<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
REGISTRATION NO. 333-55869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
AMENDMENT
NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------------
ECOLAB INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2840 41-023151040
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
ECOLAB CENTER
370 N. WABASHA STREET
ST. PAUL, MINNESOTA 55102
(612) 293-2233
------------------------------
KENNETH A. IVERSON, ESQ.
VICE PRESIDENT AND SECRETARY
ECOLAB CENTER
370 N. WABASHA STREET
ST. PAUL, MINNESOTA 55102
(612) 293-2233
------------------------------
PETER C. KRUPP, ESQ. COPIES TO: LORNE W. MCDOUGALL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) EDWARDS & ANGELL
333 WEST WACKER DRIVE, SUITE 2100 101 FEDERAL STREET
CHICAGO, ILLINOIS 60606 BOSTON, MASSACHUSETTS 02110
-----------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the merger described in the enclosed Proxy Statement/Prospectus
have been satisfied or waived.
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: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the offering: / /
-----------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------- --------------------- ------------------ ---------------------- -------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED TO BE REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
- ----------------------------- --------------------- ------------------ ---------------------- -------------------
Common Stock,
par value $1.00
per share(3)................ 1,000,000 $5.21 $5,212,013 $1,538
============================= ===================== ================== ====================== ===================
</TABLE>
(1) The number of shares of Ecolab Common Stock being registered has been
determined on the basis of the maximum number of shares which may be
issued in accordance with the terms of the Merger Agreement.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended (the "Securities Act"), based on the book value of the outstanding
shares of GCS Common Stock (which are not publicly traded) as of December
31, 1997.
(3) Each share of Ecolab Common Stock includes one-half share of associated
preferred stock purchase right.
-----------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS 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 SECTION
8(A), MAY DETERMINE.
================================================================================
<PAGE>
GCS SERVICE, INC.
100 MILL PLAIN ROAD
DANBURY, CONNECTICUT 06811
NOTICE OF SPECIAL MEETING OF GCS SERVICE, INC. STOCKHOLDERS
JULY 10, 1998
TO THE STOCKHOLDERS OF GCS SERVICE, INC.:
NOTICE IS HEREBY GIVEN of a special meeting of stockholders (including
any adjournment or postponement thereof, the "Special Meeting") of GCS
Service, Inc., a Delaware corporation ("GCS" or, the "Company") to be held at
the offices of Edwards & Angell at 101 Federal Street, Boston, Massachusetts
02110 on July 10, 1998, at 9:00 a.m., local time. The purpose of the Special
Meeting is to consider and vote upon the following matters:
(1) A proposal to adopt an Agreement and Plan of Merger, dated as of May 12,
1998 (the "Merger Agreement") (as such agreement may be amended,
supplemented or otherwise modified from time to time) among Ecolab Inc.,
GCS Acquisition Corporation, GCS and Wesley B. Tyler and the transactions
contemplated thereby, including the appointment by GCS of Wesley B. Tyler
as the Stockholder Representative (as defined in the Merger Agreement).
GCS Acquisition Corporation ("Merger Sub") is a wholly-owned subsidiary
of Ecolab that was formed solely to implement the merger of Merger Sub
into GCS (the "Merger"). If the Agreement and Plan of Merger is adopted
by stockholders and the other conditions to the merger are satisfied or
waived, each outstanding share of GCS common stock (other than shares
held by stockholders of GCS who have properly exercised their dissenters'
rights under Delaware law) will be cancelled and converted into the
right to receive a number of shares of common stock of Ecolab,
including associated preferred stock purchase rights (the "Ecolab
Common Stock"), as described in the attached proxy statement/prospectus
(the "Proxy Statement/Prospectus"); and
(2) To transact such other business as may properly come before the Special
Meeting or any postponement or adjournment thereof.
Any stockholder who does not wish to accept the merger consideration
of Ecolab Common Stock (the "Merger Consideration") and who properly demands
appraisal under Delaware law will have the right to have the fair value of
his or her shares determined by the Delaware Chancery Court. This appraisal
right is subject to a number of restrictions and technical requirements
described in the attached proxy statement.
The Board of Directors of GCS has fixed the close of business on June
5, 1998, as the record date (the "Record Date") for determination of the
stockholders entitled to receive notice of, and to vote at, the Special
Meeting. The Special Meeting may be postponed or adjourned from time to time
without any notice other than by announcement at the Special Meeting.
The affirmative vote of the holders of a majority of the shares of GCS
Common Stock outstanding on the Record Date is required to approve the above
proposal. Stockholders may vote in person or by proxy. The proxy statement,
which explains the merger in detail and the accompanying proxy card are
attached to this notice. Holders of record of common stock at the close of
business on June 5, 1998 will be entitled to vote at the meeting or any
adjournment thereof with respect to all matters described above. PLEASE SIGN,
DATE AND MAIL THE ENCLOSED PROXY (WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS) PROMPTLY USING THE ENCLOSED ENVELOPE.
June 11, 1998 By Order of the Board of Directors
Wesley B. Tyler
President
<PAGE>
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT
THE MERGER........................................................1
WHO CAN HELP ANSWER YOUR QUESTIONS.......................................3
SUMMARY..................................................................4
THE SPECIAL MEETING...............................................4
THE PARTIES TO THE MERGER.........................................4
SPECIAL FACTORS...................................................4
THE MERGER........................................................5
MARKET PRICE DATA AND DIVIDENDS..........................................7
SELECTED HISTORICAL FINANCIAL DATA OF ECOLAB.............................8
SELECTED HISTORICAL FINANCIAL DATA OF GCS................................9
THE SPECIAL MEETING.....................................................10
General..........................................................10
Date, Place and Time.............................................10
Matters to Be Considered at the Meeting..........................10
Record Date; Vote Required.......................................10
Other Matters....................................................11
THE COMPANIES...........................................................11
THE MERGER..............................................................11
General..........................................................11
Background of the Merger.........................................12
Approval by the Ecolab Board and Ecolab's Reasons for the Merger.13
Approval by the GCS Board and GCS' Reasons for the Merger........13
Fairness Opinion.................................................13
GCS Stockholder Approval.........................................14
Ecolab Stockholder Approval......................................14
The Merger.......................................................14
Closing; Effective Time..........................................15
Conversion of Shares; Fractional Shares..........................15
Accounting Treatment.............................................15
Exchange of Certificates.........................................15
Certain Representations and Warranties...........................15
Conduct of Business Pending the Merger...........................16
Conditions to the Merger.........................................16
Termination......................................................17
Treatment of GCS Options.........................................17
Indemnification Obligations......................................17
Interests of Certain Persons in the Merger.......................17
Directors and Officers...........................................18
Charter and Bylaws...............................................18
Dissenters' Rights...............................................18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...................20
<PAGE>
PAGE
DESCRIPTION OF ECOLAB CAPITAL STOCK.....................................21
Ecolab Common Stock..............................................22
Ecolab Preferred Stock...........................................22
DESCRIPTION OF GCS CAPITAL STOCK........................................22
COMPARISON OF STOCKHOLDER RIGHTS........................................22
Authorized Capital Stock.........................................23
Share Purchase Rights............................................23
Voting Rights; Preemptive Rights; Cumulative Voting;
Special Voting Provisions.......................................25
Board of Directors...............................................26
Removal of Directors.............................................26
Newly-created Directorships and Vacancies........................26
Nomination of Directors..........................................26
Stockholder Proposals............................................27
Special Meetings of the Stockholders.............................27
Stockholder Action by Written Consent............................27
Limitation on Director's Liability...............................27
Indemnification..................................................27
DESCRIPTION OF GCS......................................................28
General..........................................................28
Business.........................................................28
Customers and Competition........................................29
Employees........................................................29
Properties.......................................................29
Legal Proceedings................................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................30
GCS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.........................................................33
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.......................34
INDEPENDENT PUBLIC ACCOUNTANTS..........................................34
WHERE YOU CAN FIND MORE INFORMATION.....................................35
LEGAL MATTERS...........................................................35
INDEX TO FINANCIAL STATEMENTS........................................F - 1
Annex 1 Agreement and Plan of Merger
Annex 2 Section 262 of the Delaware General Corporation
Annex 3 Opinion of Carter Capital Corporation
<PAGE>
ECOLAB INC.
PROSPECTUS
GCS SERVICE, INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 10, 1998
QUESTIONS AND ANSWERS ABOUT
THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a GCS stockholder, you will receive a certain number of shares of
Ecolab Common Stock in exchange for each of your GCS shares. The exact
number of shares you will receive for each GCS share will be computed
using a somewhat complicated formula that is explained in more detail
in this Proxy Statement/Prospectus.
In essence, the formula starts with Ecolab's estimate of a purchase
price for GCS of approximately $26 million. Next, we will either add to
or subtract from the $26 million any amount by which the net worth of
GCS, as of the closing date of the Merger, is greater than or less than
$5.8 million. We will then divide that number by the average closing
price of Ecolab Common Stock on the New York Stock Exchange during the
twenty day period ending four days prior to closing.
That gives the total number of shares to be issued to GCS stockholders.
By dividing that number by the total number of shares of GCS, we
determine how many shares of Ecolab Common Stock you will receive for
each share of GCS common stock (the "GCS Common Stock") you own.
The number of shares you may receive is subject to further adjustment
after closing based upon any changes in the net worth of GCS in the
final closing-day balance sheet (to be prepared within 60 days after
the closing) from the net worth in the estimated closing-day balance
sheet. If the final net worth is greater or lesser than the
estimated net worth, you will receive additional shares of Ecolab
or will be required to return shares of Ecolab already received.
Of the shares of Ecolab Common Stock received by you in the Merger,
10% will be held in escrow for a period of at least two years after
the closing. These shares will be used to satisfy any downward
adjustment in the number of shares you receive as described in the
preceding paragraph.
We will not issue fractional shares of Ecolab Com mon Stock. Instead,
you will receive a whole share of Ecolab Common Stock for any
fractional share you own.
Q: CAN YOU GIVE ME AN EXAMPLE OF HOW YOU WILL
CALCULATE THE NUMBER OF ECOLAB SHARES I WILL
RECEIVE?
A: The following is a hypothetical example of how the
formula would be used to determine the number of
shares that will be issued in the Merger. If we as
sume:
- The average share price of Ecolab Common Stock during the
relevant period is $31.00 (which was the approximate trading
price on May 27, 1998).
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE ECOLAB COMMON STOCK TO BE ISSUED
IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT /PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
1
<PAGE>
- The number of shares of GCS Common
Stock outstanding on the closing date is
161,143.
- The estimated net worth of GCS is $6,000,000.
Again, we start with an estimated purchase price for GCS
of $26,363,671. Because in our example the estimated net worth
of GCS is $200,000 higher than the $5,800,000 benchmark in
the Merger Agreement, the estimated purchase price for use
in the formula is increased by $200,000 to $26,563,671. This
number is then divided by the average closing price of Ecolab
stock of $31.00. The resulting ratio would be 5.32 shares of
Ecolab for each share of GCS. The number of shares you may
receive is subject to further adjustment after closing based
upon any changes in the net worth of GCS in the final closing-day
balance sheet (to be prepared within 60 days after the closing)
from the net worth in the estimated closing-day balance
sheet. If the final net worth is greater or lesser than the
estimated net worth, you will receive additional shares of Ecolab
or will be required to return (from escrow) shares of Ecolab
already received.
Q: WHEN WILL YOU DETERMINE THE EXACT EXCHANGE
RATIO?
A: The exchange ratio shall be determined immediately
following the twenty day period ending four days
prior to the closing of the Merger.
After stockholder approval, GCS does not have a right to call off
the Merger if the Ecolab stock price goes up or down. GCS believes,
however, that the formula protects the value that Ecolab will pay,
because it values the stock based on a twenty day average of the
trading prices close to the time of the Merger. This means that, if
the average Ecolab stock price goes down, Ecolab will have to issue
more shares to pay the purchase price. If the average Ecolab stock
price goes up, Ecolab will issue fewer shares to pay the same
purchase price.
Q: WHEN, AND UNDER WHAT CIRCUMSTANCES, DO I
RECEIVE THE SHARES HELD IN ESCROW?
A: 10% of the aggregate merger consideration will be held in the escrow
for at least two years. It will be held not only for purchase price
adjustments (as discussed above) but also for indemnification
claims. If certain representations and warranties made by GCS in
the Merger Agreement are later shown to have been untrue when they
were made and, be cause of this, Ecolab or GCS suffers a loss, then
an amount of the Ecolab shares in the escrow equiva lent to the
amount of the loss will be returned to Ecolab as reimbursement.
There are certain restrictions on the timing and the amount of
Ecolab shares that would be returned including certain threshold
amounts of losses which must be incurred before the escrow is used.
For further details of the indemnification provisions, see page 17.
Q: WHY IS THE BOARD OF GCS RECOMMENDING THAT I
VOTE FOR THE MERGER AGREEMENT?
A: In the opinion of your Board, relying in part upon
a fairness opinion from an independent financial
advisor, the Merger is in the best interests of GCS
and the merger consideration is fair to the stock
holders of GCS from a financial point of view.
Based upon these considerations, your board
recommends that you vote FOR the Merger. To
review the background and reasons for the Merger
in greater detail, see page 12.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed proxy card in the enclosed
return envelope as soon as possible, so that your
shares may be represented at the Special Meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send
you written instructions for exchanging your share
certificates.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY
SIGNED PROXY CARD?
A: Yes. Just send in a later dated, signed proxy card
before the Special Meeting or attend the meeting
and vote.
2
<PAGE>
Q: WHEN DO YOU EXPECT THE MERGER TO BE COM
PLETED?
A: We are working towards completing the Merger as
quickly as possible. We expect to complete the
Merger by early July 1998.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The Merger is intended to qualify as a reorganiza
tion within the meaning of Section 368(a) of the tax
code, so that, for Federal income tax purposes, the
Merger will not result in gain or loss by Ecolab,
GCS or, except to the extent you receive cash
pursuant to the Merger, stockholders of GCS. To
review the tax consequences to stockholders in
greater detail, see page 20.
Q: WILL I HAVE APPRAISAL RIGHTS?
A: GCS is organized under Delaware law. Under
Delaware law, you are entitled to seek appraisal and
payment of the fair value of your GCS shares. In
order to do so, you must file a written objection to
the Merger prior to the Special Meeting, not vote in
favor of the Merger and meet other legal require
ments. The requirements for seeking appraisal are
summarized in the Proxy Statement/Prospectus
(page 18) and the Delaware law that governs
appraisal rights is attached as Annex II. If you wish
to seek an appraisal of your shares, you should read
and follow those provisions carefully. You should
be aware that an appraisal may result in a price for
your shares that has more value or less value than
the Ecolab shares being issued in the Merger.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE
SPECIAL MEETING?
A: We do not expect to ask you to vote on any other
matters at the Special Meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Merger or would like additional copies of
this Proxy Statement/Prospectus you should contact: Secretary, GCS Service,
Inc., 100 Mill Plain Road, Danbury, Connecticut 06811 (telephone: (203)
792-4599).
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
DOCUMENT. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE
"WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 35 OF THIS PROXY
STATEMENT/PROSPECTUS. THE ACTUAL TERMS OF THE MERGER ARE CONTAINED IN THE
MERGER AGREEMENT. THE MERGER AGREEMENT IS INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX I. THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO ECOLAB AND MERGER SUB HAS BEEN SUPPLIED
BY ECOLAB, AND THE INFORMATION WITH RESPECT TO GCS HAS BEEN SUPPLIED BY GCS.
THE SPECIAL MEETING
VOTING
At the Special Meeting, the holders of GCS Common Stock will vote on a
proposal to adopt the Merger Agreement. Each share is entitled to one
vote. Delaware law requires that a majority of all outstanding GCS
shares vote to approve the Merger, and Wesley B. Tyler, President
of GCS, holds enough shares to assure that majority.
The record date for determining who is entitled to vote at the Special
Meeting has been set at June 5, 1998. On the record date, there were
147,118 shares of GCS Common Stock outstanding and entitled to vote,
held by 36 stockholders of record.
THE PARTIES TO THE MERGER
ECOLAB INC. AND GCS ACQUISITION CORP. (MERGER
SUB)
Ecolab Inc., with headquarters in St. Paul, Minnesota, is engaged in
the development and marketing of cleaning, sanitizing, pest elimination
and maintenance products, systems and services for the hospitality,
institutional and industrial markets. The principal executive offices
of Ecolab are located at Ecolab Center, 370 North Wabasha Street, St.
Paul, Minnesota 55102, and its telephone number is (612) 293-2233.
Merger Sub is a direct, wholly-owned subsidiary of Ecolab, organized
under the laws of Delaware solely for the purpose of merging with GCS.
Merger Sub is not engaged in any business operations. The mailing
address and telephone number for Merger Sub are the same as those for
Ecolab.
GCS SERVICE, INC.
GCS, with headquarters in Danbury, Connecticut, is engaged in the
business of providing parts and services for commercial food
equipment. The principal executive offices of GCS are
located at 100 Mill Plain Road, Danbury, Connecticut, 06811 and its
telephone number is (203) 792- 4599.
SPECIAL FACTORS
PURPOSE, STRUCTURE AND EFFECTS OF THE MERGER
(PAGE 11)
Ecolab's purpose for the Merger is to further its growth strategies.
Ecolab and GCS structured the transaction as a merger because a merger
offers an advantageous tax structure. After the Merger, GCS will be a
wholly-owned subsidiary of Ecolab.
RECOMMENDATION OF THE GCS BOARD OF DIRECTORS
(PAGE 13)
GCS' Board of Directors has unanimously approved the Merger Agreement
and recommends that you vote to adopt the Merger Agreement. The GCS
Board of Directors believes that the Merger is in the best interests of
GCS and its stockholders and that the Merger Consideration is fair to
each stockholder from a financial point of view.
FACTORS CONSIDERED BY THE GCS BOARD OF DIREC
TORS (PAGE 13)
In reaching its decision to recommend adoption of the Merger Agreement,
the Board considered a number of factors. These include the following:
- the attractiveness of the Merger Consideration
in terms of value, liquidity and growth;
- the structure of the Merger as a tax-free trans
action; and
- opportunities for enhanced efficiencies and growth of GCS' core
business and development of new products and markets for GCS.
4
<PAGE>
FAIRNESS OPINION (PAGE 13)
Carter Capital Corporation subsequently delivered to the GCS Board a
written opinion that the Merger Consideration was fair to the GCS
stockholders from a financial point of view.
INTERESTS OF GCS MANAGEMENT IN THE MERGER
(PAGE 17)
Certain GCS Board members and officers own GCS Common Stock and, to
that extent, their interest in the Merger is the same as yours. How
ever, some of the officers and directors of GCS have relationships, or
interests in the Merger, that are different from your interests as a
stockholder or that could present a conflict of interest. Some of these
interests are set forth below. The Board was aware of these interests
and considered them in recommending and approving the Merger.
Wesley B. Tyler is a party to the Merger Agreement and has agreed to
indemnify Ecolab, its directors, officers and affiliates against
certain losses, claims or liabilities arising in connection with the
Merger, above and beyond any indemnification obligations of other GCS
stockholders. Further, Ecolab and Mr. Tyler have entered into an
employment, bonus and non-competition agreement effective upon
consummation of the Merger.
THE MERGER
THE MERGER CONSIDERATION
If the conditions to the Merger that are described below are satisfied
or waived, GCS stockholders will receive a certain number of shares of
Ecolab Common Stock in exchange for each share of GCS Common Stock they
own. The exact number of shares will be determined after the closing,
based upon a formula as adjusted for post-closing final balance sheet
adjustments. The formula is based upon an estimated purchase price of
approximately $26 million and will be adjusted after the closing of the
Merger based upon a required net worth of GCS of $5.8 million and the
average share price of Ecolab stock for 20 consecutive trading days
ending on the fourth day prior to the Merger.
CONDITIONS TO THE MERGER (PAGE 16)
The obligations of both GCS and Ecolab to complete the Merger are
subject to a number of conditions. The most important of these mutual
conditions are:
- receipt of the approval of the majority of the
GCS stockholders entitled to vote at the Spe
cial Meeting of GCS stockholders;
- absence of legal restraints or prohibitions that
prevent completion of the Merger; and
- obtaining all governmental authorizations needed to complete the
Merger (as of the date of this Proxy Statement/Prospectus all such
authorizations have been obtained).
Several additional conditions exist to the obligation of Ecolab to
complete the Merger. The most important of these conditions are:
- GCS' compliance with the Merger Agreement;
and
- the truth of the representations and warranties
made by GCS in the Merger Agreement.
