount of
$100 per share, plus accrued and unpaid dividends, before any distribution on
the Corning or Series A Preferred Stock.
The Series B Preferred Stock is redeemable, in whole or in part, at the
election of Corning, at any time, at the following redemption prices per
share:
<TABLE>
<CAPTION>
During the Twelve-
Month Period Price Per
Beginning October 1, Share
<S> <C>
1993 $104.00
1994 $103.00
1995 $102.00
1996 $101.00
</TABLE>
and thereafter at $100.00 per share plus, in each case, accrued and unpaid
dividends.
The Series B Preferred Stock is subject to redemption, at the option of the
holder, at any time upon five business days' notice, at a redemption price
equal to $100.00 plus accrued and unpaid dividends, if the proceeds are
necessary (i) to make a distribution pursuant to an investment election made
under the employee benefit plan or (ii) to satisfy any indebtedness to which
the employee benefit plan is subject, provided that such payment is necessary
to remedy or prevent a default under such indebtedness.
Corning, at its option, may make payment of the redemption price required
upon redemption of shares of Series B Preferred Stock in cash or in Corning
Common Shares, or in any combination of such shares and cash.
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The Series B Preferred Stock is convertible at the option of the holder, at
any time, into Corning Common Shares at a conversion price of $25.00 per
Corning Common Share, each share of Series B Preferred Stock being valued at
$100 for the purpose of such conversion, producing a conversion ratio equal
to four Corning Common Shares for each share of Series B Preferred Stock so
converted, subject to certain adjustments to prevent dilution.
Series C Preferred Stock
As described under "BUSINESS OF CORNING--Recent Developments", in connection
with the MIPs Offering by Corning Delaware, the Corning Board designated, on
April 28, 1994, the Series C Preferred Stock.
In certain circumstances, the holders of a majority of the aggregate
liquidation preference of the Preferred Securities then outstanding, voting
as a class or by written consent, may cause the exchange of the Preferred
Securities for Series C Preferred Stock at a rate of one share of Series C
Preferred Stock for every two Preferred Securities.
The terms of the Series C Preferred Stock are substantially similar to those
of the Preferred Securities except that, among other differences, (i) in
certain events of default, the number of directors of Corning shall be
increased by two persons and the holders of the Series C Preferred Stock will
be entitled to elect the persons to fill such positions and (ii) the Series C
Preferred Stock will not be subject to mandatory redemption.
The Series C Preferred Stock ranks senior to the Corning Common Stock and the
Series A Preferred Stock with respect to the payment of dividends and amounts
on liquidation, dissolution and winding-up. In the event of a voluntary or
involuntary bankruptcy, liquidation, dissolution or winding-up of Corning,
the holders of Series C Preferred Stock are entitled to receive out of the
net assets of Corning, but before any distribution is made on any class of
securities ranking junior to the Series C Preferred Stock, $100.00 per share
in cash plus accumulated and unpaid dividends (whether or not earned or
declared) to the date of final distribution to such holders.
Preferred Share Purchase Rights
Attached to each Corning Common Share is one Right, which entitles the
registered holder to purchase from Corning one four-hundredth of a share of
Series A Preferred Stock at a price of $62.50 per one four-hundredth of a
share of Series A Preferred Stock (the "Exercise Price"), subject to
adjustment. The Rights expire on July 15, 1996 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed by Corning.
The Rights represented by the certificates for Corning Common Shares, are not
exercisable, and are not transferable apart from the Corning Common Shares,
until the earlier of (i) ten days following the public announcement by
Corning or an Acquiring Person (as defined below) that a person or group has
acquired beneficial ownership of 20% or more of the Corning Common Shares (an
"Acquiring Person") or (ii) ten business days (or such later date as the
Corning Board may determine) after the commencement or first public
announcement of a tender or exchange offer that would result in a person or
group beneficially owning 20% or more of the Corning Common Shares (the
earlier of such dates being called the "Distribution Date"). Separate
certificates for the Rights will be mailed to holders of record of the
Corning Common Shares as of such date. The Rights could then begin trading
separately from the Corning Common Shares.
Generally, in the event that a person or group becomes an Acquiring Person,
each Right, other than the Rights owned by the Acquiring Person, will
thereafter entitle the holder to receive, upon exercise of the Right, Corning
Common Shares having a value equal to two times the Exercise Price of the
Right. In the event that Corning is acquired in a merger, consolidation, or
other business combination transaction or more than 50% of Corning's assets,
cash flow or earning power is sold or transferred, each Right, other than the
Rights owned by an Acquiring Person, will thereafter entitle the holder
thereof to receive, upon the exercise of the Right, common stock of the
surviving corporation having a value equal to two times the Exercise Price of
the Right.
The Rights are redeemable in whole, but not in part, at $.0125 per Right at
any time on or prior to any person or group becoming an Acquiring Person. The
right to exercise the Rights terminates at the time that the Corning Board
elects to redeem the Rights. Notice of redemption shall be given by mailing
such notice to the registered holders of the Rights. At no time will the
Rights have any voting rights. The Rights Agent is Harris Trust and Savings
Bank (the "Rights Agent").
The exercise price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Series A Preferred Stock, (ii) upon the
grant to holders of the shares of Series A Preferred Stock of certain rights
or warrants to subscribe for or purchase shares of Series A Preferred Stock
at a price, or securities convertible into shares of Series A Preferred Stock
with a conversion price, less than the then current market price of the
shares of Series A Preferred
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Stock or (iii) upon the distribution to holders of the shares of Series A
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or
dividends payable in shares of Series A Preferred Stock) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one four-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of, or stock
dividend on, or subdivision, consolidation or combination of, the Corning
Common Shares prior to the Distribution Date. With certain exceptions, no
adjustment in the exercise price will be required until cumulative
adjustments require an adjustment of at least 1% in such exercise price.
Upon exercise of the Rights, no fractional shares of Series A Preferred Stock
will be issued (other than fractions which are integral multiples of one
four-hundredth of a share, which may, at the election of Corning, be
evidenced by depositary receipts) and in lieu thereof an adjustment in cash
will be made.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Corning on
terms not approved by the Corning Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved
by the Corning Board since the Rights may be redeemed by Corning at $.0125
per Right prior to the fifteenth day after the acquisition by a person or
group of beneficial ownership of 20% or more of the Corning Common Shares
(subject to certain exceptions).
The shares of Series A Preferred Stock purchasable upon exercise of the
Rights will rank junior to all other series of Corning's preferred stock
(including the Series B and Series C Preferred Stock) or any similar stock
that specifically provides that they shall rank prior to the shares of Series
A Preferred Stock. The shares of Series A Preferred Stock will be
nonredeemable. Each share of Series A Preferred Stock will be entitled to a
minimum preferential quarterly dividend of $10.00 per share, but will be
entitled to an aggregate dividend of 100 times the dividend declared per
share of Corning Common Shares. In the event of liquidation, the holders of
the shares of Series A Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share, but will be entitled to
an aggregate payment of 100 times the payment made per share of Corning
Common Shares. Each share of Series A Preferred Stock will have 100 votes,
voting together with the Corning Common Shares. In the event of any merger,
consolidation or other transaction in which Corning Common Shares are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount and type of consideration received per Corning Common
Share. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend, liquidation
and voting rights, the value of the interest in a share of Series A Preferred
Stock purchasable upon the exercise of each Right should approximate the
value of one Corning Common Share.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the description of the Rights
contained in the Rights Agreement, dated as of July 2, 1986 between Corning
and the Rights Agent, as amended by the Amended Rights Agreement, dated as of
October 4, 1989, which has been previously filed with the SEC.
Corning's Fair Price Amendment
In 1985, Corning's stockholders adopted an amendment (the "Fair Price
Amendment") to the Restated Certificate that, in general, requires the
approval by the holders of at least 80% of the voting power of the
outstanding capital stock of Corning (other than the Series C Preferred
Stock) entitled to vote generally in the election of directors (the "Corning
Voting Stock") as a condition for mergers and certain other business
combinations with any beneficial owner of more than 10% of such voting power
unless (1) the transaction is approved by at least a majority of the
Continuing Directors (as defined in the Restated Certificate) or (2) certain
minimum price, form of consideration and procedural requirements are met.
Certain terms used herein are defined in the Restated Certificate.
Amendment or repeal of this provision or the adoption of any provision
inconsistent therewith would require the affirmative vote of at least 80% of
the Corning Voting Stock unless the proposed amendment or repeal or the
adoption of the inconsistent provisions were approved by two-thirds of the
entire Corning Board and a majority of the Continuing Directors.
Certain Other Provisions of the Restated Certificate and By-Laws
In addition to the Preferred Share Purchase Rights and the Fair Price
Amendment, the Restated Certificate and By-Laws contain other provisions that
may discourage a third party from seeking to acquire Corning or to commence a
proxy contest or other takeover-related action. Corning has classified the
Corning Board such that one-third of the Corning Board is elected each year
to three-year terms of office. In addition, holders of Corning Common Shares
may remove a director from office at any time prior to the expiration of his
or her term only with cause and by vote of a majority of holders of Corning
Common Shares outstanding. These provisions, together with pro
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<PAGE>
visions concerning the size of the Corning Board and requiring that premature
vacancies on the Corning Board be filled only by a majority of the entire
Corning Board, may not be amended, altered or repealed, nor may Corning adopt
any provisions inconsistent therewith, without the affirmative vote of at
least 80% of the Corning Voting Stock of Corning or the approval of
two-thirds of the entire Corning Board.
Corning's By-Laws contain certain procedural requirements with respect to the
nomination of directors by stockholders that require, among other things,
delivery of notice by such stockholders to the Secretary of Corning not later
than 60 days nor more than 90 days prior to the date of the stockholders
meeting at which such nomination is to be considered. The Corning By-Laws do
not provide that a meeting of the Corning Board may be called by
stockholders.
The Restated Certificate provides that no director will be liable to Corning
or its stockholders for a breach of duty as a director except as provided by
the NYBCL.
The effect of these provisions may be to deter attempts either to obtain
control of Corning or to acquire a substantial amount of its stock, even if
such a proposed transaction were at a significant premium over the
then-prevailing market value of the Corning Common Shares, or to deter
attempts to remove the Corning Board and management of Corning, even though
some or a majority of the holders of Corning Common Shares may believe such
actions to be beneficial.
DESCRIPTION OF NICHOLS CAPITAL STOCK
The following descriptions are summarized from the provisions of the Nichols
Certificate of Incorporation.
Nichols' authorized capital stock consists of (i) 20,000,000 shares of Class
A Common Stock, $0.10 par value, (ii) 13,333,333 shares of Class B Common
Stock, $0.10 par value, (iii) 30,000,000 shares of Class C Common Stock,
$0.10 par value and (iv) 1,000,000 shares of preferred stock, $0.10 par
value.
Common Stock
Voting for Election and Removal of Directors. Subject to certain exceptions
described below, holders of Class A Common Stock are entitled to one-tenth of
a vote per share and are entitled as a class to elect 25% of the Board of
Directors (currently two of the eight Directors), with cumulative voting for
directors being permitted. Holders of Class B Common Stock are entitled to
one vote per share and are entitled as a class to elect 75% of the Board of
Directors (currently six of the eight directors), with cumulative voting
permitted. Holders of each of the two classes also vote separately as single
classes on (i) removal of directors elected by their respective class and
(ii) filling vacancies in the offices of directors elected by their
respective class. Holders of Class C Common Stock have no voting rights with
respect to the election or removal of directors, or with respect to the
filling of vacancies on the Board of Directors.
Nichols' Certificate of Incorporation provides that if the number of
outstanding shares of Class A Common Stock is more than 87.5% of the combined
number of outstanding shares of Class A Common Stock and Class B Common
Stock, the holders of Class B Common Stock in effect lose their special
voting rights with respect to the election of directors. In such an event,
all holders of Class A Common Stock and Class B Common Stock will have one
vote per share and will vote together as a single class for the election of
all directors. In addition, if the number of shares of Class A Common Stock
outstanding is less than 10% of the combined number of shares of Class A
Common Stock and Class B Common Stock outstanding, the holders of Class A
Common Stock will vote together with the holders of Class B Common Stock as a
single class to elect all directors, with the holders of Class A Common Stock
entitled to one-tenth of a vote per share and the holders of Class B Common
Stock entitled to one vote per share.
As of July 27, 1994, the holders of Class B Common Stock possess effective
control of Nichols through holding more than 72% of the combined voting power
of the outstanding capital stock of Nichols and the ability to elect a
majority of the members of the Nichols Board. Furthermore, as of July 27,
1994, Dr. Nichols has the power to elect five of Nichols' eight directors
through his beneficial ownership of approximately 84% of the outstanding
shares of Class B Common Stock, representing approximately 60% of the
combined voting power of Nichols' outstanding capital stock.
Voting on Mergers, Consolidations and Other Business Combinations. The
Nichols Certificate of Incorporation includes provisions that are intended to
cause the holders of the Class A Common Stock, Class B Common Stock and the
Class C Common Stock to be treated equally with respect to mergers,
consolidations and certain other business combinations ("Combinations"). It
requires that, unless certain conditions are satisfied, such Combinations
must be approved by the holders of a majority of the outstanding shares of
each of the three classes of
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<PAGE>
stock, voting as separate classes. The Nichols Board has determined these
conditions have been satisfied with respect to the Merger and, therefore,
there will not be any separate class voting with respect to adoption of the
Merger Agreement. See "BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION
OF THE NICHOLS BOARD" and "COMPARATIVE RIGHTS OF NICHOLS STOCKHOLDERS AND
CORNING STOCKHOLDERS--Business Combinations--Mergers and Consolidations of
Nichols Which Are Not Related Person Business Combinations."
Voting on Other Matters. On all matters other than the election and removal
of Directors and the filling of vacancies on the Board of Directors and
except as described above with respect to certain Combinations and as
otherwise required by Delaware law, the holders of Class A Common Stock and
the holders of Class B Common Stock vote together as a single class, with the
holders of the Class A Common Stock entitled to one-tenth of a vote per share
and the holders of the Class B Common Stock entitled to one vote per share.
The holders of Class C Common Stock are not entitled to vote on any question
presented to the stockholders of Nichols, except (i) as described above with
respect to certain Combinations and (ii) as required under DGCL. Pursuant to
Delaware law, the holders of Class C Common Stock are entitled to vote with
respect to any proposed amendment to the Certificate of Incorporation which
would increase or decrease the par value of a share of Class C Common Stock
or alter or change the powers, preferences or special rights of the shares of
that class so as to adversely affect holders of such shares.
Dividends and Distribution Rights
Dividends. The holders of all three classes of Nichols Common Stock are
entitled to share ratably in any dividends declared by the Nichols Board,
subject to the preferential rights of any series of Preferred Stock issued
and outstanding at the time the dividend is declared.
Other Distributions. If Nichols were liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of all three classes of
Nichols Common Stock would receive the same distributions per outstanding
share, subject to the preferential rights of any series of Nichols Preferred
Stock then outstanding.
Conversion Rights. Each holder of Class B Common Stock may, in such holder's
sole discretion and at such holder's option, convert such holder's shares of
Class B Common Stock into fully paid and non-assessable shares of Class A
Common Stock at the rate of one share of Class A Common Stock for each share
of Class B Common Stock surrendered for conversion, subject to adjustment
from time to time as provided in Nichols' Certificate of Incorporation in the
event of any capital reorganization, consolidation or merger of Nichols.
Preferred Stock
The Board of Directors of Nichols has the authority to provide for the
issuance of any series of Preferred Stock, the number of shares included in
such series, the voting powers, designations, preferences and other rights,
if any, of such series and the qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares thereof then outstanding) of such series.
The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
affirmative vote of the holders of a majority of the stock of Nichols
entitled to vote irrespective of Section 242 of the DGCL, which requires that
such an increase or decrease be voted upon by the holders of the Preferred
Stock voting as a separate class. In 1990, the Nichols Board authorized the
issuance of the Nichols Preferred Stock.
Voting Rights. Except as otherwise required by law, holders of Nichols
Preferred Stock have no voting rights; provided, however, that Nichols
cannot, without the vote of the holders of a majority of the Nichols
Preferred Stock voting as a single class:
(i) amend or change the Certificate of Incorporation of Nichols so as to
amend or change any of the rights, preferences or privileges of or
limitations provided in the Certificate of Incorporation for the benefit of
any shares of Nichols Preferred Stock;
(ii) change or alter the conversion price or alter or cancel the conversion
provisions of any Nichols Preferred Stock; or
(iii) alter any provision in the Certificate of Incorporation requiring the
vote of the holders of a specified percentage of the number of shares of the
Nichols Preferred Stock.
Dividends. The holders of Nichols Preferred Stock are entitled to receive
dividends at the rate of $26.25 per share per annum, which dividends shall
accrue whether or not earned or declared, beginning on the second anniversary
of the date of the original issuance of the first share of such stock
(January 4, 1993) and continuing through
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January 4, 1995. Dividends are cumulative and payable in cash quarterly on
the first days of January, April, July and October, beginning on April 1,
1993 and ending on April 1, 1995. Dividends payable to holders of Nichols
Preferred Stock must be paid prior to any distributions to holders of Nichols
Common Stock.
Liquidation, Dissolution or Winding Up. In the event of the liquidation,
dissolution or winding up of Nichols, the holders of shares of Nichols
Preferred Stock are entitled to $350.00 per share and the amount, if any, of
accrued and unpaid dividends, before any payment or declaration can be made
in respect of Nichols' Common Stock.
Voluntary Redemption by Nichols. Nichols may, at its option, redeem at any
time, in whole or in part, the outstanding shares of Nichols Preferred Stock.
The redemption price is $350.00 per share plus accrued and unpaid dividends.
Conversion
The Nichols Preferred Stock is convertible into Class A Common Stock on the
following terms and conditions:
Voluntary Conversion by Holder. Each share of Nichols Preferred Stock may,
at any time and at the option of its holder, be converted into Class A Common
Stock; provided, however, that such shares may not be converted after the
third day preceding the date, if any, fixed by the Board of Directors to
redeem the Nichols Preferred Stock. Each share of Nichols Preferred Stock is
convertible into the number of shares of Class A Common Stock which results
from dividing (i) the sum of $350.00 plus the amount of any accrued and
undeclared dividends by (ii) the conversion price in effect at the time of
conversion. The conversion price is $35.00 per share, subject to adjustment
for stock subdivisions and combinations and certain dividends and
distributions.
Automatic Conversion. The Nichols Preferred Stock shall automatically be
converted into Class A Common Stock on the first to occur of the following:
(i) if and when, prior to January 4, 1995, the market price of one share
of Class A Common Stock equals or exceeds the conversion price on at least
ten out of 20 consecutive trading days;
(ii) the close of trading on January 4, 1995; provided, however, that if
the Class A Common Stock on the date of such automatic conversion is not
listed on a national securities exchange, included in the NASDAQ National
Market System or otherwise included in the NASDAQ System, then the Nichols
Preferred Stock shall not be automatically convertible until such time as the
Class A Common Stock is so listed or traded for one year; and
(iii) the occurrence of any merger, consolidation, reorganization, sale,
reclassification or other transaction in which the outstanding Class A Common
Stock is to be exchanged for common stock or securities of another entity, or
for cash or other property, or in which the outstanding Class A Common Stock
is to be exchanged for other securities and/or rights to such other
securities ("Merger or Exchange").
In general, each share of Nichols Preferred Stock is convertible into the
number of shares of Class A Common Stock which results from dividing (i) the
sum of $350 plus the amount of any accrued and undeclared dividends (subject
to adjustment for, among other things, stock subdivisions and combinations,
dividends and distributions) by (ii) the conversion price in effect at the
time of conversion. Except with respect to Mergers or Exchanges, the current
conversion price is $70.00 and is subject to certain adjustments for, among
other things, stock subdivisions and combinations, dividends and
distributions; provided, however, on January 4, 1995, the conversion price
will be equal to twice the average per-share market price of Nichols' Class A
Common Stock for the 20-day period ending on that date. Upon the occurrence
of a Merger or Exchange, in general, the conversion price will be equal to
$70.00 or, if lower, the value determined by the Nichols Board of the
consideration to be received in exchange for one share of Nichols Common
Stock. As a result of the Merger, the outstanding shares of Nichols Preferred
Stock will convert directly into Corning Common Shares in the manner and
amount provided for pursuant to the terms of the Nichols Preferred Stock.
COMPARATIVE RIGHTS OF NICHOLS
STOCKHOLDERS AND CORNING STOCKHOLDERS
If the Merger is consummated, holders of Nichols Common Stock will become
holders of Corning Common Shares and the rights of the former Nichols
stockholders will be governed by the laws of the State of New York and by the
Corning Certificate of Incorporation and the Corning By-Laws, as amended (the
"Corning By-Laws"). The rights of Corning stockholders under the Corning
Certificate of Incorporation and the Corning By-Laws differ in certain
respects from the rights of Nichols stockholders under the Nichols
Certificate of Incorporation and the
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Nichols By-Laws. Certain differences between the rights of Corning
stockholders and Nichols stockholders are summarized below. This summary is
qualified in its entirety by reference to the full text of such documents.
For information as to how such documents may be obtained, see "AVAILABLE
INFORMATION."
Beneficial Ownership of Stock
The outstanding equity of Nichols is owned approximately 15.3% by Dr. Nichols
and 15.7% by the directors and management of Nichols as a group. As a result
of the disproportionate voting rights between the Class A Common Stock and
the Class B Common Stock, Dr. Nichols holds approximately 60% of the combined
voting power of the Nichols Common Stock and therefore has the power, among
other things, to elect a majority of the Nichols Board and to assure adoption
of the Merger Agreement by the Nichols stockholders. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NICHOLS."
The Corning Common Shares are widely held.
Business Combinations
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock (or, if the certificate of
incorporation provides for more or less than one vote per share, a majority
of the votes of the outstanding stock) of a corporation entitled to vote on
the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be
consummated.
The Nichols Certificate of Incorporation was amended in June 1991 to
incorporate several provisions concerning stockholder approval of certain
mergers or consolidations.
Mergers and Consolidations of Nichols Which are Not Related Person Business
Combinations. Except as otherwise provided below for "Related Person Business
Combinations", a merger or consolidation as a result of which the outstanding
shares of Class A Common Stock, Class B Common Stock and/or Class C Common
Stock are converted into, exchanged for or otherwise transferred for cash,
securities or other property requires the affirmative vote of the holders of
a majority of the outstanding shares of Class A Common Stock, voting as a
separate class, unless the "Equal Consideration Requirement" set forth below
is satisfied as to Class A Common Stock. Likewise, except as provided below
for Related Party Business Combinations, such a merger or consolidation
requires the affirmative vote of the holders of a majority of the outstanding
shares of Class C Common Stock, voting as a separate class, unless the Equal
Consideration Requirement is satisfied as to the Class C Common Stock.
The "Equal Consideration Requirement" referred to above is satisfied as to
the Class A Common Stock and the Class C Common Stock with respect to any
merger or consolidation in which the holders of the Class A Common Stock,
Class B Common Stock and Class C Common Stock are to receive cash, securities
or other property for their shares identical on a per outstanding share basis
to the cash, securities or other property which the holders of the other such
classes of stock are to receive in the merger or consolidation.
If the consideration to be received in a merger or consolidation by the
holders of the Class A Common Stock is not identical (on a per outstanding
share basis) to the consideration to be received by the holders of the Class
B Common Stock or Class C Common Stock, the Equal Consideration Requirement
is satisfied as to the Class A Common Stock only if the consideration to be
received by the holders of the Class A Common Stock per outstanding share is
identical to the consideration to be received per outstanding share by the
holders of the class of stock (Class B Common Stock or Class C Common Stock)
whose holders are to receive per share consideration having the greater fair
market value.
Likewise, if the consideration to be received in a merger or consolidation by
the holders of the Class C Common Stock is not identical (on a per
outstanding share basis) to the consideration to be received by the holders
of the Class A Common Stock or Class B Common Stock, the Equal Consideration
Requirement is satisfied as to the holders of Class C Common Stock only if
the consideration to be received by the holders of the Class C Common Stock
per outstanding share is identical to the consideration to be received per
outstanding share by the holders of the class of stock (Class A Common Stock
or Class B Common Stock) whose holders are to receive per share consideration
having the greater fair market value.
Related Person Business Combination of Nichols. A "Related Person Business
Combination" (as defined below) requires the affirmative vote of the holders
of a majority of the shares of Class A Common Stock not owned by a "Related
Person" (as defined below), voting as a separate class, unless both the Equal
Consideration Requirement set forth above and the Fair Consideration
Requirement referred to below are each satisfied, as to the Class A Common
Stock. Likewise, a Related Business Combination requires the affirmative vote
of the holders of a majority of the shares of Class C Common Stock not owned
by a Related Person, voting as a separate class, unless both the Equal
Consideration Requirement set forth above and the Fair Consideration
Requirement referred to below are each satisfied as to the Class C Common
Stock.
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The "Fair Consideration Requirement" referred to above is satisfied as to the
relevant class of stock (Class A Common Stock or Class C Common Stock) with
respect to a Related Person Business Combination if both of the following
conditions are satisfied as to that class of stock:
(i) The aggregate amount of cash plus the fair market value as of the date
of the consummation of the Related Person Business Combination of any
consideration other than cash to be received per share by holders of that
class of stock is at least equal to the higher of the following:
(A) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid or agreed to be paid by the
Related Person for any shares of Class A Common Stock, Class B Common Stock
or Class C Common Stock acquired by it (1) within the period of eighteen (18)
months immediately prior to and including the date of the most recent public
announcement of the proposal of the Related Person Business Combination (the
"Announcement Date") or (2) in the transaction or series of transactions in
which it became a Related Person; or
(B) the fair market value per share of Class A Common Stock or Class C
Common Stock, whichever is higher, on the Announcement Date or on the date on
which the Related Person became a Related Person (such latter date is
referred to as the "Determination Date"), whichever is higher; and
(ii) The consideration to be received by holders of the relevant class of
stock (Class A Common Stock or Class C Common Stock) is in cash or in the
same form of consideration and in the same ratio of forms of consideration as
the Related Person has previously paid for shares of any class or series of
Class A Common Stock, Class B Common Stock or Class C Common Stock. If the
Related Person has paid for shares of any such class with varying forms of
consideration, the form of consideration for the relevant class of stock
shall be (A) either all cash or the form or forms of consideration used to
acquire the largest number of shares of such class of common stock previously
acquired by the Related Person and (B) in the same ratio of forms of
consideration used to acquire the largest number of shares of such class of
common stock previously acquired by the Related Person.
The Nichols Certificate of Incorporation defines a "Related Person" to mean,
in general, any individual, corporation, partnership or other person or
entity, or any group of two or more of the foregoing that have agreed to act
together, which, together with its affiliates and associates, beneficially
owns, in the aggregate, ten percent (10%) or more of any class of the
outstanding shares of Class A Common Stock or Class B Common Stock, and any
affiliate or associate of any such individual, corporation, partnership or
other person or entity (excluding therefrom Dr. Albert Nichols).
The Nichols Certificate of Incorporation defines a "Related Person Business
Combination" to mean, in general (a) any merger, consolidation, combination
or reorganization of Nichols or a subsidiary with or into a Related Person or
of a Related Person with or into Nichols or a subsidiary, (b) any sale,
lease, exchange, transfer, liquidation or other disposition, including
without limitation, a mortgage or any other security device, of assets of
Nichols and/or one or more subsidiaries (including without limitation, any
voting securities of a subsidiary) constituting a substantial part of Nichols
to a Related Person, (c) any sale, lease, exchange, transfer, liquidation or
other disposition, including without limitation, a mortgage or any other
security device, of assets of a Related Person (including without limitation,
any voting securities of a subsidiary of such Related Person), to Nichols
and/or one or more subsidiaries of the assets constitute a substantial part
of such Related Person or the consideration of the assets from Nichols or the
subsidiary or subsidiaries constitutes a substantial part of Nichols, (d) any
recapitalization or reorganization that would have the effect, directly or
indirectly, of increasing the voting power of a Related Person, and (e) any
agreement, contract or other arrangement providing for any of the
transactions described above as a Related Person Business Combination.
The Nichols Board has determined that, with respect to the Merger, the Equal
Consideration Requirement has been satisfied and that the Merger does not
involve a Related Person and, therefore, the Fair Consideration Requirement
does not apply.
Under the New York Business Corporation Law (the "NYBCL"), the vote of the
holders of two-thirds of all outstanding shares of stock of a New York
corporation entitled to vote thereon is required for mergers and
consolidations, and for sales, leases, exchanges or other dispositions of all
or substantially all the assets of a corporation, if not made in the usual or
regular course of the business actually conducted by such corporation.
The Corning Certificate of Incorporation contains several provisions
concerning business combinations and takeovers.
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Corning's Fair Price Amendment
In 1985, Corning's stockholders adopted the Fair Price Amendment which, in
general, requires the approval by the holders of at least 80% of the voting
power of the outstanding capital stock of Corning entitled to vote generally
in the election of directors (the "Voting Stock") as a condition for mergers
and certain other Business Combinations (as defined below) with any
beneficial owner of more than 10% of such voting power (an "Interested
Shareholder") unless (i) the transaction is approved by at least a majority
of the Continuing Directors (as defined below) or (ii) certain minimum price,
form of consideration and procedural requirements are met.
Amendment or repeal of this provision or the adoption of any provision
inconsistent therewith would require the affirmative vote of at least 80% of
the Voting Stock unless the proposed amendment or repeal or the adoption of
the inconsistent provision was approved by two-thirds of the entire Corning
Board and a majority of the Continuing Directors.
An Interested Shareholder is, in general, defined in the Fair Price Amendment
as any person or group who is, or was at any time within the two-year period
immediately prior to the date in question, the beneficial owner of more than
10% of the voting power of the Voting Stock. The term "beneficial owner"
includes persons directly or indirectly owning or having the right to acquire
or vote the shares. In certain circumstances, an Interested Shareholder could
include persons or entities affiliated or associated with the Interested
Shareholder.
A Business Combination in general includes the following transactions: (i) a
merger or consolidation of Corning or any subsidiary with an Interested
Shareholder; (ii) the sale or other disposition by Corning or a subsidiary of
assets having an aggregate fair market value of $20,000,000 or more if an
Interested Shareholder is a party to the transaction; (iii) the issuance or
transfer of stock or other securities of Corning or of a subsidiary to an
Interested Shareholder in exchange for cash or property (including stock or
other securities) having an aggregate fair market value of $20,000,000 or
more; (iv) the adoption of any plan or proposal for the liquidation or
dissolution of Corning proposed by or on behalf of an Interested Shareholder;
(v) any reclassification of securities, recapitalization, merger or
consolidation with a subsidiary or other transaction which has the effect,
directly or indirectly, of increasing the percentage of the outstanding stock
of any class of Corning or a subsidiary owned by an Interested Shareholder;
or (vi) any agreement, contract or other arrangement providing for any one or
more of the foregoing actions.
A Continuing Director is in general (i) any member of the Board who is not an
Interested Shareholder or affiliated or associated with an Interested
Shareholder and was a director of Corning prior to the time the Interested
Shareholder became an Interested Shareholder, and any successor to such a
Continuing Director who is not affiliated or associated with an Interested
Shareholder and was recommended or elected by a majority of the Continuing
Directors then on the Board, or (ii) any person who was elected to the Board
at Corning's 1985 Annual Meeting of Shareholders and any successor thereto
who was recommended or elected by a Majority of the Continuing Directors then
on the Board. It is possible that the approval of a majority of the
Continuing Directors could be obtained in accordance with the Fair Price
Amendment in circumstances where the Continuing Directors constitute less
than a quorum of the entire Board.
The 80% affirmative stockholder vote would not be required if the Business
Combination in question had been approved by a majority of the Continuing
Directors or if all the minimum price, form of consideration and procedural
requirements described below are satisfied.
Minimum Price and Form of Consideration Requirements. In a Business
Combination involving cash or other consideration being paid to Corning's
stockholders, the consideration required, in the case of each class of Voting
Stock, would be either cash or the same type of consideration used by the
Interested Shareholder in acquiring the largest portion of its shares of that
class of Voting Stock prior to the first public announcement of the proposed
Business Combination. In addition, the fair market value (as calculated in
accordance with the Fair Price Amendment) of such consideration would be
required to meet the minimum price requirements described below.
In the case of payments to holders of Corning's Common Stock, the fair market
value per share of such payments would have to be at least equal in value to
the higher of (i) the highest per share price paid by the Interested
Shareholder in acquiring any shares of Corning's Common Stock during the two
years prior to the first public announcement of the proposed Business
Combination (the "Announcement Date") or in the transaction in which it
became an Interested Shareholder, whichever is higher, and (ii) the fair
market value per share of Common Stock on the announcement date or on the
date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher.
In the case of payments to holders of any series of Corning's voting Series
Preferred Stock, if any, the fair market value per share of such payments
would have to be at least equal to the higher of (i) the price per share
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determined with respect to shares of such series in the same manner as
described in the preceding paragraph with respect to shares of Common Stock
and (ii) the highest preferential amount per share to which the holders of
such series of Series Preferred Stock "are entitled in the event of a
voluntary or involuntary liquidation of Corning."
If the transaction does not involve any cash or other property being received
by any of the other stockholders, such as a sale of assets or an issuance of
Corning's securities to an Interested Shareholder, then the minimum price,
form of consideration and procedural requirements would not apply, but an 80%
vote of stockholders would still be required unless the transaction was
approved by a majority of the Continuing Directors.
Procedural Requirements. An 80% stockholder vote would be required to
authorize a Business Combination with an Interested Shareholder if Corning,
after the Interested Shareholder became an Interested Shareholder, had failed
to pay full quarterly dividends on its Preferred Stock, if any, or reduced
the rate of dividends paid on its Common Stock, unless such failure or
reduction was approved by a majority of the Continuing Directors.
The Fair Price Amendment would also require an 80% stockholder vote to
authorize a Business Combination with an Interested Shareholder if the
Interested Shareholder had acquired any additional shares of the Voting
Stock, directly from Corning or otherwise, in any transaction subsequent to
the transaction pursuant to which it became an Interested Shareholder.
The receipt by the Interested Shareholder at any time after it became an
Interested Shareholder, whether in connection with the proposed Business
Combination or otherwise, of the benefit of any loans or other financial
assistance or tax advantages provided by Corning (other than proportionately
as a stockholder) would also trigger the 80% stockholder vote requirement to
authorize a Business Combination with an Interested Shareholder (unless the
Business Combination was approved by a majority of the Continuing Directors).
Finally, the 80% stockholder vote requirement to authorize a Business
Combination with an Interested Shareholder would apply unless a proxy or
information statement disclosing the terms and conditions of the proposed
Business Combination complying with the requirements of the proxy rules
promulgated under the Securities Exchange Act of 1934, as amended, was mailed
to all Corning stockholders at least 45 days prior to the consummation of a
Business Combination, unless the Business Combination was approved by a
majority of the Continuing Directors.
In summary, none of the minimum price, form of consideration or procedural
requirements described above would apply in the case of a Business
Combination approved by a majority of the Continuing Directors. In the
absence of such approval, all of such requirements would have to be satisfied
to avoid the 80% stockholder vote requirements.
Certain Other Provisions of Corning's Restated Certificate and By-Laws
In addition to the Fair Price Amendment, Corning's Restated Certificate and
By-Laws contain other provisions that may discourage a third party from
seeking to acquire Corning or to commence a proxy contest or other
takeover-related action. Corning has classified its Board of Directors such
that one-third of the Board is elected each year to a three-year term of
office. In addition, holders of Corning Common Shares may remove a director
from office at any time prior to the expiration of his or her term only with
cause and by vote of a majority of Corning Common Shares outstanding. These
provisions, together with provisions concerning the size of the Corning Board
and requiring that premature vacancies on the Board be filled only by a
majority of the entire Board, may not be amended, altered or repealed, nor
may Corning adopt any provision inconsistent therewith, without the
affirmative vote of at least 80% of the Voting Stock of Corning or the
approval of two-thirds of the entire Corning Board of Directors.
Corning has a Preferred Share Purchase Rights plan which could have a
deterrent effect on parties seeking to acquire large quantities of Corning
Common Shares without the approval of the Corning Board. See "DESCRIPTION OF
CORNING CAPITAL STOCK--Preferred Share Purchase Rights".
Corning's By-Laws contain certain procedural requirements with respect to the
nomination of directors by stockholders that require, among other things,
delivery of notice by such stockholders to the Secretary of Corning not later
than 60 days prior to the date of the stockholders' meeting at which such
nomination is to be considered. Corning's By-Laws do not provide that a
meeting of the Corning Board may be called by stockholders.