Additional conditions exist to the obligation of GCS to complete the
Merger. The most important of these conditions are:
- Ecolab's compliance with the Merger Agree
ment; and
- the truth of the representations and warranties
made by Ecolab in the Merger Agreement.
The mutual conditions cannot be waived. All other conditions can be
waived by the party for whose benefit the condition operates.
TERMINATION OF THE MERGER AGREEMENT
(PAGE 17)
Either GCS or Ecolab may terminate the Merger Agreement if:
- the Merger has not been completed by
November 30, 1998;
- a law or final court order prohibits the Merger;
or
- the other party fails to comply with the Merger
Agreement.
5
<PAGE>
APPRAISAL RIGHTS (PAGE 18)
Any stockholder who does not wish to accept the Merger Consideration
has the right under Delaware law to have the "fair value" of his or her
shares determined by the Delaware Chancery Court. This "right of
appraisal" is subject to a number of restrictions and technical
requirements. Generally, in order to exercise appraisal rights:
- you must not vote in favor of the Merger; and
- you must make a written demand for appraisal
before the vote on the Merger.
Merely voting against the Merger will not protect your right of
appraisal. Annex II contains the Delaware appraisal statute.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 20)
Generally, you will not be subject to federal income tax as a result of
any gain you realize pursuant to the Merger, except to the extent that
you receive cash in the Merger.
ACCOUNTING TREATMENT (PAGE 15)
The Merger is expected to be accounted for as a purchase in accordance
with generally accepted accounting principles.
FORWARD-LOOKING STATEMENTS MAY PROVE TO BE
INACCURATE (PAGE 34)
Ecolab and GCS have made forward-looking statements in this Proxy
Statement/Prospectus that are subject to risks and uncertainties.
Forward- looking statements include the information con cerning
possible or assumed future results of opera tions of GCS and Ecolab, as
well as statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," or similar terms. Certain
important factors, in addition to those discussed in other places in
this Proxy State ment/Prospectus and in the documents which are
incorporated by reference, could affect future results of GCS and
Ecolab and could cause those results to differ materially from those
expressed in our forward-looking statements. Such factors include,
among others, the following:
- operating, legal and regulatory risks;
- risks that anticipated cost savings from the
combination of GCS and Ecolab will not be
realized;
- risks that costs from the integration of GCS
with Ecolab will be greater than expected; and
- economic, political and competitive forces
affecting GCS' and Ecolab's businesses.
6
<PAGE>
MARKET PRICE DATA AND DIVIDENDS
Ecolab Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") and the Pacific Exchange ("PCX") under the symbol "ECL."
The table below sets forth, for the quarters indicated, (i) the quarterly per
share cash dividends paid to holders of Ecolab Common Stock and (ii) the high
and low sales prices of Ecolab Common Stock as reported by the NYSE
Consolidated Tape. The per share data have been adjusted for the Ecolab
two-for-one stock split paid on January 15, 1998 in the form of a 100 percent
stock dividend.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
PRICE OF ECOLA PER ECOLAB
COMMON STOCK COMMON SHARE
------------------------ ------------------
HIGH LOW
---- ---
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter........... $ 16.31 $ 14.56 $ 0.070
Second Quarter.......... 16.94 14.75 0.070
Third Quarter........... 16.88 14.75 0.070
Fourth Quarter.......... 19.75 16.75 0.080
YEAR ENDING DECEMBER 31, 1997:
First Quarter........... 19.56 18.13 0.080
Second Quarter.......... 24.03 19.06 0.080
Third Quarter........... 24.94 21.28 0.080
Fourth Quarter.......... 28.00 23.06 0.095
YEAR ENDED DECEMBER 31, 1998:
First Quarter........... 29.63 26.63 0.095
Second Quarter (through June 9, 1998) 33.00 28.19 0.095
</TABLE>
The closing price of Ecolab Common Stock on May 15, 1998, the
last full trading day prior to the public announcement of the Merger, was
$31.88 per share, as reported by the NYSE Consolidated Tape. The closing
price of Ecolab Common Stock on June 9, 1998, the most recent practicable
date prior to the printing of this Proxy Statement/Prospectus, was $31.19 per
share, as reported by the NYSE Consolidated Tape.
There is no established public trading market for GCS Common
Stock. There are 36 holders of GCS Common Stock. All beneficial holders of
greater than 5% of GCS Common Stock and directors and officers of GCS and
their respective holdings of GCS Common Stock are presented in "GCS SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." GCS has not paid any
cash dividends in the past and, pursuant to the Merger Agreement, the parties
have agreed that, prior to the Merger, GCS shall not declare or pay any
dividends on or make other distributions in respect of any of its capital
stock.
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ECOLAB
The following table presents selected historical financial data of Ecolab
and its consolidated subsidiaries for the periods indicated. The historical
financial data as of and for the five fiscal years ended December 31, 1997
were derived from Ecolab's audited consolidated financial statements. The
historical financial data as of and for the three-month periods ended March
31, 1998 and March 31, 1997 were derived from Ecolab's unaudited consolidated
financial statements. The data presented below should be read in conjunction
with the consolidated financial statements, related notes and other financial
information of Ecolab as of December 31, 1997 and for each of the years in the
three-year period then ended, included or incorporated by reference in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FIRST QUARTER
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------- --------------------
(thousands, except per share)
1997 1996 1995 1994 1993 1998 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical income statement data
Net sales $1,640,352 $1,490,009 $1,340,881 $1,207,614 $1,102,396 $436,362 $373,760
Operating income 218,504 185,317 162,686 136,964 129,451 53,720 43,430
Net income 133,955 113,185 99,189 84,562 83,487 30,588 26,204
Diluted net income per com- 1.00 0.85 0.73 0.62 0.61 0.23 0.20
mon share
Basic net income per common
share 1.03 0.88 0.75 0.63 0.62 0.24 0.20
Dividends declared per com- $0.335 $0.29 $0.2575 $0.2275 $0.1975 $0.095 $0.08
mon share
Diluted weighted average 133,822 132,817 134,956 137,306 137,421 133,934 133,520
common shares outstanding
Basic weighted average common
shares outstanding 129,446 128,991 132,193 135,100 135,056 128,958 129,548
Historical balance sheet data
Current assets $509,501 $435,507 $358,072 $401,179 $311,051 $488,930 $437,822
Total assets 1,416,299 1,208,409 1,060,880 1,020,356 891,730 1,387,712 1,179,771
Current liabilities 404,464 327,771 310,538 253,665 201,498 390,506 319,173
Long-term debt (excluding cur- 259,384 148,683 89,402 105,393 131,861 248,047 148,403
rent maturities)
Shareholders' equity 551,701 519,963 456,658 461,808 391,807 545,400 511,555
Book value per common share $4.27 $4.01 $3.53 $3.41 $2.90 $4.24 $3.95
</TABLE>
Operating results for 1994 and 1993 were affected by nonrecurring items
associated with Ecolab's merger with Kay Chemical Company in December 1994.
After adjustment to eliminate these nonrecurring items, net income was
$90,464 ($0.66 per share on a diluted basis) for 1994 and $80,820 ($0.59 per
share on a diluted basis) for 1993.
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF GCS
The following table presents selected financial data of GCS for the
periods indicated. The historical financial data as of and for the five
fiscal years ended September 30, 1997 were derived from GCS' audited
financial statements. The historical financial data as of and for the
six-month periods ended March 31, 1998 and March 31, 1997 were derived from
GCS' unaudited financial statements. The data presented below should be read
in conjunction with the financial statements, related notes and other
financial information of GCS as of September 30, 1997 and for each of the
fiscal years in the three-year period then ended, included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
(Dollars in thousands)
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------
1997 1996 1995 1994 1993 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales $48,128 $43,534 $41,139 $37,643 $35,458 $24,928 $23,238
Cost of Sales 31,099 27,835 26,571 23,972 23,093 16,522 15,211
Gross Profit 17,029 15,699 14,568 13,671 12,365 8,406 8,027
Selling, general and administrative 13,491 13,380 13,094 11,730 11,924 7,527 6,488
expense
Interest expense 492 512 131 104 166 239 263
Income Taxes 1,381 806 554 742 252 269 558
Net Income $1,665 $1,001 $789 $1,095 $23 $371 $718
BALANCE SHEET DATA:
Cash and cash equivalents $691 $499 $416 $102 $458 $860 $410
Total Assets 15,398 14,019 12,611 10,060 9,954 15,453 15,331
Long-term debt (net of current 4,324 5,314 4,948 1,145 1,761 4,717 5,202
maturities)
Common stockholders' equity 5,212 3,546 2,465 5,462 4,854 5,584 4,264
</TABLE>
9
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to
holders of GCS Common Stock in connection with the solicitation of proxies by
the GCS Board of Directors for use at the Special Meeting to be held on
July 10, 1998, to consider and vote upon the adoption of the Merger
Agreement and to transact such other business as may properly come before the
Special Meeting.
THE GCS BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, GCS AND THE GCS
STOCKHOLDERS, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT THE GCS STOCKHOLDERS
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
This Proxy Statement/Prospectus is also furnished by Ecolab
to GCS stockholders as a prospectus in connection with the issuance by Ecolab
of shares of Ecolab Common Stock pursuant to the Merger Agreement.
This Proxy Statement/Prospectus, the attached Notice of
Special Meeting of GCS Service, Inc. stockholders, and the form of proxy
enclosed herewith are first being mailed to stockholders of GCS on or about
June 11, 1998.
DATE, PLACE AND TIME
The Special Meeting will be held at the principal offices
of Edwards & Angell, 101 Federal Street, Boston, Massachusetts, on July 10,
1998, at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Special Meeting, holders of shares of GCS Common
Stock as of the Record Date will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby including the appointment of Wesley B. Tyler as
Stockholder Representative. See " THE MERGER." The description of the Merger
and the Merger Agreement in this Proxy Statement/Prospectus is, of necessity,
selective and is, therefore, qualified in its entirety by reference to the
Merger Agreement. A copy of the full text of the Merger Agreement is attached
to this Proxy Statement/Prospectus as Annex I hereto.
RECORD DATE; VOTE REQUIRED
The GCS Board of Directors has fixed June 5, 1998 as
the Record Date for the determination of the GCS stockholders entitled to
notice of and to vote at the Special Meeting. On the Record Date, 147,118
shares of GCS Common Stock were outstanding. Shares of GCS Common Stock are
the only outstanding voting securities of GCS. Each holder of record of
shares of GCS Common Stock on the Record Date is entitled to cast one vote
per share. Each stockholder may vote in person or by properly executed proxy,
upon each matter properly submitted for the vote of the GCS stockholders at
the Special Meeting. The presence, in person or by proxy, of the holders of a
majority of the shares of GCS Common Stock outstanding and entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting.
Holders of shares of GCS Common Stock on the Record Date
will be entitled to dissenters' rights under the Delaware General Corporation
Law (the "DGCL") in connection with the Merger. GCS stockholders who vote in
favor of the Merger, however, will waive their dissenters' rights. See "THE
MERGER -- Dissenters' Rights" and Annex II -- Section 262 of the DGCL.
The affirmative vote of the holders of a majority of the
outstanding shares of GCS Common Stock is required under applicable law to
approve and adopt the Merger Agreement. All shares of GCS Common Stock which
are entitled to vote and are represented at the Special Meeting by properly
executed proxies received and not duly and timely revoked will be voted at
the Special Meeting in accordance with the instructions contained therein. In
the absence of contrary instructions, such shares will be voted "FOR" the
approval and adoption of the Merger Agreement. The directors and executive
officers of GCS, collectively beneficially own 131,708 shares of GCS Common
Stock, including shares issuable pursuant to exercised options (approximately
81.7% of the outstanding shares of GCS Common Stock as of the Record
Date). See "THE MERGER - Interests of Certain Persons in the Merger."
10
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the GCS
Board does not intend to bring any other business before the Special Meeting
of GCS Stockholders and, so far as is known to the GCS Board, no matters are
to be brought before the Special Meeting except as specified in the Notice of
Special Meeting of GCS Stockholders. However, as to any other business that
may properly come before the meeting, the proxy holders intend to vote the
proxies in respect thereof in accordance with their judgment and discretion.
THE COMPANIES
ECOLAB
Ecolab is engaged in the development and marketing of
cleaning, sanitizing, pest elimination and maintenance products, systems and
services for the hospitality, institutional and industrial markets.
The principal executive offices of Ecolab are located at
Ecolab Center, 370 North Wabash Street, St. Paul, Minnesota, 55102, and its
telephone number is (612) 293-2233.
GCS
GCS is engaged in the business of providing parts and
service for commercial food equipment. GCS believes it is the
largest independent commercial food preparation, refrigeration and
warewashing service company in the United States. The Company operates
through 28 branches located in major metropolitan areas and employs 383
employees, primarily as service technicians.
The principal executive offices of GCS are located at 100
Mill Plain Road, Danbury, Connecticut, 06811 and its telephone number is
(203) 792-4599.
MERGER SUB
Merger Sub, a wholly-owned subsidiary of Ecolab, was
founded by Ecolab solely for the purpose of affecting the Merger. The address
and telephone number for Merger Sub are the same as for Ecolab.
THE MERGER
This section of this Proxy Statement/Prospectus describes
certain aspects of the Merger. To the extent that it relates to the Merger
Agreement, the following description is not complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is included in
this Proxy Statement/Prospectus as Annex I and is incorporated herein by
reference. All stockholders of GCS are urged to read the Merger Agreement in
its entirety. A description of the relative rights, privileges, and
preferences of Ecolab Common Stock, on the one hand, and GCS Common Stock, on
the other, including certain material differences between the rights of
holders of such stock, is set forth under "DESCRIPTION OF ECOLAB CAPITAL
STOCK," "DESCRIPTION OF GCS CAPITAL STOCK" and "COMPARISON OF STOCKHOLDER
RIGHTS."
GENERAL
The Merger Agreement provides for a business combination
between Ecolab and GCS pursuant to which, subject to the satisfaction or
waiver of the conditions therein, at the effective time, Merger Sub will be
merged with and into GCS, and GCS will thereby become a wholly-owned
subsidiary of Ecolab. The transaction is intended to qualify as a purchase
for accounting and financial reporting purposes.
As a consequence of the Merger, each share of GCS Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares of GCS Common Stock held in treasury or by Ecolab or its
affiliates) will be converted into and exchangeable for the right to receive
the Merger Consideration. Each share of Ecolab Common Stock issued in the
Merger will have attached thereto an appropriate number of associated
preferred stock purchase rights. Each outstanding share of Ecolab Common
Stock will remain outstanding and unaffected by the Merger.
11
<PAGE>
No fractional shares of Ecolab Common Stock will be issued
in the Merger. Instead, the Merger Agreement provides that each holder of GCS
Common Stock who would otherwise have been entitled to receive a fractional
share of Ecolab Common Stock will be entitled to receive, in lieu thereof,
one additional share of Ecolab Common Stock.
BACKGROUND OF THE MERGER
In January 1997, Mr. James Miller, former Vice President of
Ecolab, and Mr. James Salter, a divisional Vice President of Ecolab, met with
Mr. Wesley B. Tyler, President of GCS, to discuss certain service issues
relating to service provided by GCS to Jackson MSC, Inc. ("Jackson"), a
subsidiary of Ecolab. During this meeting, Mr. Miller and Mr. Salter first
discussed the potential for a business combination involving Ecolab and GCS.
In May 1997, Messrs. Miller, Salter and Tyler and Mr.
Michael Hickey of Ecolab met again to discuss several issues including the
possibility of expanding the service that GCS was providing to Jackson, the
dish machine service relationship between GCS and Ecolab's Institutional
Division and the possibility of a business combination involving the two
companies. As a result of this meeting, on May 23, 1997, Ecolab and GCS
entered into a confidentiality agreement.
Following this meeting, from time to time, the parties
discussed their respective businesses, management philosophies, operating
strategies and competitive goals. As a result of these on-going discussions,
on July 24, 1997, Ecolab submitted a letter of interest to GCS indicating
Ecolab's interest in a potential acquisition of GCS. Based upon Ecolab's
expressed interest, discussions continued through August and September.
During this period, the Ecolab parties visited several GCS locations to
observe the customer service, operations, research and development and other
business operations of the Company.
In September 1997, the GCS Board authorized Mr. Tyler to
discuss terms of a potential merger with Ecolab with members of Ecolab
management. At this meeting the GCS Board also appointed a Special Committee
of the GCS Board to assist Mr. Tyler in both the negotiations with Ecolab and
the appointment of an investment advisor.
In September 1997, the Special Committee of the GCS Board
interviewed Carter Capital Corporation ("Carter") and Brown Brothers Harriman
("Brown Brothers") for the purpose of selecting one of them to assist the
Board in evaluating certain strategic alternatives for GCS. On October 28,
1997, Mr. Tyler met with representatives of Brown Brothers to investigate
strategic alternatives for GCS, including a possible initial public offering
of GCS Common Stock, obtaining new capital from a venture partner, selling
GCS by auction or continuing merger discussions with Ecolab. The parties
concurrently discussed the valuation of GCS and the relevant factors to be
considered in such valuation.
In November 1997, the parties met at La Guardia Airport in
New York City and agreed to the major terms of a merger. A letter of intent
was subsequently signed on November 26, 1997.
The letter of intent, dated November 26, 1997, required GCS
to negotiate exclusively with Ecolab for a period of 90 days with respect to
a possible acquisition of GCS. Following execution of this letter agreement,
discussions continued to be held by senior management of Ecolab and GCS with
respect to the proposed combination.
In December 1997, the transaction was submitted to, and
approved by, the Ecolab Board of Directors. Thereafter, due diligence and
document preparation continued through the beginning of 1998.
On February 3, 1998, the GCS Board retained Carter to
provide a fairness opinion regarding the merger.
On February 24, 1998, GCS and Ecolab modified the letter of
intent to extend the exclusive negotiations period provided for in such
letter agreement to a period of 180 days.
On March 1, 1998, upon completion of the negotiations,
Carter rendered its oral opinion to the GCS Board (which opinion was
subsequently delivered in written form to the GCS Board) that the
consideration to be received by the GCS stockholders was fair to such
stockholders from a financial point of view, subject to receiving the
complete merger agreement and employment contracts. See "THE MERGER -
Fairness Opinion." Following the delivery of such opinion, the GCS Board
unanimously determined that the Merger was in the best interests of the GCS
stockholders and unanimously recommended approval of the Merger Agreement.
The Merger Agreement was executed by authorized officers of
Ecolab and GCS on May 12, 1998.
The execution of the Merger was publicly announced on
May 18, 1998.
12
<PAGE>
APPROVAL BY THE ECOLAB BOARD AND ECOLAB'S REASONS FOR THE MERGER
In connection with the Merger, after consulting with
management, the Ecolab Board concluded that the Merger was in the best
interests of Ecolab for the reasons, among others, set forth below.
The Merger is consistent with Ecolab's "Circle the
Customer" strategy. Following an acquisition of GCS, Ecolab would be
immediately able to provide enhanced service capabilities to its existing
customer base in the hotel, restaurant and food service industries. In
addition, Ecolab expects to achieve synergies in the Merger by, among other
things, leveraging sales and marketing efforts of its territory managers and
its corporate accounts group with its existing customer base.
The Merger presents Ecolab with growth opportunities. GCS
currently has branches in 22 of the largest 30 metropolitan areas in the
United States. Growth in this market could be achieved by expanding the GCS
business geographically into metropolitan areas not currently served by GCS,
by selling GCS' services to Ecolab's corporate accounts and by providing
additional service offerings. Because the acquisition of GCS is consistent
with Ecolab's "Circle the Customer" strategy and presents opportunities for
synergies and growth, Ecolab believes that the Merger is in the best
interests of its stockholders.
APPROVAL BY THE GCS BOARD AND GCS' REASONS FOR THE MERGER
After consulting with management, the GCS Board concluded
that the Merger is in the best interests of GCS and its stockholders. In
approving the Merger Agreement, the GCS Board considered a variety of
factors, although it did not assign any relative or specific weight to any
factor. Among those considered were the following:
- Ecolab offered acquisition consideration in an amount which
the GCS Board deemed to be attractive. In part, the GCS Board
based this determination upon the advice of its investment
advisor that the transaction was fair from a financial point
of view. See "THE MERGER- Fairness Opinion."
- The Merger is structured to provide tax-free reorganization
treatment to GCS stockholders. The GCS Board considers this to
be a significant benefit in view of the relatively low tax
basis in the respective shares owned by many GCS stockholders
as compared to the acquisition value of such shares.