The effect of these provisions may be to deter attempts either to obtain
control of Corning or to acquire a substantial amount of its stock, even if
such a proposed transaction was at a significant premium over the
then-prevailing market value of Corning Common Shares, or to deter attempts
to remove the Corning Board and the management of Corning, even though some
or a majority of the holders of Corning Common Shares may believe such
actions to be beneficial.
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Appraisal Rights
Under the DGCL, except as otherwise provided by the DGCL, stockholders have
the right to demand and receive payment of the fair value of their stock in
the event of a merger or consolidation. However, except as otherwise provided
by the DGCL, stockholders do not have appraisal rights if, among other
things, the consideration they receive for their shares consists of (i)
shares of stock of the corporation surviving or resulting from such merger or
consolidation, (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation will be either listed on a
national securities exchange (which is true in the case of the Corning Common
Shares) or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 stockholders, (iii) cash in lieu of
fractional shares of the corporations described in clause (i) or (ii) of this
sentence, or (iv) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (i), (ii) and (iii). See
"THE MERGER--Appraisal Rights for Unlisted Stock Only."
Stockholders of a New York corporation have the right to dissent and receive
payment of the fair value of their shares, except as otherwise provided by
the NYBCL, in the event of certain amendments or changes to the certificate
of incorporation adversely affecting their shares, certain mergers or
consolidations, certain sales, leases, exchanges or other dispositions of all
or substantially all the corporation's assets and certain share exchanges.
State Takeover Legislation
Delaware Business Combination Law. Section 203 of the DGCL (the "Delaware
Business Combination Law") generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations, (ii) sales or dispositions of assets having an aggregate
market value equal to 10% or more of the aggregate market value of the
corporation determined on a consolidated basis, (iii) issuances of stock
(except for certain pro rata and other issuances) and (iv) disproportionate
benefits from the corporation (including loans and guarantees) between a
Delaware corporation and any interested stockholder (defined generally as any
person who, directly or indirectly, beneficially owns 15% or more of the
outstanding voting stock of the corporation (including a person who has an
agreement or understanding for the voting of such stock with a person who
beneficially owns 15% or more of such voting stock)) for a period of three
years after the date on which the interested stockholder became an interested
stockholder. The restrictions of the Delaware Business Combination Law do not
apply, however, (A) if, prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in such stockholder's becoming an interested stockholder, (B) if,
upon consummation of the transaction resulting in such stockholder's becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation at the time the transaction was commenced
(excluding, for the purposes of determining the number of shares outstanding,
shares owned by persons who are directors and also officers and by certain
employee plans of the corporation), (C) if, on or subsequent to such date,
the business combination is approved by the board of directors and the
holders of at least two-thirds of the shares not involved in the transaction
or (D) under certain other circumstances.
In addition, a Delaware corporation may adopt an amendment to its certificate
of incorporation or by-laws expressly electing not to be governed by the
Delaware Business Combination Law if, in addition to any other vote required
by law, such amendment is approved by the affirmative vote of a majority of
the shares entitled to vote. Such amendment will not, however, be effective
until 12 months after such stockholder vote and will not apply to any
business combination with an interested stockholder who was such on or prior
to the effective date of such amendment. Nichols has not amended the Nichols
By-Laws to elect not to be governed by the Delaware Business Combination Law.
The Nichols Board, however, has approved the Merger and the Dr. Nichols
Letter Agreement and, as a result, the restrictions of the Delaware Business
Combination Law do not apply to the Merger. See "THE MERGER--Agreement of Dr.
Nichols to Vote in Favor of the Merger".
New York Business Combination Law. Section 912 of the NYBCL (the "New York
Business Combination Law") prohibits any business combination (defined to
include a variety of transactions, including mergers, sales or dispositions
of assets, issuances of stock, liquidations, reclassifications and benefits
from the corporation, including loans or guarantees) with, involving or
proposed by any interested stockholder (defined generally as any person who,
directly or indirectly, beneficially owns 20% or more of the outstanding
voting stock of a resident domestic New York corporation) for a period of
five years after the date on which the interested stockholder became an
interested stockholder. After such five-year period a business combination
between a resident domestic New York corporation and such interested
stockholder is prohibited unless either certain "fair price" provisions are
complied with or the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by such interested
stockholder or its affiliates. The New York Business Combination Law exempts
from its prohibitions any business combination with an interested stockholder
if such business combination, or the purchase of stock by the interested
stockholder that caused such stockholder to become such, is approved by the
board of directors
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of the resident domestic New York corporation prior to the date on which the
interested stockholder becomes such. Corning will be considered a resident
domestic New York corporation as long as at least 10% of its voting stock is
owned beneficially by residents of (or organizations having their principal
offices in) the State of New York.
A resident domestic New York corporation may adopt an amendment to its
by-laws, approved by the affirmative vote of the holders, other than
interested stockholders and their affiliates and associates, of a majority of
the outstanding voting stock, excluding the voting stock of interested
stockholders and their affiliates and associates, expressly electing not to
be governed by the New York Business Combination Law. However, such amendment
will not be effective until 18 months after such stockholder vote and will
not apply to any business combination with an interested stockholder who was
such on or prior to the effective date of such amendment. Corning has not
amended the Corning By-Laws to elect not to be governed by the New York
Business Combination Law.
Stockholder Rights Plan
Corning has a Preferred Share Purchase Rights plan which could have a
deterrent effect on parties seeking to acquire large quantities of Corning
Common Shares without the approval of the Corning Board. See "DESCRIPTION OF
CORNING CAPITAL STOCK--Preferred Share Purchase Rights."
Amendments to Charters
Under the DGCL, unless otherwise provided in the charter, a proposed charter
amendment requires an affirmative vote of a majority of all votes entitled to
be cast on the matter. If any such amendment would adversely affect the
rights of any holders of shares of a class or series of stock, the vote of
the holders of a majority of all outstanding shares of the class or series,
voting as a class, is also necessary to authorize such amendment. The DGCL
requires an affirmative vote of a majority of the total number of shares
outstanding and entitled to vote thereon to amend the Nichols Certificate of
Incorporation. The Nichols Certificate of Incorporation provides that it may
be amended, at any time, in the manner prescribed by the DGCL.
Under the NYBCL, amendments of the certificate of incorporation may be
authorized by vote of the holders of a majority of all outstanding shares
entitled to vote thereon at a meeting of stockholders. If any such amendment
would adversely affect the rights of any holders of shares of a class or
series of stock, the vote of the holders of a majority of all outstanding
shares of the class or series, voting as a class, is also necessary to
authorize such amendment. Pursuant to the Merger Agreement, Corning has
agreed that, prior to the Closing or earlier termination of the Merger
Agreement, it will not adopt any amendments to the Corning Certificate of
Incorporation in a manner which could reasonably be expected to be materially
adverse to the shareholders of Nichols. See "THE MERGER--Certain
Covenants--Conduct of Business by Corning."
Amendments to By-Laws
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested in
the stockholders, except to the extent that the charter or the by-laws vest
it in the board of directors.
The Nichols By-Laws may be amended or repealed by either the affirmative vote
of the stockholders at an annual meeting, without previous notice, or at a
special meeting, with notice of the proposed amendment or repeal, or by the
vote of a majority of the directors then in office, acting at any meeting of
the Nichols Board.
Under the NYBCL, except as otherwise provided in the certificate of
incorporation, by-laws may be amended, repealed or adopted by vote of the
holders of the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a by-law
adopted by the stockholders, by-laws also may be amended, repealed or adopted
by the board by such vote as may be therein specified, which may be greater
than the vote otherwise prescribed by law, but any by-law adopted by the
board may be amended or repealed by the stockholders entitled to vote thereon
as provided by the NYBCL.
The Corning By-Laws may be amended or repealed by either the affirmative vote
of the holders of record of a majority in number of the outstanding shares of
stock entitled to vote or by the vote of a majority of the whole Board of
Directors, except that any amendment to or repeal of certain provisions of
the By-Laws (relating to, among other things, the number, election, term, and
general powers of directors, as well as the amendment or repeal of such
provisions, must be approved by an affirmative vote of the holders of record
of outstanding shares representing at least 80% of the voting power of all
the outstanding shares of capital stock of Corning entitled to vote generally
in the election of directors.
Preemptive Rights
Under the DGCL, a stockholder does not possess preemptive rights unless such
rights are specifically granted in the certificate of incorporation. The
Nichols Certificate of Incorporation does not provide for preemptive rights.
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Under the NYBCL, except as otherwise provided in the NYBCL or in the
certificate of incorporation, the holders of equity shares are granted
certain preemptive rights. The Corning Certificate of Incorporation provides
that no holder of Corning Common Shares or Series Preferred Stock has any
preemptive rights to purchase any shares or other securities of Corning.
Redemption of Capital Stock
Under the DGCL, subject to certain limitations, a corporation's stock may be
made subject to redemption by the corporation at its option, at the option of
the holders of such stock or upon the happening of a specified event. Nichols
may, at its option and at the direction of the Nichols Board, redeem at any
time, in whole or in part, the outstanding shares of the Nichols Preferred
Stock from any source of funds legally available therefor. The redemption
price for each share of Nichols Preferred Stock shall be $350 plus an amount
equal to all dividends on shares, accrued and unpaid, whether or not earned
or declared, to and including the date for redemption. See "DESCRIPTIONS OF
NICHOLS CAPITAL STOCK--Preferred Stock".
Under the NYBCL, subject to certain limitations, a corporation's certificate
of incorporation may provide for one or more classes or series of shares to
be redeemable at the option of the corporation or the holders thereof, at
such prices, within such times and under such conditions as are stated in the
certificate of incorporation. Corning's Certificate of Incorporation provides
for the issuance of redeemable securities and Corning has issued redeemable
preferred stock. See "DESCRIPTION OF CORNING CAPITAL STOCK--Series B
Preferred Stock" and "--Series C Preferred Stock".
Dividend Sources
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
certificate of incorporation, either (i) out of surplus or (ii) if there is
no surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution
out of net profits is permitted, however, if the corporation's capital is
less than the amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets,
until such deficiency has been repaired.
Under the NYBCL, except as otherwise provided in the NYBCL, dividends may be
declared and paid and other distributions may be made out of surplus only, so
that the net assets of the corporation remaining after such declaration,
payment or distribution must at least equal the amount of its stated capital.
A corporation may declare and pay dividends or make other distributions,
except when the corporation is insolvent or would thereby be made insolvent,
or when the declaration, payment or distribution would be contrary to any
restrictions contained in the corporation's certificate of incorporation.
Duration of Proxies
Under the DGCL and the Nichols By-Laws, no proxy is valid more than three
years after its date unless otherwise provided in the proxy.
Under the NYBCL, no proxy is valid more than 11 months after its date unless
otherwise provided in the proxy. Irrevocable proxies may be created for (i) a
pledgee, (ii) a person who has purchased or agreed to purchase the shares,
(iii) a creditor of the corporation who extends credit in consideration of
the proxy, (iv) a person who has contracted to perform services as an officer
of the corporation if a proxy is required by the employment contract and (v)
a person designated under a voting agreement.
Stockholder Action
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote, if a written consent or consents setting forth the action taken is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote upon such action were present
and voted. The Nichols By-Laws permit stockholder action to be taken by a
majority written consent.
Under the NYBCL, any action required or permitted to be taken by vote may be
taken without a meeting by written consent or consents, setting forth the
action taken and signed by the holders of all outstanding shares entitled to
vote thereon, provided that the certificate of incorporation may contain a
provision requiring the written consent of the holders of less than all
outstanding shares. The Corning Certificate of Incorportion does not contain
such a provision and, accordingly, the Corning shareholders may act without a
meeting only by unanimous written consent.
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Special Stockholder Meetings
The DGCL provides that a special meeting of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the by-laws. The Nichols By-Laws provide
that special meetings may be called by the Board or by the President.
The Corning By-Laws provide that special meetings of the stockholders may be
called at any time by the Chairman of the Board, the Chairman of the
Executive Committee, a Vice Chairman or the President and shall be called by
the Secretary or an Assistant Secretary upon order of the Corning Board, the
Chairman of the Corning Board a majority of the Corning directors. In
addition, the NYBCL provides that if, for a period of one month after the
date fixed by or under the by-laws for the annual meeting of stockholders or,
if no date has been so fixed, for a period of 13 months after the last annual
meeting, there is a failure to elect a sufficient number of directors to
conduct the business of the corporation, the board shall call a special
meeting for the election of directors. If such special meeting is not called
by the board within two weeks after the expiration of such period or if it is
called but there is a failure to elect such directors for a period of two
months after the expiration of such period, holders of 10% of the shares
entitled to vote in an election of directors may, in writing, demand the call
of a special meeting for the election of directors.
Cumulative Voting
The DGCL permits cumulative voting. The Nichols By-Laws provide that at all
elections of directors of Nichols a holder of any class or series of stock
then entitled to vote in such election shall be entitled to as many votes as
shall equal the number of votes which (but for such provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to
be elected in the election in which his class or series of stock is entitled
to vote, and each stockholder may cast all of such votes for a single nominee
for director or may distribute them among the number to be voted for, or for
any two or more of them as he may see fit.
Under the NYBCL, the certificate of incorporation may provide that in all
elections of directors each stockholder is entitled to cumulate such
stockholder's votes. The Corning Certificate of Incorporation does not
contain such a provision.
Number and Election of Directors
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of
directors. However, if the certificate of incorporation contains provisions
fixing the number of directors, such number may not be changed without
amending the certificate of incorporation. The Nichols By-Laws provide that
the number of directors of Nichols shall be not less than five nor more than
nine, until changed in accordance with applicable law. The exact number of
directors shall be fixed from time to time, within the limit specified, by
resolution of the Nichols Board or the stockholders. Subject to the foregoing
provisions for changing the exact number of directors, the number of
directors has been fixed at eight. Each of the directors of Nichols shall
hold office until his successor shall have been duly elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided.
The DGCL permits the certificate of incorporation of a corporation or a
by-law adopted by the stockholders to provide that directors be divided into
one, two or three classes. The term of office of one class of directors shall
expire each year with the terms of office of no two classes expiring the same
year. Nichols does not have a classified board of directors.
Subject to certain limitations, the NYBCL permits the number of directors of
a corporation to be fixed by its by-laws, by action of the stockholders or by
action of the board under the specific provision of a by-law adopted by the
stockholders. At each annual meeting of the stockholders, directors are to be
elected to hold office until the next annual meeting, except as described
below for corporations with classified boards. The Corning Certificate of
Incorporation provides that the number of directors shall be 21 unless
otherwise determined by a resolution adopted by a majority of the entire
Board of Directors, but in no instance shall the number be less than nine nor
more than 24 persons.
The NYBCL permits the certificate of incorporation or the specific provisions
of a by-law adopted by the stockholders to provide that directors be divided
into either two, three or four classes. All classes must be as nearly equal
in number as possible, and no class may include less than three directors.
The term of office of one class of directors shall expire each year with the
terms of office of no two classes expiring the same year. Corning's
Certificate of Incorporation provides for three classes of directors each to
be elected for terms of three years with each class consisting of as nearly
an equal number of directors as possible.
<PAGE>
<PAGE>
Removal of Directors
The DGCL provides that a director or directors may be removed with or without
cause by the holders of a majority of the shares then entitled to vote at an
election of directors, except that (i) members of a classified board may be
removed only for cause, unless the certificate of incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an election
of the entire board of directors or of the class of directors of which such
director is a part.
The Nichols Certificate of Incorporation provides that the holders of Class A
Common Stock will be entitled to vote as a separate class on the removal,
with or without cause, of any director elected by the holders of Class A
Common Stock, provided that, to the extent permitted by applicable law, any
director may be removed for cause by the Nichols Board.
The Nichols Certificate of Incorporation provides further that the holders of
the Class B Common Stock (subject to voting rights that may be granted to
holders of Nichols Preferred Stock outstanding from time to time) will be
entitled to vote as a separate class on the removal, with or without cause,
of any director who was elected either by the holders of the Class B Common
Stock or by directors who were elected by the holders of the Class B Common
Stock, provided that any director may be removed for cause by the Nichols
Board.
The Nichols By-Laws provide that, subject to the provisions of the Nichols
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of Nichols given at a special meeting of the
stockholders called for the purpose, except that no director may be removed
without cause (unless the entire Nichols Board is removed) if the votes cast
against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire Nichols Board.
The NYBCL provides that any or all of the directors may be removed for cause
by vote of the stockholders and, if the certificate of incorporation or the
specific provisions of a by-law adopted by the stockholders provide,
directors may be removed by action of the board of directors. If the
certificate of incorporation or the by-laws so provide, any or all of the
directors may be removed without cause by vote of the stockholders. The
removal of directors, with or without cause, is subject to the following: (i)
in the case of a corporation having cumulative voting, no director may be
removed when the votes cast against such director's removal would be
sufficient to elect the director if voted cumulatively and (ii) if a director
is elected by the holders of shares of any class or series, such director may
be removed only by the applicable vote of the holders of the shares of that
class or series voting as a class. An action to procure a judgment removing a
director for cause may be brought by the attorney general or by the holders
of 10% of the outstanding shares, whether or not entitled to vote.
The Corning Certificate of Incorporation provides for the removal of
directors by an affirmative vote of the holders of record of outstanding
shares representing a majority of the voting power of all of the outstanding
shares of capital stock entitled to vote generally in the election of
directors or by the affirmative vote of a majority of the entire Board of
Directors, but, in either case, only for cause.
Vacancies
Under the DGCL, unless otherwise provided in the certificate of incorporation
or the by-laws, vacancies on the board of directors and newly created
directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, provided
that, in the case of a classified board, such vacancies and newly created
directorships may be filled by a majority of the directors elected by such
class, or by the sole remaining director so elected. In the case of a
classified board, directors elected to fill vacancies or newly created
directorships shall hold office until the next election of the class for
which such directors have been chosen and until their successors have been
duly elected and qualified. In addition, if, at the time of the filling of
any such vacancy or newly created directorship, the directors in office
constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of
the total number of outstanding shares entitled to vote for such directors,
summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in
office.
The Nichols Certificate of Incorporation provides that any vacancy in the
office of a director elected by the holders of Class A Common Stock may be
filled by a vote of such holders voting as a separate class and, in the
absence of a stockholder vote, such vacancy may be filled by the remaining
directors who were elected either by the holders of the Class A Common Stock
or by directors who were elected by the holders of the Class A Common
<PAGE>
<PAGE>
Stock or, if no such directors are then in office, the remaining directors
regardless of how they were elected. Any director elected by the Nichols
Board to fill a vacancy shall serve until the next annual meeting of
stockholders and until his successor has been elected and has qualified. If
permitted by the Nichols By-Laws, the Nichols Board may increase the number
of directors and any vacancy so created may be filled by the Nichols Board;
provided that unless certain conditions exist in respect of the next previous
annual meeting of stockholders the Nichols Board may be so enlarged by the
Nichols Board only to the extent that 25% of the enlarged Nichols Board
consists of directors elected by the holders of the Class A Common Stock or
by persons appointed to fill vacancies created by the death, resignation or
removal of persons elected by the holders of the Class A Common Stock.
The Nichols Certificate of Incorporation provides further that any vacancy in
the office of a director elected by the holders of Class B Common Stock may
be filled by a vote of such holders voting as a separate class (subject to
voting rights that may be granted to holders of Nichols Preferred Stock
outstanding from time to time) and in the absence of a stockholder vote, such
vacancy may be filled by the remaining directors who were elected either by
the holders of the Class B Common Stock or by the directors who were elected
by the holders of the Class B Common Stock or, if no such directors are then
in office, the remaining directors regardless of how they were elected.
The Nichols By-Laws provide that, except as otherwise provided in the Nichols
Certificate of Incorporation, any vacancy in the Nichols Board, whether
because of death, resignation, disqualification, an increase in the number of
directors, or any other cause, may be filled by vote of the majority of the
remaining directors, although less than a quorum. Each director so chosen to
fill a vacancy shall hold office until his successor shall have been elected
and shall qualify or until he shall resign or shall have been removed in the
manner hereinafter provided.
Under the NYBCL, newly created directorships resulting from an increase in
the number of directors and vacancies occurring on the board for any reason
except the removal of directors without cause may be filled by vote of the
board of directors. However, the certificate of incorporation or by-laws may
provide that such newly created directorships or vacancies are to be filled
by vote of the stockholders. Unless the certificate of incorporation or the
specific provisions of a by-law adopted by the stockholders provide that the
board may fill vacancies occurring on the board by reason of the removal of
directors without cause, such vacancies may be filled only by vote of the
stockholders. A director elected to fill a vacancy, unless elected by the
stockholders, will hold office until the next meeting of stockholders at
which the election of directors is in the regular order of business and until
his or her successor has been elected and qualified.
The Corning Certificate of Incorporation does not provide for the removal of
directors without cause. The Corning Certificate of Incorporation provides
that any vacancy on the Corning Board other than a vacancy created by the
expiration of a director's regular term will be filled by a majority vote of
the remaining directors.
Indemnification of Directors and Officers
Under the DGCL, a corporation may not indemnify any director, officer,
employee or agent made or threatened to be made party to any threatened,
pending or completed proceeding unless such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding,
had no reasonable cause to believe that his or her conduct was unlawful. The
Nichols By-Laws contain provisions which require Nichols to indemnify such
persons to the full extent permitted by the DGCL.
The DGCL also establishes several mandatory rules for indemnification. In the
case of a proceeding by or in the right of the corporation to procure a
judgment in its favor (e.g., a stockholder derivative suit), a corporation
may indemnify an officer, director, employee or agent if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation; provided, however, that no
person adjudged to be liable to the corporation may be indemnified unless,
and only to the extent that, the Delaware Court of Chancery or the court in
which such action or suit was brought determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court deems proper. A director, officer, employee or
agent who is successful, on the merits or otherwise, in defense of any
proceeding subject to the DGCL's indemnification provisions must be
indemnified by the corporation for reasonable expenses incurred therein,
including attorneys' fees.
The DGCL and the Nichols By-Laws state that a determination must be made that
a director or officer has met the required standard of conduct before the
director or officer may be indemnified. The determination may be made by (i)
a majority vote of a quorum of disinterested directors, (ii) independent
legal counsel (selected by the disinterested directors) or (iii) the
stockholders.
The DGCL and the Nichols By-Laws require Nichols to advance reasonable
expenses to a director or officer after such person provides an undertaking
to repay the corporation if it is determined that the required standard of
conduct has not been met. In addition, the Nichols By-Laws permit Nichols to
advance expenses to other employees and agents in a similar manner.
<PAGE>
<PAGE>
The indemnification and advancement of expenses described above under the
DGCL is not exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Nichols has entered into indemnification agreements with certain of its
officers and directors which provide that indemnification and advancement of
expenses will be available to such persons regardless of any amendment to or
revocation of the indemnification provisions contained in the Nichols
By-Laws.
Under the NYBCL, a corporation may indemnify its directors and officers made,
or threatened to be made, a party to any action or proceeding, except for
stockholder derivative suits, if such director or officer acted in good
faith, for a purpose which he or she reasonably believed to be in or, in the
case of service to another corporation or enterprise, not opposed to the best
interests of the corporation, and, in criminal proceedings, had no reasonable
cause to believe his or her conduct was unlawful. In the case of stockholder
derivative suits, the corporation may indemnify a director or officer if he
or she acted in good faith for a purpose which he or she reasonably believed
to be in or, in the case of service to another corporation or enterprise, not
opposed to the best interests of the corporation, except that no
indemnification may be made in respect of (i) a threatened action, or a
pending action which is settled or otherwise disposed of, or (ii) any claim,
issue or matter as to which such person has been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought, or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
Any person who has been successful on the merits or otherwise in the defense
of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered
by a court pursuant to the NYBCL, any indemnification under the NYBCL
pursuant to the above paragraph may be made only if authorized in the
specific case and after a finding that the director or officer met the
requisite standard of conduct by (i) the disinterested directors if a quorum
is available, (ii) the board upon the written opinion of independent legal
counsel or (iii) the stockholders.
The indemnification described above under the NYBCL is not exclusive of other
indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws or when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of stockholders, (iii) a resolution of directors or (iv) an
agreement providing for such indemnification, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally
entitled.
The Corning By-Laws provide that Corning shall, to the full extent authorized
or permitted by law, indemnify any person who is or was a director or officer
of Corning, or any person who is or was serving as an officer or director of
any other corporation, joint venture, trust, employee benefit plan or other
enterprise in which Corning has a financial interest as an investor or
creditor, and such person is serving or did serve at the express request of
Corning.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Corning or
Nichols pursuant to the foregoing provisions, Corning and Nichols have been
informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Limitation of Personal Liability of Directors
The DGCL provides that a corporation's certificate of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law, (iii) violation of certain provisions of the DGCL, (iv) any transaction
from which the director derived an improper personal benefit or (v) any act
or omission prior to the adoption of such a provision in the certificate of
incorporation. The Nichols Certificate of Incorporation contains a provision
eliminating the personal liability for monetary damages of its directors to
the full extent permitted under Delaware law.
The NYBCL provides that a corporation's certificate of incorporation may
contain a provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for damages for any breach
of duty
<PAGE>
<PAGE>
in such capacity. However, no such provision can eliminate or limit the
liability of any director (i) if a judgment or other final adjudication
adverse to such director establishes that such director's acts or omissions
were in bad faith, or involved intentional misconduct or a knowing violation
of law, or that the director personally gained in fact a financial profit or
other advantage to which such director was not legally entitled or that the
director's acts violated certain provisions of the NYBCL or (ii) for any act
or omission prior to the adoption of such a provision in the certificate of
incorporation.
The Corning Certificate of Incorporation provides that its directors shall
not be liable to Corning or its stockholders for damages for any breach of
duty as a director, except to the extent that such exemption from liability
or limitation thereof is not permitted under the NYBCL.
LEGAL OPINIONS
The legality of the Corning Common Shares to be issued in connection with the
Merger is being passed upon for Corning by William C. Ughetta, Senior Vice
President and General Counsel of Corning. As of July 27, 1994, Mr. Ughetta
owned substantially less than 1% of the outstanding Corning Common Shares
(including shares subject to options).
Certain of the tax consequences of the Merger to Nichols stockholders will be
passed upon at the Effective Time, as a condition to the Merger, by Fulbright
& Jaworski L.L.P., on behalf of Nichols. See "THE MERGER--Certain Federal
Income Tax Consequences". Attorneys with the firm of Fulbright & Jaworski
L.L.P. participating in the representation of Nichols in the Merger did not
own any shares of Nichols Common Stock and owned 1,100 Corning Common Shares
as of July 27, 1994.
EXPERTS
The consolidated financial statements of Corning and of Dow Corning
incorporated in this Proxy Statement/Prospectus by reference to Corning's
1993 Annual Report on Form 10-K for the year ended January 2, 1994, have been
so incorporated in reliance on the reports of Price Waterhouse, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Damon, as of December 31, 1992 and
1991, and for each of the three years ended December 31, 1992, incorporated
by reference in this Proxy Statement/Prospectus by reference to Corning's
Current Report on Form 8-K dated August 4, 1993 have been so incorporated in
reliance on the report of Arthur Andersen & Co., independent public
accountants, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Nichols as of December 31, 1992 and
1993 and for each of the three years in the period ended December 31, 1993
included in this Proxy Statement/Prospectus have been audited by Deloitte &
Touche, independent public accountants, as stated in their report, which
includes explanatory paragraphs relating to an investigation by the OIG and
relating to Nichols' ability to continue as a going concern, appearing
herein, and have been included herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
<PAGE>
<PAGE>
INDEX TO NICHOLS CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1992 and 1993 F-2
Statements of Consolidated Operations for the Years Ended December 31, 1991, 1992 and 1993 F-4
Statements of Consolidated Stockholders' Equity for the Years ended December 31, 1991, 1992
and 1993 F-5
Statements of Consolidated Cash Flows for the Years Ended December 31, 1991, 1992 and 1993. F-8
Notes to Consolidated Financial Statements for the Years Ended December 31, 1991, 1992 and
1993 F-10
</TABLE>
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Nichols Institute:
We have audited the accompanying consolidated balance sheets of Nichols
Institute and its subsidiaries (the Company) as of December 31, 1992 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Nichols Institute and its
subsidiaries as of December 31, 1992 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the consolidated financial statements, the Company
has received a subpoena from the Office of the Inspector General of the
Department of Health and Human Services (OIG) requesting documents in
connection with an investigation and internal review concerning the possible
submission of false or improper claims to the Medicare and Medicaid programs.
No claim or charges have been made against the Company relating to this
investigation. The ultimate outcome of this investigation cannot presently be
determined. Accordingly, no provision for any loss that may result from this
investigation has been made in the accompanying consolidated financial
statements.
As discussed in Notes 1 and 3 to the consolidated financial statements, at
December 31, 1993, the Company was not in compliance with certain covenants
of its senior note agreements and the senior lenders have not waived those
covenants. The senior note agreements provide that, as a result of failure to
comply with the covenants, the note holders have the right to declare the
entire unpaid balance immediately due and payable, and if that were to occur,
the Company would not have the funds required to retire the debt unless
alternative financing is obtained. Management's plans in regard to these
matters are described in Notes 1 and 3. The note holders' right to declare
the entire unpaid balance under the note agreements immediately due and
payable raises substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty, except for the classification of amounts due
under the senior note agreements as current.
/s/ Deloitte & Touche
Costa Mesa, California
February 28, 1994, except for Note 14
as to which the date is June 1, 1994
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1992 1993 1994
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,598,000 $ 9,628,000 $ 13,487,000
Receivables--trade (net of allowance for doubtful
accounts and contractual allowances of
$11,786,000 in 1992, $13,436,000 in 1993 and
$14,411,000 in 1994) (Note 1) 59,618,000 55,092,000 55,582,000
Inventories (Note 1) 8,656,000 11,000,000 11,214,000
Refundable income taxes 1,929,000 355,000 201,000
Prepaid expenses 2,230,000 1,726,000 1,817,000
Deferred income taxes (Note 8) 8,340,000 7,752,000 7,752,000
Total current assets 84,371,000 85,553,000 90,053,000
PROPERTY (Notes 1 and 4):
Land and land improvements 7,455,000 7,474,000 7,491,000
Buildings 55,750,000 55,962,000 55,842,000
Equipment 77,460,000 80,719,000 81,065,000
Leasehold improvements 3,039,000 3,132,000 3,308,000
143,704,000 147,287,000 147,706,000
Less accumulated depreciation and amortization (43,139,000) (55,732,000) (59,052,000)
Net property 100,565,000 91,555,000 88,654,000
OTHER ASSETS:
Goodwill (net of accumulated amortization of
$6,075,000 in 1992, $8,296,000 in 1993 and
$8,821,000 in 1994) (Notes 1 and 12) 48,374,000 46,701,000 46,114,000
Purchased technology (net of accumulated
amortization of $384,000 in 1992, $1,113,000 in
1993 and $1,293,000 in 1994) (Note 1) 13,933,000 13,162,000 12,993,000
Covenants not-to-compete, net (Notes 1 and 12) 6,519,000 5,047,000 4,671,000
Customer lists (Note 1) 6,139,000 1,481,000 1,350,000
Other 3,797,000 3,690,000 3,572,000
Total other assets 78,762,000 70,081,000 68,700,000
$247,407,000
$263,698,000 $247,189,000
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1992 1993 1994
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank financing (Note 2) $ 4,521,000 $ 0 $ 0
Current portion of long-term debt (Note 3) 9,260,000 65,311,000 64,901,000
Accounts payable 13,509,000 16,199,000 20,078,000
Accrued compensation and employee benefits 8,884,000 7,955,000 9,577,000
Accrued noncompetition obligations (Notes 1, 11
and 12) 1,068,000 3,194,000 2,702,000
Accrued restructuring liability (Note 10) 3,126,000 8,604,000 5,715,000
Other accrued liabilities 8,081,000 3,494,000 4,832,000
Total current liabilities 48,449,000 104,757,000 107,805,000
LONG-TERM DEBT (including subordinated debt of
$2,292,000 in 1992, $1,772,000 in 1993 and
$1,585,000 in 1994) (Note 3) 103,475,000 38,191,000 38,048,000
DEFERRED INCOME TAXES (Notes 1 and 8) 10,104,000 7,383,000 7,383,000
OTHER NONCURRENT LIABILITIES, INCLUDING ACCRUED
NONCOMPETITION OBLIGATIONS (Notes 1, 11 and 12) 5,088,000 4,670,000 3,476,000
COMMITMENTS AND CONTINGENCIES
(Notes 1, 4, 8 and 11)
STOCKHOLDERS' EQUITY (Notes 3, 5 and 6):
Preferred Stock--$.10 par value; 1,000,000 shares
authorized; shares issued and outstanding,
11,128 in 1992 and 14,698 in 1993 and 1994,
having an aggregate liquidation preference of
$3,895,000 in 1992 and $5,144,000 in 1993 and
1994 1,000 1,000 1,000
Class A Common Stock--$.10 par value; 20,000,000
shares authorized; shares issued and
outstanding, 5,993,100 in 1992, 6,079,809 in
1993 and 6,080,002 in 1994 599,000 608,000 608,000
Class B Common Stock--$.10 par value (convertible
into Class A Common Stock); 13,333,333 shares
authorized; shares issued and outstanding,
1,681,097 in 1992, 1,621,865 in 1993 and
1,621,672 in 1994 168,000 162,000 162,000
Class C Common Stock--$.10 par value; 30,000,000
shares authorized; shares issued and
outstanding, 8,995,141 in 1992 and 8,995,262 in
1993 and 1994 900,000 900,000 900,000
Additional paid-in capital 89,904,000 90,307,000 90,307,000
Retained earnings (accumulated deficit) 5,010,000 210,000 (1,283,000)
Total stockholders' equity 96,582,000 92,188,000 90,695,000
$247,407,000
$263,698,000 $247,189,000
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1991 1992 1993 1993 1994
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES (Note 1) $236,293,000 $284,198,000 $279,601,000 $71,649,000 $69,629,000
COSTS AND EXPENSES:
Cost of sales 148,678,000 179,159,000 175,332,000 44,383,000 46,542,000
Selling, general and administrative 63,422,000 75,763,000 75,211,000 18,694,000 18,484,000
Research and development (Note 9) 2,970,000 4,979,000 4,245,000 1,088,000 899,000
Academic Associate fees and
royalties (Notes 9 and 11) 3,035,000 2,542,000 2,761,000 708,000 657,000
Interest (Note 1) 6,671,000 12,202,000 11,734,000 3,099,000 2,655,000
Unusual charges (Notes 10 and 11) 3,160,000 1,789,000
Provision for restructuring (Note
10) 875,000 13,000,000 12,840,000
Equity in restructuring provision of
partnership (Notes 10 and 12) 2,917,000
Equity in losses of partnerships,
net of restructuring provision
(Notes 10 and 12) 2,181,000 1,350,000
Other income (902,000) (372,000) (232,000) (163,000) (65,000)
Total costs and expenses 229,847,000 288,623,000 285,051,000 67,809,000 70,961,000
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 6,446,000 (4,425,000) (5,450,000) 3,840,000
(1,332,000)
PROVISION (BENEFIT) FOR INCOME TAXES
(Notes 1 and 8) 3,043,000 (137,000) (1,039,000) 1,728,000 184,000
NET INCOME (LOSS) $ 3,403,000 $ (4,288,000) $ (4,411,000) $ 2,112,000 $(1,516,000)
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $0.23 $(0.28) $(0.28) $0.12 $(0.09)
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING (Notes 1, 5 and 6) 14,961,000 15,992,000 16,698,000 17,886,000 16,710,000
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Stock Common Stock Common Stock Common Stock
Retained
earnings
Shares Shares Shares Shares Additional (accumu-
out- out- out- out- paid-in lated
standing Amount standing Amount standing Amount standing Amount capital
deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1,
1991 -- $ -- 10,750,535 $1,075,000 3,655,881 $ 366,000 -- $ -- $67,760,000 $6,927,000
Net income 3,403,000
Issuance of
Series E
Preferred
Stock and
Class A
Common Stock
in connection
with business
acquisitions
(Notes 5 and
12) 11,128 1,000 73,381 7,000 3,123,000
Accrued
Preferred
Stock
dividends
(Note 5) (146,000)
Issuance of
Class A
Common
Stock--debt
exchanges
(Notes 3 and
5) 16,275 2,000 181,000
Exercise of
stock options
(Note 6) 264,486 26,000 30,379 3,000 1,463,000
One-for-two
reverse split
of Class A
Common Stock
and Class B
Common Stock
and
subsequent
issuance of
stock
dividend--one
share of
Class C
Common Stock
for each
share of
Class A
Common Stock
and Class B
Common Stock
(Note 5) (5,580,750) (558,000) (1,761,557) (176,000) 7,342,307 734,000 3,000
Class A and
Class C
Common Stock
redeemed in
connection
with exercise
of stock
options (42,557) (4,000) (4,033) (53,000) (587,000)
Conversion of
Class B
Common Stock
into Class A
Common Stock
(Note 5) 165,346 17,000 (165,346) (17,000)
Income tax
benefit
arising from
exercise of
nonstatutory
stock options
and
disposition
of Class A
Common Stock
and Class C
Common Stock
acquired by
option 946,000
Other 15,000
BALANCES,
December 31,
1991 11,128 1,000 5,646,716 565,000 1,728,978 173,000 7,368,653 737,000 73,435,000 9,600,000
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Stock Common Stock Common Stock Common Stock
Retained
earnings
Shares Shares Shares Shares Additional (accumu-
out- out- out- out- paid-in lated
standing Amount standing Amount standing Amount standing Amount capital deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
December 31,
1991 11,128 $1,000 5,646,716 $565,000 1,728,978 $173,000 7,368,653 $737,000 $73,435,000 $9,600,000
Net loss (4,288,000)
Issuance of
Class A and
Class C
Common Stock
in connection
with business
acquisitions
(Notes 5 and
12) 43,740 4,000 1,583,790 159,000 14,787,000
Accrued
Preferred
Stock
dividends
(Note 5) (146,000)
Issuance of
Class A
Common
Stock--debt
exchanges
(Notes 3 and
5) 210,143 21,000 1,104,000
Exercise of
stock options
(Note 6) 51,419 5,000 51,419 5,000 649,000
Class A and
Class C
Common Stock
redeemed in
connection
with exercise
of stock
options (6,799) (1,000) (8,721) (1,000) (31,000) (117,000)
Conversion of
Class B
Common Stock
into Class A
Common Stock
(Note 5) 47,881 5,000 (47,881) (5,000)
Other (40,000) (39,000)
BALANCES,
December 31,
1992 11,128 1,000 5,993,100 599,000 1,681,097 168,000 8,995,141 900,000 89,904,000 5,010,00
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Class A Class B Class C
Preferred Stock Common Stock Common Stock Common Stock
Retained
earnings
Shares Shares Shares Shares Additional (accumu-
out- out- out- out- paid-in lated
standing Amount standing Amount standing Amount standing Amount capital deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
December 31,
1992 11,128 $1,000 5,993,100 $599,000 1,681,097 $168,000 8,995,141 $900,000 $89,904,000 $5,010,000
Net loss (4,411,000)
Issuance of
Series E
Preferred
Stock in
connection
with 1991
business
acquisition
(Notes 5 and
12) 3,570 251,000
Accrued
Preferred
Stock
dividends
(Note 5) (240,000)
Issuance of
Class A
Common
Stock-- debt
exchanges
(Notes 3 and
5) 27,477 3,000 151,000
Exercise of
stock options
(Note 6) 121
Conversion of
Class B
Common Stock
into Class A
Common Stock
(Note 5) 59,232 6,000 (59,232) (6,000)
Other 1,000 (149,000)
BALANCES,
December 31,
1993 14,698 1,000 6,079,809 608,000 1,621,865 162,000 8,995,262 900,000 90,307,000 210,000
Net loss
(unaudited) (1,516,000)
Accrued
Preferred
Stock
dividends
(unaudited)
(Note 5) (60,000)
Conversion of
Class B
Common Stock
into Class A
Common Stock
(unaudited)
(Note 5) 193 (193)
Other
(unaudited) 83,000
BALANCES, March
31, 1994
(unaudited) 14,698 $1,000 6,080,002 $608,000 1,621,672 $162,000 8,995,262 $900,000 $90,307,000 $(1,283,000)
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1991 1992 1993 1993 1994
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,403,000 $ (4,288,000) $(4,411,000) $ 2,112,000 $(1,516,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 14,452,000 20,592,000 21,788,000 5,452,000 5,287,000
Deferred income taxes (3,370,000) 851,000 (2,132,000) 1,202,000
Loss from sale of property 41,000 312,000 10,000
Equity in losses of partnerships 5,098,000 1,350,000
Accrued noncompetition obligations 3,029,000 2,916,000 2,893,000 726,000 743,000
Payments for covenants not to compete (4,180,000) (3,534,000) (2,459,000) (1,252,000) (2,141,000)
Non-cash portion of provision for
unusual charges 2,202,000
Non-cash portion of provision for
restructuring 6,482,000 3,369,000
Change in assets and liabilities, net
of effects of business acquisitions:
(Increase) decrease in assets:
Receivables--trade (8,792,000) (5,241,000) 4,226,000 (2,893,000) (489,000)
Inventories (396,000) (1,199,000) (2,344,000) (63,000) (214,000)
Refundable income taxes (641,000) (1,288,000) 1,574,000 574,000 154,000
Prepaid expenses (643,000) 1,125,000 504,000 (640,000) (92,000)
Increase (decrease) in liabilities:
Accounts payable 903,000 (1,047,000) 3,148,000 877,000 3,879,000
Accrued compensation and employee
benefits 2,112,000 (2,786,000) (929,000) 2,743,000 1,622,000
Accrued interest 538,000 417,000 (182,000) 1,838,000 1,555,000
Accrued restructuring liability 625,000 2,501,000 4,445,000 (1,308,000) (2,580,000)
Other accrued liabilities 260,000 2,204,000 (3,443,000) (1,747,000) (219,000)
Income taxes payable (607,000)
Other 135,000 107,000 47,000 13,000 8,000
Net cash provided by operating
activities 11,967,000 19,474,000 28,306,000 7,634,000 5,997,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property (37,694,000) (18,204,000) (8,914,000) (1,255,000) (1,549,000)
Proceeds from disposals of property 307,000 1,229,000 343,000
Business acquisitions (19,774,000) (3,220,000) (380,000) (372,000)
Investments in and advances to
partnership (2,974,000) (440,000)
Realized benefit of acquirees' tax loss
carryforwards 459,000
Other 149,000 (432,000) 516,000 (115,000) 57,000
Net cash used by investing (1,492,000)
activities (59,527,000) (21,067,000) (8,435,000) (1,742,000)
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
1991 1992 1993 1993 1994
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank
financing $ 7,309,000 $ (6,024,000) $ (4,521,000) $(3,611,000) $ 0
Net proceeds from issuance of senior
debt 29,450,000 9,968,000
Payments on long-term debt (2,802,000) (5,004,000) (9,127,000) (2,321,000) (697,000)
Payments of dividends on Preferred
Stock (193,000)
Net proceeds from other capital stock
transactions 1,809,000 484,000
Other 1,000 51,000
Net cash provided (used) by
financing activities 35,766,000 (576,000) (13,841,000) (5,931,000) (646,000)
NET (DECREASE) INCREASE IN CASH (11,794,000) (2,169,000) 6,030,000 (39,000)
3,859,000
CASH, beginning of period 17,561,000 5,767,000 3,598,000 3,598,000 9,628,000
CASH, end of period $ 5,767,000 $ 3,598,000 $ 9,628,000 $ 3,559,000 $13,487,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Liabilities issued and assumed in
connection with business
acquisitions:
Fair value of assets acquired
(including intangibles) $ 38,313,000 $ 32,373,000
Cash payments for business
acquisitions (19,774,000) (3,220,000)
Issuances of Preferred Stock, Class A
Common Stock and Class C Common
Stock (2,281,000) (13,857,000)
Total liabilities issued and
assumed $ 16,258,000 $ 15,296,000
Capital lease and equipment financing
obligations incurred $ 32,547,000 $ 138,000
Common Stock issued in connection with $ $
debt exchanges and warrant exercises 183,000 1,125,000 154,000
Interest paid (net of amount
capitalized) 5,981,000 10,876,000 11,869,000 $ 1,248,000 1,154,000
Income tax payments, net 6,001,000 371,000
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1994
(NOTES FOR THE THREE MONTHS ENDED MARCH 31, 1994 ARE UNAUDITED)
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
General--Nichols Institute (the Company) provides esoteric medical diagnostic
testing to clients nationwide, operates regional clinical laboratories,
provides substance abuse testing to medical and commercial customers
nationwide, and manufactures medical diagnostic kits which are distributed
worldwide. The Company grants credit to customers who consist primarily of
patients, hospitals, medical centers, clinics, physicians and other clinical
laboratories. Reimbursement for certain of the Company's services are made
through the Medicare and Medicaid programs.
Unaudited Financial Information--In the opinion of management of the Company,
the unaudited financial statements as of March 31, 1994, and for the three
months ended March 31, 1993 and 1994, reflect all adjustments which are
necessary for a fair presentation. During the three months ended March 31,
1994, the Company incurred unusual charges of $1,789,000 which consisted of
$1,255,000 in costs related to the "OIG Investigation" and $534,000 in
financing fees. The results of operations for the three months ended March
31, 1994 are not necessarily indicative of the results to be achieved for the
full year.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Going Concern and Management's Plans--The consolidated financial statements
have been prepared assuming that the Company will continue as a going
concern. This basis contemplates the realization of the Company's assets and
satisfaction of liabilities in the normal course of conducting business.
As further discussed in Note 3, at December 31, 1993, the Company was not in
compliance with certain covenants of its senior note agreements and the
senior lenders have not waived the covenants. The senior note agreements
provide that, as a result of the failure to comply with the covenants, the
noteholders have the right to declare the entire unpaid balance immediately
due and payable. If that were to occur, the Company would not have the funds
required to retire the debt unless alternative financing is obtained. The
noteholders' right to declare the entire unpaid balance under the note
agreements immediately due and payable raises substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty, except for the classification of the amounts due under
the senior note agreements as current.
No waivers have been obtained for the violations at December 31, 1993.
Additionally, results of operations for the three months ended March 31, 1994
were not sufficient to meet the financial covenants at March 31, 1994.
Furthermore, during the first quarter of 1994, the Company suspended its
negotiations with its senior noteholders to obtain waivers of the violations.
At that time, the Company began focusing on seeking alternative financing
arrangements. On April 20, 1994, the Company filed a Registration Statement
for issuance of $100,000,000 of public debt (see Note 14). In May 1994, the
Company began merger discussions with Corning Incorporated and suspended its
efforts for public debt financing (see Note 14).
The senior debt is expected to be prepaid after the merger is consummated.
However, no assurances can be made that the merger will be successful. Should
the merger not occur, management would have to seek alternative financing
arrangements to refinance the amounts outstanding under the senior notes and
to obtain working capital financing.
Inventories--Inventories, which consist principally of diagnostic kits,
instrumentation equipment held for sale, antisera, laboratory supplies and
packaging materials, are stated at the lower of cost (first-in, first-out) or
market.
Property--Property is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets
which range from three to 40 years. Leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful lives
of the assets or the terms of the related leases.
Goodwill--Goodwill represents the excess of the cost of purchased businesses
over the fair value of their net assets. Goodwill is amortized using the
straight-line method, generally over terms not greater than 25 years. The
Company periodically evaluates the recoverability of goodwill by comparing
the carrying value of goodwill to estimated cash flows from related
operations.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchased Technology--Purchased technology represents the value assigned to
technologies acquired in connection with the acquisition of London
Diagnostics, Inc. Purchased technology is amortized using the straight-line
method over 20 years. On at least an annual basis, the Company assesses the
recoverability of its purchased technology by comparing the carrying value of
the technology to estimated future margins from sales of the related products
and estimated cash flows of the subsidiary which utilizes the technology.
Covenants Not-to-Compete--Initial payments for covenants not-to-compete and
subsequent scheduled payments in excess of accruals are capitalized and
amortized using the straight-line method over the remaining terms of the
agreements (generally five or eight years). Future obligations under
covenants not-to-compete are accrued during the periods of forbearance (Note
12).
Customer Lists--The cost of customer lists is amortized using the
straight-line method over the estimated period of benefit, generally five to
seven years. On at least an annual basis, the Company evaluates the
recoverability of customer lists utilizing lifing studies or by comparing the
carrying value of the customer list and other intangibles within the
subsidiary to estimated cash flows from the related subsidiary.
Postemployment Benefits--During 1994, the Company adopted the standards
specified in Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits (SFAS No. 112) (Note 11). The adoption
of SFAS No. 112 did not have a significant effect on the Company's
consolidated financial statements.
Long-Term Debt--As a result of the Company's failure to comply with the
covenants in its senior note agreements at December 31, 1993, the fair value
of the Company's long-term debt was not readily determinablde (Note 3).
Revenue Recognition--Revenues are generally recognized when testing services
are completed or upon shipment of products. Revenues for research and
development contracts are recognized on a percentage of completion basis
(Note 9).
Contractual Allowances--The Company provides services to certain patients
covered by various third-party payer programs including the Federal Medicare
and state Medicaid programs. Billings for services under these third-party
payer programs are included in revenues net of allowances for estimated
differences between list prices and allowable program rates. Adjustments to
the allowances based on final settlement with the programs are recorded upon
settlement. Total contractual allowances offset against revenues during the
years ended December 31, 1991, 1992 and 1993 were $31,241,000, $42,110,000
and $43,534,000, respectively.
Net revenues from direct billings under Medicare and Medicaid programs, net
of contractual allowances, during the years ended December 31, 1991, 1992 and
1993 approximated 12%, 13% and 13% of net revenues or $27,273,000,
$37,345,000 and $37,201,000, respectively. Because the Company does not
directly bill Medicare and Medicaid for most testing services it provides to
hospitals and certain clinical laboratories, the percentages of the Company's
revenues originating from patients who participate in the Medicare and
Medicaid programs may significantly exceed the amounts indicated above.
Interest--Interest costs of $570,000 were capitalized during 1991 in
connection with the Company's facility development (Note 4).
Research and Development Expenditures--Research and development expenditures
of the Company are expensed as incurred (Note 9).
Income Taxes--During 1992, the Company adopted the standards specified in
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109) (Note 8).
Net Income (Loss) Per Common and Common Equivalent Share--Net income (loss)
per common and common equivalent share is based on the weighted average
number of shares of Class A Common Stock, Class B Common Stock and Class C
Common Stock (collectively, common shares) and (in 1991 and for the three
months ended March 31, 1993) common equivalent shares outstanding during the
period. Common equivalent shares relate to shares issuable upon the
conversion of Preferred Stock (Note 5), shares issuable upon the exercise of
stock options and warrants (Note 6), and shares to be issued in the future as
consideration for covenants not-to-compete (Note 12).
Reclassifications--Certain amounts as previously reported have been
reclassified to conform to the current period presentation.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. BANK FINANCING
At December 31, 1993, the Company had a $15,000,000 credit agreement with a
domestic bank, which was to expire on June 1, 1994 and which provided for
unsecured borrowings with interest at the prime rate plus one-fourth of one
percent (6-1/4% at December 31, 1993). The agreement required that the
Company pay commitment fees and meet certain financial covenants. No
borrowings were outstanding under this agreement as of December 31, 1993. As
a result of the Company's operating loss incurred in the fourth quarter of
1993, the Company was in default of certain covenants under the credit
agreement and the credit agreement has been terminated.
The Company has historically used this line to alleviate temporary working
capital shortfalls and believes it is prudent to maintain a working capital
line. In conjunction with the proposed $100,000,000 public debt offering, the
Company had obtained commitments for lines of credit providing for borrowings
of up to $25,000,000. These commitments expired as a result of the suspension
of the public debt offering (Note 1). Should the merger with Corning
Incorporated not occur (Note 14), the Company will have to seek new short
term financing arrangements.
The Company also had a revolving credit agreement with a German bank which
provided for borrowings of up to DM 1,500,000 (approximately $864,000 at the
exchange rate in effect as of December 31, 1993). As of December 31, 1993,
the agreement had expired and has not been renewed.
3. LONG-TERM DEBT
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31 March 31
1992 1993 1994
(Unaudited)
<S> <C> <C> <C>
Obligations under capital leases (Note 4) $ 33,457,000 $ 32,923,000 $ 32,551,000
10.12% senior notes payable in annual principal
installments of $4,290,000 commencing in May
1995 30,000,000 30,000,000 30,000,000
10.75% senior notes payable in annual principal
installments of $4,435,000, including
interest 26,611,000 22,176,000 22,176,000
10.43% senior notes due May 31, 1999 10,000,000 10,000,000 10,000,000
11.0% notes payable to former limited partners
of joint venture limited partnership (Note
12) requiring aggregate quarterly payments of
$238,000, including interest 4,766,000 3,813,000 3,575,000
9.5% notes payable 1,643,000 1,229,000 1,238,000
8.0% equipment financing note payable 1,467,000
Other notes generally payable in monthly
installments, having maturities through 2001
and bearing interest at rates ranging from
8.0% to 12.0% 4,791,000 3,361,000 3,409,000
112,735,000 103,502,000 102,949,000
Less current portion (9,260,000) (65,311,000) (64,901,000)
$103,475,000 $ 38,191,000 $ 38,048,000
</TABLE>
The Company's results of operations in the fourth quarter of 1993, before
restructuring and unusual charges of $16,000,000 (Note 10), were not
sufficient to meet the financial covenants under the Company's senior note
agreements at December 31, 1993. The senior note agreements provide that, as
a result of the failure to comply with the covenants, the noteholders have
the right to declare the entire unpaid balance immediately due and payable,
and as such, the remaining obligations of $62,176,000 under the note
agreements were classified as current as of December 31, 1993. The covenants
were not met again at March 31, 1994. As such, the obligations under the
senior note agreements as of December 31, 1993 and March 31, 1994 are
classified as current (Note 1).
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The senior notes require semi-annual interest payments, contain provisions
for prepayment penalties, preclude mergers under certain circumstances and
place limits on investments, capital expenditures, acquisition payments, new
debt issuances and leasing commitments, and, upon default, prohibit cash
dividends.
The 9.5% and certain other notes were issued in connection with business
acquisitions (Note 12) and are subordinated to bank financing and senior
notes. Other notes aggregating $543,000 at December 31, 1993 are convertible
at the option of the noteholders into common stock of a wholly-owned
subsidiary of the Company in the event of an underwritten public offering of
that subsidiary's common stock. The number of shares issuable upon such
conversion would be equal to the unpaid principal balance of the notes plus
any accrued but unpaid interest divided by the offering price of the stock.
The notes may also be exchanged, at the option of the holders, for Class A
Common Stock of the Company based on the market value of the Company's Class
A Common Stock for the first 20 trading days of the 30 trading days prior to
the date of exchange. During 1993, $154,000 of the notes' principal and
accrued interest balances were exchanged for the Company's Class A Common
Stock.
Principal maturities of long-term debt (excluding obligations under capital
leases), assuming amounts due under the senior note agreements are classified
as current, during each of the five years in the period ending December 31,
1998 and thereafter are $64,988,000, $2,574,000, $1,636,000, $1,070,000,
$166,000 and $145,000, respectively.
4. LEASING ARRANGEMENTS
The Company conducts certain of its operations from leased facilities and
also leases certain equipment.
The Company leases its primary facility under a capital lease which includes
a lease of a portion of the Company's land to the lessor and a leaseback of
the land and building by the Company. The lease expires in March 2031. The
amount of rent payable by the Company under the lease is approximately
$3,840,000 per year. Rent under the land and building lease is subject to
escalation every five years based on changes in a designated consumer price
index. The Company has options to buy its primary facility and terminate the
facilities lease at various times during the lease term at a formula price
which varies over time.
Property included in the accompanying consolidated balance sheets under
capital leases is as follows:
<TABLE>
<CAPTION>
December 31
1992 1993
<S> <C> <C>
Building $32,547,000 $32,547,000
Equipment 3,172,000 2,977,000
Less accumulated amortization (3,357,000) (4,427,000)
Net property $31,097,000
$32,362,000
</TABLE>
Future minimum payments under capital leases and the present value thereof
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1994 $ 4,156,000
1995 3,981,000
1996 3,882,000
1997 3,869,000
1998 3,862,000
Thereafter 123,862,000
Total future minimum payments under capital
leases 143,612,000
Less amount representing interest generally at
11.68% (110,689,000)
Present value of future minimum payments under
capital leases (Note 3) $ 32,923,000
</TABLE>
Under certain operating leases for other operating facilities and equipment,
the Company is obligated to pay property taxes, insurance and maintenance.
Rent expense under operating leases aggregated $6,241,000, $7,449,000 and
$7,962,000 during the years ended December 31, 1991, 1992 and 1993,
respectively.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is committed under noncancelable operating leases to make minimum
annual payments during the five years in the period ending December 31, 1998
and thereafter of $6,171,000, $4,751,000, $3,603,000, $2,960,000, $2,445,000
and $924,000, respectively.
5. STOCKHOLDERS' EQUITY
The Company's Preferred Stock is issuable in series, having such rights,
preferences and privileges as are determined by the Board of Directors when
each series is designated. The Company has the right to redeem the Series E
Convertible Preferred Stock at any time for cash equal to $350 per share plus
the amount of accrued and unpaid dividends. Each share of Series E
Convertible Preferred Stock converts automatically into five shares of the
Company's Class A Common Stock and five shares of its Class C Common Stock at
any time if the market price per share of Company Class A Common Stock equals
or exceeds $35 per share for ten out of 20 consecutive trading days through
January 4, 1995. Any Series E Convertible Preferred Stock which remain
outstanding as of January 4, 1995 will automatically convert at a conversion
price equal to $350, divided by twice the market price of the Company's Class
A Common Stock for the 20-day trading period ending on January 4, 1995. Upon
such conversion, the holder will also receive a corresponding number of
shares of Class C Common Stock.
Although the terms of the Series E Convertible Preferred Stock provide for
dividends to accrue only during the third and fourth years after issuance,
for financial reporting purposes, such dividends are treated as if accrual
began on the date of the related stock issuance and continue through the
conversion dates, at which time the accrued dividends are credited to
additional paid-in capital. As of December 31, 1993, accrued dividends on the
Series E Convertible Preferred Stock aggregated $340,000. Approximately
$193,000 in cash dividends on the Series E Convertible Preferred Stock were
paid during 1993. Due to the Company's failure to meet certain financial
covenants of its senior note agreements at December 31, 1993 (Note 3), the
Company was precluded from paying cash dividends and $96,000 of dividends
were in arrears at December 31, 1993. Additionally, dividends of $96,000
which were due in January 1994 have not been paid.
As of March 31, 1994, accrued dividends on the Series E Convertible Preferred
Stock aggregated $399,000 and the Company continues to be precluded from
paying cash dividends. At March 31, 1994, $192,000 of dividends were in
arrears.
Except for the election and removal of directors, other matters for which a
class vote is required by law, and certain related party business
combinations, holders of Class A Common Stock and Class B Common Stock vote
as a single class. Holders of Class A Common Stock are entitled to one-tenth
of a vote for each share held. Holders of Class B Common Stock are entitled
to one full vote for each share held. The Company's Class C Common Stock is a
nonvoting class of common stock. With respect to the election of directors,
the holders of Class A Common Stock elect two directors (representing 25% of
the number of directors to be elected), and the holders of Class B Common
Stock elect six directors (representing 75% of the number of directors). At
the discretion of the holders of Class B Common Stock, Class B Common Stock
is convertible on a share-for-share basis into Class A Common Stock.
On May 22, 1991, the Company declared a one-for-two reverse split of the
Company's Class A Common Stock and Class B Common Stock. Also on May 22,
1991, the Board of Directors declared a stock dividend of one share of Class
C Common Stock for each outstanding share of Class A and Class B Common Stock
after giving effect to the reverse stock split. The dividend was paid on, and
to stockholders of record as of, June 4, 1991.
At December 31, 1993, 3,815,543 and 3,997,424 shares of Company Class A
Common Stock and Class C Common Stock, respectively, had been reserved for
future issuance in connection with business acquisitions, in the event of
future debt exchanges, for conversion of Series E Convertible Preferred Stock
and option exercises.
6. STOCK OPTIONS AND WARRANTS
The Company has stock option plans which provide options to purchase a
maximum of 81,760 and 2,759,553 shares of the Company's Class A Common Stock
and Class C Common Stock, respectively. The options may be granted at prices
not less than the fair value at the date of grant. Options granted generally
become exercisable in three equal annual installments during the three-year
period after the date of grant. Options granted from August 1989 to February
1991 generally expire five years from the date of grant, and options granted
after February 1991 generally expire ten years from the date of grant.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the stock option transactions under the
Company's plans during the years ended December 31, 1991, 1992 and 1993 and
the three months ended March 31, 1994:
<TABLE>
<CAPTION>
Number of shares
Class A Class C Option
Common Common price range
Stock Stock per share
<S> <C> <C> <C>
Balance, January 1, 1991 664,207 -- $ 2.40-$15.88
Reverse stock split/Class C Common Stock dividend (285,831) 285,831
Granted 251,700 42,000 $11.69-$13.88
Exercised (264,486) (30,379) $ 2.40-$12.44
Expired or cancelled (110,138) $ 2.40-$15.88
Balance, December 31, 1991 255,452 297,452 $ 5.27-$15.75
Granted 819,305 $ 4.94-$11.31
Exercised (51,419) (51,419) $ 8.50-$12.94
Expired or cancelled (52,923) (81,718) $ 5.25-$15.75
Balance, December 31, 1992 151,110 983,620 $ 4.94-$15.75
Granted 2,003,000 $ 4.38-$ 6.88
Exercised (121) $ 5.25
Expired or cancelled (69,380) (686,252) $ 4.63-$15.75
Balance, December 31, 1993 81,730 2,300,247 $ 4.38-$15.13
Granted (unaudited) 404,500 $ 4.75-$ 5.06
Expired or cancelled (unaudited) (5,700) (260,504) $ 4.63-$13.76
Balance, March 31, 1994 (unaudited) 76,030 2,444,243 $ 4.38-$15.13
Exercisable at December 31, 1993 67,050 307,311 $ 4.63-$15.13
Exercisable at March 31, 1994 (unaudited) $ 4.75-$15.13
75,863 418,653
</TABLE>
At December 31, 1993, 190 persons had options to purchase 1,989,417 shares of
the Company's common stock (of which 56,270 shares of Class A Common Stock
and 276,530 shares of Class C Common Stock were exercisable) which are
intended to qualify for the special tax treatment afforded on incentive stock
options under the Internal Revenue Code at prices between $4.63 and $15.13
per share. These options expire at various times through November 2003. The
remaining options are not intended to receive such tax treatment. Options to
purchase 393,955 shares of stock were available for grant at December 31,
1993.
In connection with modifications to the senior note agreements in 1992,
detachable warrants were issued to purchase approximately 121,000 shares
(subject to antidilution clauses) of the Company's Class C Common Stock at
$9.92 per share. The warrants are immediately exercisable and expire in May
1999.
7. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) retirement plan. Any full-time staff member who is
at least age 18 may participate in the plan. Employer contributions to the
plan are discretionary. During the years ended December 31, 1991 and 1992,
the Company authorized contributions of $750,000 and $801,000, respectively.
Contributions for 1991 represented 50% of participant contributions up to
1.5% of qualified earnings for that year. Contributions for 1992 represented
50% of participant contributions up to 1.5% of qualified earnings through
October 1992 when Company contributions were suspended. No contributions were
authorized for 1993.
The Company maintains a partially self-insured medical and dental group
insurance plan for all full-time employees (as defined). The Company has
purchased "stop-loss" coverage to limit its exposure to catastrophic claims.
Reserves for future claims are recorded based upon historical and recent
claims experience.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Currently payable
(refundable):
Federal $ 5,157,000 $(1,155,000) $ 461,000
State 1,256,000 19,000 380,000
Foreign 148,000 252,000
Deferred Federal and state (3,370,000) 851,000 (2,132,000)
Total provision (benefit) $ 3,043,000 $ (137,000) $(1,039,000)
</TABLE>
Items comprising the net deferred tax assets (liabilities) at December 31 are
as follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Provisions for restructuring $ $
3,508,000 4,717,000
Net operating loss carryforwards 1,769,000 1,036,000
AMT credits 1,054,000
Write-off of intangibles 1,166,000 1,187,000
Bad debt reserves 1,324,000 2,412,000
Vacation accruals 1,027,000 660,000
Research and development expenditures 737,000 481,000
Self-insured employee benefit programs 588,000 900,000
Other 574,000 1,523,000
Gross deferred tax assets 10,693,000 13,970,000
Conversion to accrual tax basis for acquired entities
previously reporting on a cash basis (1,175,000) (497,000)
Book versus tax basis difference for:
Property (5,033,000) (5,525,000)
Purchased technology (5,853,000) (5,712,000)
Other (396,000) (1,867,000)
Gross deferred tax liabilities (12,457,000) (13,601,000)
Net deferred tax asset (liability) $ (1,764,000) $ 369,000
</TABLE>
Management believes it is more likely than not that the Company will fully
utilize its deferred tax assets by applying them against taxable income to be
generated in future years. The Company estimates that the majority of its
deferred tax assets will be realized during the next three years.
A reconciliation between the provision (benefit) for income taxes computed by
applying the Federal statutory tax rate to income (loss) before taxes and the
actual provision (benefit) for income taxes is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1991 1992 1993
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit)
for income taxes
at Federal
statutory rate $2,192,000 34 % $(1,505,000) (34)% $(1,907,000) (35)%
Write-down and
amortization of
goodwill 554,000 9 1,437,000 33 642,000 12
State income taxes,
net of Federal tax
benefit 397,000 6 281,000 5
Credit for
increasing
research and
development (35,000)
Other (65,000) (2) (69,000) (2) (55,000) (1)
Provision (benefit)
for income taxes $3,043,000 47 % $ (137,000) (3)% $(1,039,000) (19)%
</TABLE>
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1993, the Company had $3,006,000 in net operating loss
carryforwards available to offset future taxable income arising from business
acquisitions. Net operating losses are subject to annual limitations and
expire between 2002 and 2006.
The Internal Revenue Service (IRS) is examining the Company's 1988 through
1992 tax returns. The IRS has challenged certain deductions of the Company
and covenants not-to-compete entered into in connection with certain
acquisitions. During 1993, the Company filed a protest with the IRS against
the disallowance of these tax deductions and has requested a conference with
the IRS Appellate Conference on the matter. In April 1994, Nichols received a
proposed settlement from the IRS regarding the deduction of customer lists
acquired in connection with its Dallas operations. Nichols is currently
evaluating the settlement offer.
Although the amounts involved would be material if the deductions are
ultimately disallowed, the Company believes that the deductions are valid
because the noncompete agreements meet all of the judicially established
tests for such agreements and that this matter will not have a material
adverse effect on its consolidated financial condition or its results of
operations. Accordingly, no provision for losses relating to this matter has
been recorded in the accompanying consolidated financial statements.
9. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has various agreements with unrelated limited partnerships, which
provide for research and development of certain medical diagnostic kits. The
Company purchased the technology resulting from the research and pays
royalties based on a percentage of revenues from the sale of certain
diagnostic kits ($1,389,000, $1,002,000 and $934,000 for the years ended
December 31, 1991, 1992 and 1993, respectively). All development under these
contracts was complete as of December 31, 1987.
In connection with its acquisition of London Diagnostics, Inc. (Note 12), the
Company became a party to an arrangement with an independent distributor
(under which the distributor provided a portion of the funding) to develop
and provide certain medical diagnostic kits utilizing chemiluminescent
technology. Revenues from the arrangement were recognized on the percentage
of completion basis. During the years ended December 31, 1992 and 1993,
revenues of approximately $1,113,000 and $744,000, respectively, were
recognized from such arrangement. Research and development costs expended
under the arrangement amounted to $2,017,000 and $340,000 during the years
ended December 31, 1992 and 1993, respectively. Development under the
arrangement was completed during 1993. Under this arrangement, the Company
owns all the rights to the diagnostic kits developed, and the distributor has
the right to purchase the kits from the Company, manufacture the kits in
conjunction with the Company, and market in the Far East any such kits
purchased, manufactured or developed. Under a separate licensing agreement,
the distributor was granted rights to the remaining technology which enabled
it to manufacture the kits on a stand-alone basis. During the years ended
December 31, 1992 and 1993, the Company received $625,000 and $1,000,000,
respectively, relating to the separate licensing agreement. All amounts due
from the distributor under this agreement had been received as of December
31, 1993.
Company-sponsored research and development expenses amounted to $2,970,000,
$2,962,000 and $3,905,000 during the years ended December 31, 1991, 1992 and
1993, respectively.
10. RESTRUCTURING AND UNUSUAL CHARGES
During 1990, the Company formed a joint venture, Nichols Institute
Laboratories North Texas, Ltd., with the owners of three hospital systems
located in the Dallas-Fort Worth area to establish and operate a
newly-developed shared clinical laboratory to serve those hospital systems,
as well as other healthcare providers in the area. The joint venture (the
Venture) was a limited partnership with a wholly-owned subsidiary of the
Company acting as the general partner. The partnership agreement provided
that the general partner absorbs 100% of cumulative losses in excess of
partner contributions, which were exhausted during 1991.
During the year ended December 31, 1991, the Company's share in losses of the
Venture was $5,098,000 due to substantial operating losses incurred by the
Venture and the Company's share ($2,917,000) of restructuring charges
recorded by the Venture related to the write-down of certain customer lists
and fixed assets, as well as a direct restructuring charge ($875,000)
recorded directly by the Company primarily to provide for severance pay of
its Dallas operations.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 1992, the Company acquired the limited partners' interests in the
Venture in exchange for 225,000 shares of the Company's Class C Common Stock,
valued at $2,137,500, as part of a plan adopted during the latter part of
1991 which enabled the Company to obtain the control of the Venture necessary
for it to take actions to reduce the continuing significant operating losses
of the Dallas laboratory. The purchase price was allocated to goodwill.
In 1992, the Company decided that operating losses of the Dallas operations
could only be reduced by significantly downsizing the Dallas operation.
Accordingly, the Company recorded a restructuring charge of $13,000,000 as of
June 30, 1992 to provide for the estimated costs of effecting the downsizing.
The Company continued to refine the components of the restructuring charge
until December 31, 1992, at which time the restructuring charge was comprised
of a provision for write-downs of assets that were expected to be impaired as
a result of the downsizing of the Dallas operations ($1,500,000), a partial
write-down of customer lists ($2,400,000) and write-down of goodwill
established upon the purchase of the limited partners' interest in the
Venture ($2,700,000), provisions for future losses at the Dallas location
through the estimated date of completion of the downsizing ($4,400,000),
severance pay and related costs ($500,000), costs associated with subleasing
the Dallas facility ($700,000), professional fees ($500,000) and other
related costs ($300,000). The downsizing of the Dallas operations
contemplated by the 1992 restructuring was largely complete as of September
30, 1993. The amounts ultimately incurred related to the 1992 restructuring
charge were not significantly different from those contemplated by the
Company.
The provision for lease termination recorded in connection with the 1992
restructuring was based on the expectations that the Company would sublet the
entire Dallas facility to an interested third party. However, these
negotiations were terminated during 1993. Subsequently, the Company decided
it was not practicable to continue pursuing the sublease opportunities and
entered negotiations to terminate the lease. Termination costs of the lease,
in excess of those contemplated during the 1992 restructuring, are included
in the restructuring charge recorded by the Company in 1993 as described
below.
During 1993, the Company focused efforts to consolidate, standardize and
integrate its various acquired laboratories and in November 1993 adopted a
plan to consolidate its Texas, Bay Area (Oakland) and Upper Midwest Regional
Laboratory operations, and to implement a further automation of its Reference
Laboratories' operations. This plan resulted in the Company establishing a
$12,840,000 restructuring reserve in the fourth quarter of 1993. The charge
included write-offs of customer lists impaired as a result of the
restructuring ($1,900,000) and property and other assets ($1,500,000)
impaired as a result of the downsizing of certain of the locations, as well
as provisions for severance pay, outplacement fees and related costs
($4,400,000), costs of terminating excess facility and equipment leases
($3,000,000, which included $1,800,000 paid as settlement for terminating the
Dallas facility lease on January 31, 1994), strategic and financial
consulting services ($900,000) incurred as of December 31, 1993, professional
fees ($300,000) and certain other costs associated with the restructuring of
the Company's operations ($840,000). Implementation of the restructuring
plan, which is expected to be substantially complete by the end of 1994, will
require significant cash expenditures. The Company estimates that total cash
expenditures to effect the restructuring plan will approximate $9,600,000, of
which approximately $1,800,000 was expended in 1993 and approximately
$7,000,000 is expected to be expended during 1994, with the remainder
expected to be expended thereafter. The Company expects that the cash
requirements to effect the restructuring will be satisfied through cash
generated from operations.
During the three months ended March 31, 1994, approximately $2,300,000 was
expended. As of March 31, 1994, the 1993 restructuring programs are largely
progressing as was contemplated when the restructuring charge was recorded in
the fourth quarter of 1993.