- Stockholders of GCS will receive shares of Ecolab Common
Stock, which has a trading market on the NYSE and the PCX.
There is currently no independent market for GCS Common Stock.
- The GCS Board believes that Ecolab Common Stock will provide a
good opportunity for potential future appreciation, although
no assurance can be given that such potential future
appreciation will be realized.
- Affiliation with a larger company may provide an opportunity
to realize economies of scale and increased efficiencies of
operations, to the benefit of stockholders and customers.
Affiliation with Ecolab may also enhance the development of
new products and services, as changes in the commercial food
equipment industry are becoming increasingly difficult to
address by small companies.
- Growth of GCS without affiliation with a larger parent company
will likely be somewhat limited because of GCS' need for
increasing capital resources to support that growth. Without
such a combination, the GCS Board believes it will be
necessary to obtain additional capital resources beyond those
which can be obtained from operations, in order to achieve a
size which the GCS Board believes is necessary to maintain GCS
as a viable independent entity.
FOR THESE REASONS, THE GCS BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE MERGER AND TO APPROVE THE TRANSACTIONS CONTEMPLATED
BY THE MERGER AGREEMENT.
FAIRNESS OPINION
On February 3, 1998, the GCS Board entered into a letter
agreement with Carter Capital Corporation ("Carter") pursuant to which Carter
agreed to render a fairness opinion in connection with the Merger.
13
<PAGE>
Carter delivered a verbal opinion to the GCS Board on March 11, 1998 that the
consideration to be paid to the stockholders of GCS was fair, from a
financial point of view, subject to receiving the completed merger agreement
and employment contracts (the "Opinion").
Carter subsequently delivered a written copy of its Opinion
to the GCS Board. The Opinion is based upon a review of the financial and
other information reviewed by Carter in rendering its verbal opinion along
with a review of the information set forth in this Proxy Statement/Prospectus
and the financial results for GCS and Ecolab since 1994 and 1995,
respectively. The full text of the Opinion, which sets forth assumptions
made, matters considered, and limitations on the review undertaken, is
attached as Annex III to this Proxy Statement/Prospectus. GCS stockholders
are urged to read the Opinion in its entirety.
During the course of its engagement, and as a basis for
arriving at the Opinion, Carter reviewed and analyzed material bearing upon
the financial and operating condition of GCS and Ecolab and material prepared
in connection with the Merger, including, among other things, the following:
(i) the Merger Agreement and related documents; (ii) certain
publicly-available information concerning Ecolab, including financial
statements and reports of condition and income for each of the three fiscal
years ended December 31, 1997, 1996 and 1995; (iii) the nature and terms of
recent sale and merger transactions involving similar companies that Carter
considered relevant; (iv) historical and current market data for Ecolab
Common Stock; and (v) financial and other information provided to Carter by
management of GCS and its independent auditors. In addition, Carter conducted
meetings with selected members of senior management of GCS and the entire GCS
Board for the purpose of reviewing the future prospects of GCS. Carter
evaluated the pro forma ownership of Ecolab Common Stock by GCS stockholders,
relative to the pro forma contribution of the assets, liabilities, equity,
and earnings of GCS to the pro forma company. Carter also took into account
its experience in other transactions, as well as its knowledge of the
industry and its general experience in securities valuation.
In preparing the Opinion, Carter assumed and relied upon
the accuracy and completeness of all financial and other information reviewed
by it for purposes of the Opinion, and did not independently verify such
information or undertake an independent evaluation or appraisal of the assets
or liabilities of GCS or Ecolab, nor was it furnished with any such
evaluation or appraisal. Carter assumed and relied upon the senior management
of GCS as to the reasonableness and achievability of the financial and
operating forecasts and assumptions utilized by Carter in its analyses. The
Opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to Carter as of, the date of
this Proxy Statement/Prospectus.
The Opinion is directed only to the fairness of the
financial consideration to be paid to the GCS Stockholders and does not
constitute a recommendation to any GCS stockholder as to how each stockholder
should vote at the Special Meeting or as to the advisability of retaining or
disposing of shares of Ecolab Common Stock received pursuant to the Merger.
GCS STOCKHOLDER APPROVAL
The GCS Board has unanimously approved the Merger Agreement
and the transactions contemplated thereby. In order to effect the Merger, the
Merger Agreement must also be approved and adopted by the affirmative vote of
a majority of the outstanding shares of GCS Common Stock entitled to vote
thereon. A Special Meeting of GCS stockholders has been scheduled to be held
at the offices of Edwards & Angell on July 10, 1998.
ECOLAB STOCKHOLDER APPROVAL
The Merger does not require the approval of the Ecolab
stockholders. Ecolab stockholders will not have dissenters' appraisal rights
in connection with the Merger.
THE MERGER
The Merger Agreement provides that, on the second business day
following the satisfaction or waiver of the conditions to each party's
obligation to consummate the Merger or as otherwise agreed, Merger Sub will be
merged with and into GCS in accordance with the DGCL, the separate corporate
existence of Merger Sub will cease and GCS will continue as the Surviving
Corporation in the Merger.
14
<PAGE>
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger
Agreement will take place two business days following the satisfaction or
waiver of the conditions set forth in the Merger Agreement, or as otherwise
agreed by the parties (the "Closing Date"). The Merger will become effective
upon the filing of a Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with the DGCL (the "Effective Time"). Such
filings will be made on the Closing Date.
CONVERSION OF SHARES; FRACTIONAL SHARES
In the Merger, each share of GCS Common Stock outstanding
prior to the Effective Time, including shares issued upon exercise of
outstanding options prior to or on the Closing Date, will be converted into
the right to receive a number of shares of Ecolab Common Stock equal to (i)
the amount equal to the Estimated Closing Value (as hereinafter defined)
divided by the Average Stock Price (as hereinafter defined) divided by (ii)
161,143, subject to further post-closing adjustments (the "Merger
Consideration"). The "Estimated Closing Value" is equal to $26,363,671 plus
or minus, as appropriate, the Closing Adjustment Amount, subject to further
post-closing adjustment. The "Closing Adjustment Amount" means (A) if the net
worth of GCS as reflected on the Estimated Closing Balance Sheet (as defined
in the Merger Agreement) is less than $5,800,000, the Estimated Closing Value
shall be reduced by an amount equal to the amount by which such net worth is
less than $5,800,000; or (B) if the net worth of GCS as reflected on the
Estimated Closing Balance Sheet is greater than $5,800,000, then the
Estimated Closing Value shall be increased by an amount equal to the amount
by which such net worth exceeds $5,800,000. The Merger Consideration is
subject to further adjustment after Closing based upon any changes in the net
worth of GCS in the final closing-day balance sheet (to be prepared within 60
days after the Closing) from the net worth in the estimated closing-day
balance sheet. The "Average Stock Price" means the average per share closing
prices, as reported on the NYSE Composite Tape, of shares of Ecolab Common
Stock during the period comprised of the 20 consecutive trading days ending
on the fourth trading day prior to the closing date of the Merger.
No fractional shares of Ecolab Common Stock will be issued
in the Merger. Instead, each record holder of GCS Common Stock who would
otherwise have been entitled to receive a fraction of a share of Ecolab
Common Stock upon surrender of certificates representing GCS Common Stock for
exchange will, upon surrender of such certificates, be entitled to receive
one additional share of Ecolab Common Stock.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a purchase in
accordance with generally accepted accounting principles.
EXCHANGE OF CERTIFICATES
Subject to the terms of the Escrow Agreement described
herein, upon surrender of each certificate representing shares of GCS Common
Stock, First Chicago Trust Company of New York (the "Exchange Agent") will
issue to the holder of such certificate, as soon as practicable after the
Effective Time, his or her shares of Ecolab Common Stock. At that time, such
certificate representing shares of GCS Common Stock will be cancelled. Until
so surrendered and exchanged, each such certificate representing shares of
GCS Common Stock will represent solely the right to receive shares of Ecolab
Common Stock pursuant to the Merger Agreement. 10% of the Ecolab shares to be
issued to each GCS stockholder will be withheld and deposited in the Escrow
Fund (as hereinafter defined). See "Indemnification Obligations."
No dividends or other distributions declared or made after
the Effective Time with respect to shares of Ecolab Common Stock will be paid
to the holder of any unsurrendered certificate representing GCS Common Stock
until the holder surrenders such certificate in accordance with the
provisions of the Merger Agreement.
At the Effective Time, all shares of GCS Common Stock that
are owned by GCS as treasury stock will be cancelled and retired and will
cease to exist, and no payment or other consideration will be made in respect
thereof. See "Indemnification Obligations."
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and
warranties of Ecolab, Merger Sub and GCS customary for transactions of this
nature. These include, among other things, representations and warranties of
Ecolab and Merger Sub as to (i) their respective due organization, existence,
good standing, organizational documents and similar corporate matters; (ii)
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capital structures, (iii) their authority relative to the execution, delivery
and performance of their respective obligations under the Merger Agreement,
(iv) their compliance with applicable laws and the absence of any (A)
conflict with their organizational documents, applicable law or certain
contracts or (B) governmental or regulatory authorization, consent or
approval required to consummate the Merger, (v) reports and other documents,
including financial statements, filed by Ecolab with the Securities and
Exchange Commission, (vi) the absence of material adverse changes, (vii)
litigation and (viii) the accuracy of the information supplied for inclusion
in this Proxy Statement/Prospectus.
GCS' representations and warranties with respect to itself,
which are jointly and severally made by Mr. Tyler, include, among other
things, those as to (i) its due organization, existence, good standing,
organizational documents and similar corporate matters; (ii) its capital
structures, (iii) its authority relative to the execution, delivery and
performance of its obligations under the Merger Agreement, (iv) its
compliance with applicable laws and the absence of any (A) conflict with its
organizational documents, applicable law or certain contracts, or (B)
governmental or regulatory authorization, consent or approval required to
consummate the Merger; (v) GCS' audited and unaudited consolidated financial
statements, (vi) the absence of certain changes or events, (vii) litigation,
(viii) the accuracy of information supplied in this Proxy
Statement/Prospectus, (ix) the title and condition of assets, (x)
intellectual property, employee benefit plans, and insurance matters, (xi)
certain contracts and commitments, (xii) certain environmental matters and
(xiii) the absence of undisclosed liabilities.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that GCS will take or refrain
from taking certain actions prior to the Closing Date. Pursuant to the Merger
Agreement, GCS must operate its business in the usual, regular and ordinary
course as conducted prior to the date of the Merger Agreement. GCS has agreed
that it will not, among other things, (i) declare or pay dividends or make
any other distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock or issue any additional shares of capital stock; (ii) sell, lease,
license or dispose of any of its properties or assets or make any acquisition
or investment except in the ordinary course of business consistent with past
practice; (iii) amend its certificate of incorporation, by-laws or similar
organizational documents; (iv) split, combine or reclassify any of its
outstanding capital stock; (v) merge or consolidate with another entity; (vi)
enter into, renew, amend or terminate any material contract, commitment or
transaction; (vii) incur, assume or prepay any indebtedness or become
otherwise responsible for the obligations of any other party; (viii) adopt,
terminate or amend (except as may be required to comply with applicable law)
any employee benefit plan or benefit or welfare plan of any director; (ix)
grant an increase in the compensation or fringe benefits of, or pay any bonus
to, any director or any employee, except for normal increases in compensation
in the ordinary course of business and consistent with past practice or as
required by law; (x) make any change in methods of accounting unless to
comply with generally accepted accounting principles; (xi) enter into any new
line of business or (xii) agree to do any of the foregoing.
CONDITIONS TO THE MERGER
The obligations of Ecolab, Merger Sub and GCS to consummate
the Merger are subject to the satisfaction or waiver of certain conditions,
including (i) approval of the Merger Agreement by the requisite holders of
GCS Common Stock; (ii) receipt and continued effectiveness of all regulatory
approvals necessary to consummate the Merger and expiration of all applicable
statutory waiting periods (currently all have expired); (iii) the
Registration Statement shall have become effective by an order of the
Commission and the Ecolab Common Stock issued in the Merger shall have been
qualified or exempted under all state securities laws; (iv) the absence of
any suit or proceeding pending or overtly threatened by any governmental
agency to restrain or prohibit the consummation of the Merger and (v) the
Merger Agreement not having been earlier terminated.
The obligations of Ecolab and Merger Sub to consummate the
Merger are also subject to the satisfaction or waiver by Ecolab of certain
conditions, including (i) each obligation of GCS under the Merger Agreement
must have been performed in all material respects; (ii) GCS' representations
and warranties contained in the Merger Agreement must be true in all material
respects as of the Effective Time (except to the extent such representations
and warranties refer to an earlier date) and Ecolab having received
certificates signed by the Stockholder Representative of GCS to such effect;
(iii) the absence of any material adverse change in the condition (financial
or otherwise), assets, liabilities, reserves, results of operations or
business of GCS taken as a whole; (iv) the absence of any suit, action or
proceeding pending or overtly threatened involving the assets or business of
GCS that would reasonably be expected to have a material adverse effect and
(v) the receipt of all consents or approvals from third parties required
under agreements between GCS and third parties.
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The obligations of GCS to consummate the Merger are also
subject to satisfaction or waiver by GCS of certain conditions, including (i)
each obligation of Ecolab and Merger Sub under the Merger Agreement must have
been performed in all material respects; (ii) Ecolab's and Merger Sub's
representations and warranties contained in the Merger Agreement must be true
in all material respects as of the Effective Time (except to the extent such
representations and warranties refer to an earlier date) and GCS having
received certificates signed by an officer of Ecolab to such effect and (iii)
the absence of any material adverse change in the consolidated condition
(financial or otherwise), assets, liabilities, results of operation or
business of Ecolab.
TERMINATION
The Merger Agreement may be terminated (i) by the mutual
consent of the parties; (ii) by either party after November 30, 1998 if the
Merger has not occurred as a result of failure to satisfy any condition to
the Merger or (iii) by either party upon material breach of a representation,
warranty or covenant by the other party. In the event that the Merger
Agreement is terminated other than pursuant to a breach by Ecolab or Merger Sub
of any representations or warranties or a failure by Ecolab or Merger Sub to
comply with the terms of the Merger Agreement, and the stockholders of GCS
fail to approve the Merger, the Company shall pay Ecolab a termination fee of
$900,000.
TREATMENT OF GCS OPTIONS
The Merger Agreement provides that each GCS option awarded
under any GCS stock option plan which remains unexercised must be exercised
prior to the Effective Time. Each unexpired and unexercised GCS option that
is outstanding prior to the Effective Time will be cancelled and all rights
thereunder extinguished. No stock options are being granted in connection
with the Merger.
INDEMNIFICATION OBLIGATIONS
The Merger Agreement provides that GCS and Mr. Tyler will
indemnify and hold harmless Ecolab and Merger Sub, their officers, directors
and affiliates against any and all losses, liabilities, claims and other
costs and expenses arising in connection with any breach or inaccuracy of any
representation or warranty of GCS, Mr. Tyler or any claim, suit or other
action brought by any stockholder of GCS relating to the transactions
contemplated by the Merger Agreement or any claim, suit or other proceeding
brought by or on behalf of certain former officers, employees or stockholders
of GCS. The indemnification obligations of GCS and Mr. Tyler are subject to
certain limitations as described below.
Ecolab, GCS, Mr. Tyler (as Stockholder Representative) and
the Norwest Bank Minnesota National Association ("Norwest" or the "Escrow
Agent") will enter into the Escrow Agreement (as hereinafter defined)
providing for the escrow of 10% of the aggregate Merger Consideration in the
form of Ecolab Common Stock to be paid to the stockholders of GCS to secure
the indemnity obligations of GCS and Mr. Tyler (the "Escrow Amount"). See
"Interests of Certain Persons in the Merger." The indemnification obligations
are limited to the Escrow Amount. Mr. Tyler's indemnification obligations are
limited to his pro rata share of the Escrow Amount plus any amounts in excess
of the total Escrow Amount up to a maximum amount of one-half of the total
Merger Consideration. Neither GCS nor Mr. Tyler shall be liable for any
indemnification obligations, other than those arising from fraud or
third-party claims, unless and until such obligations exceed $150,000, or
$10,000 where such indemnification obligations arise from claims that relate
to certain former officers, employees or stockholders. In the event that
Ecolab, in its sole and absolute discretion, elects to pursue any claims it
may have against certain former officers or employees, then 50% of any
recovery obtained (net of all costs associated with such recovery) will be
paid to the GCS stockholders. Generally, indemnification claims must be
brought within two years after the Closing or they lapse. With respect to
certain indemnification claims, the period within which they must be brought
is greater than two years.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the GCS Board with
respect to the Merger, GCS stockholders should be aware that certain members
of GCS management and its Board of Directors have certain interests in
connection with the Merger that are in addition to the interests of GCS
stockholders generally. The Board of Directors of GCS was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby, including the Merger.
GCS and Mr. Tyler have, pursuant to the Merger Agreement,
agreed to indemnify Ecolab, its directors, officers and affiliates against
certain losses, claims or liabilities arising in connection with the Merger.
10% of the aggregate consideration paid to the GCS Stockholders in the Merger
will be placed in escrow to secure the indemnity obligation of GCS pursuant
to the form of Escrow Agreement between Ecolab, GCS, Mr. Tyler (as
Stockholder Representative) and Norwest, as Escrow Agent (the "Escrow
Agreement") as set forth in Exhibit C to the Merger Agreement. The
indemnification obligations of GCS and Mr. Tyler are subject to
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certain limitations. No indemnification obligation for breach of a
representation or warranty incurred arises until the amount of any losses
with respect thereto exceed $150,000, or $10,000 for indemnification
obligations which relate to claims by certain officers, employees or
stockholders. There is no minimum threshold with respect to any fraudulent
breach or certain other indemnification obligations. GCS' obligations are
limited in amount to the Escrow Amount. Mr. Tyler, in addition to his pro
rata share of the Escrow Amount, is solely responsible for indemnification
claims in excess of the amount of the Escrow Amount up to a maximum liability
of one-half of the Merger Consideration.
Ecolab and Mr. Tyler agreed to a form of employment, bonus
and non-competition agreement (the "Tyler Agreement"), effective upon
consummation of the Merger, to replace Mr. Tyler's current employment
agreement with GCS. The Tyler Agreement is a three year contract with an
annual base salary of $170,000 plus a bonus with a potential range from a
minimum of 30% of base salary to a maximum of 60% of base salary. In
addition, the Tyler Agreement provides for an annual "stay-pay" bonus of
$80,000, payable $20,000 per quarter during each of the three years of the
agreement.
DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, the directors and
officers of Merger Sub at the Effective Time will be the directors and
officers, respectively, of the Surviving Corporation following the Merger
until their respective successors are elected or appointed.
CHARTER AND BYLAWS
Pursuant to the Merger Agreement, the certificate of
incorporation and bylaws of Merger Sub in effect at the Effective Time will
be the certificate of incorporation and bylaws, respectively, of the
Surviving Corporation until thereafter amended as provided therein and by
law, except that the name of the Surviving Corporation initially shall be
"GCS Service, Inc." following the Merger.
DISSENTERS' RIGHTS
Holders of GCS Common Stock are entitled to appraisal
rights under Section 262 of the DGCL. A person having a beneficial interest
in GCS Common Stock 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 whatever
appraisal rights the beneficial owner may have.
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 ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS.
All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the GCS Common Stock as to which
appraisal rights are asserted.
Under the DGCL, holders of GCS Common Stock who do not wish
to accept the consideration provided for in the Merger Agreement and who
follow the procedures set forth in Section 262 will be entitled to have their
CGS Common Stock appraised by the Delaware Court of Chancery and to receive
payment in cash of the "fair value" of such 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 merger is to be submitted for
approval at a meeting of stockholders, as in the case of the Special Meeting,
the corporation, not less than 20 days prior to the meeting, must notify each
of its stockholders entitled to appraisal rights that such appraisal rights
are available and include in such notice a copy of Section 262. This Proxy
State ment/Prospectus shall constitute such notice to the holders of GCS
Common Stock and the applicable statutory provisions of the DGCL are attached
to this Proxy Statement/Prospectus as Annex II. 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 Annex II 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 GCS Common Stock wishing to exercise his
appraisal rights must deliver to the Secretary of GCS before the vote on the
Merger Agreement at the Special Meeting, a written demand for appraisal of
his or her GCS Common Stock
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and must not vote his shares of stock in favor of approval and adoption of
the Merger Agreement. Because a proxy which does not contain voting
instructions will, unless revoked, be voted for approval and adoption of the
Merger Agreement, a holder of GCS Common Stock who votes by proxy and who
wishes to exercise his or her appraisal rights must (i) vote against approval
and adoption of the Merger Agreement or (ii) abstain from voting on approval
and adoption of the Merger Agreement. Neither voting (in person or by proxy)
against, abstaining from voting on or failing to vote on the proposal to
approve and adopt the Merger Agreement will constitute a written demand for
appraisal within the meaning of Section 262. The written demand for appraisal
must be in addition to and separate from any such proxy or vote. In addition,
a holder of GCS Common Stock wishing to exercise his or her appraisal rights
must hold of record such shares on the date the written demand for appraisal
is made and must continue to hold such shares until the Effective Time.
Only a holder of record of GCS Common Stock is entitled to
assert appraisal rights for the GCS Common Stock 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 his or her name appears on the stock
certificates. If the shares of GCS Common Stock 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 shares of GCS Common
Stock are owned of record by more than one person, as in a joint tenancy and
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 GCS Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
GCS Common Stock held for one or more beneficial owners while not exercising
such rights with respect to the GCS Common Stock held for other beneficial
owners; in such case, the written demand should set forth the number of GCS
Common Stock as to which appraisal is sought and when no number of GCS Common
Stock is expressly mentioned the demand will be presumed to cover all GCS
Common Stock held in the name of the record owner. Stockholders who hold
their GCS Common Stock in brokerage accounts or other nominee forms and who
wish to exercise appraisals 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 delivered to
the Secretary of GCS either in person or by mail (certified mail, return
receipt requested, being the recommended form of transmittal addressed to him
at GCS Service, Inc. 100 Mill Plain Road, Danbury, Connecticut 06811.
Within ten days after the Effective Time, the Surviving
Corporation must send a notice as to the effectiveness of the Merger to each
former stockholder of GCS who has made such a written demand for appraisal
and who has not voted in favor of approval and adoption of the Merger
Agreement. Within 120 days after the Effective Time, but not thereafter, the
Surviving Corporation, or any stockholder who is entitled to appraisal rights
under Section 262 and has complied with the requirements of Section 262, may
file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the GCS Common Stock. The Surviving Corporation is under
no obligation to and has no present intention to file a petition in respect
to the appraisal of the fair value of the GCS Common Stock. 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, any stockholder
who has complied with the requirements under Section 262 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 GCS
Common Stock with respect to which demands for appraisal have been received
and which have not voted in favor of approval and adoption of the Merger
Agreement, and the aggregate number of holders of such 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 appraisal is duly filed by a holder of
GCS Common Stock and a copy thereof is delivered to the Surviving
Corporation, the Surviving Corporation will then be obligated within 20 days
to provide the Delaware Court of Chancery with a duly verified list
containing the names and addresses of all holders of GCS Common Stock who
have demanded appraisal of their shares. After notice to such holders of GCS
Common Stock the Delaware Court of Chancery is empowered to conduct a hearing
upon the petition to determine those holders of GCS Common Stock who have
complied with Section 262 and who have become entitled to appraisal rights
under that section. The Delaware Court of Chancery may require the holders of
GCS Common Stock who have demanded payment for their shares to submit their
stock certificates to the Register in Chancery for a notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court of Chancery may dismiss the
proceedings as to such stockholder.
After determining the stockholders entitled to an
appraisal, the Delaware Court of Chancery will appraise the "fair value" of
their GCS Common Stock, 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
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seeking appraisal should be aware that the fair value of their GCS Common
Stock 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 their GCS Common Stock 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. In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Court will also determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose GCS Common Stock 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 GCS
Common Stock entitled to appraisal.
Any holder of shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled
to vote the GCS Common Stock subject to the appraisal demand for any purpose
or be entitled to the payment of dividends or other distributions on those
shares (except dividends or other distributions, other than the Merger
Consideration, payable to holders of record of GCS Common Stock as of a date
prior to the Effective Time).
If any stockholder who demands appraisal of his or her
shares of GCS Common Stock under Section 262 fails to perfect, or effectively
withdraws or loses, his or her right to appraisal as provided in the DGCL,
the GCS Common Stock of such stockholder will be converted into the right to
receive the Merger Consideration in accordance with the Merger Agreement. A
stockholder will fail to perfect, or effectively lose or withdraw, his or her
right to appraisal if he votes for approval and adoption of the Merger
Agreement (or submits a proxy without voting instructions) or if no petition
for appraisal is filed within 120 days after the Effective Time of the Merger
or if the stockholder delivers to GCS (or, after the Effective Time, to the
Surviving Corporation) a written withdrawal of his or her demand for
appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal
income tax consequences of the Merger under existing federal income tax law,
which is subject to change, possibly retroactively. This discussion assumes
that stockholders hold GCS Common Stock as a capital asset as of the
Effective Time of the Merger. This discussion does not discuss all aspects of
federal income taxation which may be relevant to particular stockholders in
light of their personal circumstances, such as stockholders whose stock was
acquired pursuant to the exercise of an employee stock option or otherwise as
compensation, stockholders who are subject to special treatment under the
federal income tax laws (for example, financial institutions, insurance
companies, tax-exempt organizations, broker-dealers and foreign persons) or
stockholders who exercise dissenters' rights under the DGCL (see "THE MERGER
- - Dissenters' Rights"). This discussion also does not address any aspects of
state, local or foreign tax law. No opinions of counsel or rulings from the
Internal Revenue Service have been or will be sought with respect to any tax
matters relating to the Merger. EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF THE MERGER.
The Merger is intended to qualify as a reorganization
within the meaning of Section 368(a) of the Code. Assuming the Merger does so
qualify, then (i) no gain or loss will be recognized by Ecolab or GCS for
Federal income tax purposes as a result of the Merger; and (ii) the Federal
income tax consequences to a holder of GCS Common Stock will depend on
whether the stockholder receives only Ecolab Common Stock or receives, as a
result of any potential payments for claims as described in "THE MERGER -
Indemnification Obligations," a combination of Ecolab Common Stock and cash
pursuant to the Merger.
A holder of GCS Common Stock who receives only shares of
Ecolab Common Stock in the Merger will recognize no gain or loss as a result
of the exchange.
Except as described below under "-Additional
Considerations," a stockholder who receives a combination of Ecolab Common
Stock and cash in exchange for GCS Common Stock will generally recognize
capital gain, but not loss, for federal income
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tax purposes in an amount equal to the lesser of (i) the amount of gain
realized (i.e., the excess of the amount of cash and the fair market value of
Ecolab Common Stock received over the tax basis of such GCS Common Stock) and
(ii) the amount of cash received.
The aggregate tax basis of the Ecolab Common Stock received
by a stockholder will be the same as the aggregate tax basis of the GCS
Common Stock surrendered in exchange therefor pursuant to the Merger,
decreased by the total amount of cash received and increased by the amount of
gain recognized. The holding period of the Ecolab Common Stock will include
the holding period of the GCS Common Stock surrendered in exchange therefor.
ADDITIONAL CONSIDERATIONS
With respect to stockholders who receive cash in the
Merger, it is possible that, under certain circumstances, the gain recognized
could be treated as dividend income rather than capital gain unless the
requirements of Section 302 of the Code are satisfied. In order to determine
whether those requirements are satisfied, a stockholder is treated as
receiving solely Ecolab Common Stock in the Merger (instead of the cash
actually received) and then receiving cash from Ecolab in a hypothetical
redemption of those shares. The hypothetical redemption will satisfy the
requirements under Section 302 if it either (i) is "not essentially
equivalent to a dividend" or (ii) has the effect of a "substantially
disproportionate" redemption of Ecolab Common Stock. Whether such
hypothetical redemption of Ecolab Common Stock is "not essentially equivalent
to a dividend" depends on the individual facts and circumstances of each
stockholder but in any event must result in a meaningful reduction of a
stockholder's proportionate stock interest in Ecolab. Generally, in the case
of a GCS stockholder whose stock interest in Ecolab (relative to the total
number of Ecolab shares outstanding) is minimal, and who exercises no control
over the affairs of Ecolab, any actual reduction in proportionate interest
will be treated as "meaningful." Alternatively, the hypothetical redemption
of the Ecolab Common Stock will be "substantially disproportionate" if the
ratio which the Ecolab Common Stock (and any other Ecolab voting stock) owned
by the stockholder after the hypothetical redemption bears to all of the
voting stock of Ecolab at such time is less than 80% of the ratio which the
Ecolab Common Stock (and any other Ecolab voting stock) hypothetically owned
by the stockholder after the Merger but before the redemption bears to all of
the voting stock of Ecolab at such time. In applying the foregoing tests,
there must be taken into account not only actual ownership of stock but also
stock constructively owned by a shareholder by reason of certain attribution
rules under Section 318 of the Code. If the receipt of cash is treated as
having the effect of a dividend, only the portion of the recognized gain that
is not in excess of the shareholder's ratable share of the accumulated
earnings and profits of Ecolab will be taxable as a dividend. BECAUSE OF THE
COMPLEXITY OF THESE RULES, EACH HOLDER OF GCS COMMON STOCK WHO RECEIVES A
COMBINATION OF CASH AND ECOLAB COMMON STOCK IN THE MERGER OR WHO OTHERWISE
BELIEVES THESE RULES MIGHT APPLY TO HIM OR HER IS PARTICULARLY URGED TO
CONTACT HIS OR HER OWN TAX ADVISOR.
WITHHOLDING
Unless an exemption applies, the Escrow Agent will be
required to withhold, and will withhold, 31% of any cash payments to which a
stockholder or other payee is entitled pursuant to the Merger, unless the
stockholder or other payee provides his or her tax identification number
(social security number or employer identification number) and certifies that
such number is correct. Each stockholder and, if applicable, each other payee
is required to complete and sign the Form W-9 that will be included as part
of the transmittal letter to avoid backup withholding (or IRS Form W-8 if the
stockholder is a nonresident alien or foreign entity), unless an applicable
exemption exists and is proved in a manner satisfactory to Ecolab and the
Escrow Agent.
EACH STOCKHOLDER IS STRONGLY ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE
TO SUCH STOCKHOLDER AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES ARISING OUT OF THE MERGER.
DESCRIPTION OF ECOLAB CAPITAL STOCK
The following summaries of the terms of Ecolab Common Stock
and Ecolab Preferred Stock are not complete and are qualified in their
entirety by reference to the restated certificate of incorporation (the
"Ecolab Restated Certificate of Incorporation"), bylaws (the "Ecolab Bylaws")
and the DGCL. For a discussion of the material differences between the rights
of holders of GCS Common Stock and the rights of holders of Ecolab Common
Stock, see "COMPARISON OF STOCKHOLDER RIGHTS."
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ECOLAB COMMON STOCK
Ecolab is authorized to issue 200,000,000 shares of Ecolab
Common Stock. As of April 30, 1998, there were outstanding 128,752,964 shares
of Ecolab Common Stock. The holders of Ecolab Common Stock are entitled to
one vote for each share held. The holders of Ecolab Common Stock do not have
cumulative voting rights. Subject to the rights of holders of preferred stock
of Ecolab ("Ecolab Preferred Stock"), holders of Ecolab Common Stock are
entitled to receive the assets and funds of Ecolab available for distribution
to stockholders upon liquidation, dissolution or winding up.
The holders of Ecolab Common Stock do not have any
preemptive rights to acquire any shares or other securities of any class that
may at any time be issued, sold or offered for sale by Ecolab. The holders of
Ecolab Common Stock have no conversion rights, and the Ecolab Common Stock is
not subject to redemption by either Ecolab or a stockholder.
The holders of Ecolab Common Stock own one-half of one
preferred stock purchase right (each, a "Right") for each outstanding share
of Ecolab Common Stock. The Rights are inseparable from the Ecolab Common
Stock unless and until certain events or determinations occur which result in
the concentration of ownership of a substantial amount of Ecolab Common Stock
with one stockholder or group of affiliated Stockholders. Upon separation,
the Rights entitle certain holders to the right to purchase Preferred Stock
of Ecolab or to receive additional shares of Common Stock. The Rights expire
March 11, 2006, unless earlier redeemed, exercised or repealed. For a more
complete description of the terms of the Rights, see "COMPARISON OF
STOCKHOLDER RIGHTS - Share Purchase Rights" and Ecolab's Report on Form
8-A/A, incorporated by reference herein.
The Ecolab Common Stock is listed and traded on the NYSE
and the PCX under the symbol "ECL."
ECOLAB PREFERRED STOCK
Ecolab is authorized to issue up to 15,000,000 shares of
Ecolab Preferred Stock. As of April 30, 1998, there are no outstanding shares
of Ecolab Preferred Stock.
DESCRIPTION OF GCS CAPITAL STOCK
The following summary of the terms of GCS Common Stock does
not purport to be complete and is qualified in its entirety by reference to
the certificate of incorporation (the "GCS Certificate of Incorporation"),
the bylaws (the "GCS Bylaws") and the DGCL. For a discussion of the material
differences between the rights of holders of GCS Common Stock and the rights
of holders of Ecolab Common Stock, see "COMPARISON OF STOCKHOLDER RIGHTS."
GCS is authorized to issue 500,000 shares of GCS Common
Stock. As of May 12, 1998, there were outstanding 147,118 shares of GCS
Common Stock and options outstanding for the purchase of 14,025 shares of GCS
Common Stock. The holders of GCS Common Stock are entitled to one vote for
each share held and do not have cumulative voting rights. The holders of GCS
Common Stock are entitled to receive the assets and funds of GCS available
for distribution to stockholders upon liquidation, dissolution or winding up.
The holders of GCS Common Stock do not have any preemptive
rights to acquire any shares or other securities of any class that may at any
time be issued, sold or offered for sale by GCS. The holders of GCS Common
Stock have no conversion rights, and the GCS Common Stock is not subject to
redemption by either GCS or a stockholder.
The GCS Common Stock is not listed or traded on any public
stock exchange.
COMPARISON OF STOCKHOLDER RIGHTS
Ecolab and GCS are both organized under the laws of the
State of Delaware. Any differences, therefore, between the rights of the
Ecolab stockholders and the rights of the GCS stockholders arise solely from
differences between each corporation's certificate of incorporation and
bylaws.
The following summary sets forth certain material
differences between the rights of the Ecolab stockholders and the rights of
the GCS stockholders. This summary is not a complete description of the
differences between the rights of the Ecolab stockholders and the rights of
the GCS stockholders and is qualified in its entirety by reference to the
Ecolab Restated Certificate of Incorporation and the Ecolab Bylaws and to the
GCS Certificate of Incorporation and the GCS Bylaws.
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AUTHORIZED CAPITAL STOCK
The authorized capital stock of Ecolab consists of
200,000,000 shares of Ecolab Common Stock and 15,000,000 shares of Ecolab
Preferred Stock. As of April 30, 1998, there were 128,752,964 shares of
Ecolab Common Stock and no shares of Ecolab Preferred Stock issued and
outstanding. The authorized capital stock of GCS consists of 500,000 shares
of GCS Common Stock. As of May 12, 1998, there were 147,118 shares of GCS
Common Stock issued and outstanding.
SHARE PURCHASE RIGHTS
On February 24, 1996, the Board of Directors of Ecolab
declared a dividend distribution of one Right for each outstanding share of
Ecolab's common stock, $1.00 par value (the "Common Stock"), to stockholders
of record at the close of business on March 11, 1996 (the "Rights Record
Date"). The Board of Directors of Ecolab also authorized the issuance of one
Right for each share of Common Stock issued after the Rights Record Date and
prior to the earliest of the Distribution Date (as defined below), the
redemption of the Rights and the expiration of the Rights and, in certain
circumstances, after the Distribution Date. Upon payment of the dividend at
the close of business on the Rights Record Date, the Rights attached to all
Common Stock certificates representing shares then outstanding, and no
separate Rights Certificates (as defined below) were distributed. Except as
set forth below and subject to adjustment as provided in the Rights Agreement
(as defined below), each Right entitles the registered holder to purchase
from Ecolab one one-hundredth of a share of Series A Junior Participating
Preferred Stock (the "Preferred Stock"), at a purchase price of $115 per
Right (the "Purchase Price"). The description and terms of the Rights are set
forth in a Rights Agreement, dated as of February 24, 1996 (the "Rights
Agreement"), between Ecolab and First Chicago Trust Company of New York, as
Rights Agent.
On December 15, 1997, the Board of Directors of Ecolab
declared a two-for-one stock split ("Stock Split"), which was effected in the
form of a 100% stock dividend, payable on January 15, 1998 to the holders of
record of shares of Common Stock at the close of business on December 26,
1997. Upon payment of the Stock Split, each outstanding share of Common Stock
became associated with one-half (1/2) of a Right and one-half (1/2) of a
Right became attached to each share of Common Stock issued in connection with
the Stock Split. Thereafter, until the Distribution Date, Ecolab will issue
one-half (1/2) of a Right with each share of Common Stock that shall become
outstanding so that all such shares will have attached Rights. One million
(1,000,000) shares of Preferred Stock have been reserved for issuance upon
exercise of the Rights.
The Rights will separate from the Common Stock upon the
earliest of (i) 10 days following a public announcement that a person or
group (an "Acquiring Person"), together with persons affiliated or associated
with it, has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date"), (ii) 10 business days (or such later date as the Board of
Directors of Ecolab shall determine) following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 15% or more of such outstanding shares of Common Stock, or (iii) 10
business days following a determination by the Board of Directors of Ecolab
that a person (an "Adverse Person"), alone or together with its affiliates
and associates, has become the beneficial owner of more than 10% of the
Common Stock and that (a) such beneficial ownership is intended to cause
Ecolab to repurchase the Common Stock beneficially owned by such person or to
cause pressure on Ecolab to take action or enter into transactions intended
to provide such person with short-term financial gain under circumstances
where the Board of Directors of Ecolab determines that the best long-term
interests of Ecolab would not be served by taking such action or entering
into such transactions at the time, or (b) such beneficial ownership is
causing or reasonably likely to cause a material adverse impact on the
business or prospects of Ecolab; provided, however, that the Board of
Directors of Ecolab shall not declare any person to be an Adverse Person if
such person has reported or is required to report its ownership of Common
Stock on Schedule 13G under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or on Schedule 13D under the Exchange Act which
Schedule 13D does not state any intention or reserve the right to, control or
influence Ecolab or engage in certain other actions, so long as such person
neither reports nor is required report such ownership other than as described
in this proviso (the earliest such dates being called the "Distribution
Date"). Notwithstanding the foregoing, (x) Henkel KGaA ("Henkel") shall not
be an Acquiring Person if, so long as, it is a party to a written agreement
with Ecolab which agreement imposes one or more limitations on the amount of
Henkel's beneficial; ownership of Common Stock, and if, and so long as, such
agreement continues be binding on Henkel and Henkel is in compliance with the
terms of such agreement, and (y) Ecolab shall not declare Henkel to be an
Adverse Person.
Until the Distribution Date (or earlier redemption or
expiration of the Rights), (i) the Rights will be transferred with and only
with the Common Stock (except in connection with the redemption of the
Rights), (ii) new Common Stock certificates issued after the Rights Record
Date upon transfer, replacement or new issuance of Common Stock will contain
a notation incorporating the Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
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The Rights will become first exercisable on the
Distribution Date and will expire at the close of business on March 11, 2006
(the "Expiration Date"), unless earlier redeemed by Ecolab as described
below. Notwithstanding the foregoing, the Rights will not be exercisable
after the occurrence of a Triggering Event (as defined below) until Ecolab's
right of redemption has expired.
As soon as practicable after the Distribution Date,
separate certificates evidencing the Rights (the "Rights Certificates") will
be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, such separate Rights
Certificates alone will evidence the Rights. Except for shares of Common
Stock issued or sold after the Distribution Date pursuant to the exercise of
stock options or under any employee benefit plan or arrangement granted or
awarded prior to the Distribution Date, or the exercise, conversion or
exchange of securities issued by Ecolab, and except as otherwise determined
by the Board of Directors of Ecolab, only shares of Common Stock issued prior
to the Distribution Date will be issued with Rights.
In the event that any person shall become (a) an Acquiring
Person (except (i) pursuant to an offer for all outstanding shares of Common
Stock which the independent directors of Ecolab determine to be fair to and
otherwise in the best interest of Ecolab and its stockholders after receiving
advice from one or more investment banking firms (a "Qualifying Offer") and
(ii) for certain persons who report their ownership on Schedule 13G under the
Exchange Act or on Schedule 13D under the Exchange Act, provided that they do
not state any intention to, or reserve the right to, control or influence
Ecolab and such persons certify that they became an Acquiring Person
inadvertently and they agree that they will not acquire any additional shares
of Common Stock) or (b) an Adverse Person (either such event is referred to
herein as a "Triggering Event"), then the Rights will "flip-in" and entitle
each holder of a Right, except as provided below, to purchase, upon exercise
at the then-current Purchase Price, that number of shares of Common Stock
having a market value of two times such Purchase Price.