Additionally, the Company incurred unusual charges of $3,160,000 during the
year ended December 31, 1993. The charges primarily consisted of the
write-off of impaired assets, including customer lists acquired in connection
with business acquisitions in prior years ($1,600,000) and certain fixed
assets whose values have been impaired primarily as a result of the Company's
commitment to further automate the computerization of its financial
information and laboratory systems ($600,000). The unusual charges also
included costs associated with responding to a subpoena received during the
year (Note 11).
11. COMMITMENTS AND CONTINGENCIES
On August 30, 1993, the Company received a subpoena from the Office of the
Inspector General of the Department of Health and Human Services (OIG)
requesting documents in connection with an investigation and inter
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
nal review concerning the possible submission of false or improper claims to
the Medicare and Medicaid programs. The Company believes other independent
clinical laboratories have received similar notices and believes these are a
part of a nationwide audit and investigation of certain clinical laboratory
industry practices. The Company has not been charged with any violation and
intends to cooperate fully in the government's investigation. At this time,
it is too early to predict the results of the investigation or its impact, if
any, on the Company's consolidated financial condition or results of
operations. Accordingly, no provision for any loss, if any, that may result
upon the resolution of this investigation has been made in the accompanying
consolidated financial statements.
The Company is obligated under various Academic Associate agreements which
relate to the research and development and marketing of assays and reagents.
Generally, the agreements are cancelable upon two to six months' notice after
their initial term (usually two to five years) and provide for equal periodic
payments or periodic payments based on a percentage of revenue derived from
sales of the related assays and reagents.
In connection with certain business acquisitions (Note 12), the Company
entered into covenants not-to-compete with the acquired companies' former
stockholders. In addition to payments already made in accordance with the
agreements, the covenants require future cash payments during the five years
ending December 31, 1998 and thereafter of $4,188,000, $4,166,000,
$3,344,000, $783,000, $787,000 and $541,000, respectively, and the future
issuance of 6,780 shares each of Company Class A and Class C Common Stock.
The covenants also require the issuance of 197,678 shares of Company Common
Stock, of which 160,781 shares have been issued as of December 31, 1993. The
shares issued in conjunction with the covenants not to compete were valued at
their estimated fair market value at the date of consummation of the merger
($12.50 per share). As of December 31, 1993, $5,175,000 had been accrued
under the agreements, of which $1,981,000 is included in other noncurrent
liabilities in the accompanying consolidated balance sheets. The obligation
to pay amounts due under the covenants not-to-compete entered into in
connection with the acquisition of Clinical Laboratories of Lincoln, Inc.
(CLL) in 1988 is collateralized by a pledge of the stock of CLL. The terms of
the pledge agreement require the Company to maintain the separate existence
and operations of CLL, impose certain financial covenants with respect to CLL
and restrict the extent to which the operations of CLL can be integrated with
those of the Company. The terms are effective until 1996, when the amounts
due under the covenants not-to-compete are required to have been paid in
full.
The Company is a party to various litigation matters which are incidental to
its business. Although the results of the litigation cannot be predicted with
certainty, management believes that the final outcome of such matters will
not have a material adverse effect on the Company's consolidated financial
statements.
Certain key employees participate in a severance package that provides
compensation for a specified period of time in the event the employee is
terminated as a result of a change in control of the Company or a merger.
Certain key executives have agreements with the Company that provide for
compensation for a specified period of time subsequent to their termination
of employment for reasons defined in the agreements. The Company provides for
the accrual of such benefits when the rights vest and payment is probable and
reasonably estimatable.
12. BUSINESS ACQUISITIONS
As described in Note 10, during 1990 the Company formed a joint venture,
Nichols Institute Laboratories North Texas, Ltd. (the Venture). In April
1992, the Company purchased the limited partners' interests in the Venture in
exchange for 225,000 shares of Company Class C Common Stock valued at
$2,137,500. The purchase price was allocated to goodwill. Commencing on the
date of acquisition, the Venture was consolidated in the Company's financial
statements.
In January 1991, the Company acquired all of the outstanding stock of MAWD
Medical Laboratories, Inc. (MAWD). Initial consideration paid by the Company
for the business and related covenants not-to-compete consisted of $1,740,000
in cash, future payments having a then present value of $2,000,000, and
11,128 shares of Series E Convertible Preferred Stock (Note 5). In connection
with the acquisition, contingent payments consisting of 3,570 additional
shares of Series E Convertible Preferred Stock were issued and cash payments
of $1,250,000 were made during 1993. The obligation for these contingent
payments was recorded during 1992, when it became probable that the payments
would be made. The acquisition of MAWD was accounted for as a purchase with
the excess of the purchase price of $1,560,000 over the fair market value of
tangible assets (which approximated the carrying value of such assets) being
allocated to goodwill.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1991, the Company acquired PathLab, Inc. (PathLab) by merger.
Consideration paid by the Company consisted of approximately $6,728,000 in
cash and $2,616,000 of five-year subordinated promissory notes bearing
interest at 9.5% per annum (Note 3). Additionally, PathLab entered into
noncompetition agreements with two of its former stockholders. The agreements
have a term of eight years and provide for future payments having an initial
present value of $1,850,000. The acquisition of PathLab was accounted for as
a purchase with the excess of the purchase price of $10,620,000 over the fair
market value of tangible assets (which approximated the carrying value of
such assets) being allocated to goodwill.
During 1991, the Company acquired MPC Laboratory (MPC) by merger.
Consideration paid to MPC shareholders in connection with the acquisition
approximated $7,000,000, of which approximately $1,075,000 represented
covenant not-to-compete arrangements with certain MPC shareholders. The
acquisition of MPC was accounted for as a purchase with the excess of the
purchase price of $4,850,000 over the fair market value of tangible assets
(which approximated the carrying value of such assets) being allocated to
goodwill.
During April 1992, the Company acquired London Diagnostics, Inc. (London),
which had primarily been engaged in the development, manufacture and
distribution of medical diagnostic test kits using direct label
chemiluminescent technology. Consideration paid to London's shareholders was
1,315,050 shares of the Company's Class C Common Stock valued at $12,641,000
which, together with the other costs of the acquisition, was allocated to
purchased technology. The value of the Class C Common Stock was based upon
the average trading prices of the Company's Class C Common Stock for a
ten-day period preceding the acquisition consummation date. The value during
the ten-day period was utilized because the sellers were guaranteed a fixed
purchase price based upon pre-closing stock trading prices.
The unaudited consolidated pro forma results of operations for the year ended
December 31, 1991, as if the Venture, PathLab, MPC and London acquisitions
had occurred at the beginning of that year, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net revenues $261,435,000
Net loss $ (1,593,000)
Net loss per share $ (.11)
</TABLE>
The unaudited consolidated pro forma results of operations for the year ended
December 31, 1992, as if the London acquisition had occurred at the beginning
of that year, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net revenues $285,181,000
Net loss $
(5,183,000)
Net loss per share $ (.32)
</TABLE>
The pro forma information presented above does not purport to be indicative
of the results that actually would have been obtained if the combined
operations had been conducted during the periods presented.
During 1991 and 1992, the Company entered into various other business
acquisitions, the revenues and operating results of which were neither
individually nor collectively significant.
<PAGE>
<PAGE>
NICHOLS INSTITUTE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected financial data for the quarters
indicated:
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
Net revenues:
1992 $69,870,000 $73,316,000 $70,480,000 $ 70,532,000
1993 71,649,000 71,242,000 68,418,000 68,292,000
Gross profit:
1992 $25,894,000 $26,789,000 $25,492,000 $ 26,864,000
1993 27,266,000 27,824,000 25,537,000 23,642,000
Net income (loss):
1992 $ $ $
1,130,000 $(7,716,000) 440,000 1,858,000
1993 2,112,000 2,245,000 1,432,000 (10,200,000)
Net income (loss) per
share:
1992 $ .08 $ (.48) $ .03 $ .11
1993 $ .12 $ .13 $ .08 $ (.61)
</TABLE>
Gross profit represents net revenues less cost of sales. See Note 10 for
discussion of restructuring charges recorded during the second quarter of
1992 and the fourth quarter of 1993.
Although the Company realized benefits from cost reduction measures
implemented during the fourth quarter of 1992, including salary reductions
and freezes, and the suspension of vacation accruals and 401(k) matching
contributions, these benefits were largely offset by nonrecurring charges
associated with a reorganization of the Company's management structure.
During the fourth quarter of 1993, the Company recorded an inventory
adjustment of approximately $400,000 and reclassified certain costs of
approximately $600,000 from selling, general and administrative expenses to
cost of sales.
14. SUBSEQUENT EVENTS
On April 20, 1994, the Company filed a Form S-1 Registration Statement with
the Securities and Exchange Commission (SEC) relating to a proposed $100
million public debt offering (the Offering). On June 1, 1994, the Board of
Directors approved a plan of merger with Corning Incorporated. At that same
time, the Company suspended its efforts to seek public debt financing. Under
the terms of the merger agreement, all of the Company's common shares will be
exchanged for $13.00 of Corning Incorporated's common stock (subject to
certain limitations). Pursuant to its terms, the Company's Series E
Convertible Preferred Stock will be converted into Corning Incorporated's
common stock at the time of the merger. The merger is contingent upon, among
other things, treatment of the merger as a pooling for accounting purposes.
No assurances can be given that the merger will be completed. Should the
merger be completed this would be considered a qualifying event under certain
of the key executive severance agreements (Note 11).
<PAGE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Dated as of June 1, 1994, As Amended
Among
CORNING INCORPORATED,
APPLE ACQUISITION CORP.
And
NICHOLS INSTITUTE
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C> <C>
ARTICLE I
The Merger
SECTION 1.01. The Merger A-4
SECTION 1.02. Closing A-4
SECTION 1.03. Effective Time A-4
SECTION 1.04. Effects of the Merger A-4
SECTION 1.05. Certificate of Incorporation and By-laws A-4
SECTION 1.06. Directors A-5
SECTION 1.07. Officers A-5
ARTICLE II
Effect of the Merger on the Capital
Stock of the Constituent Corporations;
Exchange of Certificates
SECTION 2.01. Effect on Capital Stock A-5
SECTION 2.02. Exchange of Certificates A-6
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Company A-8
SECTION 3.02. Representations and Warranties of Parent and Sub A-15
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business A-19
SECTION 4.02. No Solicitation A-21
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of Form S-4 and the Proxy Statement; Stockholders'
Meeting A-21
SECTION 5.02. Access to Information; Confidentiality A-21
SECTION 5.03. Reasonable Efforts; Notification A-22
SECTION 5.04. Stock Option Plans A-22
SECTION 5.05. Benefit Plans and Employee Matters A-23
SECTION 5.06. Indemnification, Exculpation and Insurance A-23
SECTION 5.07. Letters of Accountants A-23
SECTION 5.08. Fees and Expenses A-24
SECTION 5.09. Public Announcements A-24
SECTION 5.10. Affiliates; Accounting and Tax Treatment A-24
SECTION 5.11. Conveyance Taxes A-24
SECTION 5.12. Senior Notes A-24
SECTION 5.13. Employment Agreements A-24
SECTION 5.14. Company Preferred Stock A-25
SECTION 5.15. No Restrictions on Parent's Activities A-25
SECTION 5.16. New Employment Agreement A-25
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligations to Effect the Merger A-25
SECTION 6.02. Additional Conditions to Obligations of Parent and Sub A-25
SECTION 6.03. Additional Conditions to Obligations of the Company A-26
<PAGE>
<PAGE>
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination A-27
SECTION 7.02. Effect of Termination A-27
SECTION 7.03. Amendment A-27
SECTION 7.04. Extension; Waiver A-27
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver A-27
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and Warranties A-28
SECTION 8.02. Notices A-28
SECTION 8.03. Definitions A-28
SECTION 8.04. Interpretation A-29
SECTION 8.05. Counterparts A-29
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries A-29
SECTION 8.07. Governing Law A-29
SECTION 8.08. Assignment A-29
SECTION 8.09. Enforcement A-29
EXHIBIT 5.10 FORM OF AFFILIATE LETTER A-31
EXHIBIT 5.13(a) EMPLOYMENT AGREEMENT AMENDMENTS A-33
EXHIBIT 5.16 FORM OF NEW EMPLOYMENT AGREEMENT A-34
</TABLE>
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of June 1, 1994, as amended, among
CORNING INCORPORATED, a New York corporation ("Parent"), APPLE ACQUISITION
CORP., a Delaware corporation ("Sub") and a direct wholly owned subsidiary of
Parent, and NICHOLS INSTITUTE, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), whereby each issued and outstanding share of Company Common Stock
(as defined in Section 3.01(c)) (including shares of Company Common Stock
issuable upon the automatic conversion of Company Preferred Stock (as defined
in Section 3.01(c)) in accordance with the terms thereof as of the Effective
Time) other than shares to be cancelled in accordance with Section 2.01(b),
will be converted into the right to receive shares of common stock, par value
$.50 per share, of Parent ("Parent Common Stock");
WHEREAS, the Merger requires the approval of the holders of a majority of the
votes which the outstanding shares of the Company Common Stock are entitled
to cast on such matter voting as a single class (the "Company Stockholder
Approval");
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, Dr. Albert L. Nichols, a
stockholder of the Company (the "Significant Stockholder"), has entered into
an agreement with Parent (the "Significant Stockholder Agreement") pursuant
to which the Significant Stockholder has, among other things, agreed to vote
his shares of Company Common Stock in favor of the Merger;
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also
to prescribe various conditions to the Merger;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Sections 368(a)(1)(A)
and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling-of-interests";
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Sub shall be merged
with and into the Company at the Effective Time (as hereinafter defined).
Following the Merger, the separate corporate existence of Sub shall cease and
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations
of the Company and of Sub in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger will take place at 10:00
a.m. on a date to be specified by the parties, which shall be no later than
the second business day after satisfaction or waiver of the conditions set
forth in Article VI (the "Closing Date"), at the offices of Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, NY 10019 unless another time,
date or place is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions
of the DGCL and shall make all other filings or recordings required under the
DGCL. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or at such other
time as Sub and the Company shall agree should be specified in the
Certificate of Merger (the date and time of such filing, or such later date
or time as may be set forth therein, being the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The certificate
of incorporation of Sub as in effect immediately prior to the Effective Time
shall be the certificate of incorporation of the Surviving Corporation
(except that such certificate of incorporation shall be amended at the
Effective Time to provide that the name of the Surviving Corporation shall be
"Nichols Institute") until thereafter changed or amended as provided therein
or by applicable law.
<PAGE>
<PAGE>
(b) The by-laws of Sub as in effect at the Effective Time shall be the
by-laws of the Surviving Corporation, until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Directors. The directors of Sub at the Effective Time shall
continue as the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of the Company immediately prior to the
Effective Time shall become the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Sub, the Company, or
the holders of any shares of Company Common Stock or any shares of capital
stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one fully paid and nonassessable share of common stock of
the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each share of
Company Common Stock that is owned by the Company or by any subsidiary of the
Company and each share of Company Common Stock that is owned by Parent, Sub
or any other subsidiary of Parent immediately prior to the Effective Time
shall automatically be cancelled and retired without any conversion thereof
and no consideration shall be delivered with respect thereto.
(c) Conversion of Common Stock. Each share of Company Common Stock issued
and outstanding as of the Effective Time other than shares to be cancelled in
accordance with Section 2.01(b) and other than shares of Class B Stock which
are Objecting Shares (as defined in clause (d) below) shall be converted,
subject to Section 2.02(e), into the right to receive that number (the
"Exchange Ratio") of shares of Parent Common Stock, rounded to the nearest
thousandth, or if there shall not be a nearest thousandth, to the next lower
thousandth, equal to the quotient derived by dividing $13.00 by the average
of the per share closing prices on the New York Stock Exchange, Inc. (the
"NYSE") of Parent Common Stock (as reported in the NYSE Composite
Transactions) during the 10 consecutive trading days ending on the fifth
trading day prior to the Company Stockholders' Meeting (as defined in Section
5.01(b)); provided, however, that in no event will the Exchange Ratio be
greater than 0.491 and if the Exchange Ratio, as calculated, would be above
that limit, then it shall be fixed at such maximum limit; provided, further,
that in the event the Exchange Ratio, as calculated (without reference to the
foregoing proviso), would equal or be greater than 0.638, then the Company
may terminate this Agreement. If, prior to the Effective Time, Parent should
split or combine the Parent Common Stock, or pay a stock dividend or other
stock distribution in Parent Common Stock, then the Exchange Ratio (including
the maximum limit thereof) will be appropriately adjusted to reflect such
split, combination, dividend or other distribution. Each share of the Company
Preferred Stock issued and outstanding as of the Effective Time (other than
shares of Company Preferred Stock which are Objecting Shares) shall be
converted, subject to Section 2.02(e), into the right to receive Parent
Common Stock in the manner and amount provided for pursuant to the terms of
the Company Preferred Stock. Each share of Parent Common Stock issued
pursuant to this Section 2.01(c) shall be accompanied by one Right (as
defined in Section 3.02(b)) unless the Rights shall not be outstanding as of
the Effective Time.
As of the Effective Time, all such shares of Company Common Stock and
Company Preferred Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
certificate previously representing any such shares (including any
certificate theretofore representing Company Preferred Stock) shall
thereafter represent the right to receive a certificate representing the
shares of Parent Common Stock into which such Company Common Stock was
converted in the Merger. The holders of such certificates previously
evidencing such shares of Company Common Stock and Company Preferred Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock or Company
Preferred Stock as of the Effective Time except as otherwise provided herein
or by law. Such certificates previously representing shares of Company Common
Stock and Company Preferred Stock shall be exchanged for certificates
representing whole shares of Parent Common Stock issued
<PAGE>
<PAGE>
in consideration therefor upon the surrender of such certificates in
accordance with the provisions of Section 2.02, without interest. No
fractional share of Parent Common Stock shall be issued, and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e).
(d) Notwithstanding anything in this Agreement to the contrary, each share
of Class B Stock and each share of Company Preferred Stock which is issued
and outstanding immediately prior to the Effective Time and which is held by
a stockholder who has not voted such shares in favor of adoption of the
Merger Agreement or consented thereto in writing (in the case of shares of
Class B Stock) and who has demanded appraisal rights with respect thereto in
the manner provided in Section 262 of the DGCL (collectively, the "Objecting
Shares") shall not be converted into or represent the right to receive the
merger consideration provided for in paragraph (c) above but, instead, the
holders thereof shall be entitled to receive payment of the appraised value
of such shares in accordance with the provisions in Section 262 of the DGCL;
provided, however, that if any holder of Objecting Shares shall subsequently
withdraw such demand for appraisal of such shares, or lose the right to
appraisal as provided in Section 262 of the DGCL, such holder or holders (as
the case may be) shall forfeit the right to appraisal of such shares and such
shares shall thereupon be deemed to have been automatically converted into
the right to receive, as of the Effective Time, the merger consideration
provided for in paragraph (c) above, without any interest thereon.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. Prior to the
Effective Time, Parent shall enter into an agreement with such bank or trust
company as may be designated by Parent and as shall be reasonably
satisfactory to the Company (the "Exchange Agent"), and as contemplated by
such agreement, Parent shall deposit, or shall cause to be deposited, with
the Exchange Agent as of the Effective Time (or otherwise when requested by
the Exchange Agent from time to time in order to effect any exchange pursuant
to this Section 2.02), for the benefit of the holders of shares of Company
Common Stock, for exchange in accordance with this Article II through the
Exchange Agent, certificates representing the shares of Parent Common Stock
issuable pursuant to Section 2.01 in exchange for outstanding shares of
Company Common Stock (such certificates representing shares of Parent Common
Stock, together with any dividends or distributions with respect thereto,
being collectively referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the Parent Common Stock
contemplated to be issued pursuant to Section 2.01 out of the Exchange Fund.
Except as contemplated by Section 2.02(e), the Exchange Fund shall not be
used for any other purpose.
(b) Exchange Procedure. As soon as reasonably practicable after the Effective
Time, Parent shall instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock or
Company Preferred Stock (the "Certificates"), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and which shall be in a customary form)
and (ii) instructions for use in effecting the surrender of the Certificates
in exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
evidencing that number of whole shares of Parent Common Stock which such
holder has the right to receive in respect of the shares of Company Common
Stock or Company Preferred Stock formerly evidenced by such Certificate
(after taking into account all shares of Company Common Stock and Company
Preferred Stock then held of record by such holder), cash in lieu of
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.02(c), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Company Common Stock or Company Preferred Stock which is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered, if such Certificate, accompanied by all documents required to
evidence and effect such transfer, shall be properly endorsed or otherwise be
in proper form for transfer and the person requesting such payment shall pay
any transfer or other taxes required by reason of the issuance of shares of
Parent Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of Parent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the certificate
evidencing whole shares of Parent Common Stock, cash in lieu of any
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.02(c). No interest will be paid
or will accrue on any cash payable pursuant to Section 2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time
<PAGE>
<PAGE>
shall be paid to the holder of any unsurrendered Certificate with respect to
the shares of Parent Common Stock represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.02(e), in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat
laws, following surrender of such Certificate, there shall be paid to the
holder of the certificate representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section
2.02(e) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time but prior to such surrender and with a payment date subsequent to such
surrender payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Stock. All shares of Parent Common
Stock issued upon the surrender for exchange of Certificates in accordance
with the terms of this Article II (including any cash paid pursuant to
Section 2.02(c) or 2.02(e)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the shares of Company Common
Stock and Company Preferred Stock theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to
pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by the Company on
such shares of Company Common Stock or Company Preferred Stock in accordance
with the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time and have not been paid prior to
surrender. At the Effective Time, the stock transfer books of the Company
shall be closed, and there shall be no further registrations of transfers of
shares of Company Common Stock or Company Preferred Stock thereafter on the
records of the Company. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, Parent or the Exchange Agent for any
reason, they shall be cancelled and exchanged as provided in this Article II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Parent.
(ii) As promptly as practicable following the Effective Time, Parent shall
instruct the Exchange Agent to determine the excess of (x) the number of full
shares of Parent Common Stock delivered to the Exchange Agent by Parent
pursuant to Section 2.02(a) over (y) the aggregate number of full shares of
Parent Common Stock to be distributed to holders of Certificates pursuant to
Section 2.02(b) (such excess being herein called the "Excess Shares"). As
soon after the Effective Time as practicable, the Exchange Agent, as agent
for such holders of Certificates, shall sell the Excess Shares at the then
prevailing prices on the NYSE, all in the manner provided in paragraph (iii)
of this Section 2.02(e).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE and shall be executed in round lots to the extent practicable.
Until the net proceeds of such sale or sales have been distributed to such
holders of Certificates, the Exchange Agent will hold such proceeds in trust
for such holders of Certificates (the "Trust"). Parent shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs of the
Exchange Agent incurred in connection with such sale or sales of Excess
Shares. In addition, Parent shall pay the Exchange Agent's compensation and
expenses in connection with such sales. The Exchange Agent shall determine
the portion of the Trust to which each holder of one or more Certificates
shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Trust by a fraction the numerator of which is the
amount of the fractional share interest to which such holder of Certificates
is entitled (after taking into account all shares of Company Common Stock and
Company Preferred Stock held of record immediately prior to the Effective
Time by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Certificates are entitled.
(iv) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Certificates with respect to any fractional
share interests, the Exchange Agent shall promptly pay such amounts to such
holders of Certificates subject to and in accordance with the terms of
Section 2.02(c).
(f) Termination of Exchange Fund and Trust. Any portion of the Exchange Fund
and Trust that remains undistributed to the holders of Certificates for six
months after the Effective Time shall be delivered to Parent, upon demand,
and any holders of Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent for the shares of Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock
and any dividends or distributions with respect to Parent Common Stock to
which they are entitled.
(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any holder of shares of Company Common Stock or Company
Preferred Stock for any shares of Parent Common Stock (or divi
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<PAGE>
dends or distributions with respect thereto) or cash from the Exchange Fund
or the Trust delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Certificates such amounts as Parent or the
Exchange Agent, as the case may be, is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by Parent or the Exchange Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the
Certificates in respect of which such deduction and withholding shall have
been made by Parent or the Exchange Agent.
(i) Investment of Exchange Fund and Trust. The Exchange Agent shall invest
any cash included in the Exchange Fund and the Trust, as directed by Parent,
on a daily basis. Any interest and other income resulting from such
investments shall be paid to Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company. Except as set
forth on the Disclosure Schedule delivered by the Company to Parent prior to
the execution of this Agreement (the "Company Disclosure Schedule"), the
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has
the requisite corporate power and authority to carry on its business as now
being conducted. The Company and each of its subsidiaries is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect
on the Company. The Company has delivered to Parent complete and correct
copies of its certificate of incorporation and by-laws and the certificates
of incorporation and by-laws or other organizational documents of its
Material Subsidiaries, in each case as amended to the date of this Agreement.
For purposes of this Agreement, "Material Subsidiary" means each subsidiary
of the Company designated as a Material Subsidiary in Schedule 3.01(b)(i) of
the Company Disclosure Schedule.
(b) Subsidiaries. Schedule 3.01(b)(i) of the Company Disclosure Schedule
lists each subsidiary of the Company and its jurisdiction of incorporation or
organization. All the outstanding shares of capital stock of each such
subsidiary have been validly issued and are fully paid and nonassessable and
are owned by the Company, by another subsidiary of the Company or by the
Company and another such subsidiary, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens") except as disclosed in Schedule
3.01(b)(ii) of the Company Disclosure Schedule. Except for the capital stock
of its subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership,
joint venture or other entity except as disclosed in Schedule 3.01(b)(ii) of
the Company Disclosure Schedule.
(c) Capital Structure. The authorized capital stock of the Company consists
of 20,000,000 shares of Class A Common Stock, $.10 par value (the "Class A
Stock"), 13,333,333 shares of Class B Common Stock, $.10 par value (the
"Class B Stock"), 30,000,000 shares of Class C Common Stock, $.10 par value
(the "Class C Stock" and, together with the Class A Stock and the Class B
Stock, the "Company Common Stock") and 1,000,000 shares of preferred stock,
$.10 par value. At the close of business on May 30, 1994, (i) 6,098,373
shares of Class A Stock, 1,603,301 shares of Class B Stock, 8,995,262 shares
of Class C Stock and 14,698 shares of Series E Convertible Preferred Stock
("Company Preferred Stock") were issued and outstanding, (ii) there were no
shares of Company Common Stock or shares of Company Preferred Stock held by
the Company in its treasury, (iii) 1,603,301 shares of Class A Stock were
reserved for issuance upon conversion of the Class B Stock and 557,527 shares
of Class A Stock and 2,759,553 shares of Class C Stock were reserved for
issuance upon exercise of outstanding Stock Options (as defined in Section
5.04), (iv) 1,028,860 shares of Class A Stock and 1,028,860 shares of Class C
Stock were reserved for issuance upon conversion of the Company Preferred
Stock, (v) 512,280 shares of Class A Stock were reserved for issuance upon
conversion of the Company's Convertible Subordinated Promissory Notes (the
"Convertible Notes"), (vi) 120,709 shares of Class C Stock were reserved for
issuance upon exercise of the Common Stock Purchase Warrants expiring May 31,
1999 (the "Warrants"), (vii) 6,780 shares of Class A Stock and 6,780 shares
of Class C Stock were
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held by the Company in trust in connection with certain noncompete agreements
to which the Company is a party (the "Noncompete Agreements") and (viii)
1,028,860 shares of Class A Stock and 1,028,860 shares of Class C Stock were
reserved for issuance upon conversion of the new Series F Convertible
Preferred Stock which the Company had been considering exchanging on a
share-for-share basis for the issued and outstanding Company Preferred Stock.
The Company makes no representation or warranty that the number of shares
reserved for issuance is not greater than the number of shares actually
issuable upon the exercise of Stock Options or Warrants or upon the
conversions or payments set forth above in (iii) through (viii). Except as
set forth above, at the close of business on May 30, 1994, no shares of
capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding. There are no outstanding stock appreciation
rights of the Company which were not granted in tandem with a related Stock
Option and no outstanding limited stock appreciation rights or other rights
to redeem for cash options or warrants of the Company. All outstanding shares
of capital stock of the Company (including shares held in trust under the
Noncompete Agreements) are, and all shares which may be issued upon the
exercise of Stock Options or the Warrants or upon conversion of the Company
Preferred Stock or the Convertible Notes will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except for the Convertible Notes and Noncompete
Agreements, there are no bonds, debentures, notes or other indebtedness of
the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except for the right to convert Class B
Stock into Class A Stock on a share-for-share basis, and as set forth above,
as of the date of this Agreement, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
Except as provided in the Stock Option Plans which permit optionholders to
pay the exercise price with Company Common Stock, there are no outstanding
contractual obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock (or
options to acquire any such shares) of the Company or any of its
subsidiaries. There are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on the revenues, earnings or financial
performance of the Company or any of its subsidiaries or assets or calculated
in accordance therewith (other than ordinary course payments or commissions
to sales representatives of the Company based upon revenues generated by them
without augmentation as a result of the transactions contemplated hereby) or
(except as disclosed in Schedule 3.01(c) of the Company Disclosure Schedule)
to cause the Company or any of its subsidiaries to file a registration
statement under the Securities Act of 1933 or which otherwise relate to the
registration of any securities of the Company.
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to the Company
Stockholder Approval, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, subject to the Company Stockholder Approval of this
Agreement. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of the Company or any of its subsidiaries
under, (i) the certificate of incorporation or by-laws of the Company or the
comparable charter or organizational documents of any of its subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, laws, ordinance, rule or regulation applicable to the Company or any
of its subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a
material adverse effect on the Company, (y) impair in any material respect
the ability of the Company to perform its obligations under this Agreement or
(z) prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order
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or authorization of, or registration, declaration or filing with, any
Federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the filing with the Federal
Trade Commission and the Antitrust Division of the Department of Justice (the
"Specified Agencies") of a premerger notification and report form by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), (ii) the filing with the Securities and Exchange Commission (the
"SEC") of (x) the Proxy Statement (as defined in Section 5.01) and (y) such
reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to be obtained or made would not, individually or in the
aggregate, have a material adverse effect on the Company or prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
(e) SEC Documents; Financial Statements. Since January 1, 1992, the Company
has filed with the SEC all required reports and forms and other documents
(the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents con- tained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any SEC
Document has been revised or superseded by a later-filed SEC Document filed
and publicly available prior to the date of this Agreement, none of the SEC
Documents contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the SEC Documents filed prior to the
date of this Agreement (or, with respect to any future repetition of this
representation, prior to the time of such repetition), and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of the most recent consolidated
balance sheet included in the SEC Documents, neither the Company nor any of
its subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of the
Company and its consolidated subsidiaries or in the notes thereto.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Form S-4 (as defined in Section 5.01(a)) will, at the
time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) the Proxy Statement will, at the date it is
first mailed to the Company's stockholders or at the time of the Company
Stockholders' Meeting (as defined in Section 5.01(b)), contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with respect
to statements made or incorporated by reference therein based on information
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents filed prior to the date of this Agreement, since January 1, 1994,
the Company has conducted its business only in the ordinary
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course consistent with prior practice, and there has not been (i) any
material adverse change in the Company and its subsidiaries on a consolidated
basis, (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
of the Company's capital stock, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (iv) (x) any granting
by the Company or any of its subsidiaries to any officer, general manager or
laboratory manager of the Company or any of its subsidiaries of any increase
in compensation, except in the ordinary course of business consistent with
prior practice or as was required under employment agreements in effect as of
the date of the most recent audited financial statements included in the SEC
Documents filed prior to the date of this Agreement (a list of all such
employment agreements being set forth in Section 3.01(g) of the Company
Disclosure Schedule), (y) any granting by the Company or any of its
subsidiaries to any such officer, general manager or laboratory manager of
any increase in severance or termination pay, except as was required under
employment, severance or termination agreements in effect as of the date of
the most recent audited financial statements included in the SEC Documents
filed prior to the date of this Agreement or (z) any entry into, or renewal
or modification of, any employment, consulting, severance or termination
agreement with any such officer, general manager or laboratory manager by the
Company or any of its subsidiaries, (v) any damage, destruction or loss,
whether or not covered by insurance, that has or could have a material
adverse effect on the Company or (vi) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a change
in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the SEC Documents filed prior to the
date of this Agreement or in Schedule 3.01(h) of the Company Disclosure
Schedule, as of the date of this Agreement there is no suit, action,
investigation, audit or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries that,
individually or in the aggregate, could reasonably be expected to (i) have a
material adverse effect on the Company, (ii) impair in any material respect
the ability of the Company to perform its obligations under this Agreement or
(iii) prevent the consummation of any of the transactions contemplated by
this Agreement, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against the Company or
any of its subsidiaries having, or which is reasonably likely to have, any
effect referred to in the foregoing clauses (i)-(iii).
(i) Absence of Changes in Benefit Plans. Except as disclosed in the SEC
Documents filed prior to the date of this Agreement or as required by
applicable law, since January 1, 1994, there has not been any adoption or
amendment in any material respect by the Company or any of its subsidiaries
of any collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding (whether or not legally binding) (collectively,
"Benefit Plans") providing benefits to any current or former employee,
officer or director of the Company or any of its subsidiaries. Except as
disclosed in the SEC Documents filed prior to the date of this Agreement,
there exist no employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings between the
Company or any of its subsidiaries and any current or former officer or
director of the Company or any of its subsidiaries. Except as disclosed in
the SEC Documents filed prior to the date of this Agreement, since January 1,
1994, neither the Company nor any of its subsidiaries has taken any action to
accelerate any rights or benefits under any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any director, officer or general manager, or for the benefit
of laboratory managers generally or employees generally.
(j) ERISA Compliance. (i) The Company has delivered to Parent true,
complete and correct copies of all "employee pension benefit plans" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) and all other Benefit Plans currently maintained, or contributed to,
or required to be maintained or contributed to, with the Company or any other
person or entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each a "Commonly
Controlled Entity"), including all employment, termination, severance, or
other contracts for the benefit of any current or former employees, officers
or directors of the Company or any of its subsidiaries. The Company has
delivered to Parent true, complete and correct copies of (v) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with
respect to each of its Benefit Plans (if any such report was required), (w)
the most recently prepared actuarial report for each such Benefit Plan, (x)
the most recent summary plan description for each such Benefit Plan for which
such summary plan descrip
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tion is required, (y) the most recently received Internal Revenue Service
determination letter for each such Benefit Plan and (z) each trust agreement
and group annuity contract relating to any such Benefit Plan.
(ii) Each of the Company's and its subsidiaries' Benefit Plans has been
administered in all material respects in accordance with its terms. The
Company, each of its subsidiaries and all such Benefit Plans are all in
compliance in all material respects with applicable provisions of ERISA and
the Code.
(iii) All of the Company's and its subsidiaries' Pension Plans intended to
be qualified under Section 401(a) of the Code have been the subject of
determination letters from the Internal Revenue Service to the effect that
such Pension Plans are qualified and exempt from Federal income taxes under
Section 401(a) and 501(a), respectively, of the Code and no such
determination letter has been revoked nor, to the knowledge of the Company,
has revocation been threatened, nor has any such Pension Plan been amended
since the date of its most recent determination letter or application
therefor in any respect except for any of the foregoing which could
reasonably be expected to result in a material adverse effect on the Company.
(iv) No Pension Plan that the Company or any of its subsidiaries maintains
is subject to Title IV of ERISA.
(v) None of the Company, any of its subsidiaries, any officer of the
Company or any of its subsidiaries or any of its Benefit Plans which are
subject to ERISA, including its Pension Plans, any trusts created thereunder
or any trustee or administrator thereof, has engaged in a non-exempt
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility
that could subject the Company, or any of its subsidiaries or any officer of
the Company or any of its subsidiaries to tax or penalty under ERISA, the
Code or other applicable law that could result in a material adverse effect
on the Company. Neither any of such Benefit Plans nor any of such trusts has
been terminated, nor has there been any "reportable event" (as that term is
defined in Section 4043 of ERISA) with respect thereto, during the last five
years.
(vi) Except as disclosed in Schedule 3.01(j), the consummation of the
transactions contemplated by this Agreement will not result in an increase in
the amount of compensation or benefits or accelerate the vesting or timing of
payment of any benefits payable to or in respect of any employee or former
employee of the Company or any subsidiary of the Company or the beneficiary
or dependent of any such employee or former employee.