Any Rights beneficially owned at any time on or after the
earlier of the Distribution Date and the Stock Acquisition Date by an
Acquiring Person, an Adverse Person or an affiliate or associate of an
Acquiring Person or an Adverse Person (whether or not such ownership is
subsequently transferred) will become null and void upon the occurrence of a
Triggering Event, and any holder of such Rights will have no right to
exercise such Rights.
In the event that, following a Triggering Event, Ecolab is
acquired in a merger or other business combination in which the Common Stock
does not remain outstanding or is changed (other than a merger consummated
pursuant to a Qualifying Offer) or 50% of the assets or earning power of
Ecolab and its Subsidiaries (as defined in the Rights Agreement) (taken as a
whole) is sold or otherwise transferred to any person (other than Ecolab or
any Subsidiary of Ecolab) in one transaction or a series of related
transactions, the Rights will "flip-over" and entitle each holder of a Right,
except as provided in the preceding paragraph, to purchase, upon the exercise
of the Right at the then-current Purchase Price, that number of shares of
common stock of the acquiring company (or, in certain circumstances, one of
its affiliates) which at the time of such transaction would have a market
value of two times such Purchase Price.
The number of Rights associated with each share of Common
Stock shall be proportionately adjusted after the Rights Record Date and
prior to the Distribution Date (or earlier redemption or expiration of the
Rights) for any (i) declaration of a dividend on the outstanding shares of
Common Stock payable in shares of Common Stock, (ii) subdivision of the
outstanding shares of Common Stock, or (iii) combination of the outstanding
shares of Common Stock into a smaller number of shares, such that the number
of Rights thereafter associated with each share of Common Stock following any
such event shall equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such
event by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately following the occurrence of such event.
Upon distribution of the Stock Split, one-half (1/2) of a Right will be
associated with each share of Common Stock.
In addition, the Purchase Price is subject to adjustment
from time to time to prevent dilution upon the (i) declaration of a dividend
on the Preferred Stock payable in shares of Preferred Stock, (ii) subdivision
of the outstanding Preferred Stock, (iii) combination of the outstanding
Preferred Stock into a smaller number of shares, (iv) issuance of any shares
of Ecolab's capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which Ecolab is the continuing or surviving corporation), (v) grant
to holders of the Preferred Stock of certain rights, options, or warrants to
subscribe for Preferred Stock or securities convertible into Preferred Stock
at less than the current market price of the Preferred Stock or
(vi) distribution to holders of the Preferred Stock or other evidences of
indebtedness, cash (other than a regular quarterly cash dividend payable out
of the earnings or retained earnings of Ecolab), subscription rights,
warrants, or assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock).
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With certain exceptions, no adjustment in the Purchase
Price will be required until cumulative adjustments require an adjustment of
at least 1% of the Purchase Price. At any time until the earlier of (i) 10
days following the Stock Acquisition Date and (ii) the Expiration Date,
Ecolab may redeem the Rights in whole, but not in part, at a price of $.01
per Right. Ecolab may, at its option, pay the redemption price in cash,
shares of Common Stock (based on the current market price of the Common Stock
at the time of redemption) or any other form of consideration deemed
appropriate by the Board of Directors of Ecolab. Immediately upon the action
of Ecolab's Board of Directors ordering redemption of the Rights, the right
to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the applicable redemption price. In addition, after
a Triggering Event, at the election of the Board of Directors of Ecolab, the
outstanding Rights (other than those beneficially owned by an Acquiring
Person, Adverse Person or an affiliate or associate of an Acquiring Person or
Adverse Person) may be exchanged, in whole or in part, for shares of Common
Stock, or shares of preferred stock of Ecolab having essentially the same
value or economic rights as such shares. Immediately upon the action of the
Board of Directors of Ecolab authorizing any such exchange, and without any
further action or any notice, the Rights (other than Rights which are not
subject to such exchange) will terminate and such Rights will only entitle
holders to receive the shares issuable upon such exchange.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of Ecolab, including, without
limitation, the right to vote or to receive dividends. While the distribution
of the Rights will not be taxable to stockholders or to Ecolab, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for Common Stock (or other consideration)
of Ecolab or for common stock of the acquiring company as set forth above.
At any time prior to the Distribution Date, Ecolab may,
without the approval of any holder of the Rights, supplement or amend any
provision of the Rights Agreement. Thereafter, the Rights Agreement may be
amended only (i) to cure ambiguities, (ii) to correct inconsistent
provisions, (iii) to shorten or lengthen any time period thereunder or (iv)
in ways that do not adversely affect the Rights holders (other than an
Acquiring Person or Adverse Person). From and after the Distribution Date,
the Rights Agreement may not be amended to lengthen (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are
not then redeemable, or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or
the benefits to, the holders of Rights (other than an Acquiring Person or
Adverse Person.)
The Rights have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that attempts to acquire
Ecolab on terms not approved by Ecolab's Board of Directors. The Rights
should not interfere with any merger or other business combination approved
by the Board of Directors of Ecolab since the Board of Directors may, at its
option, at any time until ten days following the Stock Acquisition Date,
redeem all, but no less than all, of the then outstanding Rights at the
applicable redemption price.
GCS does not have a similar stock purchase rights plan in
place.
VOTING RIGHTS; PREEMPTIVE RIGHTS; CUMULATIVE VOTING; SPECIAL VOTING PROVISIONS
The holders of both Ecolab Common Stock and GCS Common
Stock are entitled to one vote per share with respect to all matters
submitted to a vote of the Ecolab and GCS stockholders, respectively. Neither
the Ecolab stockholders nor the GCS stockholders have preemptive rights with
respect to unissued shares of capital stock. Moreover, cumulative voting is
not authorized under either the Ecolab Restated Certificate of Incorporation
or GCS Certificate of Incorporation.
Article IV of the Ecolab Restated Certificate of
Incorporation requires the approval of at least 80% of the outstanding shares
of Ecolab Common Stock entitled to vote if a transaction involves a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of,
any Interested Stockholder (as hereinafter defined) or any Affiliate or
Associate (as hereinafter defined) of any Interested Stockholder or any
person who thereafter would be an Affiliate or Associate of such Interested
Stockholder, unless certain fair price criteria and procedural requirements
are satisfied or the transaction is approved by a majority of Continuing
Directors (as hereinafter defined).
An "Interested Stockholder" is any person who (a) is the
beneficial owner, directly or indirectly, of more than ten percent (10%) of
the voting power of the outstanding Voting Stock; or (b) is an Affiliate of
Ecolab and at any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the then outstanding voting
stock; or (c) is an assignee of or has otherwise succeeded to any shares of
voting stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by an Interested
Stockholder, if such assignment or succession shall have occurred in the
course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933. A "Business
Combination" includes certain transactions with or proposed by or on behalf
of an Interested Stockholder or related parties, including, among others,
(i) a merger or consolidation of
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Ecolab or any subsidiary; (ii) the sale or disposition by Ecolab or any
subsidiary of any assets or securities having an aggregate fair market value
of $10 million or more; (iii) the adoption of any plan or proposal for the
liquidation or dissolution of Ecolab proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(iv) any reclassification of securities, recapitalization, merger or other
transaction with the effect, directly or indirectly, of increasing an
Interested Stockholder's proportionate share of the outstanding capital stock
of Ecolab or a subsidiary. A "Continuing Director" is a member of the Board
of Directors who is unaffiliated with an Interested Stockholder or was a
director before any Interested Stockholder became an Interested Stockholder
and any successor of a Continuing Director, while such successor is a member
of the Board, who is unaffiliated with the Interested Stockholder and is
recommended or elected to succeed by a majority of Continuing Directors.
The Business Combination provisions of the Ecolab Restated
Certificate of Incorporation are intended to prevent certain of the potential
inequities of Business Combinations that are part of "two-step" transactions.
In the absence of such provisions, a purchaser who acquired control of Ecolab
could subsequently, by virtue of such control, force the remaining
stockholders to sell or exchange their shares at a price that would not
reflect any premium such purchaser may have paid in order to acquire its
controlling interest. Such provisions may also discourage the accumulation of
large blocks of Ecolab's stock which could be disruptive to the stability of
Ecolab's important relationships with its employees, customers and the
communities that it serves. Such an accumulation could precipitate a change
of control of Ecolab on terms unfavorable to Ecolab's other stockholders.
The Business Combination provisions of the Ecolab Restated
Certificate of Incorporation may render more difficult or discourage a merger
with or takeover of Ecolab, the acquisition of control of Ecolab by a large
stockholder and the removal of incumbent management. Such provisions would
also discourage some takeover attempts by persons who intend to acquire
Ecolab in two steps and eliminate remaining stockholder interests by means of
a Business Combination involving less consideration per share than the
acquiring person would propose to pay for its initial interest in Ecolab
equal to or greater than 10% (but less than 100%) of the outstanding voting
stock of Ecolab. To the extent that this provision discourages certain
business combinations, Ecolab's stockholders may be deprived of higher market
prices for their stock that often prevail as a result of such events.
Pursuant to an agreement between Ecolab and Henkel (the
"Stockholders Agreement"), Henkel has agreed to vote its shares, in the case
of election of directors of the Company (as described below) or certain
stockholder proposals, in accordance with the recommendation or directions of
the Ecolab Board. In all other cases, except with respect to certain
"strategic transactions," Henkel may vote, at its option, either in
accordance with the recommendation of the Ecolab Board or pro rata in the
same manner and proportion that votes of the stockholders of Ecolab (other
than Henkel and officers or directors of Ecolab) have been cast. Any vote
with respect to "strategic transactions" (among other things, an increase in
the authorized shares or an amendment to the Ecolab Restated Certificate of
Incorporation, as well as a disposition, recapitalization or dissolution of
Ecolab or other transactions which could have a material adverse effect upon
Henkel's investment in the Ecolab Common Stock) may be cast at Henkel's sole
discretion.
BOARD OF DIRECTORS
The Ecolab Board is divided into three classes and
currently consists of thirteen directors who serve for three-year terms. The
number of directors on the Ecolab Board is subject to change by action of the
Ecolab Board in its discretion. Pursuant to the Stockholders Agreement, a 24%
stockholder of Ecolab, Henkel is entitled to designate nominees for election
to the Company's Board of Directors proportionate to its holding. Currently,
Henkel has designated three of Ecolab's thirteen directors. The GCS Board is
not classified and consists of four directors who serve for one year terms.
The number of directors on the GCS Board is subject to change by action of
the GCS Board but cannot be less than four.
REMOVAL OF DIRECTORS
Under the Ecolab Restated Certificate of Incorporation and
Bylaws, any director may be removed from office, but only for cause, and only
upon the affirmative vote of the holders of a majority of the shares entitled
to vote thereon. Under the GCS Bylaws, any director may be removed at any
time, with or without cause, by the holders of a majority or the shares
entitled to vote thereon.
NEWLY-CREATED DIRECTORSHIPS AND VACANCIES
Under the Ecolab Bylaws and Restated Certificate of
Incorporation and the GCS Bylaws, any vacancy occurring on the board may be
filled by the affirmative vote of a majority of the remaining directors
though less than a quorum. Under the Ecolab Bylaws, newly-created
directorships are required to be filled by the affirmative vote of a majority
of the directors though less than a quorum. Under the GCS Bylaws,
newly-created directorships may be filled by the vote of a majority of either
the GCS Board or the GCS stockholders, depending upon whether such election
takes place at a meeting of the GCS Board or the GCS stockholders.
NOMINATION OF DIRECTORS
Ecolab directors may be nominated by the Board of Directors
or a Committee appointed by the Board of directors. Ecolab Bylaws allow
stockholders to submit a nominee for election to the Board of Directors at an
Annual Meeting only if such nomination is submitted in writing and contains
certain information pertaining to the stockholder nominator and the director
nominee as specified in the Bylaws and such proposal is received by Ecolab
not less than 90, nor more than 135, days prior to the one-year
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anniversary date of the preceding Annual Meeting. The GCS directors may be
nominated by the board of directors or a committee appointed by the board of
directors or by any stockholder entitled to vote in the election of directors
generally.
STOCKHOLDER PROPOSALS
Ecolab stockholders may have proposals considered at an
annual meeting in accordance with the Ecolab Bylaws, the DGCL and the Federal
securities laws. The Ecolab Bylaws allow Stockholders to submit a proposal
for consideration at its annual meeting only if such proposal is a proper one
for consideration by stockholders, is in writing containing certain
information specified in the Bylaws pertaining to the proponent and the
proposal and is received by Ecolab not less than 90, nor more than 135, days
prior to the one year anniversary date of the preceding annual meeting. GCS
stockholders may have proposals considered at an annual meeting in accordance
with the DGCL.
SPECIAL MEETINGS OF THE STOCKHOLDERS
Under the Ecolab Bylaws, a special meeting of the
stockholders may be called by either the Ecolab Board or the chairman of the
Ecolab Board and must be called upon written request by the holders of 80% of
the outstanding Ecolab Common Stock. Under the GCS Bylaws, a special meeting
of the stockholders may be called by the President or the GCS Board and must
be called upon the request of holders of 25% or more of the outstanding GCS
Common Stock.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under both the Ecolab Bylaws and the GCS Bylaws, any action
that may be taken at a meeting of Ecolab's or GCS' stockholders may be taken
without a meeting of stockholders if a written consent setting forth the
action to be taken is signed by the holders of not less than the minimum
number of votes that would be necessary to take such action at a meeting of
stockholders.
LIMITATION ON DIRECTOR'S LIABILITY
The Ecolab Restated Certificate of Incorporation provides
for a limitation of director liability to Ecolab or its stockholders to the
fullest extent permitted by the DGCL. The DGCL permits a corporation to
provide in its certificate of incorporation that a director shall not be
personally liable for monetary damages stemming from breaches of fiduciary
duties. Under the DGCL, a charter provision limiting directorial liability
cannot relieve a director of personal liability 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 law; (iii) unlawful payment of dividends or unlawful
repurchases of stock or; (iv) any transactions from which the director
derived an improper personal benefit.
The GCS Certificate of Incorporation provides that no
director of the corporation shall be liable to GCS or its stockholders for
monetary damages for breach of fiduciary duty except for breaches of the duty
of loyalty, acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, any violation of Section 174 of the
DGCL or any transactions from which an improper personal benefit was derived.
INDEMNIFICATION
The Ecolab Bylaws provide that Ecolab will indemnify, to
the fullest extent permissible under the DGCL, any person who is a party to,
or is threatened to be made a party to, any action, suit or proceeding
(whether civil, criminal, administrative, investigative or other) by reason
of the fact that he or she is or was a director or officer of Ecolab or while
a director or officer of Ecolab is or was serving at the request of Ecolab as
a director, officer, employee or agent of another corporation, as its
representative in another enterprise against all costs reasonably incurred or
suffered by such person. Furthermore, Ecolab has directors and officers
liability insurance which protects each director or officer from certain
claims and suits, including stockholder derivative suits, even where the
director may be determined to not be entitled to indemnification under the
DGCL and claims and suits arising under the Securities Act. The policy may
also afford coverage under circumstances where the facts do not justify a
finding that the director or officer acted in good faith and in a manner that
was in or not opposed to the best interests of Ecolab.
Ecolab has entered into indemnification agreements with
each of its directors (the "Indemnification Agreements"). The Indemnification
Agreements provide for the prompt indemnification "to the fullest extent
permitted by law" and for the prompt advancement of expenses, including
attorneys' fees and other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness or participating in
(including on appeal) any threatened, pending or completed action, suit
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or proceeding related to the fact that such director is or was a director,
officer, employee, trustee, agent or fiduciary of Ecolab or is or was serving
at the request of Ecolab as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership, joint venture, employee
benefit plan trust or other enterprise, or by reason of anything done or not
done by a director in any such capacity. The Indemnification Agreements
further provide that Ecolab has the burden of proving that a director is not
entitled to indemnification in any particular case.
The GCS Certificate of Incorporation and the GCS Bylaws
provide that GCS will indemnify, to the fullest extent permissible under the
DGCL, any person who is a party to, or is threatened to be made a party to,
any action, suit, or proceeding (whether civil, criminal, administrative,
investigative or other) by reason of the fact that he or she is or was a
director or officer of GCS or while a director or officer of GCS is or was
serving at the request of GCS as a director, officer, employer or agent of
another corporation or as its representative in another enterprise against
all costs reasonably incurred or suffered by such person.
DESCRIPTION OF GCS
GENERAL
GCS was incorporated in California as Gas Consumers
Service, Inc. in 1926. Its name was changed to GCS Service, Inc. in 1978 and
was redomesticated to Delaware in 1991. Its headquarters are located at 100
Mill Plain Road, Danbury, CT 06811. Its telephone number is (203)792-4599.
In 1996, the company merged with its parent Tyfam, Inc.
(Tyfam) in order to streamline its corporate structure. GCS was the surviving
corporation. Tyfam owned 83.2% of GCS which was distributed proportionately
to the stockholders of Tyfam. GCS owned certain shares of Tyfam stock which
had a carrying value at September 30, 1995 of $3,438,935 and was recorded as
a reduction to retained earnings.
In 1995, GCS entered into an agreement to repurchase all of
GCS stock and Tyfam stock held by Barton P. Tyler (the former chief executive
officer of GCS). The negotiated cost to GCS of the stock repurchase was
$3,786,480, $846,183 of which was allocated to Barton Tyler's common stock
holdings in GCS and was recorded as part of GCS's treasury stock, and
$2,940,297 was allocated to his common stock ownership in Tyfam, Inc. and was
reflected as an investment in GCS's parent at September 30, 1995. The stock
purchase agreement required the Company to make a $150,000 initial payment
followed by monthly payments of $55,181 (which includes principal and
interest) for a period of eight years commencing on June 1, 1995.
In 1995, GCS entered into a $4,550,000 revolving line of
credit and term loan with Bank of New York. The loan facility is secured by
the GCS's inventory and accounts receivable. The loan agreement requires GCS
to maintain certain minimum working capital, tangible net worth and debt
ratios. It also restricts new borrowings, payment of dividends and redemption
and issuances of capital stock in excess of $150,000 per year. Borrowings
under this line of credit are based on eligible accounts receivable and
inventory and are guaranteed by the principal stockholder of the GCS.
BUSINESS
GCS believes it is the largest independent commercial food
preparation, refrigeration and warewashing service company in the United
States. GCS operates through 28 branches located in major metropolitan areas.
Each branch also operates a parts department which sells replacement parts
for commercial cooking, refrigeration and dishwashing equipment.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service Department Sales $ 34,207,835 $ 30,228,004 $ 28,546,212
Parts Department Sales 13,920,528 13,305,926 12,592,723
</TABLE>
GCS's primary customers are manufacturers of commercial cooking,
refrigeration and dishwashing equipment and their customers: commercial food
service operators, including quick service restaurants, full service
restaurants, hotels, universities and nursing homes.
Parts and supplies needed by GCS to conduct its business are widely
available through various channels of distribution. Most parts are purchased
from the original equipment manufacturers whose products are serviced by the
GCS.
28
<PAGE>
GCS's inventory consists primarily of replacement parts for
commercial cooking, refrigeration and dishwashing equipment. In order to
provide quick service and to fulfill contractual obligations to equipment
manufacturers, a large percentage of the company's inventory is stored on
GCS's service vehicles with the balance stored at the local branch office.
Generally, GCS does not warehouse inventory in centralized locations.
Substantially all of the vehicles in use by GCS are leased.
Inventory and accounts receivable are the GSC' primary assets.
GCS extends short term credit to most of its customers who are
billed after the completion of each service call and generally given thirty
(30) days to pay.
CUSTOMERS AND COMPETITION
GCS' largest customers are Welbilt, a subsidiary of Berisford
(BRFD-LSE), Middleby Marshall (MBY) and Premark (PMI). Each of these
companies manufacture cooking, refrigeration and dishwashing equipment and
contract with the Company for repair services and parts distribution.
GCS believes there is more demand for food equipment service than
there are companies providing that service. As a result, the principal method
of competition in the industry is performance relative to customer
expectations. GCS is the largest servicer, unaffiliated with a manufacturer
of food equipment, in the U.S. It has a strong reputation for fast, quality
customer service.
GCS provides service within a fifty (50) mile radius of the
following metropolitan areas:
<TABLE>
<CAPTION>
<S> <C>
Atlanta, GA Orlando, FL
Baltimore, MD Philadelphia, PA
Boston, MA Phoenix, AZ
Chicago, IL Pittsburgh, PA
Dallas, TX Richmond, VA
Denver, CO Roanoke, VA
Detroit, MI Saint Louis, MO
Los Angeles, CA San Diego, CA
New York, NY San Francisco, CA
Harrisburg, PA Santa Ana, CA
Hartford, CT Springfield, MA
Houston, TX Tampa, FL
Kansas, City, MO Virginia Beach, VA
Miami, FL Washington, DC
</TABLE>
In each of these areas GCS competes with multiple smaller competitors, none
of whom operate in more than three of the same areas that GCS operates in.
Food equipment manufacturers who provide their own service with company
personnel compete with GCS in many or all of these markets; however, the
brands and types of equipment serviced are significantly different.
EMPLOYEES
GCS has 383 employees. The largest segment of the Company's
workforce are field service technicians, including many certified by the
Environmental Protection Agency to reclaim and recycle refrigerants. GCS
believes it is in compliance with all material, federal, state and local
licensing requirements, labor law and environmental laws as they apply to its
work force and industry. In March 1998, the Company's Chief Financial Officer
was terminated. At that time the shares of GCS Common Stock and Company
Options owned by him were repurchased pursuant to a pre-existing agreement.
PROPERTIES
GCS owns a facility in Philadelphia, Pennsylvania consisting of 10,000 s.f.
of combined office and warehouse space.
29
<PAGE>
LEGAL PROCEEDINGS
The Company is not involved in, nor is it aware of, any litigation or
impending litigation that the Company believes would have a material adverse
effect on the Company's results of operations and financial condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
GCS is a third-party field service company operating a network of
branch offices throughout the United States. The primary business conducted
by each branch office is the repair and servicing of commercial cooking,
refrigeration and warewashing equipment, usually on each customer's premises.
In addition, each office operates a parts department which sells parts for
commercial cooking, refrigeration and warewashing equipment to others.
The primary customers of the Company are manufacturers of commercial
cooking, refrigeration and warewashing equipment and their customers and
commercial food service operators, including quick service restaurants, full
service restaurants, hotels, universities and nursing homes.
The largest segment of the Company's workforce is comprised of field
service technicians, including many certified by the Environmental Protection
Agency to reclaim and recycle refrigerants. The Company believes it is in
compliance with federal, state and local licensing requirements, labor law
and environmental laws as they apply to its work force and industry.
Inventory and accounts receivable are the Company's significant
assets. The Company's inventory consists of replacement parts for commercial
cooking, refrigeration and warewashing equipment. In order to provide timely
repairs, and to fulfill contractual obligations to equipment manufacturers, a
large percentage of the inventory is maintained on Company leased trucks,
driven by the service technicians, with the remainder held at the Company's
branch offices so that they are available locally. Generally the Company does
not centralize inventory. Substantially all vehicles in use by the Company
are leased.
The Company extends short term credit to most of its customers.
SIX MONTHS ENDED MARCH 31, 1998
COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Results discussed in this section have not been audited, except as
part of the audit of the full fiscal year ended September 30, 1997.
Sales for the six months ended March 31, 1998 were $24,928,591, 7.3%
above the same period sales of the prior fiscal year. The increase was
primarily due to volume increases at several branches. Sales for the
remainder of fiscal 1998 are expected to level off.
Gross profit as a percent of sales was 33.7% for the six months
ended March 31, 1998 compared to 34.5% for the same period in the prior
fiscal year. The decrease in the gross margin from period to period is
reflective of inflationary increases in servicemen and contract labor
salaries as well as material cost, partially offset by inflationary sale price
increases to the Company's customers.
Selling, general and administrative expenses were up 16.0% compared to
the same period a year ago. The increased costs were required to support the
increase in sales for the six months ended March 31, 1998. As a percent of
sales, selling, general and administrative expenses were 2.3% higher for the
six-month period ended March 31, 1998 as compared to the same period in the
prior year primarily as a result of the receipt of a rebate for workers'
compensation insurance premiums during the six months ended March 31, 1997,
due to favorable claims experience.
30
<PAGE>
Interest expense incurred by the Company was $238,808 and $262,708
for the six months ended March 31, 1998 and March 31, 1997, respectively. The
decrease for the six-month period ended March 31, 1998 is reflective of lower
debt levels as compared to the six months ended March 31, 1997.
Income from operations for the six months ended March 31, 1998 of
$879,466 was 42.8% lower than the same period a year ago relecting the lower
gross margin performance and the rebate of the insurance premiums previously
discussed above.
The effective tax rate for the six months ended March 31, 1998 was
42.0%, compared to 43.8% for the six months ended March 31, 1997. The higher
effective rate in 1997 was the result of conservative provisioning during
that period.
FISCAL YEAR ENDED SEPTEMBER 30, 1997
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1996
Sales for fiscal year 1997 were $48,128,363, an increase of 10.6%
from fiscal year 1996. The increase was primarily driven by higher service
sales of approximately $3,700,000 due to the upgrade of over 1,000 conveyor
ovens by a national quick service restaurant chain which the Company provided
service for in 1997.
Gross profit as a percent of sales was 35.4% for fiscal year 1997
versus 36.1% for fiscal year 1996. The decrease is primarily a result of
higher indirect costs attributable to service truck maintenance and
depreciation expenses.
Selling, general and administrative expenses were up slightly less
than 1% from the prior year, but down 2.7% as a percent of sales reflective
of a gain recognized in 1997 on the sale property in Cambridge, Massachusetts
and the effect of cost reductions at the Company's corporate headquarters.
Interest expense incurred by the Company of $492,484 and $511,983
for fiscal year 1997 and fiscal year 1996, respectively, primarily related to
a note payable to a former officer and the Company's revolving line of credit.
The effective tax rate for fiscal year 1997 was 45.3%, compared to
44.6% for fiscal year 1996. The higher effective rate in 1997 was the result
of conservative provisioning during the year.
FISCAL YEAR ENDED SEPTEMBER 30, 1996
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1995
Sales for fiscal year 1996 were $43,533,930, an increase of
$2,394,995 or 5.8% from fiscal year 1995. The increase was primarily driven
by higher service and direct sale merchandise business, but was negatively
impacted by the closing of the Company's Indianapolis, Indiana branch office
effective September 30, 1995. The Indianapolis branch had sales during the
fiscal year ended September 30, 1995 of approximately $1,056,000.
Gross profits as a percent of sales was 36.1% for fiscal year 1996
versus 35.4% for fiscal year 1995. The slight increase is primarily a result
of reduced direct labor fringe benefit costs inclusive of a reduction in
workers' compensation costs due to favorable claims experience.
Selling, general and administrative expenses were 30.7% of sales in
fiscal year 1996 versus 31.8% of sales in fiscal year 1995. During 1996, the
Company experienced a significant reduction in bad debt expenses as a result
of improved credit and collections which caused the decrease as a percent of
sales from 1995 to 1996.
Interest expense incurred by the Company was $511,983 and $131,402
for fiscal year 1996 and fiscal year 1995, respectively. The increase in
interest expense was due to the repurchase of the Company's stock from a
former officer of the Company which was financed with the former officer
beginning June 1, 1995, and increased borrowings under the Company's
revolving line of credit during fiscal year 1996.
The effective tax rate for fiscal year 1996 was 44.6%, compared to
41.3% for fiscal year 1995. The higher effective rate in fiscal year 1996
included an adjustment for state deferred taxes.
31
<PAGE>
FINANCIAL CONDITION
CASH FLOWS FROM OPERATING ACTIVITIES
Over the last three and a half years (inclusive of the six month
period ended March 31, 1998) cash flows from operating activities were
$2,545,981. These funds were used primarily for the payment of capital
expenditures, working capital and debt service.
SIX MONTHS ENDED MARCH 31, 1998 VERSUS
SIX MONTHS ENDED MARCH 31, 1997
Cash flows from operating activities were $86,397 for the six months
ended March 31, 1998 compared to $(11,973) for the six months ended March 31,
1997. The fluctuation from period to period is reflective of lower net income
for the period ended March 31, 1998 offset by variability in the management
of working capital.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 VERSUS
FISCAL YEAR ENDED SEPTEMBER 30, 1996
Cash flows from operating activities for fiscal year 1997 were
$1,317,776 compared to $202,991 for fiscal year 1996. The increase over 1996
was primarily due to an increase in net income, the timing of taxes payable
and reduced inventory purchases in fiscal year 1997. During fiscal year 1997,
cash flows from operations was principally used to fund capital expenditures
and working capital.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 VERSUS
FISCAL YEAR ENDED SEPTEMBER 30, 1995
Cash flows from operating activities for fiscal year 1996 were
$202,991 compared to $938,817 for fiscal year 1995. The decrease from fiscal
year 1995 is mainly attributable to higher inventory balances during fiscal
year 1996 which accounted for a net cash outflow of $1,238,558. During fiscal
year 1996, cash flows from operations was principally used to fund capital
expenditures, debt service and working capital.
LIQUIDITY AND CAPITAL RESOURCES
In June of 1995, the Company utilized an opportunity to repurchase
all of the stock of the Company held by the former chief executive officer
and Tyfam, Inc. The agreement entered into resulted in a negotiated cost of
the repurchase of $3,786,480. The stock purchase agreement required the
Company to make a $150,000 initial payment followed by monthly payments of
$55,181 for a period of eight years. Since then, the Company has continued to
utilize the availability of its revolving line of credit totaling $4,550,000
at March 31, 1998, of which $1,918,660 was available as of that date.
Cash flows from operations and the ability to borrow from a variety
of sources should provide the Company with the liquidity to continue the
investments necessary to meet the Company's long-term strategic goals.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company has addressed this risk to the
availability and integrity of financial systems and the reliability of
operational systems. The Company had previously decided to upgrade its
computer systems. The Company believes that these upgrades may allow it to
achieve Year 2000 compliance. The cost of these upgrades, which are currently
in progress and expected to be completed during 1999, are not material to the
Company's result of operations or financial position. Remaining expenditures
are expected to be less than $200,000. Based on current information, the
Company believes that no significant additional expenditures may be required
to specifically achieve Year 2000 compliance.
32
<PAGE>
GCS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 12, 1998, 1998 information
concerning each person known by GCS to own beneficially more than 5% of the
outstanding shares of GCS Common Stock and the beneficial ownership of GCS
Common Stock for individual GCS directors, executive officers and all
directors and executive officers of GCS as a group. Except as otherwise
noted, the named beneficial owner has sole voting and investment power with
respect to the shares listed.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
Number of Percent
Name and Address of Beneficial Owner Shares Owned of Class
------------------------------------ ------------ --------
<S> <C> <C>
Wesley B. Tyler (1) 113,008 70.1%
100 Mill Plain Road
Danbury, Connecticut 06810
Gregory Gould -- --
Nir E. Margalit -- --
Sam A. Mazzilli -- --
James A. O'Brien (2) 18,700 11.6%
James J. Rowland -- --
Ursula Stritzel -- --
Parker R. Tyler, Jr. -- --
All directors and executive officers ------- -------
of the Company as a group (9 persons) 131,708 81.7%
</TABLE>
--------------
(1) Includes 1,800, 1,800, 1,800 and 1,300 shares held in trust for
Mr. Tyler's children Elizabeth, Philip, Stephen and Kevin Tyler,
respectively.
(2) Includes shares issuable upon exercise of options. Such options
must be exercised at or prior to the Merger or they will be
cancelled.
33
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements that
involve risks and uncertainties. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "intend," "designed," "estimate," "should," or "continue" or
the negatives thereof or other variations or comparable terms. These
forward-looking statements involve certain risks and uncertainties and other
factors which may cause actual results, performance or achievements of the
company, or industry results, to differ materially from those contemplated or
projected, forecast, estimated or budgeted or implied in such forward-looking
statements including, among others, the following possibilities: (i)
heightened competition, including specifically the intensification of price
competition, the entry of new competitors and the formation of new products
by new and existing competitors; (ii) adverse state and federal legislation
and regulation; (iii) failure to obtain new customers or retain existing
customers; (iv) inability to carry out marketing and/or expansion plans; (v)
loss of key executives; (vi) changes in interest rates; (vii) general
economic and business conditions which are less favorable than expected and
(viii) unanticipated changes in industry trends. In addition, factors that
could cause actual results of GCS (assuming consummation of the merger) to
differ materially from those contemplated by or projected, forecast,
estimated or budgeted in forward-looking statements relating to the results
of operations and business of GCS following the merger, including (a) cost
savings that will be realized from the merger (see "THE MERGER -Reasons for
the Merger; Recommendation of the Board") and (b) costs associated with the
merger, including, among others, the following possibilities: (i) the
expected cost savings to be realized through combining certain functions of
both Ecolab and GCS cannot be fully realized because the changes are not made
or unanticipated offsetting costs are incurred and (ii) costs or difficulties
related to the integration of the businesses of Ecolab and GCS are greater
than expected.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements of GCS as of September 30, 1997 and 1996,
and for each of the years in the three-year period ended September 30, 1997
have been included in this Proxy Statement/Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. It is expected that representatives of KPMG Peat
Marwick LLP will be present at the Special Meeting both to respond to
appropriate questions of stockholders of GCS and to make a statement if they
so desire.
The consolidated financial statements and related financial
statement schedule of Ecolab, which are included or incorporated by reference
in Ecolab's Annual Report on Form 10-K for the year ended December 31, 1997,
and incorporated herein and in the Registration Statement by reference, have
been audited by Coopers & Lybrand L.L.P., independent accountants, for the
periods indicated in such firm's reports thereon. The consolidated financial
statements and financial statement schedule audited by Coopers & Lybrand
L.L.P. have been incorporated herein and in the Registration Statement by
reference in reliance on such firm's reports given upon their authority as
experts in accounting and auditing.
With respect to unaudited interim financial information of Ecolab
incorporated here and in the Registration Statement by reference, Coopers &
Lybrand L.L.P. has reported that they have applied limited procedures in
accordance with professional standards for reviews on such information.
However, their separate reports, incorporated herein and in the Registration
Statement by reference, state that they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light
of the limited nature of the review procedures applied. The independent
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited interim financial
information because each such report is not a "report" or a "part" of the
Registration Statement prepared or certified by the independent accounts
within the meanings of Section 7 and 11 of the Securities Act.
In addition, the combined financial statements and financial
statement schedule of the Henkel-Ecolab Joint Venture, which are included in
Ecolab's Annual Report on Form 10-K for the year ended December 31, 1997, and
incorporated herein and in the Registration Statement by reference, have been
audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft, independent accountants for the period
indicated in such firm's reports thereon. The combined financial statements
and financial statement schedule audited by KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft have
been incorporated herein and in the Registration Statement by reference in
reliance on such firm's reports given upon their authority as experts in
accounting and auditing.
34
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Information regarding Ecolab, including historical financial
statements and detailed descriptions of the business of Ecolab is included in
documents other than this Proxy Statement/Prospectus. Ecolab files annual,
quarterly and special reports, proxy statements and other information with
the SEC. You may read and copy reports, statements or other information
Ecolab files at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC- 0330
for further information on the public reference rooms. Ecolab's filings are
also available to the public from commercial document retrieval services and
are available to the public at the website maintained by the SEC at
"http://www.sec.gov."
As a private company, GCS does not file nor make publicly available
information regarding GCS or its operations. Therefore, all requests for
information other than that contained in this Proxy Statement/Prospectus on
Form S-4 filed by Ecolab should be directed to: GCS Service, Inc., 100 Mill
Plain Road, Danbury, Connecticut 06811, Attn: Secretary, or (203) 792-4599.
NEITHER ECOLAB NOR GCS HAS AUTHORIZED ANYONE TO GIVE ANY INFORMATION
DIFFERENT FROM THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
THIS PROXY STATEMENT/PROSPECTUS IS DATED JUNE 11, 1998. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE
AS OF ANY LATER DATE, AND THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
The Commission allows Ecolab to "incorporate by reference"
information into this proxy statement, which means that Ecolab can disclose
important information by referring you to another document filed separately
with the Commission. Information incorporated by reference is considered part
of this proxy statement, except to the extent that the information is
superseded by information in this proxy statement. This proxy statement
incorporates by reference the information contained in the following
documents previously filed by Ecolab with the Commission (Commission file
number 1-9328):
Ecolab's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998.
Ecolab's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
Ecolab's Form 8-A/A dated November 21, 1997, which constitutes
Amendment No. 7 to Ecolab's Registration Statement on Form 8-A dated November
17, 1986. Ecolab's Form 8-A/A dated December 18, 1997, which constitutes
Amendment No. 1 to Ecolab's Registration Statement on Form 8-A dated February
27, 1996.
Ecolab also incorporates by reference the information contained in
all other documents Ecolab files with the Commission after the date of this
proxy statement and before the Special Meeting. The information contained in
any such document will be considered part of this proxy statement from the
date the document is filed and will supplement or amend the information
contained in this proxy statement.
IF YOU ARE A STOCKHOLDER OF ECOLAB OR OF GCS AND WOULD LIKE TO
RECEIVE A COPY OF ANY DOCUMENT INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT (WHICH WILL NOT INCLUDE ANY OF THE EXHIBITS TO THE DOCUMENT OTHER
THAN THOSE EXHIBITS THAT ARE THEMSELVES SPECIFICALLY INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT), YOU SHOULD CALL OR WRITE TO ECOLAB
INC., ECOLAB CENTER, 370 N. WABASHA STREET, ST. PAUL, MINNESOTA 55102,
ATTENTION: CORPORATE SECRETARY (TELEPHONE: (612) 293-2125). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS YOU REQUEST, YOU SHOULD MAKE YOUR
REQUEST BY JULY 2, 1998.
LEGAL MATTERS
The legality of the shares of Ecolab Common Stock to be issued in
the Merger will be passed upon for Ecolab by Kenneth A. Iverson, Vice
President and Secretary of Ecolab Inc.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT.......................................F-6, F-19
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1998 and 1997....................F-2
Statements of Income for the Six-Month Periods ended
March 31, 1998 and 1997......................................F-3
Statements of Cash Flows for the Six-Month Periods ended
March 31, 1998 and 1997......................................F-4
Notes to Financial Statements...................................F-5
1997 AND 1996 FINANCIAL STATEMENTS:
Balance Sheets as of September 30, 1997 and 1996................F-7
Statements of Income for the Years Ended
September 30, 1997 and 1996 .................................F-8
Statements of Stockholders' Equity
for the Years Ended September 30, 1997 and 1996..............F-9
Statements of Cash Flows
for the Years Ended September 30, 1997 and 1996..............F-10
Notes to Financial Statements...................................F-11
1996 AND 1995 FINANCIAL STATEMENTS:
Balance Sheets as of September 30, 1996 and 1995................F-20
Statements of Income
for the Years Ended September 30, 1996 and 1995..............F-21
Statements of Stockholders' Equity
for the Years Ended September 30, 1996 and 1995..............F-22
Statements of Cash Flows
for the Years Ended September 30, 1996 and 1995..............F-23
Notes to Financial Statements...................................F-24
F - 1
<PAGE>
GCS SERVICE, INC.
Balance Sheets(Unaudited)
As of March 31, 1998 and March 31, 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash $ 860,086 $ 410,156
Trade accounts receivable, less allowance
for doubtful accounts of $475,028
in 1998 and 1997 6,018,404 6,147,963
Inventory, net 6,220,656 5,990,934
Deferred income taxes 426,000 324,000
Prepaid income taxes - 494,826
Prepaid expenses and other current assets 95,982 88,168
----------- -----------
Total current assets 13,621,128 13,456,047
Property and equipment, net 1,068,467 977,409
Other assets:
Deferred income taxes 576,000 570,000
Security deposits and other 16,535 203,083
Note receivable 170,546 124,630
----------- -----------
$15,452,676 $15,331,169
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,666,254 $ 2,128,021
Accrued expenses 742,429 1,649,522
Income taxes payable 269,076 519,656
Current portion of long-term debt 577,414 602,868
----------- -----------
Total current liabilities 4,255,173 4,900,067
Long-term liabilities:
Long-term debt, net of current portion 4,717,445 5,201,543
Deferred compensation 896,500 965,500
----------- -----------
Total liabilities 9,869,118 11,067,110
----------- -----------
Stockholders' equity:
Common stock, par value $.01;
500,000 shares authorized; 3,330 3,330
332,936 shares issued, and
151,786 shares outstanding
Additional paid in capital 150,347 150,347
Retained earnings 6,809,179 5,489,643
----------- -----------
6,962,856 5,643,320
Less: treasury stock, at cost (1,379,298) (1,379,261)
----------- -----------
Total stockholders equity 5,583,558 4,264,059
----------- -----------
$15,452,676 $15,331,169
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited financial statements.