(vii) With respect to any of the Company's or any of its subsidiaries'
Benefit Plans that is an employee welfare benefit plan, (except as disclosed
in Schedule 4.01), (x) no such Benefit Plan is funded through a "welfare
benefit fund", as such term is defined in Section 419(e) of the Code, (y)
each such Benefit Plan that is a "group health plan", as such term is defined
in Section 5000(b)(1) of the Code, complies with the applicable requirements
of Section 4980B(f) of the Code except where the failure to so comply could
not reasonably be expected to result in a material adverse effect on the
Company and (z) each such Benefit Plan (including any such Benefit Plan
covering retirees or other former employees) may be amended or terminated
without resulting in a material adverse effect on the Company on or at any
time after the Effective Time.
(viii) No Commonly Controlled Entity has incurred any material liability to
a Pension Plan of the Company or any of its subsidiaries (other than for
contributions not yet due).
(k) Taxes. (i) Each of the Company and its subsidiaries has timely filed
all Federal, state, local and foreign tax returns and reports required to be
filed by it through the date hereof and shall timely file all such returns
and reports required to be filed on or before the Effective Time. All such
returns and reports are and will be true, complete and correct in all
material respects. The Company and each of its subsidiaries has paid and
discharged (or the Company has paid and discharged on its behalf) all taxes
due from them, other than such taxes as are being contested in good faith by
appropriate proceedings and are adequately reserved for on the most recent
financial statements contained in the SEC Documents filed prior to the date
of the Agreement. The most recent financial statements contained in the SEC
Documents filed prior to the date of this Agreement properly reflect in
accordance with generally accepted accounting principles all taxes payable by
the Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.
(ii) Except as disclosed in Schedule 3.01(k) of the Company Disclosure
Schedule, no claim or deficiency for any taxes has been proposed, threatened,
asserted or assessed by the Internal Revenue Service or any other taxing
authority or agency against the Company, or any of its subsidiaries which, if
resolved against the Company or any of its subsidiaries, would, individually
or in the aggregate, have a material adverse effect upon
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the Company, and no requests for waivers of the time to assess any taxes are
pending. The Federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns have been examined by and settled
with the Internal Revenue Service for all years through 1990, except as
disclosed in Schedule 3.01(k) of the Company Disclosure Schedule.
(iii) Neither the Company nor any of its subsidiaries has taken or agreed
to take any action or has any knowledge of any fact or circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Code.
(iv) As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, sales, excise and other taxes, of any
nature whatsoever (whether payable directly or by withholding), together with
any interest and penalties, additions to tax or additional amounts imposed
with respect thereto. Notwithstanding the definition of "subsidiary" set
forth in Section 8.03 of this Agreement, for the purposes of this Section
3.01(k), references to the Company and each of its subsidiaries shall include
former subsidiaries of the Company for the periods during which any such
corporations were included in the consolidated Federal income tax return of
the Company.
(l) No Excess Parachute Payments. Any amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement by any employee, officer
or director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect would not,
except as may otherwise have been disclosed to Parent prior to the date of
this Agreement, be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(l) of the Code).
(m) Compliance with Applicable Laws. (i) Each of the Company and its
subsidiaries has in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights ("Permits") necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit, except
for the lack of Permits and for defaults under Permits which lack or default
individually or in the aggregate would not have a material adverse effect on
the Company. Except as disclosed in the SEC Documents filed prior to, or as
otherwise disclosed to Parent prior to, the date of this Agreement, the
Company and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Entity,
except for noncompliance which individually or in the aggregate would not
have a material adverse effect on the Company.
(ii) To the knowledge of the Company, the Company and each of its
subsidiaries is, and has been, and each of the Company's former subsidiaries,
while subsidiaries of the Company, was, in compliance in all material
respects with all applicable Environmental Laws, except for noncompliance
which individually or in the aggregate would not have a material adverse
effect on the Company. The term "Environmental Laws" means any Federal,
state, local or foreign statute, code, ordinance, rule, regulation, policy,
guideline, permit, consent, approval, license, judgment, order, writ, decree,
injunction or other authorization, including the requirement to register
underground storage tanks, relating to: (A) emissions, discharges, releases
or threatened releases of Hazardous Material (as hereinafter defined) into
the environment, including, without limitation, into ambient air, soil,
sediments, land surface or subsurface, buildings or facilities, surface
water, groundwater, publicly owned treatment works, septic systems or land;
or (B) the generation, treatment, storage, disposal, use, handling,
manufacturing, transportation or shipment of Hazardous Material.
(iii) During the period of ownership or operation by the Company and its
subsidiaries of any of their respective current or previously owned or leased
properties, there have been no releases of Hazardous Material in, on, under
or affecting such properties or, to the knowledge of the Company, any
surrounding site, except in each case for those which individually or in the
aggregate are not reasonably likely to have a material adverse effect on the
Company. Prior to the period of ownership or operation by the Company and its
subsidiaries of any of their respective current or previously owned or leased
properties, to the knowledge of the Company, no Hazardous Material was
generated, treated, stored, disposed of, used, handled or manufactured at, or
transported, shipped or disposed of from, such currently or previously owned
or leased properties, and there were no releases of Hazardous Material in,
on, under or affecting any such property or any surrounding site, except in
each case for those which individually or in the aggregate are not reasonably
likely to have a material adverse effect on the Company. The term "Hazardous
Material" means (A) hazardous materials, contaminants, constituents, medical
wastes, hazardous or infectious wastes and hazardous substances as those
terms are defined in the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, 49
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U.S.C. S. 1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
S. 6901 et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization
Act, 42 U.S.C. S. 9601 et seq., the Clean Water Act, 33 U.S.C. S. 1251 et
seq. and the Clean Air Act, 42 U.S.C. S. 7401 et seq., (B) petroleum,
including crude oil and any fractions thereof, (C) natural gas, synthetic gas
and any mixtures thereof, (D) asbestos and/or asbestos-containing material
and (E) PCBs, or materials or fluids containing PCBs in excess of 50 ppm.
(n) State Takeover Statutes. The Company has taken all requisite action to
render inapplicable to this Agreement and the Significant Stockholder
Agreement and the transactions contemplated hereby and thereby the provisions
of Section 203 of the DGCL and such action is effective at the date of this
Agreement. To the best of the Company's knowledge, no other state takeover
statute or similar statute or regulation (including, without limitation,
Section 2115 of the California General Corporation Law) applies or purports
to apply to the Merger, this Agreement or any of the transactions
contemplated by this Agreement or the Significant Stockholder Agreements.
(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Peter J. Solomon Securities Company Limited and CS First
Boston Corporation, the aggregate fees and expenses of which have been
disclosed to Parent and will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(p) Opinion of Financial Advisor. The Company has received the opinion of
CS First Boston Corporation, dated the date of this Agreement, to the effect
that, as of such date, the consideration to be received in the Merger by the
Company's stockholders is fair to each class of the Company's stockholders
from a financial point of view, and a signed copy of such opinion has been
delivered to Parent.
(q) Contracts; Debt Instruments. Except as disclosed in the SEC Documents
filed prior to the date of this Agreement, there is no contract or agreement
that is material to the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole and neither
the Company nor any of its subsidiaries is in violation of or in default
under (nor does there exist any condition which upon the passage of time or
the giving of notice, or both, would cause such a violation of or default
under) any loan or credit agreement, note, bond, mortgage, indenture or
lease, or any other contract, agreement, arrangement or understanding, to
which it is a party or by which it or any of its properties or assets is
bound, except for violations or defaults that could not, individually or in
the aggregate, reasonably be expected to result in a material adverse effect
on the Company. Set forth in Section 3.01 (q) of the Company Disclosure
Schedule is a description of any material changes to the amount and terms of
the indebtedness of the Company and its subsidiaries as described in the
Company's Form 10-K for the year ended December 31, 1993.
(r) Title to Properties. (i) The Company and its subsidiaries have good and
marketable title to, or valid leasehold interests in, all their material
properties and assets except for such as are no longer used or useful in the
conduct of their businesses or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances or impediments that, individually or in
the aggregate, would not have a material adverse effect on the Company.
(ii) Each of the Company and its subsidiaries has complied with the terms
of all material leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect, except for such
failures to comply or to be in full force and effect which would not,
individually or in the aggregate, have a material adverse effect on the
Company. Each of the Company and its subsidiaries enjoys peaceful and
undisturbed possession under all such material leases, except for the
failures to do so which would not, individually or in the aggregate, have a
material adverse effect on the Company.
(s) Accounting Matters. Neither the Company nor, to its best knowledge,
any of its affiliates have taken or agreed to take any action or is aware of
any condition that would prevent Parent from accounting for the business
combination to be effected by the Merger as a pooling-of-interests.
(t) Voting Requirements. The Company Stockholder Approval is the only vote
of the holders of any class or series of the Company's securities necessary
to approve this Agreement and the transactions contemplated by this
Agreement. Assuming that those matters relating to Parent set forth in
Schedule 3.01(t) are true and correct, the affirmative vote of the
Significant Stockholder in accordance with the Significant Stockholder
Agreement is sufficient and adequate, without the approval of any other
stockholder of the Company, to approve this Agreement and the transactions
contemplated hereby for all purposes under the DGCL and the Company's
certificate of incorporation and by-laws.
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(u) Noncompetition. Except as set forth in Schedule 3.01(u) of the Company
Disclosure Schedule, the Company and its subsidiaries are not, and after the
Effective Time neither the Surviving Corporation nor Parent will be (by
reason of any agreement to which the Company is a party), subject to any
noncompetition or similar restriction on their respective businesses.
(v) Intellectual Property. The Company and each of its Material
Subsidiaries owns or possesses adequate and enforceable licenses or other
rights to use all patents, trade secrets, trade names, trademarks, inventions
and processes used in the business of the Company or such Material Subsidiary
as currently conducted and has not received any notice of conflict which
asserts the rights of others with respect thereto (except for such failures
to comply with the foregoing representations as would not, individually or in
the aggregate, have a material adverse effect on the Company). The Company
and each of its Material Subsidiaries has performed all the obligations
required to be performed by it and is not in default under any agreement
relating to any of the foregoing (except for such failures to perform or such
defaults as would not, individually or in the aggregate, result in a material
adverse effect on the Company).
SECTION 3.02. Representations and Warranties of Parent and Sub. Except as set
forth on the Disclosure Schedule delivered by Parent to the Company prior to
the execution of this Agreement (the "Parent Disclosure Schedule"), Parent
and Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and each of
its subsidiaries (including Sub) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it
is incorporated and has the requisite corporate power and authority to carry
on its business as now being conducted. Each of Parent and each of its
subsidiaries (including Sub) is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
material adverse effect on Parent. Parent has delivered to the Company
complete and correct copies of its certificate of incorporation and by-laws
and the certificate of incorporation and by-laws of Sub, in each case as
amended to the date of this Agreement.
(b) Capital Structure. The authorized capital stock of Parent consists of
500,000,000 shares of Parent Common Stock and 10,000,000 shares of Series
Preferred Stock, par value $100 per share (of which 600,000 shares have been
designated Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock") and 316,822 shares have been designated Series B Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock")). At the close
of business on April 18, 1994, (i) 208,963,513 shares of Parent Common Stock,
no shares of Series A Preferred Stock and 259,631 shares of Series B
Preferred Stock were issued and outstanding, (ii) 27,464,921 shares of Parent
Common Stock were held by Parent in its treasury and (iii) 8,592,297 shares
of Parent Common Stock were reserved for issuance upon exercise of
outstanding employee stock options to purchase shares of Parent Common Stock.
Each share of Parent Common Stock carries with it a preferred share purchase
right (a "Right") which entitles the holder thereof to purchase, on the
occurrence of certain events, Parent Common Stock or Series A Preferred
Stock. Except as set forth above, at the close of business on April 18, 1994
no shares of capital stock or other voting securities of the Parent were
issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of Parent are, and all shares which may be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no
bonds, debentures, notes or other indebtedness of Parent having the right to
vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which stockholders of Parent may vote. Except as
set forth above, and except for employee stock options granted in the
ordinary course of business since April 18, 1994, as of the date of this
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Parent or any of its Significant Subsidiaries is a party or by which
any of them is bound obligating Parent or any of its Significant Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of Parent or of
any of its Significant Subsidiaries or obligating Parent or any of its
Significant Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding contractual obligations of Parent or
any of its Significant Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of Parent or its Significant
Subsidiaries. As of the date of this Agreement, the authorized capital stock
of Sub consists of 500 shares of common stock, par value $.01 per share, of
which one share has been validly issued, is fully paid and nonassessable and
is owned by Parent free and clear of any Liens. For purposes of this
Agreement, "Significant Subsidiary" means any subsidiary that constitutes a
significant subsidiary within the meaning of Rule 1-02 of Regulation S-X of
the SEC.
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(c) Authority; Noncontravention. Parent and Sub have the requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of Parent and Sub. This Agreement has been duly executed and
delivered by Parent and Sub and constitutes a valid and binding obligation of
each such party, enforceable against each such party in accordance with its
terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Parent or any of its subsidiaries under, (i) the certificate of incorporation
or by-laws of Parent or Sub or the comparable charter or organizational
documents of any other subsidiary, of Parent, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or
any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgement, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse effect
on Parent, (y) impair in any material respect the ability of Parent and Sub
to perform their respective obligations under this Agreement or (z) prevent
or materially delay the consummation of any of the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required
by Parent or any of its subsidiaries in connection with the execution and
delivery of this Agreement or the consummation by Parent or Sub, as the case
may be, of any of the transactions contemplated by this Agreement, except for
(i) the filing with the Specified Agencies of a premerger notification and
report form under the HSR Act, (ii) the filing with the SEC of (x) the Form
S-4 and (y) such reports under Sections 13(a), 13(d) and 16(a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings, including under (x)
the laws of any foreign country in which the Company or any of its
subsidiaries conducts any business or owns any property or assets or (y) the
"takeover" or "blue sky" laws of various states, the failure of which to be
obtained or made would not, individually, or in the aggregate, have a
material adverse effect on Parent or prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(d) SEC Documents; Financial Statements. Since January 1, 1992, Parent has
filed with the SEC all required reports and forms and other documents (the
"Parent SEC Documents"). As of their respective dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
to the extent that information contained in any Parent SEC Document has been
revised or superseded by a later-filed Parent SEC Document filed and publicly
available prior to the date of this Agreement, none of the Parent SEC
Documents contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Parent included in the
Parent SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
adjustments). Except as set forth in the Parent SEC Documents, and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of the most recent consolidated
balance sheet included in the Parent SEC Documents, neither Parent nor any of
its subsidiaries has any material liabilities or obligations of any nature
(whether
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accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be recognized or disclosed on a consolidated balance
sheet of Parent and its consolidated subsidiaries or in the notes thereto.
(e) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Proxy Statement will, at
the date the Proxy Statement is first mailed to the Company's stockholders or
at the time of the Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 will
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except
that no representation or warranty is made by Parent or Sub with respect to
statements made or incorporated by reference in either the Form S-4 or the
Proxy Statement based on information supplied by the Company specifically for
inclusion or incorporation by reference therein.
(f) Absence of Certain Changes or Events. Except as disclosed in the Parent
SEC Documents filed prior to the date of this Agreement, since January 3,
1994, Parent has conducted its business only in the ordinary course
consistent with prior practice and there has not been (i) any material
adverse change in Parent, (ii) except for regular quarterly cash dividends
(in an amount determined in a manner consistent with Parent's past practice)
with customary record and payment dates, any declaration, setting aside or
payment of any dividend or distribution (whether in cash, stock or property)
with respect to any of Parent's capital stock, (iii) any split, combination
or reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or could
have a material adverse effect on Parent or (v) any change in accounting
methods, principles or practices by Parent materially affecting its assets,
liabilities or business except insofar as may, have been required by a change
in generally accepted accounting principles.
(g) Litigation. Except as disclosed in the Parent SEC Documents filed prior
to the date of this Agreement, as of the date of this Agreement there is no
suit, action or proceeding pending or, to the knowledge of Parent, threatened
against Parent or any of its subsidiaries that, individually or in the
aggregate, could reason- ably be expected to (i) have a material adverse
effect on Parent, (ii) impair in any material respect the ability of Parent
to perform its obligations under this Agreement or (iii) prevent the
consummation of any of the transactions contemplated by this Agreement, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Parent or any of its subsidiaries
having, or which is reasonably likely to have any effect referred to in the
foregoing clauses (i) through (iii).
(h) Taxes. (i) Each of Parent and its subsidiaries has timely filed all
Federal, state, local and foreign tax returns and reports required to be
filed by it through the date hereof and shall timely file all such returns
and reports required to be filed on or before the Effective Time. All such
returns and reports are and will be true, complete and correct in all
material respects. Parent and each of its subsidiaries has paid and
discharged (or Parent has paid and discharged on its behalf) all taxes due
from them, other than such taxes as are being contested in good faith by
appropriate proceedings and are adequately reserved for on the most recent
financial statements contained in the SEC Documents filed prior to the date
of this Agreement. The most recent financial statements contained in the SEC
Documents filed prior to the date of this Agreement reflect an adequate
reserve in accordance with generally accepted accounting principles for all
taxes payable by Parent and its subsidiaries for all taxable periods and
portions thereof through the date of such financial statements.
(ii) No claim or deficiency for any taxes has been proposed, threatened,
asserted or assessed by the Internal Revenue Service or any other taxing
authority or agency against Parent or any of its subsidiaries which, if
resolved against Parent or any of its subsidiaries, would, individually or in
the aggregate, have a material adverse effect upon Parent. No requests for
waivers of the time to assess any taxes are pending. The Federal income tax
returns of Parent and each of its subsidiaries consolidated in such returns
have been examined by and settled with the Internal Revenue Service for all
years through 1986.
(iii) Neither Parent nor any of its subsidiaries has taken or agreed to
take any action or has any knowledge of any fact or circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Code.
(i) Compliance with Applicable Laws. (i) Each of Parent and its
subsidiaries has in effect all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted,
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and there has occurred no default under any such Permit, except for the lack
of Permits and for defaults under Permits which lack or default individually
or in the aggregate would not have a material adverse effect on Parent.
Except as disclosed in the Parent SEC Documents filed prior to the date of
this Agreement, Parent and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for possible noncompliance which individually or
in the aggregate would not have a material adverse effect on Parent.
(ii) To the knowledge of Parent, Parent and each of its subsidiaries is,
and has been, and each of Parent's former subsidiaries, while subsidiaries of
Parent, was, in compliance in all material respects with all applicable
Environmental Laws, except for possible noncompliance which individually or
in the aggregate would not have a material adverse effect on Parent.
(iii) During the period of ownership or operation by Parent and its
subsidiaries of any of their respective current or previously owned or leased
properties, there have been no releases of Hazardous Material in, on, under
or affecting such properties or, to the knowledge of Parent, any surrounding
site, except in each case for those which individually or in the aggregate
are not reasonably likely to have a material adverse effect on Parent. Prior
to the period of ownership or operation by Parent and its subsidiaries of any
of their respective current or previously owned or leased properties, to the
knowledge of Parent, no Hazardous Material was generated, treated, stored,
disposed of, used, handled or manufactured at, or transported, shipped or
disposed of from, such current or previously owned or leased properties, and
there were no releases of Hazardous Material in, on, under or affecting any
such property or any surrounding site, except in each case for those which
individually or in the aggregate are not reasonably likely to have a material
adverse effect on Parent.
(j) Brokers. No broker, investment banker, financial advisor or other
person, other than Lazard Freres & Co., the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Parent or Sub.
(k) Opinion of Financial Advisor. Parent has received the opinion of Lazard
Freres & Co., dated the date of this Agreement, to the effect that, as of
such date, the consideration to be paid by Parent in the Merger is fair to
Parent and the stockholders of Parent from a financial point of view, and a
signed copy of such opinion has been delivered to the Company.
(l) Contracts; Debt Instruments. Except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement, there are no contracts
or agreements that are material to the business, financial condition or
results of operations of Parent and neither Parent nor any of its
subsidiaries is in violation of or in default under (nor does there exist any
condition which upon the passage of time or the giving of notice, or both,
would cause such a violation of or default under) any loan or credit
agreement, note, bond, mortgage, indenture or lease or other contract
agreement, arrangement or understanding, to which it is a party or by which
it or any of its properties or assets is bound, except for violations or
defaults that could not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect on Parent. Set forth in
Section 3.02(1) of the Parent Disclosure Schedule is a description of any
material change to the amount and terms of the indebtedness of Parent and its
subsidiaries as described in Parent's Form 10-K for the year ended January 2,
1994.
(m) Title to Properties. (i) Parent and its subsidiaries have good and
marketable title to, or valid leasehold interests in, all their material
properties and assets except for such as are no longer used or useful in the
conduct of their businesses or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances or impediments that, individually or in
the aggregate, would not have a material adverse effect on Parent. All such
material properties and assets, other than properties and assets in which
Parent or any of its subsidiaries has leasehold interests, are free and clear
of all Liens, except for Liens that, individually or in the aggregate, would
not have a material adverse effect on Parent.
(ii) Each of Parent and its subsidiaries has complied with the terms of all
material leases to which it is a party and under which it is in occupancy,
and all such leases are in full force and effect, except for such failures to
comply or to be in full force and effect which would not, individually or in
the aggregate, have a material adverse effect on Parent. Each of Parent and
its subsidiaries enjoys peaceful and undisturbed possession under all such
material leases, except for the failures to do so which would not,
individually or in the aggregate, have a material adverse effect on Parent.
(n) Accounting Matters. Neither Parent nor, to its best knowledge, any of
its affiliates have taken or agreed to take any action or has knowledge of
any fact or circumstance relating to Parent that would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
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(o) Interim Operations of Sub. (i) Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
(ii) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization
and the transactions contemplated by this Agreement, Sub has not and will not
have incurred, directly or indirectly, through any subsidiary, any
obligations or liabilities or engaged in any business activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
person.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by the Company.
Between the date of this Agreement and the Effective Time, the Company shall,
and shall cause its subsidiaries to, carry on their respective businesses in
the ordinary course and use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them. Without limiting the
generality of the foregoing, between the date of this Agreement and the
Effective Time, except (a) as contemplated by this Agreement or (b) as set
forth in Section 4.01(a) of the Company Disclosure Schedule, the Company
shall not, and shall not permit any of its subsidiaries, without the prior
written approval of Parent, to:
(i) (A) declare, set aside or pay (whether in cash, stock, property, or
otherwise) any dividends on, or make any other distributions in respect of,
any of its capital stock, other than dividends and distributions by any
direct or indirect wholly owned subsidiary of the Company to its parent, (B)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) other than the issuance of Company Common Stock upon the exercise of
the Warrants or Stock Options outstanding on the date of this Agreement in
accordance with their present terms or in accordance with the present terms
of any employment agreements existing on the date of this Agreement and
described in Section 4.01(a) of the Company Disclosure Schedule or upon
conversion of the Company Preferred Stock or the Convertible Notes, (A)
issue, deliver, sell, award, pledge, dispose of or otherwise encumber or
authorize or propose the issuance, delivery, grant, sale, award, pledge or
other encumbrance (including limitations in voting rights) or authorization
of, any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities, (B) amend or
otherwise modify the terms of any such rights, warrants or options (except as
expressly contemplated by this Agreement) or (C) accelerate the vesting of
any of the Stock Options;
(iii) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents;
(iv) acquire or agree to acquire (for cash or shares of stock or otherwise)
(A) by merging or consolidating with, or by purchasing a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (B) any assets except purchases of inventory in the
ordinary course of business consistent with past practice;
(v) mortgage or otherwise encumber or subject to any Lien, or sell, lease,
exchange or otherwise dispose of any of, its properties or assets, except for
sales of its properties or assets in the ordinary course of business
consistent with past practice and except for the purpose of securing
indebtedness permitted pursuant to Section 4.01(a)(vi);
(vi) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants
or other rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing except for the incurrence of indebtedness to finance the
Company's working capital needs (which may include mandatory payments under
the Senior Notes) which, in the aggregate, does not exceed $15,000,000
provided that the terms of any such indebtedness (including any prepayment
penalty) shall be subject to the approval of Parent (which approval shall not
be unreasonably withheld), or
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(B) make any loans, advances or capital contributions to, or investments in,
any other person, other than to the Company or any direct or indirect wholly
owned subsidiary of the Company;
(vii) make or agree to make any new capital expenditures which,
individually, exceed $250,000 or which, in the aggregate, exceed $2,000,000;
(viii) make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for Federal income tax
purposes from those employed in the preparation of its Federal income tax
return for the taxable year ending 1990, except as may be required by
applicable law;
(ix) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the
Company included in the SEC Documents or incurred in the ordinary course of
business consistent with past practice;
(x) (A) increase the rate or terms of compensation payable or to become
payable generally to any of Seller's directors, officers or employees, (B)
pay or agree to pay any pension, retirement allowance or other employee
benefit not provided for by any existing Pension Plan, Benefit Plan or
employment agreement described in the SEC Documents filed prior to the date
of this Agreement, (C) commit itself to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
continuation pay, termination pay, retirement or other employee benefit plan,
agreement or arrangement, or increase the rate or terms of any employee plan
or benefit arrangement, (D) enter into any employment agreement with or for
the benefit of any person or (E) increase the rate of compensation under or
otherwise change the terms of any existing employment agreement (except
pursuant to Section 5.13); provided, however, that nothing in this clause (x)
shall preclude payments under the terms of the existing incentive
compensation plans of the Company in accordance with past practice;
(xi) except in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable business
efforts to renew any material contract or agreement to which the Company or
any subsidiary is a party or waive, release or assign any material rights or
claims; or
(xii) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Conduct of Business by Parent. During the period from the date of this
Agreement to the Effective Time, Parent shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
and use all reasonable efforts to preserve their relationships with
customers, suppliers and others having business dealings with them; provided
that the foregoing shall not prevent Parent or any of its subsidiaries from
discontinuing or disposing of any part of its assets or business or from
acquiring any assets or businesses or from entering into any financing
transactions if such action is, in the judgment of Parent, desirable in the
conduct of the business of Parent and its subsidiaries. Without limiting the
generality of the foregoing, during the period from the date of this
Agreement to the Effective Time, except as (i) contemplated by this Agreement
or (ii) as set forth in a writing delivered to the Company prior to the
execution hereof, Parent shall not, and shall not permit any of its
subsidiaries to:
(i) (A) declare, set aside or pay (whether in cash or property, but
excluding stock dividends) any dividends on, or make any other distributions
in respect of, any capital stock other than dividends and distributions by
any direct or indirect wholly owned subsidiary of Parent to its parent and
except for regular quarterly cash dividends (in an amount determined in a
manner consistent with Parent's past practice) declared by the Board of
Directors of Parent with customary record and payment dates, (B) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Parent's capital stock or (C) purchase, redeem or otherwise
acquire any shares of Parent Common Stock;
(ii) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents in a manner which would reasonably be
expected to be materially adverse to the stockholders of the Company;
(iii) amend the Rights or the agreements under which the Rights are issued
in any manner adverse to the stockholders of the Company;
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(iv) change its fiscal year; or
(v) authorize, or commit or agree to take any of, the foregoing actions.
(c) Other Actions. The Company and Parent shall not, and shall not permit any
of their respective subsidiaries to, take any action that would result in (i)
any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality, becoming untrue or (ii) any
of such representations and warranties that are not so qualified becoming
untrue in any material respect.
SECTION 4.02. No Solicitation. (a) In light of the consideration given by the
Board of Directors of the Company prior to the execution of this Agreement
to, among other things, the transactions contemplated hereby and by the
requirement of Parent that the Significant Stockholder Agreement be executed
concurrently herewith as a condition of Parent entering into this Agreement,
and to various alternatives to the transactions contemplated by this
Agreement, and in light of the fairness opinion described in Section 3.01(p)
and the information provided to the Company by its financial advisor, Peter
J. Solomon Securities Company Limited, regarding potential alternative
opportunities for the sale of the Company, the Company agrees that it shall
not, nor shall it permit any of its subsidiaries to, nor shall it authorize
or permit any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of, the Company or any of its
subsidiaries to, solicit or initiate, or encourage the submission of, any
Takeover Proposal, or participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal. For purposes of this Agreement, "Takeover Proposal" means any
proposal (whether or not in writing and whether or not delivered to the
Company's stockholders generally) for a merger or other business combination
involving the Company or any of its Material Subsidiaries or any proposal or
offer to acquire in any manner, directly or indirectly, an equity interest
in, any voting securities of, or a substantial portion of the assets of the
Company or any of its Material Subsidiaries, other than the transactions
contemplated by this Agreement. Nothing contained herein shall prohibit the
Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) under the Exchange Act with respect to a
Takeover Proposal by means of a tender offer.
(b) The Company shall promptly advise Parent orally and in writing of any
request for information or of any Takeover Proposal, or any inquiry with
respect to or which could lead to any Takeover Proposal, the material terms
and conditions of such request, Takeover Proposal or inquiry, and the
identity of the person making any such Takeover Proposal or inquiry. The
Company shall keep Parent informed of the status and details of any such
request, Takeover Proposal or inquiry.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of Form S-4 and the Proxy Statement; Stockholders'
Meeting. (a) As promptly as practicable after the execution of this
Agreement, (i) the Company shall prepare and file with the SEC a proxy
statement relating to the meeting of the Company's stockholders to be held to
obtain the Company Stockholder Approval (together with any amendments and
supplements thereof or supplements thereto, the "Proxy Statement"), and (ii)
Parent shall prepare and file with the SEC a registration statement on Form
S-4 (together with all amendments thereto, the "Form S-4") in which the Proxy
Statement shall be included as a prospectus, in connection with the
registration under the Securities Act of the shares of Parent Common Stock to
be issued to the stockholders of the Company pursuant to the Merger. Each of
Parent and the Company shall use all reasonable efforts to cause the Form S-4
to become effective as promptly as practicable, and shall take all or any
action required under any applicable Federal or state securities laws in
connection with the issuance of shares of Parent Common Stock pursuant to the
Merger. Each of Parent and the Company shall furnish all information
concerning itself to the other as the other may reasonably request in
connection with such actions and the preparation of the Form S-4 and Proxy
Statement. As promptly as practicable after the Form S-4 shall have become
effective, the Company shall mail the Proxy Statement to its stockholders.
(b) Stockholders' Meeting. As soon as practicable following the date of this
Agreement, the Company shall call and hold a meeting of its stockholders (the
"Company Stockholders' Meeting"), for the purpose of obtaining the Company
Stockholder Approval. The Company shall use its reasonable efforts to solicit
from its stockholders proxies, and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required by
applicable law to obtain the Company Stockholder Approval and, through its
Board of Directors, shall (subject to their fiduciary duties) recommend to
its stockholders the obtaining of the Company Stockholder Approval.
SECTION 5.02. Access to Information; Confidentiality. Each of the Company and
Parent shall, and shall cause each of its respective subsidiaries to, afford
to the other party, and to the officers, employees, accountants,
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counsel, financial advisers and other representatives of such other party,
reasonable access during normal business hours during the period prior to the
Effective Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, each of the
Company and Parent shall, and shall cause each of its respective subsidiaries
to, furnish promptly to the other party, (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Except as required by law, each of the
Company and Parent will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisers and other representatives
and affiliates to hold, any confidential information in accordance with the
Confidentiality Agreement dated May 10, 1994, between Parent and the Company
(the "Confidentiality Agreement").
SECTION 5.03. Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including (i) the
making of all necessary registrations and filings (including filings with
Governmental Entities, if any), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, and (iii) the execution and delivery
of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
(b) The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty
that is not so qualified becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement; provided, however, that no such notification
shall affect the representations, warranties, covenants, or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
SECTION 5.04. Stock Option Plans. (a) As soon as practicable following the
date of this Agreement, the Board of Directors of the Company (or, if
appropriate, any committee administering the Stock Options Plans (as defined
below)) shall adopt such resolutions or take such other actions as are
required to adjust the terms of all outstanding stock options to purchase
shares of Company Common Stock ("Stock Options") heretofore granted under
any, stock option or stock appreciation rights plan, program or arrangement
of the Company (collectively, the "Stock Option Plans") as is necessary to
provide that each Stock Option outstanding immediately prior to the Effective
Time, whether or not then exercisable, shall be immediately converted as of
the Effective Time into the right to purchase from Parent the Option
Conversion Number (as defined below) of shares of Parent Common Stock (each
an "Adjusted Option"). Each Adjusted Option will have substantially the same
terms as the Stock Option to which it is related, including the same vesting
schedule (other than (except with respect to Stock Options granted under the
Company's 1993 Non-Employee Director Stock Option Plan, as to which Section
5.04(b) applies) to the extent accelerated pursuant to the terms of such
Stock Option or in accordance with the present terms of any employment
agreements existing on the date hereof, which Stock Option shall remain
exercisable following the Effective Time in accordance with the provisions of
the Stock Option Plan under which granted), except for its exercise price and
the number and kind of shares subject thereto. The exercise price of any
Adjusted Option (the "Adjusted Exercise Price") shall be an amount equal to
the exercise price of the Stock Option related to such Adjusted Option as of
the date of this Agreement divided by the Exchange Ratio. The "Option
Conversion Number" for any Adjusted Option shall be equal to the number of
shares purchasable pursuant to the Stock Option related to such Adjusted
Option as of the date of this Agreement multiplied by the Exchange Ratio. No
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the exercise of any Adjusted Option, and no fractional
share interest will entitle the owner thereof to vote or to any rights of a
stockholder of Parent. Each holder of any Adjusted Option who exercises such
Adjusted Option in accordance with its terms and this Agreement who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Adjusted Options delivered by
such holder on the date such Adjusted Options are exercised) shall receive,
in lieu thereof, a whole share of Parent Common Stock if such fraction is 0.5
or greater, or no additional shares of Parent Common Stock if such fraction
is less than 0.5.
(b) Notwithstanding Section 5.04(a), prior to the Closing the Board of
Directors of the Company (or the relevant committee thereof) shall adopt such
resolutions and the Company shall obtain such written consents as may be
necessary to rescind the pending amendment to the 1993 Non-Employee Director
Stock Option Plan and all Stock Options granted thereunder to provide that
the vesting of such Stock Options shall not be accelerated as a result of
this Agreement or the transactions contemplated hereby, but that such Stock
Options shall instead be converted, as of the Effective Time, into Adjusted
Options.
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(c) All Stock Option Plans not adjusted pursuant to Section 5.04(a) shall
terminate as of the Effective Time and the provisions in any other Benefit
Plan providing for the issuance, transfer or grant of any capital stock of
the Company or any interest in respect of any capital stock of the Company
shall be deleted as of the Effective Time, and the Company shall ensure that
following the Effective Time no holder of a Stock Option or any participant
in any Stock Option Plan shall have any right thereunder to acquire any
capital stock of the Company, Parent or the Surviving Corporation, except as
provided in Section 5.04(a).
(d) Parent agrees to take such actions as are necessary, for the conversion
of the Stock Options of the Company pursuant to Section 5.04(a) into Adjusted
Options, including the reservation, issuance and listing of Parent Common
Stock, as is necessary to effectuate the transactions contemplated by Section
5.04(a).
(e) A holder of an Adjusted Option may exercise such Adjusted Option in whole
or in part in accordance with its terms by delivering a properly executed
notice of exercise to Parent, together with the consideration therefor and
the Federal withholding tax information, if any, required in accordance with
the related Stock Option Plan.
SECTION 5.05. Benefit Plans and Employee Matters. (a) Except as provided in
Section 5.04, Parent currently intends to cause the Surviving Corporation to
maintain for a period of three years after the Effective Time the Benefit
Plans of the Company and its subsidiaries in effect on the date of this
Agreement or to provide benefits to employees of the Company and its
subsidiaries that are no less favorable in the aggregate to such employees
than those in effect on the date of this Agreement.
(b) Parent currently intends, for a period of three years after the Effective
Time, to provide, or cause its subsidiaries to provide, to persons who are
employees of the Company or any of its subsidiaries at the Effective Time
("Company Employees"), and whose employment is thereafter terminated by
Parent or any of its subsidiaries, with an opportunity to apply for
subsequent employment opportunities involving substantially similar job
qualifications with Parent and its subsidiaries prior to the placement of
advertisements or other open notices to the general public that such
employment opportunities are available; provided, however, that neither
Parent nor any of its subsidiaries shall have any obligations to offer
employment to any such former Company Employees.
SECTION 5.06. Indemnification, Exculpation and Insurance. (a) The certificate
of incorporation and the by-laws of the Surviving Corporation shall contain
the provisions with respect to indemnification and exculpation from liability
set forth in the Company's certificate of incorporation and by-laws on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who
on or prior to the Effective Time were directors, officers, employees or
agents of the Company, unless such modification is required by law.