F - 2
<PAGE>
GCS SERVICE, INC.
Statements of Income (Unaudited)
Six-Month Periods ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $ 24,928,591 $ 23,237,881
Cost of Sales 16,522,409 15,211,160
------------ -------------
Gross profit 8,406,182 8,026,721
Selling, general and administrative expenses 7,526,716 6,488,165
------------ -------------
Income from operations 879,466 1,538,556
Interest expense 238,808 262,708
------------ -------------
Income before provision for
income taxes 640,658 1,275,848
Provision for income taxes 269,076 558,227
------------ -------------
Net income $ 371,582 $ 717,621
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to unaudited financial statements.
F - 3
<PAGE>
GCS SERVICE, INC.
Statements of Cash Flows (Unaudited)
Six-Month Periods ended March 31, 1998 and 1997
Represents increases (decreases) in cash
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 371,582 $ 717,621
Adjustments to reconcile net income to net
cash (used by) provided by
operating activities:
Depreciation and amortization 248,577 195,856
Changes in assets and liabilities
Trade accounts receivable, net 108,820 (645,272)
Inventory (70,072) (554,913)
Prepaid income taxes --- (384,770)
Prepaid expenses and other current assets 35,590 41,766
Security deposits and other 122,344 (88,674)
Accounts payable and accrued expenses (240,689) 146,257
Income taxes payable (430,255) 519,656
Deferred compensation (59,500) 40,500
------------ ----------
Net cash provided (used) by operating
activities 86,397 (11,973)
------------ ----------
Cash flows from investing activities:
Capital expenditures (317,387) (297,452)
Process from sale of property and equipment --- 207,983
------------ ----------
Net cash used in investing activities (317,387) (89,469)
------------ ----------
Cash flows from financing activities:
Repayments of long-term debt (3,145,981) (1,312,281)
Proceeds from issuance of long-term debt 3,560,000 1,200,000
Note receivable (14,380) 125,370
Other (37)
------------ ----------
Net cash provided by
financing activities 399,602 13,089
------------ ----------
Net change in cash 168,612 (88,353)
Cash at beginning of year 691,474 498,509
------------ ----------
Cash at end of year $ 860,086 $ 410,156
------------ ----------
------------ ----------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 238,808 $ 262,708
------------ ----------
------------ ----------
Income taxes $ 929,410 $ 384,770
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to unaudited financial statements.
F - 4
<PAGE>
GCS SERVICE INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND MARCH 31, 1997
1. GENERAL
The accompanying unaudited financial statements have been prepared on the
same basis as the audited Financial Statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring
adjustments necessary to fairly present the financial information included
therein.
The Company suggests that this financial data be read in conjunction
with the audited Financial Statements and notes thereto for the fiscal year
ended September 30, 1997 included in this Proxy Statement/Prospectus. Results
for the interim period presented are not necessarily indicative of results to
be expected for the entire year.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GCS Service, Inc.:
We have audited the accompanying balance sheets of GCS Service, Inc. as of
September 30, 1997 and 1996, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These 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, the financial statements referred to above present fairly, in
all material respects, the financial position of GCS Service, Inc. as of
September 30, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Stamford, Connecticut KPMG Peat Marwick LLP
January 9, 1998
F - 6
<PAGE>
GCS SERVICE, INC.
Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash $ 691,474 498,509
Trade accounts receivable, less allowance
for doubtful accounts of $475,028 for 1997 and
$475,028 for 1996 6,127,224 5,502,691
Inventory, net 6,150,584 5,436,021
Deferred income taxes 426,000 324,000
Prepaid income taxes -- 110,056
Prepaid expenses and other current assets 131,572 129,934
------------ -----------
Total current assets 13,526,854 12,001,211
Property and equipment, net 999,657 1,083,796
Other assets:
Deferred income taxes 576,000 570,000
Security deposits and other 138,879 114,409
Note receivable 156,166 250,000
------------ -----------
$15,397,556 14,019,416
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,080,078 2,143,540
Accrued expenses 1,569,294 1,487,746
Income taxes payable 699,331 --
Current portion of long-term debt 557,221 602,868
------------ -----------
Total current liabilities 4,905,924 4,234,154
Long-term liabilities:
Long-term debt, net of current portion 4,323,619 5,313,824
Deferred compensation 956,000 925,000
------------ -----------
Total liabilities 10,185,543 10,472,978
------------ -----------
Stockholders' equity:
Common stock, par value $.01; 500,000 shares authorized; 332,936 shares
issued, and 151,786 shares outstanding 3,330 3,330
Additional paid in capital 150,347 150,347
Retained earnings 6,437,597 4,772,022
------------ -----------
6,591,274 4,925,699
Less: treasury stock, at cost (1,379,261) (1,379,261)
------------ -----------
Total stockholders' equity 5,212,013 3,546,438
------------ -----------
$15,397,556 14,019,416
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 7
<PAGE>
GCS SERVICE, INC.
Statements of Income
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $48,128,363 43,533,930
Cost of sales 31,099,268 27,834,718
------------ -----------
Gross profit 17,029,095 15,699,212
Selling, general and administrative expenses 13,490,349 13,379,703
------------ -----------
Income from operations 3,538,746 2,319,509
Interest expense 492,484 511,983
------------ -----------
Income before provision for
income taxes 3,046,262 1,807,526
Provision for income taxes 1,380,687 805,866
------------ -----------
Net income $1,665,575 1,001,660
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 8
<PAGE>
GCS SERVICE, INC.
GCS SERVICE, INC.
Statements of Stockholders' Equity
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Common stock Additional Investment Total
$.01 PAR VALUE paid-in Retained in parent Treasury stockholders'
Shares Amount Capital Earnings Corporation Stock Equity
------ ------ ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 328,261 $3,283 70,265 7,209,297 (3,438,935) (1,379,261) 2,464,649
Net income -- -- -- 1,001,660 -- -- 1,001,660
Common stock issued 4,675 47 80,082 -- -- -- 80,129
Investment in Parent
Corporation -- -- -- (3,438,935) 3,438,935 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1996 332,936 3,330 150,347 4,772,022 -- (1,379,261) 3,546,438
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income -- -- -- 1,665,575 -- -- 1,665,575
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 332,936 $3,330 150,347 6,437,597 -- (1,379,261) 5,212,013
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F - 9
<PAGE>
GCS SERVICE, INC.
Statements of Cash Flows
Years ended September 30, 1997 and 1996
Represents increases (decreases) in cash
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,665,575 $1,001,660
Adjustments to reconcile net income to net
cash (used by) provided by operating activities:
Depreciation and amortization 468,037 371,168
Gain on disposal of property and equipment (201,105) --
Common stock issued in lieu of cash
for employment services -- 80,082
Deferred income taxes (108,000) (22,000)
Changes in assets and liabilities:
Trade accounts receivable, net (624,533) (72,958)
Inventory (714,563) (1,238,558)
Prepaid income taxes 110,056 (49,037)
Prepaid expenses and other current assets (1,638) 316,065
Security deposits and other (24,470) 22,868
Accounts payable and accrued expenses 18,086 (361,299)
Income taxes payable 699,331 --
Deferred compensation 31,000 155,000
------------ -----------
Net cash provided by operating activities 1,317,776 202,991
------------ -----------
Cash flows from investing activities:
Capital expenditures (462,812) (168,718)
Proceeds from sale of property and equipment 280,019 --
------------ -----------
Net cash used in investing activities (182,793) (168,718)
------------ -----------
Cash flows from financing activities:
Repayments of long-term debt (4,160,852) (1,366,594)
Proceeds from issuance of long-term debt 3,125,000 1,665,000
Proceeds from issuance of common stock -- 47
Note receivable 93,834 (250,000)
------------ -----------
Net cash (used) provided by financing activities (942,018) 48,453
------------ -----------
Net change in cash 192,965 82,726
Cash at beginning of year 498,509 415,783
------------ -----------
Cash at end of year $691,474 $498,509
------------ -----------
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $492,484 $511,983
------------ -----------
------------ -----------
Income taxes $679,300 $892,381
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 10
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements
September 30, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. DESCRIPTION OF BUSINESS
GCS Service, Inc. (the Company) services, repairs and sells parts
for commercial cooking and refrigeration equipment, primarily to
restaurants and institutional kitchens.
During 1996, the Company completed a merger with its parent
company, Tyfam, Inc. (Tyfam). As a result of the transaction,
Tyfam merged with and into the Company with the Company remaining
as the surviving corporation. Tyfam's ownership in the Company
which was 83.2% prior to the transaction, was distributed
proportionately to stockholders of the Company based upon those
stockholders' direct ownership of Tyfam. The interest in Tyfam
previously owned by the Company, with a carrying value at
September 30, 1995 of $3,438,935, was recorded as a reduction to
retained earnings.
Upon completion of this transaction, there was no change in the
Company's ownership percentages.
b. INVENTORY
Inventory consists of replacement parts for gas, electric and
steam operated cooking equipment and refrigeration equipment.
Inventories are stated at cost or market, whichever is lower. Cost
is determined using the first-in, first-out method for all
inventories.
c. PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Plant and equipment
under capital leases are stated at the present value of minimum
lease payments at the inception of the lease.
Depreciation on plant and equipment is calculated using the
straight-line method over the estimated useful lives of the
assets. Equipment held under capital leases and leasehold
improvements are amortized straight-line over the shorter of the
lease term or estimated useful life of the asset.
F - 11
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
d. INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Account ing Standards No. 109 "Accounting for Income
Taxes." Under this method, deferred income taxes
are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities.
Deferred income taxes have been provided for temporary differences
primarily attributable to reporting of depreciation, inventory
reserves, the allowance for doubtful accounts, deferred
compensation, self-insurance reserves, and certain liabilities
differently for tax as compared to financial reporting.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to amounts that are more likely than not to be
realized.
e. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" as of October
1, 1996, which had no material effect on the financial statements.
The Company utilizes the undiscounted cash flow method to
determine impairment in the carrying value of its long-lived
assets. Measurement of an impairment loss is determined by
reducing the carrying value of assets to fair value. Assets to be
disposed of by sale or abandonment, as part of a plan committed to
and approved by management, are recorded at the lower of the
carrying value or the fair value less the cost to sell.
f. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
g. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to
the 1997 presentation.
F - 12
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
2. PROPERTY AND EQUIPMENT
Components of property and equipment are:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate $286,754 528,468
Leasehold improvements 1,169,073 938,103
Transportation equipment 28,709 25,160
Machinery and equipment 3,163,912 2,935,975
----------- ----------
4,648,448 4,427,706
Accumulated depreciation (3,648,791) (3,343,910)
----------- ----------
$999,657 1,083,796
----------- ----------
----------- ----------
</TABLE>
During 1997, the Company sold real estate and leasehold improvements with
a cost of $241,714 and accumulated depreciation of $162,800.
3. RELATED PARTY TRANSACTION
The Company's note receivable is with a principal stockholder of the
Company. The amount is unsecured and bears interest at 7%. Principal and
interest payments are due semi-annually through August 30, 1999. The
carrying amount of the note receivable approximates fair value.
<PAGE>
4. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing (401k) plan which allows employees to
contribute between 1% and 20% of their compensation, up to specific
maximum limits. The Company makes matching contributions equal to 50% of
the first $1,500 of a participant's contribution. Effective January 1,
1997, the Company makes matching contributions equal to 50% of the first
$2,000 of a participant's contribution. The Company may also make
additional contributions at its discretion. Plan expense was $241,375 and
$232,127 for the years ended September 30, 1997 and 1996, respectively.
F - 13
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
5. LONG-TERM DEBT
The Company's long-term debt at September 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to former officer - $55,181 payable
monthly, including interest at 10% to May 2003 $2,856,060 3,212,795
Revolving line of credit - the principal balance of which is due June 1999,
interest is payable monthly at 1/4% above the bank's prime rate (8.75% and
8.25% at September 30, 1997 and
September 30, 1996, respectively) 1,825,000 2,300,000
Capitalized equipment lease - payable in monthly installments of $18,881
($18,881 at September 30, 1996) including interest at varying rates from
7.08% to 18.7% to April 1999 187,840 383,113
Notes issued in connection with acquisition of a business - $1,833 payable
monthly including interest at 10% to February 1997; collateralized
by certain inventory and equipment -- 8,844
Other 11,940 11,940
----------- ----------
4,880,840 5,916,692
Less current portion (557,221) (602,868)
----------- ----------
Noncurrent portion $4,323,619 5,313,824
----------- ----------
----------- ----------
</TABLE>
The Company has a $4,550,000 bank revolving line of credit and term loan
which is secured by the Company's inventory and receivables. The
agreement requires the Company to maintain minimum working capital,
tangible net worth and debt ratios. It also restricts new borrowings,
payment of dividends and redemption and issuances of capital stock in
excess of $150,000 per year.
F - 14
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
Borrowings under this revolving line of credit are based on and
collateralized by eligible accounts receivable and inventory and
are guaranteed by the principal stockholder of the Company.
As of September 30, 1996, the Company was in violation of a covenant
regarding the delivery of its financial statements to the lender.
Such violation was subsequently waived by the lender.
The Company had $2,725,000 and $2,250,000 unused at September 30, 1997
and September 30, 1997, respectively under this credit facility which
also reflects an outstanding stand-by letter of credit of $10,000.
Certain other borrowings are collateralized by the Company's inventory
and receivables.
At September 30, 1997, the future aggregate annual principal payments of
long-term debt are as follows:
1998 $ 557,221
1999 2,285,563
2000 481,268
2001 531,663
2002 587,355
Thereafter 437,770
-------------
Total $ 4,880,840
-------------
-------------
The carrying amount of debt approximates market value.
Interest expense was $492,484 and $511,983 for the years ended September
30, 1997 and 1996, respectively.
6. INCOME TAX
Income tax expense (benefit) is summarized below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current:
Federal $ 1,146,646 623,958
State 342,041 203,908
------------ -----------
Total current 1,488,687 827,866
------------ -----------
Deferred:
Federal (81,000) (17,000)
State (27,000) (5,000)
------------ -----------
Total deferred (108,000) (22,000)
------------ -----------
$ 1,380,687 805,866
------------ -----------
------------ -----------
</TABLE>
F - 15
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
The components of the net deferred tax asset as of September 30, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Property, plant and equipment $ 217,000 194,000
Deferred compensation 388,000 376,000
Allowance for doubtful accounts 193,000 144,000
Inventories 140,000 122,000
Other accrued liabilities 64,000 58,000
------------ -----------
Net deferred tax asset $ 1,002,000 894,000
------------ -----------
------------ -----------
</TABLE>
In assessing the realizability of deferred tax assets, management
considered whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible and opportunities for carrybacks. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable
income, carryback opportunities and tax planning strategies in making
this assess ment. Based upon the results of operations of the current
period and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these temporary
deductible differ ences.
A reconciliation of the statutory federal income tax rate and the
effective income tax rate follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Statutory federal rate 34.0% 34.0%
State income tax, net of federal benefit 6.8 6.8
Other, net 4.5 3.8
------ -------
45.3% 44.6%
------ -------
------ -------
</TABLE>
7. COMMITMENTS
a. LEASE OBLIGATIONS
The Company leases office space and vehicles under operating
leases.
F - 16
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
Future minimum lease payments under noncancellable operating leases with
an initial term of one year or more at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, OFFICE SPACE VEHICLES
<S> <C> <C>
1998 $ 736,924 1,126,338
1999 628,220 824,338
2000 443,734 531,423
2001 337,841 175,683
2002 926,468 --
Thereafter 509,864 --
------------- -----------
Total $ 3,583,051 2,657,782
------------- -----------
------------- -----------
</TABLE>
Rent expense for the years ended September 30, 1997 and 1996
totaled approximately $854,867 and $765,732 and $1,142,359 and
$1,027,806 for office space and vehicles, respectively.
b. CONSULTING AGREEMENT
In connection with the acquisition of a business, the Company
entered into an agreement with a stockholder of the acquired
business which provided for annual consulting fees of $43,600 to
March 1997.
c. DEFERRED COMPENSATION
The employment contract of the Chairman of the Board provides,
upon his death, lifetime survivor's benefits to his spouse, in an
amount equal to two-thirds of his present annual salary. The
present value of the actuarially computed amount of the
anticipated benefit is being provided over the remaining expected
employment period of the Chairman.
8. TREASURY STOCK AND INVESTMENT IN PARENT COMPANY
During 1995, the Company entered into an agreement to repurchase all of
the common stock held by Barton Tyler (the former president of the
Company) in the Company and Tyfam. The negoti ated cost to the Company of
the repurchase was $3,786,480, $846,183 of which was allocated to Barton
Tyler's common stock holdings in the Company and is recorded as part of
Treasury Stock, and $2,940,297 allocated to his common stock ownership in
Tyfam, Inc. which was reflected as part of Investment in Parent
Corporation at September 30, 1995. The stock purchase agreement
F - 17
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
required the Company to make a $150,000 initial payment followed by
monthly payments of $55,181 (which includes principal and interest) for a
period of eight years commencing on June 1, 1995 (see note 5).
F - 18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GCS Service, Inc.:
We have audited the accompanying balance sheets of GCS Service, Inc. as of
September 30, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These 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, the financial statements referred to above present fairly, in
all material respects, the financial position of GCS Service, Inc. as of
September 30, 1996 and 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Stamford, Connecticut KPMG Peat Marwick LLP
December 12, 1996
F - 19
<PAGE>
GCS SERVICE, INC.
Balance Sheets
September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets
Cash $ 498,509 415,783
Trade accounts receivable, less allowance
for doubtful accounts of $354,028 for 1996 and
$353,825 for 1995 5,502,691 5,429,733
Inventory, net 5,436,021 4,197,463
Deferred income taxes 324,000 403,000
Prepaid income taxes 110,056 61,019
Prepaid expenses and other current assets 129,934 445,999
------------ -----------
Total current assets 12,001,211 10,952,997
Property and equipment, net 1,083,796 1,051,627
Other assets:
Deferred income taxes 570,000 469,000
Security deposits and other 114,409 137,277
Note receivable 250,000 --
------------ -----------
$14,019,416 12,610,901
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 2,143,540 2,427,953
Accrued expenses 1,487,746 1,564,632
Current portion of long-term debt 602,868 435,855
------------ -----------
Total current liabilities 4,234,154 4,428,440
Long-term liabilities
Long-term debt, net of current portion 5,313,824 4,947,812
Deferred compensation 925,000 770,000
------------ -----------
Total liabilities 10,472,978 10,146,252
------------ -----------
------------ -----------
Stockholders' equity:
Common stock, par value $.01; 500,000 share;
authorized; 332,936 and 328,261 shares issued,
and 151,786 and 282,729 shares outstanding at
September 30, 1996 and September 30, 1995,
respectively 3,330 3,283
Additional paid in capital 150,347 70,265
Retained earnings 4,772,022 7,209,297
Investment in parent corporation -- (3,438,935)
------------ -----------
4,925,699 3,843,910
Less: treasury stock, at cost (1,379,261) (1,379,261)
------------ -----------
Total stockholders' equity 3,546,438 2,464,649
------------ -----------
$14,019,416 12,610,901
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 20
<PAGE>
GCS SERVICE, INC.
Statements of Income
Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales $43,533,930 41,138,935
Cost of sales 27,834,718 26,570,882
------------ -----------
Gross profit 15,699,212 14,568,053
Selling, general and administrative expenses 13,379,703 13,093,771
------------ -----------
Income from operations 2,319,509 1,474,282
Interest expense 511,983 131,402
------------ -----------
Income before provision
for income taxes 1,807,526 1,342,880
Provision for income taxes 805,866 554,116
------------ -----------
Net income $1,001,660 788,764
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 21
<PAGE>
GCS SERVICE, INC.
GCS SERVICE, INC.