(b) For six years from the Effective Time, Parent shall maintain in effect
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Parent)
(the "Indemnified Parties") on terms no less favorable than the terms of such
current insurance coverage; provided, however, that in no event shall Parent
be required to expend in any one year an amount in excess of 200% of the
annual premiums currently paid by the Company for such insurance; and
provided further that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
(c) In the event Parent, the Surviving Corporation or any of their successors
or assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.06.
(d) Parent shall guarantee the obligations of the Surviving Corporation with
respect to the indemnification provisions contained in the Surviving
Corporation's certificate of incorporation and by-laws and in the
indemnification agreements listed in Schedule 5.06 of the Company Disclosure
Schedule.
(e) This Section 5.06 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation.
SECTION 5.07. Letters of Accountants. (a) The Company shall use its
reasonable efforts to cause to be delivered to Parent "comfort" letters of
Deloitte & Touche, the Company's independent public accountants, dated and
delivered a date within two business days before the date on which the Form
S-4 shall become effective and within two business days before the Closing
Date, each addressed to Parent, in form and substance reasonably sat
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isfactory to Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
(b) Parent shall use its reasonable efforts to cause to be delivered to the
Company "comfort" letters of Price Waterhouse, Parent's independent public
accountants, dated a date within two business days before the date on which
the Form S-4 shall become effective and within two business days before the
Closing Date, each addressed to the Company, in form and substance reasonably
satisfactory to the Company and reasonably customary in scope and substance
for letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
SECTION 5.08. Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated.
SECTION 5.09. Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or
by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the
form heretofore agreed to by the parties.
SECTION 5.10. Affiliates; Accounting and Tax Treatment. (a) The Company shall
(x) within 30 days after the date of this Agreement, deliver to Parent a
letter identifying all persons who may be deemed affiliates of the Company
under Rule 145 of the Securities Act or otherwise under applicable SEC
accounting releases with respect to pooling-of-interests accounting treatment
and (y) prior to the Effective Time, use its reasonable efforts to obtain
from each such affiliate a written agreement substantially in the form of
Exhibit 5.10 hereto. The Company shall use its reasonable efforts to obtain
such a written agreement as soon as practicable from any person who may be
deemed to have become an affiliate of the Company, after the Company's
delivery of the letter referred to above and prior to the Effective Time.
(b) Each party hereto shall use its reasonable efforts to (i) cause the
Merger to qualify, and shall not take any actions which could prevent the
Merger from qualifying, for pooling-of-interests accounting treatment and as
a reorganization under the provisions of Section 368(a) of the Code and (ii)
obtain the letters from the accountants referred to in Sections 6.02(e) and
6.03(d) and the opinion of counsel referred to in Section 6.03(c).
(c) The Company shall (i) use its best efforts to secure the waiver of any
limited stock appreciation rights or other rights to redeem for cash options
or warrants of the Company by each holder thereof and (ii) subject to the
prior consent of Parent, which shall not be unreasonably withheld, take such
other actions as are necessary to cure any facts or circumstances that could
prevent the Merger from qualifying for pooling-of-interests accounting
treatment.
(d) Parent shall publish results covering at least 30 days of combined
operations of the Company and Parent within 45 calendar days of the end of
Parent's fiscal quarter ending immediately following the Effective Time that
includes such 30 days of combined operations.
SECTION 5.11. Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar taxes which
become payable in connection with the transactions contemplated hereby that
are required or permitted to be filed on or before the Effective Time. All of
such taxes and expenses shall be borne equally by Parent and the Company.
SECTION 5.12. Senior Notes. (a) At the Closing, Parent shall repay, or cause
the Company to repay, in full the outstanding principal amount under the
Company's 10.12% senior notes, 10.75% senior notes and 10.43% senior notes
(collectively, the "Senior Notes"), together with interest accrued but unpaid
thereon, but without any prepayment penalty, to the holders of the Senior
Notes.
(b) Prior to the Closing Date, the Company shall secure the waiver by the
requisite majority of the holders of the Senior Notes, by means of a written
instrument, and in a manner, reasonably satisfactory to Parent, of any
penalty due under the terms of the Senior Notes upon the prepayment thereof
in accordance with Section 5.12(a).
SECTION 5.13. Employment Agreements. (a) Prior to the Closing Date, the
Company will take all actions necessary and appropriate to amend the
employment agreements between the Company and each of the employees
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identified in Exhibit 5.13(a) as set forth in Exhibit 5.13(a). Parent or
persons acting on its behalf shall meet with the employees of the Company
party to the employment agreements listed on said Exhibit 5.13(a) to discuss
with such employees their employment arrangements and their opportunities and
responsibilities after the Closing Date.
(b) Parent shall cause the Surviving Corporation to honor without
modification (except as provided in Section 5.13(a)) all terms and provisions
of all employment agreements listed on Exhibit 5.13(a) and in the form
existing as of the date of this Agreement between the Company and its
employees.
SECTION 5.14. Company Preferred Stock. The Company shall, prior to the
Closing Date, take all actions necessary and appropriate to clarify the
Certificate of Designation of the Company Preferred Stock, in a manner
reasonably satisfactory to Parent, as set forth in Schedule 5.14 of the
Company Disclosure Schedule.
SECTION 5.15. No Restrictions on Parent's Activities. Prior to the Closing
Date, the Company shall take all actions necessary and appropriate to
eliminate any restrictions on the business and operations of Parent that are
material to the business or results of operations of Parent or Corning Lab
Services Inc. and which may arise upon the consummation of the transactions
contemplated by this Agreement as a result of any agreement between the
Company and any other person.
SECTION 5.16. New Employment Agreement. Concurrently with or as promptly as
practicable after the Effective Time, Corning shall cause the Company to
enter into an employment agreement with Dr. Albert L. Nichols in the form of
Exhibit 5.16.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. The Company Stockholder Approval shall have been
obtained.
(b) NYSE Listing. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement and under the Stock Option
Plans shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(c) No Injunctions or Restraints. No litigation brought by a Governmental
Entity shall be pending, and no litigation shall be threatened by any
Governmental Entity, which seeks to enjoin or prohibit the consummation of
the Merger, and no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect. For the purposes of this Agreement a litigation
shall be deemed to be "threatened" by the Federal Trade Commission only if
the Federal Trade Commission shall have publicly announced or shall have
advised Parent, Sub or the Company that the Federal Trade Commission has
authorized its staff to commence proceedings in Federal court seeking
injunctive relief against, or to commence administrative proceedings
challenging, the transactions contemplated by this Agreement.
(d) Form S-4. The Form S-4 shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of the
Form S-4 shall have been issued by the SEC, and no proceedings for that
purpose shall have been initiated or, to the knowledge of Parent or the
Company, threatened by the SEC.
(e) HSR Act. The applicable waiting period (and any extension thereof)
under the HSR Act shall have expired or been terminated.
(f) Approvals. Other than the filing of merger documents in accordance with
the DGCL, all authorizations, consents, waivers, orders or approvals required
to be obtained, and all filings, notices or declarations required to be made,
by Parent, Sub and the Company prior to the consummation of the Merger and
the transactions contemplated hereunder shall have been obtained from, and
made with, all required Governmental Entities except for such authorizations,
consents, waivers, orders, approvals, filings, notices or declarations the
failure to obtain or make which would not have a material adverse effect, at
or after the Effective Time, on the Company or Parent.
SECTION 6.02. Additional Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are also subject to the
following conditions:
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(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall, as of the
Closing Date as though made on and as of the Closing Date, be true and
correct except for such failures to be true and correct as could not,
individually or in the aggregate, reasonably be expected to result in (i) a
material adverse effect on the Company or on Parent (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) or (ii) an adverse effect on the ability of the
parties to consummate the transactions contemplated by this Agreement;
provided that those representations and warranties which address matters only
as of a particular date shall remain true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true
and correct in all respects giving effect to such standard) as of such date.
Parent shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company to such effect.
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with the agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Parent shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of the Company to that effect.
(c) Consents Under Agreements. The Company shall have obtained the consent
or approval of each person whose consent or approval shall be required in
connection with the Merger under all loan or credit agreements, notes,
mortgages, indentures, leases or other agreements or instruments to which it
or any of its Material Subsidiaries is a party, except those for which
failure to obtain such consents and approvals would not have a material
adverse effect on the Company prior to or after the Effective Time or a
material adverse effect on Parent after the Effective Time.
(d) Pooling Letter. Parent shall have received from Price Waterhouse, as
independent auditors of Parent, on the date of the Proxy Statement and on the
Closing Date, letters, in each case dated as of such respective dates,
addressed to Parent, in form and substance reasonably acceptable to Parent
and to the effect that the business combination to be effected by the Merger
is required to be accounted for as a pooling-of-interests by Parent for
purposes of its consolidated financial statements under generally accepted
accounting principles and applicable SEC rules and regulations. No action
shall have been taken by any Governmental Entity or any statute, rule,
regulation or order enacted, promulgated or issued by any Governmental
Entity, or any proposal made for any such action by any Governmental Entity
which is reasonably likely to be put into effect, that would prevent Parent
from accounting for the business combination to be effected by the Merger as
a pooling-of-interests.
(e) Affiliate Agreements. Parent shall have received from each person who
may be deemed to be an affiliate of the Company (under Rule 145 of the
Securities Act or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment) on or prior to the
Closing Date a signed agreement substantially in the form of Exhibit 5.10
hereto.
SECTION 6.03. Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are also subject to the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent contained in this Agreement shall, as of the Closing
Date as though made on and as of the Closing Date, be true and correct except
for such failures to be true and correct as could not, individually or in the
aggregate, reasonably be expected to result in (i) a material adverse effect
on Parent (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true
and correct in all respects giving effect to such standard) or (ii) an
adverse effect on the ability of the parties to consummate the transactions
contemplated by this Agreement; provided that those representations and
warranties which address matters only as of a particular date shall remain
true and correct in all material respects (except that where any statement in
a representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) as of such date. The Company shall have received a certificate
of an executive of Parent to such effect.
(b) Agreements and Covenants. Parent shall have performed or complied in
all material respects with the agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. The Company shall have received a certificate of an executive of Parent
to that effect.
(c) Tax Opinion. The Company shall have received the opinion of Fulbright &
Jaworski L.L.P., counsel to the Company, dated the date of the Proxy
Statement, to the effect that the Merger will be treated for Federal
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income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code, which opinion shall not have been withdrawn or
modified in any material respect. The issuance of such opinion shall be
conditioned on the receipt of customary representation letters.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of matters presented
in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in either
case such that the conditions set forth in Section 6.02(a) or Section
6.02(b), as the case may be, would be incapable of being satisfied by
November 30, 1994; provided that, in any case, a wilful breach shall be
deemed to cause such conditions to be incapable of being satisfied for
purposes of this Section 7.01(b);
(c) by the Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 6.03(a) or Section 6.03(b), as
the case may be, would be incapable of being satisfied by November 30, 1994;
provided that, in any case, a wilful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
7.01(c);
(d) by either Parent or the Company, if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the
Merger and such order, decree or ruling or other action shall have become
final and nonappealable;
(e) by either Parent or the Company, if the Merger shall not have occurred
by November 30, 1994, unless the failure to consummate the Merger is the
result of a breach of a covenant set forth in this Agreement or a wilful and
material breach of any representation or warranty set forth in this Agreement
by the party seeking to terminate this Agreement;
(f) by the Company, if permitted pursuant to Section 2.01(c); or
(g) by Parent at any time if the Significant Stockholder loses control of
sufficient shares of Company Common Stock such that the representations set
forth in Section 3.01(t) cease to be true and correct in all respects.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Sub or the Company, other than
the provisions of Section 3.01(o), Section 3.02(j), the last sentence of
Section 5.02, Section 5.08, this Section 7.02 and Article VIII and except to
the extent that such termination results from the wilful and material breach
by a party of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after the Company Stockholder Approval; provided, however,
that after the Company Stockholder Approval there shall not be made any
amendment that by law requires further approval by the stockholders of the
Company without the further approval of such stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.03, waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing, signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of those rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver
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pursuant to Section 7.04 shall, in order to be effective, require in the case
of Parent, Sub or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time of the Merger.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831
Facsimile: (607) 962-8214
Attention: William C. Ughetta, Esq.
with a copy to:
MetPath Inc.
One Malcolm Avenue
Teterboro, NJ 07608
Facsimile: (201) 393-5903
Attention: Mr. Randy H. Thurman
and a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Facsimile: (212) 403-2000
Attention: Andrew R. Brownstein, Esq.
(b) if to the Company, to
Nichols Institute
33608 Ortega Highway
San Juan Capistrano, CA 92690
Facsimile: (714) 728-4930
Attention: Mr. George L. Bragg
with a copy to:
Fulbright & Jaworski L.L.P.
865 South Figueroa
Los Angeles, CA 90017
Facsimile: (213) 680-4518
Attention: Harry L. Hathaway, Esq.
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to result
in any change or effect) that is materially adverse to the business,
financial condition or results of operations of such party and its
subsidiaries taken as a whole; provided, however, that the existence or
occurrence of the following events and circumstances shall not individually
constitute "material adverse change" or "material adverse effect": (i) any
change in laws and rules regulating the performance, marketing and/or billing
of laboratory tests, or limiting the reimbursements or payments therefor;
(ii) changes relating to the
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economy in general or to the Company's industry in general and not
specifically relating to the Company; (iii) changes relating to the
cancellation or termination by customers of the Company of their
relationships with the Company or the voluntary termination by existing
general managers, or sales representatives from and after the date of the
public announcement of this Agreement unless such cancellations or
terminations are attributable in large respect to factors other than the
transactions contemplated by this Agreement; (iv) the assessment from the
Internal Revenue Service relating to the amortization of intangible items, as
described on Schedule 3.01(k) of the Company Disclosure Schedule, or any
future assessment based on the same factual circumstances for subsequent
years, unless such change or effect results from a state of facts known or
which ought to be known to the officers of the Company on the date hereof and
not disclosed to Parent prior to the execution hereof; or (v) the subpoena
received by the Company in August 1993 from the Office of Inspector General
and the United States Attorney's Office for the Southern District of
California relating to Medicare billing practices, a copy of which has been
delivered to Parent, or any developments, investigations, or charges arising
therefrom or payments or settlements relating thereto, unless (x) such
matters would have a reasonable probability of resulting in a material
penalty being imposed against the Company or in a referral to a grand jury or
similar authority being made with respect to the Company or in exclusion of
the Company from participation in Medicare, Medicaid or any other federal or
state health care program or (y) such change or effect results from a state
of facts known or which ought to be known to the officers of the Company on
the date hereof and not disclosed to Parent prior to the execution hereof;
(c) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, more than
50% of the equity interests of which) is owned directly or indirectly by such
first person.
SECTION 8.04. Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words "include", "includes" and "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Confidentiality Agreement constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement and
except for the provisions of Article II and Sections 5.04 and 5.06, are not
intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflict of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and assigns.
SECTION 8.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal court located in the State
of Delaware or any Delaware state court in the event any dispute arises out
of this Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
Federal or state court sitting in the State of Delaware.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
Attest:
By /s/M. Ann Gosnell
Name: M. Ann Gosnell
Title: Assistant Secretary
Attest:
By /s/Raymond C. Marier
Name: Raymond C. Marier
Title: Secretary
Attest:
By /s/Paul H. Bellamy
Name: Paul H. Bellamy
Title: Senior Vice President and
Chief Financial Officer
CORNING INCORPORATED
By /s/Van C. Campbell
Name: Van C. Campbell
Title: Vice Chairman
APPLE ACQUISITION CORP.
By /s/Douglas M. Van Oort
Name: Douglas M. Van Oort
Title: President
NICHOLS INSTITUTE
By /s/George L. Bragg
Name: George L. Bragg
Title: Chief Executive
Officer
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EXHIBIT 5.10
FORM OF AFFILIATE LETTER
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Nichols Institute, a Delaware corporation (the "Company"),
as the term "affiliate" is (i) defined within the meaning of Rule 145 of the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and/or (ii) used in and for purposes of Accounting
Series Releases 130 and 135, as amended, of the Commission. Pursuant to the
terms of the Agreement and Plan of Merger dated as of June 1, 1994 (the
"Agreement"), among Corning Incorporated, a New York corporation ("Parent"),
Apple Acquisition Corp., a Delaware corporation ("Sub"), and the Company, Sub
will be merged with and into the Company (the "Merger").
In connection with the Merger, I am entitled to receive shares of common
stock, par value $.50 per share, of Parent (the "Parent Shares") in exchange
for shares (or options for shares) owned by me of capital stock of the
Company (the "Company Shares").
I represent, warrant and covenant to Parent that in the event I receive any
Parent Shares as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of the Parent
Shares in violation of the Act or the Rules and Regulations.
(b) I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Parent Shares, to the
extent I felt necessary, with my counsel or counsel for the Company.
(c) I have been advised that the issuance of Parent Shares to me pursuant to
the Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. However, because I have been advised
that, at the time the Merger is submitted for a vote of the stockholders of
the Company, (a) I may be deemed to be an affiliate of the Company, and (b)
other than as set forth in the Agreement, the distribution by me of the
Parent Shares has not been registered under the Act, I will not sell,
transfer or otherwise dispose of Parent Shares issued to me in the Merger
unless (i) such sale, transfer or other disposition is made in conformity
with the volume and other limitations of Rule 145 promulgated by the
Commission under the Act, (ii) such sale, transfer or other disposition has
been made pursuant to an effective registration statement under the Act or
(iii) in the opinion of counsel reasonably acceptable to Parent or as
described in a "no-action" or interpretive letter from the Staff of the
Commission, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
(d) I understand that Parent is under no obligation, other than as set forth
in the Agreement, to register the sale, transfer or other disposition of the
Parent Shares by me or on my behalf under the Act or to take any other action
necessary in order to make compliance with an exemption from such
registration available solely as a result of the Merger.
(e) I also understand that there will be placed on the certificates for the
Parent Shares issued to me, or any substitutions therefor, a legend stating
in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED ------------ ------, 1994 BETWEEN THE
REGISTERED HOLDER HEREOF AND CORNING INCORPORATED, A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICES OF CORNING INCORPORATED.
(f) I also understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH
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SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN
THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.
It is understood and agreed that the legends set forth in paragraphs (e) and
(f) above shall be removed by delivery of substitute certificates without
such legend if the undersigned shall have delivered to Parent a copy of a
letter from the staff of the Commission, or an opinion of counsel reasonably
satisfactory to Parent in form and substance reasonably satisfactory to
Parent, to the effect that such legend is not required for purposes of the
Act.
I further represent to, and covenant with Parent, that I will not, during the
30 days prior to the Effective Time (as defined in the Agreement), sell,
transfer or otherwise dispose of the Company Shares or shares of the capital
stock of Parent that I may hold and, furthermore, that I will not sell,
transfer or otherwise dispose of Parent Shares received by me in the Merger
or any other shares of the capital stock of Parent until after such time as
results covering at least 30 days of combined operations of the Company and
Parent have been published by Parent, in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a
report to the Commission on Form 10-K, 10-Q, or 8-K, or any other public
filing or announcement which includes such combined results of operations.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph
of this letter, or as a waiver of any rights I may have to object to any
claim that I am such an affiliate on or after the date of this letter.
Very truly yours,
Name:
Accepted this day of
, 1994, by
CORNING INCORPORATED
By
Name:
Title:
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EXHIBIT 5.13
TO AGREEMENT
AND PLAN OF
MERGER
REQUIRED CHANGES IN EMPLOYMENT CONTRACTS
<TABLE>
<CAPTION>
Named Employee Required Change
<S> <C>
George L. Bragg Agreement to waive severance benefits for voluntary departure within
six months of Closing. Thereafter, existing severance arrangements
shall apply.
Paul H. Bellamy Agreement to waive severance benefits for voluntary departure within
six months of Closing. Thereafter, existing severance arrangements
shall apply.
John C. Roberts Agreement to waive severance benefits for voluntary departure within
six months of Closing. Thereafter, existing severance arrangements
shall apply.
Silvio V. Cianfrone Agreement to waive severance benefits for voluntary departure within
six months of Closing. Thereafter, existing severance arrangements
shall apply.
Douglas S. Harrington, M.D. Agreement to waive severance benefits for voluntary departure within
two years of Closing. At Closing, the Company will offer to enter into
new two year employment contract with the employee (preserving
existing severance arrangements for voluntary departure after two
years), including participation in stock incentive plans.
Frank E. Taylor, Jr. Agreement to waive severance benefits for voluntary departure within
two years of Closing. At Closing, the Company will offer to enter into
new two year employment contract with the employee (preserving
existing severance arrangements for voluntary departure after two
years), including participation in stock incentive plans.
Delbert A. Fisher, M.D. Agreement to waive severance benefits for voluntary departure, if any,
within two years of Closing. At Closing, the Company will offer to
enter into new two year employment contract with the employee
(preserving any existing severance arrangements for voluntary
departure after two years), including participation in stock incentive
plans. Parent will discuss appropriate retirement arrangements.
Richard B. Dozier Agreement to waive severance benefits for voluntary departure, if any,
within two years of Closing. At Closing, the Company will offer to
enter into new two year employment contract with the employee
(preserving any existing severance arrangements for voluntary
departure after two years), including participation in stock incentive
plans. Parent will discuss appropriate retirement arrangements.
Alan L. Fox Agreement to waive severance benefits for voluntary departure within
two years of Closing. Thereafter, existing severance arrangements
shall apply.
Marilyn I. Hauge Agreement to waive severance benefits for voluntary departure within
six months of Closing. Thereafter, existing severance arrangements
shall apply.
</TABLE>
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EXHIBIT 5.16
EMPLOYMENT AGREEMENT
AGREEMENT by and between Nichols Institute, a Delaware corporation (the
"Company"), and Dr. Albert L. Nichols (the "Executive"), dated as of the
day of , 1994.
1. Employment Period; Effectiveness of this Agreement. The Company shall
employ the Executive, and the Executive shall serve the Company, on the terms
and conditions set forth in this Agreement, for the period beginning on the
"Effective Time" of the "Merger", as such terms are defined in the Agreement
and Plan of Merger by and among Corning, Inc., a New York corporation
("Corning"), Apple Acquisition Corp. and the Company dated as of June 1, 1994
(the "Merger Agreement"), and ending on the second anniversary thereof (the
"Employment Period") provided, however, that the Employment Period may be
extended for up to an additional three years if mutually agreed by the
parties prior to such second anniversary (the "Additional Term").
2. Waiver of Severance Pay. In consideration for the Company's entering into
this Agreement, effective upon the commencement of the Employment Period, the
Executive hereby waives all his rights to severance pay, damages or other
payments on account of the termination of his employment with the Company or
as a result of the Merger other than as set forth in this Agreement.
3. Position and Duties. During the Employment Period, the Executive shall
serve as Chairman Emeritus of the Company, with duties and responsibilities
that shall include assisting in the transition resulting from the acquisition
of the Company by Corning and the coordination and integration of the
Company's business and operations with those of Corning Life Sciences Inc.
("CLSI"). The Executive shall be a member of the Board of Directors of CLSI
with special responsibility for strategic planning. The Executive shall have
responsibility for helping to integrate the operations of the Company with
those of CLSI; assisting the Chief Executive Officer of CLSI in developing
long-term strategic planning for the Company and CLSI; at the request of the
Chief Executive Officer of CLSI, meeting with and visiting customers of both
the Company and CLSI in seeking to maintain and extend the business
operations of both the Company and CLSI; reviewing with the Chief Executive
Officer of CLSI new scientific strategies for both the Company and CLSI; and
such other duties and responsibilities, consistent with his status as
Chairman Emeritus of the Company, as may be accepted by him. The Executive
shall have direct reporting responsibilities only to the Chief Executive
Officer of CLSI (who shall be the Chairman of the Company). The Executive's
services shall be performed primarily during normal business hours, may be
performed primarily in California and are not expected to be full time. The
Executive may engage in other business activities, in particular maintaining
his license as a doctor of medicine, so long as they do not interfere with
the performance of his duties under this Agreement and do not violate Section
7 of this Agreement.
4. Compensation. (a) Base Salary. During the Employment Period, the Executive
shall receive a salary (the "Salary") of $250,000 per annum, payable in
monthly installments.
(b) Incentive Compensation. (i) Whether or not the Employment Period shall
have ended, for each of the five years following the Merger, the Executive
shall receive a guaranteed lump sum bonus of $500,000, payable in arrears;
and (ii) at the end of the Employment Period, the Executive shall be eligible
for an incentive bonus of between $1,000,000 and $2,000,000, based upon
achievement of certain performance criteria to be mutually agreed upon in
writing by the Executive and Chief Executive Officer of CLSI, prior to the
Effective Time. In the event the Executive is employed for the Additional
Term, he shall be eligible for similar incentive bonus compensation at the
end of such term.
(c) Other Benefits. During the Employment Period, the Executive shall be
entitled to participate in all welfare benefit and tax-qualified savings and
retirement plans of the Company and the CLSI group companies to the same
extent as peer executives. The Executive shall not be entitled to participate
in any bonus, incentive, severance or nonqualified profit-sharing or deferred
compensation plans, programs or policies of the Company and its affiliated
companies, except as specifically provided herein.
(d) Vacation; Support Services; Expenses. During the Employment Period and,
if applicable, the Additional Term, the Executive shall be entitled to: (i)
eight weeks' vacation per year; (ii) an office, secretarial services, and
other support services necessary to the performance of his duties under this
Agreement; (iii) maintain the use of his current Company car; and (iv)
reimbursement of business expenses in accordance with Company policies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during
the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Dis
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ability" means that (i) the Executive has been unable, for a period of 180
consecutive business days, to perform his duties under this Agreement, as a
result of physical or mental illness or injury, and (ii) a physician selected
by the Company or its insurers, and acceptable to the Executive or the
Executive's legal representative, has determined that the Executive's
incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the
Executive by written notice, and shall be effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
unless the Executive returns to full-time performance of the Executive's
duties before the Disability Effective Date.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause or without Cause by giving him written notice of
its intention to do so. "Cause" means repeated and gross negligence in
fulfillment of, or repeated failure of the Executive to fulfill his material
obligations under this Agreement, in either event after due written notice
thereof, or serious willful misconduct by the Executive in respect of his
obligations hereunder. Cause should not include, without limitation, (a)
refusal by the Executive of an assignment not consistent with the status,
titles and reporting requirements set forth herein or contemplated hereby, or
(b) bad judgment or negligence of the Executive, or (c) any act or omission
(other than one constituting a material breach of trust committed in willful
or reckless disregard of the interest of the Company, CLSI or Corning and
undertaken for personal gain) in respect of which a determination could
properly have made by the Board of Directors of the Company that the
Executive met the applicable standard of conduct prescribed for
indemnification or reimbursement under the by-laws of the Company or the laws
of Delaware, in each case in effect at the time of such act or omission, or
(d) any act or omission which would otherwise constitute Cause with respect
to which notice of termination is given more than twelve (12) months after
the earliest date on which any senior executive officer of Corning who was
not a party to such act or omission knew or should have known of such act or
omission.
6. Obligations of the Company upon Termination. (a) Other than for Cause,
Death or Disability. If, during the Employment Period, the Company terminates
the Executive's employment other than for Cause or Disability, the Company
shall continue to provide the compensation and benefits provided for in
Section 4 as if the Executive had remained employed under this Agreement
through the end of the Employment Period or, if applicable, the Additional
Term, provided that the Executive's entitlement to payments pursuant to
Section 4(b)(ii) in the event of such termination will be determined pursuant
to criteria to be mutually agreed upon by the Executive and the Chief
Executive Officer of CLSI prior to the Effective Time, in the case of a
termination during the Employment Period, and prior to the end of the
Employment Period, in the case of a termination during the Additional Term.
To the extent that the Executive may not, under the terms of any applicable
law, regulation, plan document or contract, be treated as still employed by
the Company for purposes of any benefits provided for in paragraph (c) of
Section 4, the Company shall provide the Executive with substantially
equivalent benefits in such manner as it deems appropriate. Notwithstanding
the foregoing, during any period when the Executive is eligible to receive
any benefits from another employer, the benefits provided by the Company
under this subparagraph may be made secondary to those provided by such other
employer. The payments provided pursuant to this paragraph (a) of Section 6
are intended as liquidated damages for a termination of the Executive's
employment by the Company other than for Cause or Disability, and shall be
the sole and exclusive remedy therefor.
(b) Cause; By Executive. If the Executive's employment is terminated during
the Employment Period (or, if applicable, the Additional Term) by the Company
for Cause or by the Executive for any reason other than as a result of a
breach by the Company of this Agreement, the Company shall pay the accrued
but unpaid Salary through the Date of Termination to the Executive or the
Executive's estate or legal representative, as applicable, and shall make the
payments provided in Section 4(b)(i), and the Company shall have no further
obligations under this Agreement.
(c) Death or Disability. If the Executive's employment is terminated during
the Employment Period because of the Executive's death or Disability, (i) the
Company shall continue to pay the Salary to the Executive or the Executive's
estate or legal representative, as applicable, through the end of the
Employment Period, or, if applicable, the Additional Term, (ii) the Company
shall make the payments described in Section 4(b)(i), and (iii) the Company
shall have no further obligations under this Agreement.
7. Non-Competition; Confidential Information. (a) For a period of five years
from the commencement of the Employment Period (the "Restricted Period") the
Executive shall not, without the prior written consent of CLSI, engage in or
become associated (directly or indirectly), as an owner, employee, officer,
director, independent contractor, agent, partner, advisor, or in any other
capacity calling for the rendition of his personal services, with any
individual, partnership, corporation or other organization or entity that is
engaged in the business of clinical laboratory testing (including diagnostic
testing) in the United States; provided that the foregoing shall not prevent
the Executive from making and holding investments of up to five percent of
the equity of an entity engaged in such business, if such equity is listed on
a national securities exchange or regularly traded in the over-the-counter
market.
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The Executive further agrees that during the Restricted Period, the Executive
shall not, without the prior written consent of CLSI, solicit, assist or
encourage the solicitation of, any employee of the Company or any of its
affiliates to leave the employ of the Company or such affiliate.
(b) During the Employment Period and at all times thereafter, the Executive
shall not disclose to anyone who is not employed by the Company or by an
affiliate or to any employee of the Company or an affiliate who, to the
knowledge of the Executive, is not authorized to receive such information,
any confidential information of the Company and any confidential information
relating to the Company's former or present customers or potential customers
of which the Executive becomes aware during the Employment Period. The
Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses
that the Executive obtains during the Executive's employment by the Company
or any of its affiliated companies and that is not public knowledge (other
than as a result of the Executive's violation of this Section 7)
("Confidential Information"). The Executive shall not communicate, divulge or
disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written
consent of the Company or as otherwise required by law or legal process.
(c) This Section 7 shall survive the expiration of the Employment Period and
any termination of the Executive's employment throughout the Restricted
Period, notwithstanding any other provision of this Agreement.
8. Legal Fees and Expenses. The Company shall reimburse the Executive for all
legal fees and expenses that the Executive may reasonably incur as a result
of any contest by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement, if
the Executive is the prevailing party in such contest.
9. Successors. (a) This Agreement is personal to the Executive and, without
the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean both the Company
as defined above and any such successor that assumes and agrees to perform
this Agreement, by operation of law or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified except by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Dr. Albert L. Nichols
33608 Ortega Highway
San Juan Capistrano, CA 92690
with a copy to:
Edward Rover, Esq.
White & Case
1155 Avenue of the Americas
New York, NY 10036
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If to the Company:
Nichols Institute
33608 Ortega Highway
San Juan Capistrano, CA 92690
Attention: Chief Executive Officer
with a copy to:
MetPath
One Malcolm Avenue
Teterboro, New Jersey 07608
Attention: Ray Marier, Esq.
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 10. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement. Should a court or other body of competent jurisdiction
determine that any term or provision of Section 7 hereof is excessive in
scope, invalid or unenforceable, such term or provision shall be adjusted, if
possible, so as to be valid and enforceable to the fullest extent possible
under applicable law.
(d) Notwithstanding any other provision of this Agreement, the Company may
withhold from amounts payable under this Agreement all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision of, or to assert any right under, this Agreement shall not
be deemed to be a waiver of such provision or right or of any other provision
of or right under this Agreement.
(f) The Executive and the Company acknowledge that upon its effectiveness
this Agreement will supersede any other agreement between them concerning the
subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to
the authorization of its Board or Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
Dr. Albert L. Nichols
NICHOLS INSTITUTE
By
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APPENDIX B
June 1, 1994
Corning Incorporated
One Riverfront Plaza
Corning, New York 14831
Dear Sirs:
The undersigned understands that Corning Incorporated ("Parent"), Apple
Acquisition Corp. ("Merger Sub") and Nichols Institute (the "Company") are
entering into an Agreement and Plan of Merger (the "Agreement") pursuant to
which Merger Sub will be merged with and into the Company (the "Merger") and
whereby each share of Class A Common Stock, par value $.10 per share ("Class
A Common"), Class B Common Stock, par value $.10 per share ("Class B
Common"), and Class C Common Stock, par value $.10 per share ("Class C
Common"), of the Company (collectively, the "Company Common Stock") issued
and outstanding immediately as of the effective date of the Merger (including
shares of Company Common Stock issuable upon the automatic conversion of the
Company's Series E Convertible Preferred Stock, par value $.10 per share
("Company Preferred Stock") in accordance with terms thereof as of the
effective time of the Merger) will be converted into the right to receive
shares of Common Stock, par value $.50 per share, of Parent ("Parent Common
Stock").
The undersigned is a stockholder of the Company (the "Stockholder") and is
entering into this letter agreement to induce you to enter into the Agreement
and to consummate the transactions contemplated thereby.
The Stockholder confirms his agreement with Parent as follows:
1. The Stockholder represents, warrants and agrees that (subject only to the
community property rights of Patricia Wright Nichols, who consents to this
letter agreement and the arrangements contemplated hereby) he is the record
or beneficial owner of 3,818 shares of Class A Common (all of which he holds
a trustee, with sole voting power, of a trust), 1,334,423 shares of Class B
Common (42,470 of which he holds a trustee with sole voting power, of a
trust), 1,047,629 shares of Class C Common (45,842 all of which he holds a
trustee, with sole voting power, of a trust) and no shares of Company
Preferred Stock (collectively, the "Shares"), and stock options to purchase
5,000 shares of Class A Common and 155,944 shares of Class C Common, all free
and clear of all liens, charges, encumbrances, voting agreements and
commitments of every kind except as has been disclosed previously to Parent
in writing. The Stockholder does not own or hold any rights to acquire any
additional shares of the capital stock of Parent (by exercise of stock
options or otherwise) or any interest therein or any voting rights with
respect to any additional shares.
2. The Stockholder agrees that, from the date hereof until the Agreement is
terminated in accordance with its terms, he will not, and will not permit any
entity controlled by the Stockholder to, (i) convert any of the shares of
Class B Common included within the Shares into Class A Common, (ii) contract
to sell, sell or otherwise transfer or dispose of any of the Shares or any
interest therein or securities convertible thereinto or any voting rights
with respect thereto, other than (x) pursuant to the Merger, (y) with
Parent's prior written consent or (z) the use of Shares as collateral
pursuant to any existing loan arrangement disclosed previously to Parent in
writing to secure indebtedness in an amount not to exceed $2,200,000, (iii)
consent to any amendment to the certificate of incorporation of the Company
which would effectively reduce the proportionate voting power of the Shares
or (iv) to the extent any Shares are subject to any encumbrances disclosed in
writing to Parent, increase the amount of indebtedness secured by such Shares
to more than $2,200,000. The Stockholder shall inform Parent prior to any
material increase in his indebtedness under the aforementioned loan
arrangements.
3. The Stockholder agrees that, from the date hereof until the Agreement is
terminated in accordance with its terms, all of the Company Common Stock and
Company Preferred Stock (including the Shares) beneficially owned by the
Stockholder, or over which the Stockholder has voting power or control,
directly or indirectly, in each case at the record date for any meeting of
stockholders of the Company called to consider and vote, or for any
solicitation of consents, to approve the Agreement and/or the transactions
contemplated thereby will be voted by the Stockholder in favor thereof and
that such shares will not be voted in favor of any other Takeover Proposal
(as such term is defined in the Agreement) during such period.
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4. The Stockholder agrees to cooperate fully with Parent in connection with
the Agreement and the transactions contemplated thereby. The Stockholder
agrees that he will not, and will not instruct his agents, employees or
representatives or the officers, employees, agents or representatives of the
Company to, directly or indirectly, (i) solicit or initiate, or encourage the
submission of, any Takeover Proposal or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal.
This letter agreement may be terminated at the option of any party at any
time after termination of the Agreement in accordance with its terms. The
provisions of Sections 8.07 and 8.09 of the Agreement shall apply to this
letter agreement (as though all references to "this Agreement" in said
Sections referred to this letter agreement).
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to us a counterpart hereof.
Very truly yours,
/s/ Albert L. Nichols, M.D.
Albert L. Nichols, M.D.
Confirmed on the date
first above written.
Corning Incorporated
By: /s/ Van C. Campbell
I hereby consent to the foregoing.
/s/ Patricia Wright Nichols
Patricia Wright Nichols
Date: June 1, 1994
<PAGE>
<PAGE>
APPENDIX C
June 1, 1994
Board of Directors
Nichols Institute
33608 Ortega Highway
San Juan Capistrano, California 92690
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of Nichols Institute (the "Company") from a financial point of
view of the consideration to be exchanged by Corning Incorporated ("Corning")
pursuant to the terms of the Agreement and Plan of Merger, dated as of June
1, 1994 (the "Merger Agreement"), between the Company and Corning. The Merger
Agreement provides for the merger (the "Merger") of a wholly owned subsidiary
of Corning with and into the Company pursuant to which each outstanding share
of the Company's Class A, Class B, and Class C Common Stock, par value $0.10
per share (other than shares of Class B Common Stock as to which appraisal
rights have been perfected), will be converted into the right to receive not
more than 0.491 shares of Corning Common Stock depending on the average
Corning share price for the ten trading days ending on the fifth trading day
prior to the meeting of the Company's stockholders to approve the Merger.
Each share of the Company's Series E Convertible Preferred Stock (other than
shares of such Preferred Stock as to which appraisal rights have been
perfected) will be converted into Corning Common Stock in the manner and the
amount provided for pursuant to the terms of such Preferred Stock. In
arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company and Corning. We have also
reviewed certain other information, including financial forecasts, provided
to us by the Company and Corning, and have met with the Company's and
Corning's management to discuss the business and prospects of the Company and
Corning.
We have also considered certain financial and stock market data of the
Company and Corning, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company
and we have considered the financial terms of certain other business
combinations 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, and have discussed
with representatives of the Company and of Peter J. Solomon Securities
Company Limited ("Solomon") information developed by Solomon regarding other
potential opportunities for the sale of the Company. However, we were not
involved in any discussions which representatives of the Company or Solomon
have had with any third parties in this regard.
In connection with our review, we have not independently verified 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 and Corning's
management as to the future financial performance of the Company and Corning,
respectively. In addition, we have not made an independent evaluation or
appraisal of the assets of the Company or Corning, nor have we been furnished
with any such appraisals.
We have acted as a financial advisor to the Company's Board of Directors in
connection with the Merger and will receive a fee for rendering this opinion,
payable in part upon delivering the opinion and in part upon consummation of
the Merger.
In the ordinary course of our business, we may trade the debt and equity
securities of both the Company and Corning for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Further, John M. Hennessy, Chairman of the
Executive Board and Chief Executive Officer of CS First Boston, Inc., is a
member of Corning's Board of Directors.
<PAGE>
<PAGE>
Board of Directors
Nichols Institute
June 1, 1994
Page Two
It is understood that this letter is for the information of the Board of
Directors of the Company only and may be published in its entirety in the
prospectus/proxy statement to be distributed to stockholders of the Company
and to be included in Corning's Form S-4 Registration Statement to be filed
in connection with the Merger so long as we give our prior written consent to
any summary of, excerpt from or reference to such opinion which consent shall
not be unreasonably withheld. This letter is not to be quoted or referred to,
in whole or in part, in any other proxy statement or in any other
registration statement or prospectus, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by Corning pursuant to the Merger
Agreement is fair to each class of the Company's stockholders from a
financial point of view.
Sincerely,
CS FIRST BOSTON CORPORATION
By: /s/ James P. Jenkins
James P. Jenkins
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<PAGE>
APPENDIX D
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
S. 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to S. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in
a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to S. 251, 252, 254, 257, 258 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 stockholders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of S. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to S.S. 251,
252, 254, 257, 258 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation which at the effective date
of the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described in the
foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of fractional
shares described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under S. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the cor
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poration, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient if
it reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to S. 228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial
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upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to subsection (f) of
this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under the NYBCL, a corporation may indemnify its directors and officers made,
or threatened to be made, a party to any action or proceeding, except for
stockholder derivative suits, if such director or officer acted in good
faith, for a purpose which he or she reasonably believed to be in or, in the
case of service to another corporation or enterprise, not opposed to, the
best interests of the corporation, and, in criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful. In the case of
stockholder derivative suits, the corporation may indemnify a director or
officer if he or she acted in good faith for a purpose which he or she
reasonably believed to be in or, in the case of service to another
corporation or enterprise, not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of (i) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (ii) any claim, issue or matter as to which such person has been
adjudged to be liable to the corporation, unless and only to the extent that
the court in which the action was brought, or, if no action was brought, any
court of competent jurisdiction, determines upon application that, in view of
all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such portion of the settlement amount and expenses
as the court deems proper.
Any person who has been successful on the merits or otherwise in the defense
of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered
by a court pursuant to the NYBCL, any indemnification under the NYBCL
pursuant to the above paragraph may be made only if authorized in the
specific case and after a finding that the director or officer met the
requisite standard of conduct by (i) the disinterested directors if a quorum
is available, (ii) the board upon the written opinion of independent legal
counsel or (iii) the stockholders.
The indemnification described above under the NYBCL is not exclusive of other
indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws or when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of stockholders, (iii) a resolution of directors or (iv) an
agreement providing for such indemnification, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally
entitled.
The foregoing statement is qualified in its entirety by reference to Sections
715, 717 and 721 through 725 of the NYBCL.
Article VIII of the registrant's By-Laws provides that the registrant shall
indemnify each director and officer against all costs and expenses actually
and reasonably incurred by him in connection with the defense of any claim,
action, suit or proceeding against him by reason of his being or having been
a director or officer of the registrant to the full extent permitted by, and
consistent with, the NYBCL.
The directors and officers of the registrant are covered by insurance
policies indemnifying them against certain liabilities, including certain
liabilities arising under the Securities Act, which might be incurred by them
in such capacities.
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
2.01 --Agreement and Plan of Merger, as amended, dated as of June 1, 1994, among the registrant, Apple
Acquisition Corp. and Nichols Institute (included as Appendix A to the Proxy
Statement/Prospectus). The registrant agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
3.01 --Restated Certificate of Incorporation of the registrant, dated July 12, 1989, and the
Certificate of Amendment, dated September 28, 1989, to the Restated Certificate of Incorporation
of the registrant (incorporated by reference to Exhibit 3(a) of the registrant's Annual Report on
Form 10-K for the fiscal year ending December 31, 1989).
3.02 --By-laws of the registrant (incorporated by reference to Exhibit 3(a) of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1990).
3.03 --Certificate of Amendment, dated April 30, 1992, to the Restated Certificate of Incorporation of
the registrant (incorporated by reference to Exhibit 3(a) of the registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1993).
3.04 _Certificate of Amendment, dated July 15, 1994, to the Restated Certificate of Incorporation of
the registrant.
4.01 --Form of Common Stock Certificate of the registrant (incorporated by reference to Exhibit 4 to
Registration Statement on Form S-4 filed with the Commission on June 17, 1992 (Registration
Statement No. 33-48488)).
4.02 --Rights Agreement, dated as of July 2, 1986, between the registrant and Harris Trust and Savings
Bank, as amended (incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A,
filed with the Commission on July 2, 1986, and Exhibit 1 to Amendment No. 1 on Form 8, filed with
the Commission on October 10, 1989).
4.03 --Form of Preferred Share Purchase Right of the registrant (included in Exhibit 4.02).
5.01 --Opinion of William C. Ughetta, Senior Vice President and General Counsel of the registrant, as
to the legality of the securities being registered.
8.01 --Opinion of Fulbright & Jaworski L.L.P. as to certain federal income tax consequences.
23.01 --Consent of William C. Ughetta (included in Exhibit 5.01).
23.02 --Consent of Price Waterhouse.
23.03 --Consent of Arthur Anderson & Co.
23.04 --Consent of Deloitte & Touche.
23.05 --Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8.01).
23.06 --Consent of CS First Boston Corporation.
24.01 --Powers of Attorney.
99.01 --Form of proxy for special meeting to be mailed to stockholders of Nichols Institute.
99.02 --Agreement, dated as of June 1, 1994, by and between the registrant and Albert L. Nichols, M.D.
(included as Appendix B to the Proxy Statement/Prospectus).
99.03 --Opinion of CS First Boston Corporation (included as Appendix C to the Proxy
Statement/Prospectus).
</TABLE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each fling of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of Item 20 hereof, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of Corning, State of New
York, on July 28, 1994.
Corning Incorporated
By: /s/ William C. Ughetta
William C. Ughetta
Senior Vice President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Capacity
<S> <C>
/s/ James R. Houghton Chairman of the Board, Principal Executive Officer
(James R. Houghton) and Director
/s/ Van C. Campbell Vice Chairman, Principal Financial Officer and
(Van C. Campbell) Director
/s/ Larry Aiello, Jr. Vice President, Controller, and Principal Accounting
(Larry Aiello, Jr.) Officer
*
(Roger G. Ackerman) President, Principal Operating Officer and Director
*
(Robert Barker) Director
*
(Mary L. Bundy) Director
*
(Barber B. Conable, Jr.) Director
*
(David A. Duke) Director
*
(E. Martin Gibson) Director
*
(Gordon Gund) Director
*
(John M. Hennessy) Director
*
(Vernon E. Jordan, Jr.) Director
*
(James W. Kinnear) Director
*
(James J. O'Connor) Director
*
(Catherine A. Rein) Director
*
(Henry Rosovsky) Director
*
(William D. Smithburg) Director
*
(Robert G. Stone, Jr.) Director
* By /s/ William C. Ughetta
(William C. Ughetta)
Attorney-in-fact
</TABLE>
July 28, 1994
SCHEDULE II
NICHOLS INSTITUTE AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Balance at
End of Year
Deductions
Balance at
Beginning of Amounts Amounts
Name of Debtor Year Additions Collected Written Off Current Non Current
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1991:
Fisher, Delbert, M.D. (1) $200,000 $200,000
Year Ended December 31, 1992:
Fisher, Delbert, M.D. $200,000 $200,000 $ --
Year Ended December 31, 1993: None
</TABLE>
(1) A two year non-interest bearing promissory note (the Note) was issued to
Dr. Fisher on December 12, 1991 for $200,000. The Note was collateralized by
a deed of trust and was paid in full on December 12, 1992.
<PAGE>
<PAGE>
SCHEDULE V
NICHOLS INSTITUTE AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT (1)
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Balance at Additions Retirements Balance at
Beginning and Other and Other End of
of Year Increases Reductions Year
(2)
<S> <C> <C> <C> <C>
Year Ended December 31, 1991:
Land $ 2,676,000 $ 5,028,000 $ 7,704,000
Buildings 6,874,000 51,424,000 $1,516,000 56,782,000
Equipment 39,268,000 22,616,000 1,717,000 60,167,000
Leasehold improvements 2,680,000 635,000 1,421,000 1,894,000
Facility development costs
(3) 6,546,000 (6,546,000)
Total $ 58,044,000 $73,157,000 $4,654,000 $126,547,000
Year Ended December 31, 1992:
Land $ 7,704,000 $ 5,000 $ 254,000 $ 7,455,000
Buildings 56,782,000 404,000 1,436,000 55,750,000
Equipment 60,167,000 19,348,000 2,055,000 77,460,000
Leasehold improvements 1,894,000 1,402,000 257,000 3,039,000
Total $126,547,000 $21,159,000 $4,002,000 $143,704,000
Year Ended December 31, 1993:
Land $ 7,455,000 $ 19,000 $ 7,474,000
Buildings 55,750,000 212,000 55,962,000
Equipment 77,460,000 7,998,000 4,739,000 80,719,000
Leasehold improvements 3,039,000 365,000 272,000 3,132,000
Total $147,287,000
$143,704,000 $ 8,594,000 $5,011,000
</TABLE>
(1) For a description of depreciation and amortization methods and estimated
useful lives, see Note 1 in the accompanying consolidated financial
statements.
(2) Additions for the years ended December 31, 1991 and 1992 include
$4,117,000 and $2,919,000, respectively, relating to the Company's business
acquisitions (see Note 12 in the accompanying consolidated financial
statements) and approximately $61,000,000 in 1991 relating to the Company's
new laboratory, research and development and administrative facilities (see
Note 4 in the accompanying consolidated financial statements).
(3) Costs related to the development of the property for the Company's
principal esoteric laboratory, its research and development and
administrative facilities (primarily design and engineering fees and
capitalized interest) were classified as facility development costs until
construction was completed (see Note 4 in the accompanying consolidated
financial statements), at which time they were added to the capitalized cost
of buildings and land improvements.
<PAGE>
<PAGE>
SCHEDULE VI
NICHOLS INSTITUTE AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Additions
Balance Charged
at to Costs Retirements Balance at
Beginning and and Other End of
of Year Expenses Reductions Year
<S> <C> <C> <C> <C>
Year Ended December 31,
1991:
Buildings $ 2,653,000 $ 999,000 $1,516,000 $ 2,136,000
Equipment 19,255,000 8,742,000 1,396,000 26,601,000
Leasehold improvements 1,144,000 1,038,000 1,395,000 787,000
Total $23,052,000 $10,779,000 $4,307,000 $29,524,000
Year Ended December 31,
1992:
Buildings $ 2,136,000 $ 2,018,000 $ 246,000 $ 3,908,000
Equipment 26,601,000 12,233,000 508,000 38,326,000
Leasehold improvements 787,000 546,000 428,000 905,000
Total $29,524,000 $14,797,000 $1,182,000 $43,139,000
Year Ended December 31,
1993:
Buildings $ 3,908,000 $ 1,965,000 $ 5,873,000
Equipment 38,326,000 13,270,000 $3,327,000 48,269,000
Leasehold improvements 905,000 739,000 54,000 1,590,000
Total $55,732,000
$43,139,000 $15,974,000 $3,381,000
</TABLE>
<PAGE>
<PAGE>
SCHEDULE VIII
NICHOLS INSTITUTE AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Allowance for doubtful accounts and
contractual allowances:
Balance at beginning of year $ 3,789,000 $ 8,058,000 $ 11,786,000
Additions:
Charged to costs and expenses
(bad debts expense) 3,226,000 4,844,000 8,590,000
Charged to revenues 31,241,000 42,110,000 43,534,000
Resulting from business acquisitions 1,672,000 1,271,000
Write-offs, net of recoveries (31,870,000) (44,498,000) (50,475,000)
Balance at end of year $ 8,058,000 $ 11,786,000 $ 13,436,000
Accrued restructuring charges:
Balance at beginning of year $ 625,000 $ 3,126,000
Additions charged to costs and
expenses $ 875,000 13,000,000 12,840,000
Reductions:
Write-down of assets (6,482,000) (3,369,000)
Restructuring charges paid (250,000) (4,017,000) (3,993,000)
Balance at end of year $ 625,000 $ 3,126,000 $ 8,604,000
</TABLE>
<PAGE>
<PAGE>
SCHEDULE IX
NICHOLS INSTITUTE AND SUBSIDIARIES
SHORT-TERM BORROWINGS
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
End of Year
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Average Outstanding Outstanding Rate
Interest During During During
Balance Rate the Year the Year the Year
<S> <C> <C> <C> <C> <C>
Bank Financing:
Year Ended
December 31,
1991 $8,730,000 6.70% $ 8,730,000 $ 1,221,000 8.52%
Year Ended
December 31,
1992 $4,521,000 7.10% $17,248,000 $11,617,000 6.81%
Year Ended
December 31,
1993 $ 3,947,000 $ 906,000 7.41%
</TABLE>
For a description of the Company's bank financing arrangements, see Note 2 in
the accompanying consolidated financial statements.
Average borrowings were determined based on the daily amounts outstanding.
The weighted average interest rate during the period was computed by dividing
actual interest expense in each period by average short-term borrowings in
such period. The Company had no borrowings outstanding under its principal
line of credit since April 1993 (see Note 2 in the accompanying consolidated
financial statements).
<PAGE>
<PAGE>
SCHEDULE X
NICHOLS INSTITUTE AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Maintenance and repairs $3,105,000 $3,530,000 $3,970,000
Amortization of goodwill $1,758,000 $2,176,000 $2,172,000
Amortization of purchased technology $ 384,000 $ 729,000
Amortization of covenants not to
compete $1,057,000 $1,578,000 $1,515,000
Amortization of customer lists $ 705,000 $1,430,000 $ 904,000
Amortization of debt issuance costs $ 130,000 $ 169,000 $ 173,000
Royalties $1,945,000
$2,634,000 $2,099,000
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
<S> <C> <C>
*2.01 --Agreement and Plan of Merger, as amended, dated as of June 1, 1994, among the
registrant, Apple Acquisition Corp. and Nichols Institute (included as Appendix A
to the Proxy Statement/Prospectus).
3.01 --Restated Certificate of Incorporation of the registrant, dated July 12, 1989,
and the Certificate of Amendment, dated September 28, 1989, to the Restated
Certificate of Incorporation of the registrant (incorporated by reference to
Exhibit 3(a) of the registrant's Annual Report on Form 10-K for the fiscal year
ending December 31, 1989).
3.02 --By-laws of the registrant (incorporated by reference to Exhibit 3(a) of the
registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1990).
3.03 --Certificate of Amendment, dated April 30, 1992, to the Restated Certificate of
Incorporation of the registrant (incorporated by reference to Exhibit 3(a) of the
registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1993).
*3.04 --Certificate of Amendment, dated July 15, 1994, to the Restated Certificate of
Incorporation of the registrant.
4.01 --Form of Common Stock Certificate of the registrant (incorporated by reference to
Exhibit 4 to Registration Statement on Form S-4 filed with the Commission on June
17, 1992 (Registration Statement No. 33-48488)).
4.02 --Rights Agreement, dated as of July 2, 1986, between the registrant and Harris
Trust and Savings Bank, as amended (incorporated by reference to Exhibit 1 to
Registration Statement on Form 8-A, filed with the Commission on July 2, 1986, and
Exhibit 1 to Amendment No. 1 on Form 8, filed with the Commission on October 10,
1989).
4.03 --Form of Preferred Share Purchase Right of the registrant (included in Exhibit
4.02).
*5.01 --Opinion of William C. Ughetta, Senior Vice President and General Counsel of the
registrant, as to the legality of the securities being registered.
*8.01 --Opinion of Fulbright & Jaworski L.L.P. as to certain federal income tax
consequences.
*23.01 --Consent of William C. Ughetta (included in Exhibit 5.01).
*23.02 --Consent of Price Waterhouse.
*23.03 --Consent of Arthur Anderson & Co.
*23.04 --Consent of Deloitte & Touche.
*23.05 --Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8.01).
*23.06 --Consent of CS First Boston Corporation.
*24.01 --Powers of Attorney.
*99.01 --Form of proxy for special meeting to be mailed to stockholders of Nichols
Institute.
*99.02 --Agreement, dated as of June 1, 1994, by and between the registrant and Albert L.
Nichols, M.D. (included as Appendix B to the Proxy Statement/Prospectus).
*99.03 --Opinion of CS First Boston Corporation (included as Appendix C to the Proxy
Statement/Prospectus).
</TABLE>
* Filed herewith.
<PAGE>
EXHIBIT 3.04
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF CORNING INCORPORATED
Under Section 805 of the Business Corporation Law
(as amended by the Certificate of Correction filed pursuant
to Section 105 of the Business Corporation Law on July 26, 1994)
WE, JAMES R. HOUGHTON and A. JOHN PECK, JR., being, respectively, the
Chairman and the Secretary of Corning Incorporated, a corporation organized
under the laws of the State of New York, DO HEREBY CERTIFY as follows:
FIRST: The name of the Corporation is Corning Incorporated. The Corporation
was formed under the name Corning Glass Works.
SECOND: The Certificate of Incorporation of the Corporation (being the
Preliminary Certificate of Consolidation Forming the Corporation) was filed
in the Office of the Secretary of State of the State of New York on December
24, 1936.
THIRD: This amendment of the Certificate of Incorporation was authorized by
resolutions duly adopted by the Board of Directors of the Corporation at a
meeting thereof duly called and held on April 28, 1994, at which a quorum was
present and acting throughout, and by the Executive Committee of the Board of
Directors of the Corporation, acting pursuant to delegated authority, by
unanimous written consent on July 14, 1994.
FOURTH: The said Certificate of Incorporation, as heretofore amended and
restated, is hereby amended pursuant to Section 801(b) of the Business
Corporation Law by the addition of the following provisions stating the
number, designation, relative rights, preferences and limitations of a series
of Series Preferred Stock, par value $100 per share, as fixed by the Board of
Directors of the Corporation before the issuance of such shares, such
provisions so added to be designated as paragraph 4C of the Restated
Certificate of Incorporation of the Corporation and to read as follows:
4C. Series C 6% Cumulative Convertible Preferred Stock
SECTION 1. Designation and Amount; Special Purpose; Restriction on Senior
Series.
(A) The shares of this series of Preferred Stock shall be designated as
"Series C 6% Cumulative Convertible Preferred Stock" (the "Series C Preferred
Stock") and the number of shares constituting such series shall be 3,737,500
with a par value of $100 per share.
(B) Shares of Series C Preferred Stock shall be issued only upon exchange of
all of the 6% convertible subordinated debentures due July 21, 2024 of the
Corporation (the "Subordinated Debentures") by Corning Delaware, L.P., a
Delaware limited partnership ("Corning Delaware"), pursuant to a valid
exchange election (the "Exchange Election") by the holders of a majority of
the aggregate liquidation preference of preferred securities, liquidation
preference of $50 per security, of Corning Delaware (the "Corning Delaware
Preferred Securities") then outstanding.
(C) So long as any Corning Delaware Preferred Securities are outstanding, the
Corporation shall not issue any other class or series of capital stock
ranking senior as to the payment of dividends or amounts upon liquidation,
dissolution or winding-up to the Series C Preferred Stock without the
approval of the holders of not less than 66-2/3% of the aggregate liquidation
preference of the Corning Delaware Preferred Securities then outstanding.
SECTION 2. Dividends and Distributions.
(A) (1) The holders of shares of Series C Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors of the
Corporation out of funds legally available therefor, cumulative cash
dividends in an amount per share per annum equal to $6.00 (equivalent to a
rate per annum of 6% of the stated liquidation preference of $100 per share
of Series C Preferred Stock), calculated on the basis of a 360-day year
consisting of 12 months of 30 days each, and for any period shorter than a
full monthly dividend period, dividends will be computed on the basis of the
actual number of days elapsed in such period, and payable in United States
dollars monthly in arrears on the last day of each calendar month of each
year.
<PAGE>
<PAGE>
(2) Dividends, when, as and if declared by the Board of Directors of the
Corporation out of funds legally available therefor, must be paid on the last
day of each month. Such dividends will accrue and be cumulative whether or
not they have been earned or declared and whether or not there are funds of
the Corporation legally available for the payment of dividends. Dividends on
the Series C Preferred Stock shall be cumulative from the date of the
Exchange Election. Accrued but unpaid interest on the Subordinated
Debentures, if any, on the date of the issuance of the Series C Preferred
Stock in exchange for such Subordinated Debentures shall constitute, and be
treated as, accumulated and unpaid dividends on the Series C Preferred Stock;
provided, however, that the amount which shall constitute such accumulated
and unpaid dividends on the Corning Series C Preferred Stock shall be neither
less than nor greater than the amount of accumulated and unpaid dividends
(including Additional Dividends), if any, on the Preferred Securities on the
date of such Exchange Election. The record date for each dividend payment
date shall be the Business Day (as defined below) immediately preceding such
dividend payment date. In the event that any date on which dividends are
payable on the Series C Preferred Stock is not a day other than a day on
which banking institutions in The City of New York or Chicago are authorized
or required by law to close (a "Business Day"), then payment of the dividend
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date.
(B) In the event that full cumulative dividends on the Series C Preferred
Stock have not been declared and paid or set apart for payment when due, then
the Corporation shall not, and shall not permit any majority-owned subsidiary
to declare or pay any dividend on, or redeem, purchase, acquire for value or
make a liquidation payment with respect to, any Junior Stock (other than as a
result of a reclassification of Junior Stock or the exchange or conversion of
one class or series of Junior Stock for another class or series of Junior
Stock), or make any guarantee payments with respect to the foregoing (other
than payments under the Guarantee or dividends or guarantee payments to
Corning).
When dividends are not paid in full, all dividends declared upon the Series C
Preferred Stock and all dividends declared upon any Pari Passu Stock (as
defined herein) shall be declared ratably in proportion to the respective
amounts of dividends accumulated and unpaid on the Series C Preferred Stock
and accumulated and unpaid on such Pari Passu Stock. "Pari Passu Stock" means
the Corporation's Series B Cumulative Convertible Preferred Stock, par value
$100 per share (the "Series B Preferred Stock"), and any preference stock or
preferred stock of the Corporation, or any guarantee now or hereafter entered
into by the Corporation in respect of any preferred or preference stock of
any affiliate of the Corporation, ranking, in such case, as to the payment of
dividends and amounts upon liquidation, dissolution and winding-up on a
parity with the Series B Preferred Stock. "Junior Stock" means Common Stock,
the Series A Preferred Stock, par value $100 per share, of the Corporation
and any other class or series of capital stock of the Corporation or any of
its affiliates which by its express terms ranks junior in the payment of
dividends or amounts upon liquidation, dissolution or winding-up to the
Series C Preferred Stock.
SECTION 3. Voting Rights.
(A) In the event that full cumulative dividends on the Series C Preferred
Stock have not been paid for 18 monthly dividend periods, the number of
directors of the Corporation constituting the entire Board of Directors shall
be increased by two persons and the holders of the Series C Preferred Stock
shall have the right to elect such persons to fill such positions at any
annual meeting of shareholders or special meeting held in place thereof, or
at a special meeting of the holders of the Series C Preferred Stock called as
hereinafter provided. Whenever all arrears in dividends on the Series C
Preferred Stock then outstanding shall have been paid and dividends thereon
for the current monthly period shall have been paid or declared and set apart
for payment, then the right of the holders of the Series C Preferred Stock to
elect such additional two directors shall cease (but subject always to the
same provisions for the vesting of such voting rights in the case of any
similar future arrearages in dividends), and the terms of office of all
persons elected as directors by the holders of the Series C Preferred Stock
shall forthwith terminate and the number of directors of the Corporation
constituting the entire Board of Directors shall be reduced accordingly. At
any time after such voting power shall have been so vested in the holders of
shares of the Series C Preferred Stock, the Secretary of the Corporation may,
and upon the written request of any holder of Series C Preferred Stock
(addressed to the Secretary at the principal office of the Corporation)
shall, call a special meeting of the Series C Preferred Stock for the
election of the two directors to be elected by them as herein provided, such
call to be made by notice similar to that provided in the by-laws for a
special meeting of the shareholders or as required by law. If any such
special meeting required to be called as above provided shall not be called
by the Secretary within 20 days after receipt of any such request, then any
holder of Series C Preferred Stock may call such meeting, upon the notice
above provided, and for that purpose shall have access to the stock books and
records of the Corporation. The directors elected at any such special meeting
shall hold office until the next annual meeting
<PAGE>
<PAGE>
of the shareholders or special meeting held in place thereof if such office
shall not have previously terminated as above provided. In case any vacancy
shall occur among the directors elected by the holders of the Series C
Preferred Stock, a successor shall be elected by the Board of Directors to
serve until the next annual meeting of the shareholders or special meeting
held in place thereof upon the nomination of the then remaining director
elected by the holders of the Series C Preferred Stock or the successor of
such remaining director.
(B) Except as otherwise required by law or set forth herein, holders of
Series C Preferred Stock shall have no special voting rights and their
consent shall not be required for the taking of any corporate action. So long
as any shares of Series C Preferred Stock are outstanding, the consent of the
holders of not less than 66-2/3% of the outstanding shares of Series C
Preferred Stock, given in person or by proxy either at a regular meeting or
at a special meeting called for that purpose, at which the holders of Series
C Preferred Stock shall vote separately as a series, shall be necessary for
effecting, validating or authorizing any one or more of the following:
(1) the amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation, as amended, of the Corporation, or any
amendment thereto or any other certificate filed pursuant to law (including
any such amendment, alteration or repeal effected by any merger or
consolidation to which the Corporation is a party) that would adversely
affect any of the rights, powers or preferences of outstanding shares of
Series C Preferred Stock, provided, however, that the amendment of the
provisions of the Certificate of Incorporation so as to authorize or create,
or increase the authorized amount of, any Junior Stock or Pari Passu Stock
shall not be deemed to affect adversely the voting powers, rights or
preferences of the holders of the Series C Preferred Stock;
(2) The creation of any shares of any class or series or any security
convertible into shares of any class or series of capital stock ranking prior
to the Series C Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding-up of the Corporation or in the payment
of dividends; or
(3) any merger or consolidation with or into, or any sale, transfer, exchange
or lease of all or substantially all of the assets of the Corporation to, any
other corporation, in either case that would adversely affect any of the
rights, powers or preferences of outstanding shares of Series C Preferred
Stock.
SECTION 4. Redemption.
(A) The shares of Series C Preferred Stock are redeemable, at the option of
the Corporation, in whole or in part from time to time, on or after August 5,
1998 during the twelve-month periods beginning on August 5 in each of the
following years, at the following redemption prices (expressed as a
percentage of liquidation preference), plus accumulated and unpaid dividends,
whether or not earned or declared, to the date of redemption (the "Redemption
Price"):
<TABLE>
<CAPTION>
Date Redemption Price
<S> <C>
August 5, 1998 103.6%
August 5, 1999 103.0%
August 5, 2000 102.4%
August 5, 2001 101.8%
August 5, 2002 101.2%
August 5, 2003 100.6%
August 5, 2004 and thereafter 100.0%
</TABLE>
From and after the date fixed for redemption, dividends on shares of Series C
Preferred Stock called for redemption will cease to accrue, such shares will
no longer be deemed to be outstanding and all rights in respect of such
shares of the Corporation shall cease, except the right to receive the
Redemption Price, provided that shares of Series C Preferred Stock may be
converted pursuant to Section 6 hereof at any time prior to the close of
business on the date fixed for redemption of such shares. If less than all of
the outstanding shares of Series C Preferred Stock are to be redeemed, the
Corporation shall either redeem a portion of the shares held by each holder
or shall select the shares to be redeemed by lot, as may be determined by the
Board of Directors of the Corporation.
(B) Unless otherwise required by law, notice of redemption will be sent to
the holders of Series C Preferred Stock by first-class mail, postage prepaid,
mailed not less than thirty, nor more than sixty days prior to the redemption
date. Each such notice shall state: (i) the redemption date; (ii) the total
number of shares of Series C Preferred Stock to be redeemed and, if fewer
than all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (iii) the Redemption Price; (iv)
the place or places where certificates for such shares are to be surrendered
for payment of the Redemption Price; (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date; and (vi) the
conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the conversion price of a share of
Series C Preferred Stock
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on the date such notice is sent. Upon surrender of the certificates for any
shares so called for redemption and not previously converted (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation on the date fixed for redemption and at
the Redemption Price set forth in this Section 4.
SECTION 5. Liquidation, Dissolution or Winding-Up.
(A) Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Corporation, the holders of Series C Preferred Stock at
the time outstanding will be entitled to receive out of the net assets of the
Corporation available for payment to stockholders and subject to the rights
of the holders of any stock of the Corporation ranking senior to or on a
parity with the Series C Preferred Stock in respect of distributions upon
liquidation, dissolution, winding-up or termination of the Corporation,
before any amount shall be paid or distributed with respect to any Junior
Stock liquidating distributions in the amount of $100 per share plus an
amount equal to all accrued and unpaid dividends thereon (whether or not
earned or declared) to the date fixed for distribution. If, upon any
liquidation, dissolution, winding-up or termination of the Corporation, the
amounts payable with respect to the Series C Preferred Stock and any Pari
Passu Stock are not paid in full, the holders of the Series C Preferred Stock
and such Pari Passu Stock shall share ratably in any distribution of assets
based on the proportion of their full respective liquidation preference to
the entire amount of unpaid liquidation preference. After payment of the full
amount to which they are entitled as provided by the foregoing provisions of
this Section 5(A), the holders of shares Stock shall not be entitled to any
further right or claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or into any
other corporation, nor the merger or consolidation of any other corporation
with or into the Corporation, nor the sale, transfer, exchange or lease of
all or any portion of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding-up of the affairs of the Corporation for
purposes of this Section 5.
(C) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Series C
Preferred Stock in such circumstances shall be payable, shall be given by
first-class mail, postage prepaid, mailed not less than twenty days prior to
any payment date stated therein, to the holders of Series C Preferred Stock,
at the address shown on the books of the Corporation or the transfer agent
for the Series C Preferred Stock; provided, however, that a failure to give
notice as provided above or any defect therein shall not affect the
Corporation's ability to consummate a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation.
SECTION 6. Conversion Rights of Series C Preferred Stock.
(A) The shares of Series C Preferred Stock are convertible at any time at the
option of the holder thereof into shares of Common Stock at the initial
conversion price $39.00, subject to adjustment as provided in Section 7. For
this purpose, each share of Series C Preferred Stock shall be taken at
$100.00.
(B) Holders of record of Series C Preferred Stock at the close of business on
a dividend payment record date will be entitled to receive the dividend
payable on such shares of Series C Preferred Stock on the corresponding
dividend payment date notwithstanding the conversion thereof following such
dividend payment record date. Except as provided in the immediately preceding
sentence, the Corporation will make no payment or allowance for accumulated
and unpaid dividends, whether or not in arrears, on converted shares of
Series C Preferred Stock.
(C) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, the Corporation shall pay a cash adjustment
in an amount equal to the same fraction of the Closing Price (as hereinafter
defined) on the date on which the certificate or certificates for such shares
were duly surrendered for conversion, or, if such date is not a Trading Day
(as hereinafter defined), on the next Trading Day.
(D) Shares of Series C Preferred Stock that have been called for redemption
will not be convertible after the close of business on the second calendar
day preceding the date fixed for redemption, unless the Corporation defaults
in making payment of the amount payable upon such redemption.
(E) Any holder of shares of Series C Preferred Stock desiring to convert such
shares into shares of Common Stock shall surrender the certificate or
certificates representing the shares of Series C Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for
the Series C Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series C Preferred Stock by the
Corporation or the transfer agent for the Series C Preferred Stock,
accompanied by written notice of conversion, on any day that is a Business
Day in The City of New York. Such notice of conversion shall specify (i) the
number of shares of Series C Preferred
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Stock to be converted and the name or names in which such holder desires the
certificate or certificates for Common Stock and for any shares of Series C
Preferred Stock not to be so converted to be issued (subject to compliance
with applicable legal requirements if any of such certificates are to be
issued in a name other than the name of the holder), and (ii) the address to
which such holder wishes delivery to be made of such new certificates to be
issued upon such conversion.
(F) Upon surrender of a certificate representing a share or shares of Series
C Preferred Stock for conversion, the Corporation shall issue and send by
hand delivery (with receipt to be acknowledged) or by first-class mail,
postage prepaid, to the holder thereof, at the address designated by such
holder, a certificate or certificates representing the number of shares of
Common Stock to which such holder shall be entitled upon conversion. In the
event that there shall have been surrendered a certificate or certificates
representing shares of Series C Preferred Stock, only part of which are to be
converted, the Corporation shall issue and deliver to such holder or such
holder's designee in the manner provided in the immediately preceding
sentence a new certificate or certificates representing the number of shares
of Series C Preferred Stock that shall not have been converted.
(G) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series C Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective upon the
surrender by such holder or such holder's designee of the certificate or
certificates for the shares of Series C Preferred Stock to be converted, duly
assigned or endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto). The person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
as of the close of business on the effective date of the conversion. No
allowance or adjustment shall be made in respect of dividends payable to
holders of Common Stock of record as of any date prior to such effective
date.
(H) Whenever the Corporation shall issue shares of Common Stock upon
conversion of shares of Series C Preferred Stock as contemplated by this
Section 6, the Corporation shall issue, together with each such share of
Common Stock, one right to purchase Series A Junior Participating Preferred
Stock of the Corporation (or other securities in lieu thereof) pursuant to
the Amended Rights Agreement, dated as of October 4, 1989 (the "Rights
Agreement"), between the Corporation and Harris Trust and Savings Bank, as
Rights Agent, as such Rights Agreement may from time to time be amended, or
any similar rights issued to holders of Common Stock of the Corporation in
addition thereto or in replacement therefor (such rights, together with any
additional or replacement rights, being collectively referred to as the
"Rights"), whether or not such Rights shall be exercisable at such time, but
only if such Rights are issued and outstanding and held by other holders of
Common Stock of the Corporation (or are evidenced by outstanding share
certificates representing Common Stock) at such time and have not expired or
been redeemed.
(I) The Corporation shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion
of shares of Series C Preferred Stock as herein provided, free from any
preemptive or other similar rights, such number of shares of Common Stock as
shall from time to time be issuable upon the conversion of all the shares of
Series C Preferred Stock then outstanding. Notwithstanding the foregoing, the
Corporation shall be entitled to deliver upon conversion of shares of Series
C Preferred Stock, as herein provided, shares of Common Stock reacquired and
held in the treasury of the Corporation (in lieu of the issuance of
authorized and unissued shares of Common Stock), so long as any such treasury
shares are free and clear of all liens, charges, security interests or
encumbrances. All shares of Common Stock delivered upon conversion of the
Series C Preferred Stock shall be duly authorized, validly issued, fully paid
and non-assessable, free and clear of all liens, claims, security interests
and other encumbrances. The Corporation shall prepare and shall use its best
efforts to obtain and keep in force such governmental or regulatory permits
or other authorizations as may be required by law, and shall comply with all
applicable requirements as to registration or qualification of the Common
Stock (and all requirements to list the Common Stock issuable upon conversion
of Class C Preferred Stock that are at the time applicable), in order to
enable the Corporation lawfully to issue and deliver to each holder of record
of Series C Preferred Stock such number of shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of all shares
of Series C Preferred Stock then outstanding and convertible into shares of
Common Stock.
SECTION 7. Adjustment of Conversion Price.
(A) Adjustment of Conversion Price. The conversion price at which a share of
Series C Preferred Stock is convertible into Common Stock shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on any class or series of capital stock of the Corporation
exclusively in Common Stock, the conversion price in effect at the opening
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of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution or exchange, such
reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this subparagraph (i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Corporation.
The Corporation shall not pay any dividend or make any distribution on shares
of any class or series of capital stock of the Corporation exclusively in
Common Stock held in the treasury of the Corporation.
(ii) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall
otherwise issue to all holders of its Common Stock, rights or warrants
entitling the holders thereof to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share
(determined as provided in subparagraph (vii) of this Section 7(A)) of the
Common Stock on the date fixed for the determination of stockholders entitled
to receive such rights or warrants, the conversion price in effect at the
opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such conversion price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination. For the purposes of
this subparagraph (ii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Corporation.
The Corporation shall not issue any rights or warrants in respect of shares
of Common Stock held in the treasury of the Corporation. In case any rights
or warrants referred to in this subparagraph (ii) in respect of which an
adjustment shall have been made shall expire unexercised within 45 days after
the same shall have been distributed or issued by the Corporation, the
conversion price shall be readjusted at the time of such expiration to the
conversion price that would have been in effect if no adjustment had been
made on account of the distribution or issuance of such expired rights or
warrants.
(iii) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the conversion price in effect at
the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the conversion price in
effect at the opening of business on the day following the day upon which
such combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in case the
Corporation shall, by dividend or otherwise, distribute to all holders of its
Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights
or warrants referred to in subparagraph (ii) of this Section 7(A), any
dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in subparagraph (i) of this Section 7(A)), the
conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the effectiveness of the conversion price reduction contemplated by this
subparagraph (iv) by a fraction of which the numerator shall be the current
market price per share (determined as provided in subparagraph (vii) of this
Section 7(A)) of the Common Stock on the date fixed for the payment of such
distribution (the "Reference Date") less the fair market value (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors), on the
Reference Date, of the portion of the evidences of indebtedness, shares of
capital stock, cash and assets so distributed applicable to one share of
Common Stock and the denominator shall be such current market price per share
of the Common Stock, such reduction to become effective immediately prior to
the opening of business on the day following the Reference Date. If the Board
of Directors determines the fair market value of any distribution for
purposes of this subparagraph (iv) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in
doing so consider the prices in such market over the same period used in
computing the current market price per share of Common Stock pursuant to
subparagraph
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(vii) of this Section 7(A). For purposes of this subparagraph (iv), any
dividend or distribution that includes shares of Common Stock or rights or
warrants to subscribe for or purchase shares of Common Stock shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, shares of capital stock, cash or assets other than such shares
of Common Stock or such rights or warrants (making any conversion price
reduction required by this subparagraph (iv)) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (making any further conversion price reduction required by
subparagraph (i) or (ii) of this Section 7(A), except (A) the Reference Date
of such dividend or distribution as defined in this subparagraph (iv) shall
be substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution," "the date fixed for
the determination of stockholders entitled to receive such rights or
warrants" and "the date fixed for such determination" within the meaning of
subparagraphs (i) and (ii) of this Section 7(A) and (B) any shares of Common
Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of subparagraph (i) of this Section 7(A).
(v) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding, in the case
of any regular cash dividend on the Common Stock, the portion thereof that
does not exceed the per share amount of the next preceding regular cash
dividend on the Common Stock (as adjusted to appropriately reflect any of the
events referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of
this Section 7(A), or all of such regular cash dividend if the annualized
amount thereof per share of Common Stock does not exceed 15% of the current
market price per share (determined as provided in subparagraph (vii) of this
Section 7(A)) of the Common Stock on the Trading Day (as defined in Section
7(E)) next preceding the date of declaration of such dividend), the
conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the effectiveness of the conversion price reduction contemplated by this
subparagraph (v) by a fraction of which the numerator shall be the current
market price per share (determined as provided in subparagraph (vii) of this
Section 7(A)) of the Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed and not excluded as
provided above applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of business on
the day following the date fixed for the payment of such distribution.
(vi) In case a tender or exchange offer made by the Corporation or any
subsidiary of the Corporation for all or any portion of the Corporation's
Common Stock shall expire and such tender or exchange offer shall involve the
payment by the Corporation or such subsidiary of consideration per share of
Common Stock having a fair market value (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) at the last time (the "Expiration
Time") tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds 10% of the current market
price per share (determined as provided in subparagraph (vii) of this Section
7(A)) of the Common Stock on the Trading Day next succeeding the Expiration
Time, the conversion price shall be reduced so that the same shall equal the
price determined by multiplying the conversion price in effect immediately
prior to the effectiveness of the conversion price reduction contemplated by
this subparagraph (vi) by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) at the Expiration Time multiplied by the current market
price per share (determined as provided in subparagraph (vii) of this Section
7(A)) of the Common Stock on the Trading Day next succeeding the Expiration
Time and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the
terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) at the Expiration Time and the
current market price per share (determined as provided in subparagraph (vii)
of this Section 7(A)) of the Common Stock on the Trading Day next succeeding
the Expiration Time, such reduction to become effective immediately prior to
the opening of business on the day following the Expiration Time.
Notwithstanding anything contained in this Section 7(A)(vi) to the contrary,
no adjustment shall be made to the conversion price in the case of a tender
offer that complies with Rule 13e-4(h)(5) under the Exchange Act, or any
successor rule thereto.
(vii) For the purpose of any computation under subparagraphs (ii), (iv), (v)
and (vi) of this Section 7(A), the current market price per share of Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices (as defined in Section 7(E)) for the five consecutive Trading
Days selected by the Company commencing not more than 20 Trading Days before,
and ending not later than, the earlier of the
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day in question and, if applicable, the day before the "ex" date with respect
to the issuance or distribution requiring such computation; provided,
however, that in each event another event occurs that would require an
adjustment pursuant to subparagraph (i) through (vi), inclusive, the Board of
Directors may make such adjustments to the Closing Prices during such five
Trading Day period as it deems appropriate to effectuate the intent of the
adjustments in this Section 7(A), any such determination by the Board of
Directors shall be set forth in a Board Resolution and shall be conclusive.
For purposes of this paragraph, the term "ex" date, (1) when used with
respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the right to receive
such issuance or distribution, and (2) when used with respect to any tender
or exchange offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the Expiration Time of
such offer.
(viii) The Corporation may make such reductions in the conversion price, in
addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and
(vi) of this Section 7(A), as it considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
The Corporation from time to time may reduce the conversion price by any
amount for any period of time if the period is at least twenty days, the
reduction is irrevocable during the period, and the Board of Directors of the
Corporation shall have made a determination that such reduction would be in
the best interest of the Corporation, which determination shall be
conclusive. Whenever the conversion price is reduced pursuant to the
preceding sentence, the Corporation shall mail to holders of record of the
Series C Preferred Stock a notice of the reduction at least fifteen days
prior to the date the reduced conversion price takes effect, and such notice
shall state the reduced conversion price and the period it will be in effect.
(ix) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this subparagraph (ix) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
(x) Whenever the conversion price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted conversion price and shall
prepare a certificate signed by the Treasurer of the Corporation setting
forth the adjusted conversion price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent for the Series C Preferred Stock;
and
(2) a notice stating the conversion price has been adjusted and setting forth
the adjusted conversion price shall forthwith be required, and as soon as
practicable after it is required such notice shall be mailed by the
Corporation to all record holders of shares of Series C Preferred Stock at
their last addresses as they shall appear upon the stock transfer books of
the Corporation.
(B) Reclassification, Consolidation, Merger or Sale of Assets. In the event
that the Corporation shall be a party to any transaction (including without
limitation any recapitalization or reclassification of the Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination of
the Common Stock), any consolidation of the Corporation with, or merger of
the Corporation into, any other person, any merger of another person into the
Corporation (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Corporation), any sale or transfer of all or substantially all of the
assets of the Corporation or any compulsory share exchange) pursuant to which
the Common Stock is converted into the right to receive other securities,
cash or other property), then lawful provisions shall be made as part of the
terms of such transaction whereby the holder of each share of Series C
Preferred Stock then outstanding shall have the right thereafter, to convert
such share only into (i) in the case of any such transaction other than a
Common Stock Fundamental Change (as defined in Section 7(E)), the kind and
amount of securities, cash and other property receivable upon such
transaction by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series C Preferred Stock could have been
converted immediately prior to such transaction, after giving effect, in the
case of any Non-Stock Fundamental Change, to any adjustment in the conversion
price required by the provisions of Section 7(D), and (ii) in the case of a
Common Stock Fundamental Change, common stock of the kind received by holders
of Common Stock as a result of such Common Stock Fundamental Change in an
amount determined pursuant to the provisions of Section 7(D). The Corporation
or the person formed by such consolidation or resulting from such merger or
which acquires such assets or which acquires the Corporation's shares, as the
case may be, shall make provisions in its certificate or articles of
incorporation or other constituent document to establish such right. Such
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certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The above provisions shall similarly apply to
successive transactions of the foregoing type.
(C) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend that would not require an adjustment
pursuant to Section 7(A)(iv) or (v) or (2) authorize a tender or exchange
offer that would require an adjustment pursuant to Section 7(A)(vi); or
(ii) the Corporation shall authorize the granting to all holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of stock
of any class or series or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock, or a change in par value, or
from par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or of the
sale or transfer of all or substantially all of the assets of the Corporation
or of any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up
of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series C Preferred Stock, and shall cause to be mailed to the holders of
record of the Series C Preferred Stock, at their last addresses as they shall
appear upon the stock transfer books of the Corporation, at least fifteen
days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record (if any) is to be taken for
the purpose of such dividend, distribution, redemption, repurchase, rights or
warrants or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution,
redemption, repurchase, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
(D) Adjustments in Case of Fundamental Changes. Notwithstanding any other
provision in this Section 7 to the contrary, if any Fundamental Change (as
defined in Section 7(E)) occurs, then the conversion price in effect will be
adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change (as defined in
Section 7(E)), each share of Series C Preferred Stock shall be convertible
solely into common stock of the kind and amount received by holders of Common
Stock as the result of such Common Stock Fundamental Change as more
specifically provided in the following clauses (D)(i) and (D)(ii).
For purposes of calculating any adjustment to be made pursuant to this
Section 7(D) in the event of a Fundamental Change, immediately after such
Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined in Section
7(E)), the conversion price of the Series C Preferred Stock shall thereupon
become the lower of (A) the conversion price in effect immediately prior to
such Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Section 7, and (B) the result obtained
by multiplying the greater of the Applicable Price (as defined in Section
7(E)) or the then applicable Reference Market Price (as defined in Section
7(E)) by a fraction of which the numerator shall be $50.00 and the
denominator shall be (x) the then-current Redemption Price per share of
Series C Preferred Stock or (y) for any Non-Stock Fundamental Change that
occurs before the Series C Preferred Stock becomes redeemable by the
Corporation pursuant to Section 4, the applicable price per share set forth
for the date of such Non-Stock Fundamental Change in the following table:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Date of Non-Stock Fundamental Change Price
<S> <C>
After date of original issuance of Series C Preferred Stock and on or before
August 5, 1995 $53.00
After August 5, 1995, and on or before August 5, 1996 52.70
After August 5, 1996, and on or before August 5, 1997 52.40
After August 5, 1997, and on or before August 5, 1998 52.10
</TABLE>
plus, in any case referred to in this clause (y), an amount equal to all
dividends on the Series C Preferred Stock accrued and unpaid thereon, whether
or not earned or declared, to but excluding the date of such Non-Stock
Fundamental Change; and
(ii) in the case of a Common Stock Fundamental Change, the conversion price
of the Series C Preferred Stock in effect immediately prior to such Common
Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Section 7, shall thereupon be adjusted
by multiplying such conversion price by a fraction of which the numerator
shall be the Purchaser Stock Price (as defined in Section 7(E)) and the
denominator shall be the Applicable Price; provided, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% by value of the
consideration received by a holder of Common Stock is common stock of the
successor, acquiror or other third party (and cash, if any, is paid with
respect to any fractional interests in such common stock resulting from such
Common Stock Fundamental Change) and (B) all of the Common Stock shall have
been exchanged for, converted into or acquired for common stock (and cash
with respect to fractional interests) of the successor, acquiror or other
third party, the conversion price of the Series C Preferred Stock in effect
immediately prior to such Common Stock Fundamental Change shall thereupon be
adjusted by multiplying such conversion price by a fraction of which the
numerator shall be one (1) and the denominator shall be the number of shares
of common stock of the successor, acquiror, or other third party received by
a stockholder for one share of Common Stock as a result of such Common Stock
Fundamental Change.
(E) Definitions. The following definitions shall apply to terms used in this
Section 7:
(1) "Applicable Price" shall mean (i) in the event of a Non-Stock Fundamental
Change in which the holders of the Common Stock receive only cash, the amount
of cash received by a stockholder for one share of Common Stock and (ii) in
the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the daily Closing Prices of the Common
Stock for the ten consecutive Trading Days prior to and including the record
date for the determination of the holders of Common Stock entitled to receive
securities, cash or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change, or, if there is no
such record date, the date upon which the holders of the Common Stock shall
have the right to receive such securities, cash or other property, in each
case, as adjusted in good faith by the Board of Directors of the Corporation
to appropriately reflect any of the events referred to in subparagraphs (i),
(ii), (iii), (iv), (v) and (vi) of Section 7(A).
(2) "Closing Price" of any common stock on any day shall mean the last
reported sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way of the common stock in each case on the principal national
securities exchange on which the Common Stock is traded, or if the Common
Stock is not listed or traded on any national securities exchange, on the
National Market System of the National Association of Securities Dealers,
Inc., or, if the common stock is not quoted or admitted to trading on such
quotation system, on the quotation system on which the common stock is listed
or admitted to trading or quoted, or, if not listed or admitted to trading or
quoted on any national securities exchange or quotation system, the average
of the closing bid and asked prices of the common stock in the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally accepted reporting
service, or, if not so available in such manner, as furnished by any New York
Stock Exchange member firm selected from time to time by the Board of
Directors of the Corporation for that purpose or, if not so available in such
manner, as otherwise determined in good faith by the Board of Directors.
(3) "Common Stock Fundamental Change" shall mean any Fundamental Change in
which more than 50% by value (as determined in good faith by the Board of
Directors of the Corporation) of the consideration received by holders of
Common Stock consists of common stock that for each of the ten consecutive
Trading Days referred to with respect to such Fundamental Change in Section
7(E)(1) above has been admitted for listing or admitted for listing subject
to notice of issuance on a national securities exchange or quoted on the
National Market System of the National Association of Securities Dealers,
Inc.; provided, however, that a Fundamental Change shall not be a Common
Stock Fundamental Change unless either (i) the Corporation con
<PAGE>
<PAGE>
tinues to exist after the occurrence of such Fundamental Change and the
outstanding shares of Series C Preferred Stock continue to exist as
outstanding shares of Series C Preferred Stock, or (ii) not later than the
occurrence of such Fundamental Change, the outstanding shares of Series C
Preferred Stock are converted into or exchanged for shares of convertible
preferred stock of a corporation succeeding to the business of the
Corporation, which convertible preferred stock has powers, preferences and
relative, participating, optional or other rights, and qualifications,
limitations and restrictions, substantially similar to those of the Series C
Preferred Stock.
(4) "Fundamental Change" shall mean the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Common Stock shall be exchanged for, converted into, acquired for or
constitute solely the right to receive securities, cash or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise); provided, however, in the case of a plan involving more than one
such transaction or event, for purposes of adjustment of the conversion
price, such Fundamental Change shall be deemed to have occurred when
substantially all of the Common Stock of the Corporation shall be exchanged
for, converted into, or acquired for or constitute solely the right to
receive securities, cash or other property, but the adjustment shall be based
upon the highest weighted average of consideration per share which a holder
of Common Stock could have received in such transactions or events as a
result of which more than 50% of the Common Stock of the Corporation shall
have been exchanged for, converted into, or acquired for or constitute solely
the right to receive securities, cash or other property.
(5) "Non-Stock Fundamental Change" shall mean any Fundamental Change other
than a Common Stock Fundamental Change.
(6) "Purchaser Stock Price" shall mean, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Prices of the Common
Stock received in such Common Stock Fundamental Change for the ten
consecutive Trading Days prior to and including the record date for the
determination of the holders of Common Stock entitled to receive such common
stock, or, if there is no such record date, the date upon which the holders
of the Common Stock shall have the right to receive such Common Stock, in
each case, as adjusted in good faith by the Board of Directors of the
Corporation to appropriately reflect any of the events referred to in
subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of Section 7(A);
(7) "Reference Market Price" shall initially mean $21.42 and in the event of
any adjustment to the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of $21.42
to the initial conversion price per share.
(8) "Trading Day" shall mean a day on which securities are traded on the
national securities exchange or quotation system or in the over-the-counter
market used to determine the Closing Price.
(F) Dividend or Interest Reinvestment Plans. Notwithstanding the foregoing
provisions, the issuance of any shares of Common Stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the investment of
additional optional amounts in shares of Common Stock under any such plan,
and the issuance of any shares of Common Stock or options or rights to
purchase such shares pursuant to any present or future employee benefit plan
or program of the Corporation or pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security outstanding as of the date
the Subordinated Debentures were first issued, shall not be deemed to
constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Corporation to which any of the adjustment
provisions described above applies. There shall also be no adjustment of the
conversion price in case of the issuance of any stock (or securities
convertible into or exchangeable for stock) of the Corporation except as
specifically described in this Section 7. If any action would require
adjustment of the conversion price pursuant to more than one of the
provisions described above, only one adjustment shall be made and such
adjustment shall be the amount of adjustment which has the highest absolute
value to holders of Series C Preferred Stock.
(G) Certain Additional Rights. In case the Corporation shall, by dividend or
otherwise, declare or make a distribution on its Common Stock referred to in
Section 7(A)(iv) or 7(A)(v) (including, without limitation, dividends or
distributions referred to in the last sentence of Section 7(A)(iv)), the
holder of each share of Series C Preferred Stock, upon the conversion thereof
subsequent to the close of business on the date fixed for the determination
of stockholders entitled to receive such distribution and prior to the
effectiveness of the conversion price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Common
Stock into which such share of Series C Preferred Stock is converted, the
portion of the shares of Common Stock, rights, warrants, evi
<PAGE>
<PAGE>
dences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock; provided, however, that,
at the election of the Corporation (whose election shall be evidenced by a
resolution of the Board of Directors) with respect to all holders so
converting, the Corporation may, in lieu of distributing to such holder any
portion of such distribution not consisting of cash or securities of the
Corporation, pay such holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board
of Directors). If any conversion of a share of Series C Preferred Stock
described in the immediately preceding sentence occurs prior to the payment
date for a distribution to holders of Common Stock which the holder of the
share of Series C Preferred Stock so converted is entitled to receive in
accordance with the immediately preceding sentence, the Corporation may elect
(such election to be evidenced by a resolution of the Board of Directors) to
distribute to such holder a due bill for the shares of Common Stock, rights,
warrants, evidences of indebtedness, shares of capital stock, cash or assets
to which such holder is so entitled, provided that such due bill (i) meets
any applicable requirements of the principal national securities exchange or
other market on which the Common Stock is then traded and (ii) requires
payment or delivery of such shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets no later
than the date of payment or delivery thereof to holders of shares of Common
Stock receiving such distribution.
SECTION 8. Ranking; Attributable Capital and Adequacy of Surplus; Retirement
of Shares.
(A) The Series C Preferred Stock shall rank senior to all shares of Junior
Stock and pari passu with the Pari Passu Stock of the Corporation as to the
payment of dividends and amounts upon the liquidation, dissolution or
winding-up of the Corporation. The ranking of any subsequent series of
Preferred Stock, par value $100 per share, issued by the Corporation as
compared to the Series C Preferred Stock as to the payment of dividends and
amounts upon the liquidation, dissolution or winding-up of the Corporation
shall be as specified in the Certificate of Incorporation, as amended, of the
Corporation and, if appropriate, shall also be subject to the provisions of
paragraph (B) of Section 2 hereof.
(B) The capital of the Corporation allocable to the Series C Preferred Stock
for purposes of the New York Business Corporation Law (the "BCL") shall be
$100 per share.
(C) Any shares of Series C Preferred Stock acquired by the Corporation by
reason of the conversion or redemption of such shares, or otherwise so
acquired, shall be retired as shares of Series C Preferred stock and restored
to the status of authorized but unissued shares of Preferred Stock, par value
$100 per share, of the Corporation, undesignated as to series, and may
thereafter be reissued as part of a new series of such Preferred Stock as
permitted by law.
SECTION 9. Miscellaneous.
(A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt
thereof or three business days after the mailing thereof if sent by
registered or certified mail (unless first-class mail shall be specifically
permitted for such notice under the terms of this paragraph 4C) with postage
prepaid addressed: (i) if to the Corporation, to its office at Corning, New
York 14831 (Attention: the Secretary) or to the transfer agent for the Series
C Preferred Stock, or other agent of the Corporation designated as permitted
by this paragraph 4C, or (ii) if to any holder of the Series C Preferred
Stock or Common Stock, as the case may be, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series C Preferred Stock or
Common Stock, as the case may be) or (iii) to such other address as the
Corporation or any such holder, as the case may be, shall have designated by
notice similarly given.
(B) The term "Common Stock" as used in this paragraph 4C means the
Corporation's Common Stock, par value $0.50 per share, as the same exists at
the date of filing of a Certificate of Amendment to the Certificate of
Incorporation of the Corporation relating to the Series C Preferred Stock or
any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
However, subject to the provisions of Section 7(B), shares of Common Stock
issuable on conversion of shares of Series C Preferred Stock shall include
only shares of the class designated as Common Stock of the Corporation at the
date of the filing of this instrument with the State of New York or shares of
any class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation and which are not subject to redemption by
the Corporation; provided that if at any time there shall be more than one
such resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such
class resulting from all such reclassifications bears to the total number of
shares of such classes resulting from all such reclassifications.
<PAGE>
<PAGE>
(C) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of
shares of Series C Preferred Stock or shares of Common Stock or other
securities issued on account of Series C Preferred Stock pursuant hereto or
certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax that may be payable in respect
of any transfer involved in the issuance or delivery of shares of Series C
Preferred Stock or Common Stock or other securities in a name other than that
in which the shares of Series C Preferred Stock with respect to which such
shares or other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such shares or
securities other than a payment to the registered holder thereof, and shall
not be required to make any such issuance, delivery or payment unless and
until the person otherwise entitled to such issuance, delivery or payment has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid or is not
payable.
(D) In the event that a holder of shares of Series C Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to
be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series C Preferred Stock should be made
or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares, and make such payment, in the name of the holder of
such Series C Preferred Stock as shown on the records of the Corporation and
to send the certificate or certificates representing such shares, or such
payment, to the address of such holder shown on the records of the
Corporation.
(E) The Corporation may appoint, and from time to time discharge and change,
a transfer agent for the Series C Preferred Stock. Upon any such appointment
or discharge of a transfer agent, the Corporation shall send notice thereof
by first-class mail, postage prepaid, to each holder of record of Series C
Preferred Stock.
IN WITNESS WHEREOF, we have signed this Certificate this 15th day of July,
1994.
/s/ JAMES R. HOUGHTON
JAMES R. HOUGHTON
Chairman
[SEAL]
/s/ A. JOHN PECK, JR.
A. JOHN PECK, JR.
Secretary
<PAGE>
<PAGE>
STATE OF NEW YORK
COUNTY OF STEUBEN
)
) S.S.:
)
JAMES R. HOUGHTON and A. JOHN PECK, JR., being severally duly sworn, say, and
each for himself says, that the said James R. Houghton is the Chairman and
the said A. John Peck, Jr. is the Secretary of Corning Incorporated, which is
a corporation organized under the laws of the State of New York and is the
corporation described in the foregoing Certificate; that they have read the
said Certificate and know the contents thereof and that the same is true to
their own knowledge.
/s/ JAMES R. HOUGHTON
JAMES R. HOUGHTON
Chairman
/s/ A. JOHN PECK, JR.
A. JOHN PECK, JR.
Secretary
Subscribed and sworn to before
me this 15th day of July, 1994
/S/ SHERRY L. SMITH
Notary Public
[NOTARIAL SEAL]
SHERRY L. SMITH
Notary Public, State of New York
Steuben County, No. 5009667
Commission Expires March 15, 1995
<PAGE>
EXHIBIT 5.01
CORNING INCORPORATED
One Riverfront Plaza
Corning, New York 14831
July 28, 1994
Corning Incorporated
One Riverfront Plaza
Corning, New York 14831
Ladies & Gentlemen:
I refer to the registration statement on Form S-4 (the "Registration
Statement") being filed by Corning Incorporated, a New York corporation
("Corning"), with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the registration
of up to 9,766,033 shares of common stock, par value $0.50 per share, of
Corning (the "Shares"), to be issued in connection with the merger of Nichols
Institute and a subsidiary of Corning, as described in the Agreement and Plan
of Merger, dated June 1, 1994, as amended, attached as Appendix A to the
Proxy Statement/Prospectus forming a part of the Registration Statement (the
"Merger Agreement").
I am familiar with the terms of the Merger Agreement, and the proposed
issuance of the Shares thereunder, and have examined such records, documents
and questions of law, and satisfied myself as to such matters of fact, as I
have considered relevant and necessary as a basis for this opinion.
Based on the foregoing, I am of the opinion that:
1. Corning is duly incorporated and validly existing under the laws of the
State of New York; and
2. The Shares will be legally issued, fully paid and nonassessable when (i)
the Registration Statement, as finally amended, shall have become effective
under the Securities Act; and (ii) certificates representing the Shares shall
have been duly executed, countersigned and registered and duly delivered in
accordance with the terms of the Merger Agreement.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to me included in the Proxy
Statement/Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ WILLIAM C. UGHETTA
William C. Ughetta
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 8.01
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
July 28, 1994
Nichols Institute
33608 Ortega Highway
San Juan Capistrano, California 92690
Gentlemen:
Reference is made to the Registration Statement on Form S-4 (the
"Registration Statement") of Corning Incorporated ("Corning") relating to the
merger of Apple Acquisition Corp., a wholly-owned subsidiary of Corning, with
and into Nichols Institute.
We have participated in the preparation of the discussion set forth under the
heading "The Merger -- Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus that is part of the Registration Statement. In our
opinion, such discussion is accurate in all material respects.
We consent to the use of this opinion as Exhibit 8.01 to the Registration
Statement and to the reference to our firm under the headings "The Merger --
Certain Federal Income Tax Consequences" and "Legal Opinions" in the Proxy
Statement/Prospectus that is part of the Registration Statement.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report
dated January 24, 1994 (except Note 16 which is as of February 7, 1994),
appearing on Page 21 of the Corning Incorporated 1993 Annual Report on Form
10-K for the year ended January 2, 1994. We also consent to the incorporation
by reference of our report dated January 20, 1994 on the financial statements
of Dow Corning Corporation, which appears on Page 56 of the Corning
Incorporated Annual Report on Form 10-K for the year ended January 2, 1994.
We also consent to the references to us under the headings "Experts" and
"Certain Historical and Pro Forma Financial Data--Selected Historical
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse has not prepared or certified such "Certain Historical and Pro
Forma Financial Data--Selected Historical Financial Data".
/s/ Price Waterhouse
1177 Avenue of the Americas
New York, New York
July 27, 1994
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Prospectus constituting part of this Registration Statement
on Form S-4 of our report dated March 11, 1993 (except with respect to Note
N, as to which the date is July 3, 1993) on the consolidated financial
statements of Damon Corporation and Subsidiaries as of December 31, 1992 and
1991 and for each of the three years ended December 31, 1992 which are
included in Corning's Current Report on Form 8-K filed on August 4, 1993
which is incorporated into this Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Arthur Andersen & Co.
Boston, Massachusetts
July 27, 1994
<PAGE>
EXHIBIT 23.04
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this Registration Statement of Corning Incorporated
on Form S-4 of our report dated February 28, 1994, except for Note 14 as to
which the date is June 1, 1994 relating to the financial statements of
Nichols Institute, which includes explanatory paragraphs relating to an
investigation by the Office of the Inspector General and relating to Nichols
Institute's ability to continue as a going concern, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedules of Nichols Institute,
listed in Item 21. These financial statement schedules are the responsibility
of Nichols Institute's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
/s/DELOITTE & TOUCHE
Costa Mesa, California
July 27, 1994
<PAGE>
EXHIBIT 23.06
[LETTERHEAD OF CS FIRST BOSTON CORPORATION]
We hereby consent to the use of our opinion dated June 1, 1994, as Appendix C
to the Proxy Statement/Prospectus included in the Registration Statement on
Form S-4 relating to the merger of Apple Acquisition Corp., a wholly-owned
subsidiary of Corning Incorporated, and Nichols Institute and to the
references to our firm name under the captions "Summary -- Opinion of CS
First Boston" and "Background and Reasons for the Merger; Recommendations of
the Nichols Board" in such Proxy Statement/Prospectus. In giving such
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, or
the rules and regulations of the Securities and Exchange Commission
thereunder.
CS FIRST BOSTON CORPORATION
By: /s/ JAMES P. JENKINS
July 28, 1994
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 21st
day of June, 1994.
/s/ James R. Houghton
James R. Houghton
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Van C. Campbell
Van C. Campbell
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of June, 1994.
/s/ Roger G. Ackerman
Roger G. Ackerman
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Robert Barker
Robert Barker
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Mary L. Bundy
Mary L. Bundy
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Barber B. Conable, Jr.
Barber B. Conable, Jr.
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 17th
day of June, 1994.
/s/ David A. Duke
David A. Duke
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ E. Martin Gibson
E. Martin Gibson
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Gordon Gund
Gordon Gund
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ John M. Hennessy
John M. Hennessy
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th
day of June, 1994.
/s/ Vernon E. Jordan, Jr.
Vernon E. Jordan, Jr.
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ James W. Kinnear
James W. Kinnear
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th
day of June, 1994.
/s/ James J. O'Connor
James J. O'Connor
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Catherine A. Rein
Catherine A. Rein
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Henry Rosovsky
Henry Rosovsky
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of June, 1994.
/s/ William D. Smithburg
William D. Smithburg
<PAGE>
<PAGE>
EXHIBIT 24.01
CORNING INCORPORATED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director and/or Officer
of Corning Incorporated, a New York corporation, hereby constitutes and
appoints Van C. Campbell, Larry Aiello, Jr. and William C. Ughetta, or any of
them, his true and lawful attorneys and agents, in the name and on behalf of
the undersigned, to do any and all acts and things and execute any and all
instruments which the said attorneys and agents, or any one of them, may deem
necessary or advisable to enable Corning Incorporated to comply with the
Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Securities Act of 1933 of up to
10,000,000 shares of its Common Stock offered, issued, exchanged or sold by
Corning Incorporated in connection with its acquisition of the capital stock
of Nichols Institute, a Delaware corporation, and the exercise of options to
purchase shares of the Common Stock of Corning Incorporated (which options
may be offered in substitution for options held by certain employees of
Nichols Institute to purchase shares of the capital stock of Nichols
Institute), including specifically, but without limiting the generality of
the foregoing, the power and authority to sign the name of the undersigned in
his capacity as Director and/or Officer of Corning Incorporated to one or
more Registration Statements on Form S-3, Form S-4, Form S-8 and/or such
other form as may be appropriate to be filed with the Securities and Exchange
Commission in respect of said shares of Common Stock, to any and all
amendments to the said Registration Statements, including Post-Effective
Amendments, and to any and all instruments and documents filed as a part of
or in connection with the said Registration Statements or amendments thereto;
HEREBY RATIFYING AND CONFIRMING all that said attorneys and agents, or any
one of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 15th
day of June, 1994.
/s/ Robert G. Stone, Jr.
Robert G. Stone, Jr.
<PAGE>
EXHIBIT 99.01
PROXY
NICHOLS INSTITUTE
SPECIAL MEETING OF STOCKHOLDERS--AUGUST 31, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harry L. Hathaway, Esq., and Marilyn I.
Hauge, and each of them, as proxies for the undersigned, with the full power
of substitution, to act and to vote as designated on the reverse side of this
Proxy all the shares the undersigned would be entitled to vote at the Special
Meeting of Stockholders of Nichols Institute on August 31, 1994 and at any
adjournment or postponement thereof. Both of the proxies present and acting
at the meeting or any adjournment or postponement thereof (or, if only one
shall be present and act, then that one) shall vote this Proxy.
PLEASE SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. THIS
PROXY WILL NOT BE USED IF YOU ATTEND THE MEETING AND SO REQUEST.
The Board of Directors recommends a vote "FOR" adoption of the Merger
Agreement.
The stockholder(s) signing this Proxy hereby revoke(s) any proxy heretofore
given to vote at said meeting and any adjournment or postponement thereof.
Receipt of the Notice of Special Meeting of Stockholders and the Proxy
Statement is hereby acknowledged.
The shares represented by this Proxy will be voted in the manner directed by
the stockholder(s). If no direction is given when the duly executed Proxy is
returned, such shares will be voted "FOR" adoption of the Merger Agreement.
(Continued and to be signed and dated on reverse side)
-----------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT
[X]
PLEASE MARK
YOUR VOTE
LIKE THIS
01-Unexchanged Old
Class B Common Stock
02-Unexchanged Series C
Preferred Stock
03-Unexchanged NCL
Common Stock
FOR AGAINST ABSTAIN
ADOPTION OF THE MERGER AGREEMENT [ ] [ ] [ ]
Signature(s) Date
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
<PAGE>
<PAGE>
PROXY
NICHOLS INSTITUTE
SPECIAL MEETING OF STOCKHOLDERS--AUGUST 31, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harry L. Hathaway, Esq., and Marilyn I.
Hauge, and each of them, as proxies for the undersigned, with the full power
of substitution, to act and to vote as designated on the reverse side of this
Proxy all the shares the undersigned would be entitled to vote at the Special
Meeting of Stockholders of Nichols Institute on August 31, 1994 and at any
adjournment or postponement thereof. Both of the proxies present and acting
at the meeting or any adjournment or postponement thereof (or, if only one
shall be present and act, then that one) shall vote this Proxy.
PLEASE SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. THIS
PROXY WILL NOT BE USED IF YOU ATTEND THE MEETING AND SO REQUEST.
The Board of Directors recommends a vote "FOR" adoption of the Merger
Agreement.
The stockholder(s) signing this Proxy hereby revoke(s) any proxy heretofore
given to vote at said meeting and any adjournment or postponement thereof.
Receipt of the Notice of Special Meeting of Stockholders and the Proxy
Statement is hereby acknowledged.
The shares represented by this Proxy will be voted in the manner directed by
the stockholder(s). If no direction is given when the duly executed Proxy is
returned, such shares will be voted "FOR" adoption of the Merger Agreement.
(Continued and to be signed and dated on reverse side)
-----------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT
[X]
PLEASE MARK
YOUR VOTE
LIKE THIS
00-Unexchanged Old
Class A Common Stock
05-Class B Common Stock
06-Class A Common Stock
FOR AGAINST ABSTAIN
ADOPTION OF THE MERGER AGREEMENT [ ] [ ] [ ]
Signature(s) Date
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