Statements of Stockholders' Equity
Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Common stock Additional Investment Total
$.01 par value paid-in Retained in parent Treasury stockholders'
Shares Amount capital earnings corporation stock equity
------ ------ ------------ --------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 328,261 $ 3,283 70,265 6,420,533 (498,638) (533,078) 5,462,365
Net income -- -- -- 788,764 -- -- 788,764
Purchase of stock from
stockholder -- -- -- -- -- (846,183) (846,183)
----------
Purchase of common stock
of parent corporation -- -- -- -- (2,940,297) -- (2,940,297)
---------- ---------- -------- ---------- ---------- --------- ----------
Balance, September 30, 1995 328,261 3,283 70,265 7,209,297 (3,438,935) (1,379,261) 2,464,649
---------- ---------- -------- ---------- ---------- --------- ----------
Net income -- -- -- 1,001,660 -- -- 1,001,660
Common stock issued 4,675 47 80,082 -- -- -- 80,129
Investment in Parent
Corporation -- -- -- (3,438,935) 3,438,935 -- --
---------- ---------- -------- ---------- ---------- --------- ----------
Balance, September 30, 1996 332,936 $3,330 150,347 4,772,022 -- (1,379,261) 3,546,438
---------- ---------- -------- ---------- ---------- --------- ----------
---------- ---------- -------- ---------- ---------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
F - 22
<PAGE>
GCS SERVICE, INC.
Statements of Cash Flows
Years ended September 30, 1996 and 1995
Represents increases (decreases) in cash
and cash equivalents.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,001,660 788,764
Adjustments to reconcile net income to
net cash (used by) provided by
operating activities:
Depreciation and amortization 371,168 285,277
Common stock issued in lieu of cash
for employment services 80,082 --
Deferred income taxes (22,000) (313,000)
Changes in assets and liabilities:
Trade accounts receivable, net (72,958) (321,624)
Inventory (1,238,558) (715,940)
Prepaid income taxes (49,037) 46,799
Prepaid expenses and other current assets 316,065 (352,674)
Security deposits 22,868 (66,453)
Accounts payable and accrued expenses (361,299) 1,510,168
Deferred compensation 155,000 77,500
------------ -----------
Net cash provided by
operating activities 202,991 938,817
------------ -----------
Cash flows from investing activities:
Capital expenditures (168,718) (799,157)
------------ -----------
Net cash used in investing activities (168,718) (799,157)
------------ -----------
Cash flows from financing activities:
Repayments of long-term debt (1,366,594) (397,120)
Proceeds from issuance of long-term debt 1,665,000 571,246
Proceeds from issuance of common stock 47 --
Note receivable (250,000) --
------------ -----------
Net cash provided by financing
activities 48,453 174,126
------------ -----------
Net change in cash 82,726 313,786
Cash at beginning of year 415,783 101,997
------------ -----------
Cash at end of year $498,509 415,783
------------ -----------
------------ -----------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $511,983 131,402
------------ -----------
------------ -----------
Income taxes $876,903 819,317
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
F - 23
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements
September 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. DESCRIPTION OF BUSINESS
GCS Service, Inc. (the Company) services, repairs and sells parts
for commercial cooking and refrigeration equipment, primarily to
restaurants and institutional kitchens.
During 1996, the Company completed a merger with its parent
company, Tyfam, Inc. (Tyfam). As a result of the transaction, Tyfam
merged with and into the Company with the Company remaining as the
surviving corporation. Tyfam's ownership in the Company which was
83.2% prior to the transaction, was distributed proportionately to
stockholders of the Company's stock based upon those stockholders'
direct ownership of Tyfam. The interest in Tyfam previously owned
by the Company, with a carrying value at September 30, 1995 of
$3,438,935, was recorded as a reduction to retained earnings.
Upon completion of this transaction, there was no change in the
Company's ownership percentages.
b. INVENTORY
Inventory consists of replacement parts for gas, electric and steam
operated cooking equipment and refrigeration equipment. Inventories
are stated at cost or market, whichever is lower. Cost is
determined using the first-in, first-out method for all inventories.
c. PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Plant and equipment
under capital leases are stated at the present value of minimum
lease payments at the inception of the lease.
Depreciation on plant and equipment is calculated using the
straight-line method over the estimated useful lives of the assets.
Equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or
estimated useful life of the asset.
d. INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (Statement 109). Under this method, deferred income taxes
are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities.
Deferred income taxes have been provided for temporary differences
primarily attributable to reporting of depreciation, inventory
reserves, the allowance for doubtful
F - 24
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
accounts, deferred compensation, self-insurance reserves, and
certain liabilities differently for tax as compared to financial
reporting.
Valuation allowances are established. when necessary, to reduce
deferred tax assets to amounts that are more likely than not to be
realized.
e. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
f. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to
the 1996 presentation.
2. PROPERTY AND EQUIPMENT
Components of property and equipment are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate $ 528,468 528,468
Leasehold improvements 938,103 747,111
Transportation equipment 25,160 25,160
Machinery and equipment 2,935,975 2,723,630
------------ ------------
4,427,706 4,024,369
Accumulated depreciation (3,343,910) (2,972,742)
------------ ------------
$ 1,083,796 1,051,627
------------ ------------
------------ ------------
</TABLE>
3. RELATED PARTY TRANSACTION
The Company's note receivable is with a principal stockholder of the
Company. The amount is unsecured and bears interest at 7%. Principal and
interest payments are due semi-annually through August 30, 1999. The
carrying amount of the note receivable approximates fair value.
F - 25
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
4. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing (401k) plan which allows employees to
contribute between 1% and 20% of their compensation, up to specific
maximum limits. The Company makes matching contribution, equal to 50% of
the first $1,500 of a participant's contribution. The Company may also
make additional contributions at its discretion. Plan expense was
$232,127 and $200,200 for the years ended September 30, 1996 and 1995,
respectively.
5. LONG-TERM DEBT
The Company's long-term debt at September 30, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to former officer - $55,181 payable
monthly, including interest at 10% to May 2003 $3,212,795 3,535,934
Revolving line of credit - the principal balance
of which is due June 1999, interest is payable
monthly at 1/4% above the bank's prime rate
(8.25% and 8.75% at September 30, 1996 and
September 30, 1995, respectively) 2,300,000 1,410,000
Capitalized equipment lease - payable in monthly
installments of $18,881 ($11,843 at September 30,
1995) including interest at varying rates from
7.08% to 18.7% to December 1998 383,113 388,341
Notes issued in connection with acquisition of a
business - $1,833 payable monthly including interest
at 10% to February 1997; collateralized by certain
inventory and equipment 8,844 37,452
Other 11,940 11,940
------------ -----------
5,916,692 5,383,667
Less current portion (602,868) (435,855)
------------ -----------
Noncurrent portion $5,313,824 4,947,812
------------ -----------
------------ -----------
</TABLE>
The Company has a $4,550,000 bank revolving line of credit and term loan
which is secured by the Company's inventory and receivables. The
agreement requires the Company to maintain minimum working capital,
tangible net worth and debt ratios. It also restricts new borrowings,
payment of dividends and redemption and issuances of capital stock in
excess of $150,000 per year. Borrowings under this revolving line of
credit are based on and collateralized by eligible accounts receivable
and inventory and are guaranteed by the principal stockholder of the
Company.
As of September 30, 1995, the Company was in violation of a working
capital covenant, which was subsequently amended.
F - 26
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
The Company had $2,250,000 and $3,130,000 unused at September 30, 1996 and
September 30, 1995, respectively under this credit facility which also
reflects an outstanding stand-by letter of credit of $10,000.
Certain other borrowings are collateralized by the Company's inventory and
receivables.
At September 30, 1996, the future aggregate annual principal payments of
long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 602,868
1998 536,125
1999 2,739,883
2000 481,268
2001 531,663
Thereafter 1,024,885
-------------
Total $ 5,916,692
-------------
-------------
</TABLE>
The carrying amount of debt approximates fair value.
Interest expense was $511,983 and $131,402 for the years ended September
30, 1996 and l995, respectively.
F - 27
<PAGE>
GCS SERVICE, INC.
Notes to Financial Statements, Continued
6. INCOME TAX
Income tax expense (benefit) is summarized below:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Current:
Federal $ 623,958 679,116
State 203,908 188,000
--------- ---------
Total current 827,866 867,116
--------- ---------
Deferred:
Federal (17,000) (265,000)
State (5,000) (48,000)
--------- ---------
Total deferred (22,000) (313,000)
--------- ---------
$ 805,866 554,116
--------- ---------
--------- ---------
</TABLE>
The components of the net deferred tax assets as of September 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Deferred tax assets:
Property, plant and equipment $ 194,000 217,000
Deferred compensation 376,000 360,000
Allowance for doubtful accounts 144,000 144,000
Inventories 122,000 105,000
Other accrued liabilities 58,000 57,000
Incurred but not reported claims -- 13,000
------------ ---------
894,000 896,000
Deferred tax liabilities:
Prepaid expenses -- (24,000)
------------ ---------
Net deferred tax asset $ 894,000 872,000
------------ ---------
------------ ---------
</TABLE>
In assessing the realizability of deferred tax assets, management
considered whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible and opportunities for carrybacks. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable
income, carryback opportunities and tax planning strategies in making
this assessment. Based upon the results of operations of the current
period and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these temporary
deductible differences.
F - 28
<PAGE>
A reconciliation of the statutory federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory federal rate 34.0% 34.0%
State income tax, net of federal benefit 6.8 6.9
Other, net 3.8 .4
------ -------
44.6% 41.3%
------ -------
------ -------
</TABLE>
7. COMMITMENTS
(a) LEASE OBLIGATIONS
The Company leases office space and vehicles under operating leases.
Future minimum lease payments under noncancellable operating leases with an
initial term of one year or more at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, OFFICE SPACE VEHICLES
- ------------------------- ------------ --------
<S> <C> <C>
1997 $ 670,180 697,110
1998 540,686 481,250
1999 483,035 185,161
2000 262,741 --
2001 117,468 --
Thereafter 120,158 --
------------ ------------
Total $2,194,268 $ 1,363,521
------------ ------------
------------ ------------
</TABLE>
Rent expense for the years ended September 30, 1996 and 1995 totaled
approximately $765,732 and $753,688 and $1,027,806 and $1,002,941 for office
space and vehicles, respectively.
(b) CONSULTING AGREEMENT
In connection with the acquisition of a business, the Company entered
into an agreement with a stockholder of the acquired
F - 29
<PAGE>
business which provides for annual consulting fees of $43,600 to March 1997.
(c) DEFERRED COMPENSATION
The employment contract of the Chairman of the Board provides upon his death,
lifetime survivor's benefits to his spouse, in an amount equal to two-thirds
of his present annual salary. The present value of the actuarially computed
amount of the anticipated benefit is being provided over the remaining
expected employment period of the Chairman.
8. TREASURY STOCK AND INVESTMENT IN PARENT COMPANY
During 1995, the Company entered into an agreement to repurchase all of
the common stock held by Barton Tyler (the former president of the
Company) in the Company and Tyfam, Inc. The negotiated cost to the
Company of the repurchase was $3,786,480, $846,183 of which was
allocated to Barton Tyler's common stock holdings in the Company and is
recorded in Treasury Stock, and $2,940,297 allocated to his common stock
owner ship in Tyfam, Inc. which was reflected in Investment in Parent
Corporation at September 30, 1995. The stock purchase agreement required
the Company to make a $150,000 initial payment followed by monthly
payments of $55,181 (which includes principal and interest) for a period
of eight years commencing on June l, 1995 (see note 5).
F - 30
<PAGE>
Annex I
AGREEMENT AND PLAN OF MERGER
AMONG
ECOLAB INC.,
GCS ACQUISITION CORPORATION,
GCS SERVICE, INC.
AND
WESLEY B. TYLER
MAY 12, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1
THE MERGER; EFFECTIVE TIME; CLOSING
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . 3
2.2 The Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1 Consideration for the Merger; Conversion or Cancellation
of Shares in the Merger . . . . . . . . . . . . . . . . . . . . 4
4.2 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . 6
4.3 Exchange of Shares in the Merger . . . . . . . . . . . . . . . . . 9
4.4 Return of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PAGE
4.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Company and the Stockholder . 12
5.2 Representations and Warranties of Parent and Merger Sub . . . . . . 36
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Conduct of Business by the Company . . . . . . . . . . . . . . . . 40
6.2 Further Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . 45
6.4 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.5 Affiliates Letters . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Representations and Warranties . . . . . . . . . . . . . . . . . . 45
6.7 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . 46
6.8 Supplements to Company Disclosure Schedule . . . . . . . . . . . . 46
6.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 46
6.10 Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . 46
6.11 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.12 Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . 50
6.13 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.14 Certain Claims; Allocation of Recovery . . . . . . . . . . . . . . 50
ARTICLE 7
CONDITIONS
7.1 Conditions to the Obligations of Parent and Merger Sub . . . . . . 51
7.2 Conditions to the Obligations of the Company and the Stockholder. . 53
ii
<PAGE>
PAGE
ARTICLE 8
TERMINATION
8.1 Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . 55
8.2 Termination by Either Parent or the Company . . . . . . . . . . . . 55
8.3 Termination by Parent . . . . . . . . . . . . . . . . . . . . . . . 55
8.4 Termination by the Company . . . . . . . . . . . . . . . . . . . . 56
8.5 Effect of Termination and Abandonment . . . . . . . . . . . . . . . 56
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Company and the Stockholder . . . . . . . . 56
9.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . 57
9.3 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 58
9.4 Basket; Limit on Indemnification . . . . . . . . . . . . . . . . . 58
9.5 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.6 Survival of Representations and Warranties . . . . . . . . . . . . 59
9.7 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.8 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 10
MISCELLANEOUS AND GENERAL
10.1 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . 60
10.2 Modification or Amendment . . . . . . . . . . . . . . . . . . . . . 61
10.3 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . 61
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.7 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . 63
10.8 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 63
10.9 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 63
10.10 Remedies for Breach . . . . . . . . . . . . . . . . . . . . . . . . 66
10.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
iii
<PAGE>
EXHIBITS
Affiliate Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . A
Form of Opinion of Counsel for the Company and the Stockholder. . . . B
Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . C
Form of Opinion of Counsel for the Parent . . . . . . . . . . . . . . D
Form of Employment Agreement. . . . . . . . . . . . . . . . . . . . . E
iv
<PAGE>
DEFINITION PAGE
Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Additional Parent Shares . . . . . . . . . . . . . . . . . . . . . . . 6
Adjusted Closing Date Balance Sheet. . . . . . . . . . . . . . . . . . 8
Adjusted Net Book Value. . . . . . . . . . . . . . . . . . . . . . . . 6
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Affiliate Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 14
Average Stock Price. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . 2
Cleanup. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Adjustment Amount. . . . . . . . . . . . . . . . . . . . . . . 4
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 7
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Company Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . 15
Company Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Competing Business . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Confidentiality Agreement. . . . . . . . . . . . . . . . . . . . . . . 62
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Environmental Liabilities and Costs. . . . . . . . . . . . . . . . . . 64
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ERISA Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Escrow Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Escrow Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Estimated Closing Balance Sheet. . . . . . . . . . . . . . . . . . . . 5
Estimated Closing Value. . . . . . . . . . . . . . . . . . . . . . . . 4
v
<PAGE>
DEFINITION PAGE
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 16
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Hazardous Substances, Oils,
Pollutants or Contaminants . . . . . . . . . . . . . . . . . . . . . 65
HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Indemnification Cap. . . . . . . . . . . . . . . . . . . . . . . . . . 59
Inventory Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Knowledge or Knowledge of the Company. . . . . . . . . . . . . . . . . 66
KPMG Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Lau. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Listed Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Material Adverse Effect (with respect
to the Company). . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Material Adverse Effect (with respect
to Parent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 5
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nelson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Neutral Auditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Noncompetition Period. . . . . . . . . . . . . . . . . . . . . . . . . 47
O'Brien. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Parent Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Parent Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . 4
Parent Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
vi
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DEFINITION PAGE
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Permitted Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . 18
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . 36
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 36
Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Rep Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Resolution Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.1(a)(iii) Claim. . . . . . . . . . . . . . . . . . . . . . . 58
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Southern Appliance . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Split Tax Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Stockholder Representative . . . . . . . . . . . . . . . . . . . . . . 9
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Surrendered Parent Shares. . . . . . . . . . . . . . . . . . . . . . . 6
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 2
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Trade Names. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Trade Secrets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Tyler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
1997 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . 16
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated May 12,
1998, among Ecolab Inc., a Delaware corporation ("PARENT"), GCS Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
("MERGER SUB"), GCS Service, Inc., a Delaware corporation (the "COMPANY") and
Wesley B. Tyler (the "STOCKHOLDER").
RECITALS
WHEREAS, the Company is an independent provider of service and
parts for commercial food service equipment;
WHEREAS, the Boards of Directors of Parent, Merger Sub and the
Company each have determined that it is in the best interests of their
respective stockholders for Merger Sub to merge with and into the Company
upon the terms and subject to the conditions of this Agreement;
WHEREAS, Parent, Merger Sub, the Company and the Stockholder desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger (as hereinafter defined);
WHEREAS, for Federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, Parent, the Company on behalf of all of the stockholders
of GCS, and the Stockholder, intend to enter into the Escrow Agreement (as
hereinafter defined) in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein,
Parent, Merger Sub, the Company and the Stockholder hereby agree as follows:
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ARTICLE 1
THE MERGER; EFFECTIVE TIME; CLOSING
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and the Delaware General Corporation Law ("DGCL"), at the Effective
Time (as hereinafter defined), the Company and Merger Sub shall consummate a
merger (the "MERGER") in which (a) Merger Sub shall be merged with and into
the Company and the separate corporate existence of Merger Sub shall
thereupon cease, (b) the Company shall be the successor or surviving
corporation in the Merger and shall continue to be governed by the laws of
the State of Delaware and (c) the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The corporation surviving the Merger is
sometimes hereinafter referred to as the "SURVIVING CORPORATION." At the
election of Parent, but only in the event no adverse effect results to the
Company, any direct wholly owned subsidiary of Parent may be substituted for
Merger Sub as a constituent corporation in the Merger. In such event, the
parties agree to execute an appropriate amendment to this Agreement and such
other further agreements as may be requested by Parent in order to reflect
the foregoing.
1.2 EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, Parent, Merger Sub and the Company will cause the appropriate
Certificate of Merger (the "CERTIFICATE OF MERGER") to be executed and filed
on the date of the Closing (as hereinafter defined), or on such other date as
Parent and the Company may agree, with the Secretary of State of the State of
Delaware in the manner provided in the DGCL. The Merger shall become
effective on the close of business on the date on which the Certificate of
Merger has been duly filed with the Secretary of State of the State of
Delaware or such other time as is agreed upon by the parties and specified in
the Certificate of Merger, and such time is hereinafter referred to as the
"EFFECTIVE TIME."
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
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1.4 CLOSING. The closing of the Merger (the "CLOSING") shall take
place at the offices of Edwards & Angell, 101 Federal Street, Boston,
Massachusetts, at 10:00 a.m. on the second business day following the date on
which the last of the conditions set forth in Article 7 hereof shall be
fulfilled or waived in accordance with this Agreement or at such other place,
time and date as Parent and the Company may agree (the "CLOSING DATE").
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. At the Effective Time and in
accordance with the DGCL, the Certificate of Incorporation of the Company
shall be amended in its entirety in the Merger by adoption of the Certificate
of Incorporation of Merger Sub, except that the name of the Surviving
Corporation initially shall be "GCS Service, Inc."
2.2 THE BYLAWS. At the Effective Time and without any further
action on the part of the Company, Merger Sub or the Surviving Corporation,
the Bylaws of Merger Sub shall be the Bylaws of the Surviving Corporation.
ARTICLE 3
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1 DIRECTORS. The directors of Merger Sub at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified.
3.2 OFFICERS. The officers of Merger Sub at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified.
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ARTICLE 4
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1 CONSIDERATION FOR THE MERGER; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER. The manner of converting or canceling shares of the
Company and Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, each share of common stock, par
value $.01 per share of the Company (the "SHARES") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into a
number of shares of common stock, par value $1.00 per share, of Parent
("PARENT COMMON STOCK") together with the associated rights (the "PARENT
RIGHTS") to purchase shares of Series A Junior Participating Preferred Stock
of Parent issued pursuant to the Rights Agreement dated February 24, 1996
between Parent and First Chicago Trust Company of New York as Rights Agent
(the "PARENT RIGHTS AGREEMENT") (the shares of Parent Common Stock together
with the Parent Rights are referred to herein as the "PARENT SHARES"), equal
to (A) the amount equal to the Estimated Closing Value (as hereinafter
defined) divided by the Average Stock Price (as hereinafter defined) divided
by (B) 161,143, as further adjusted pursuant to Section 4.2 and Article 9
hereof, (the quotient of the amount referred to in subclause (A) divided by
the amount referred to in subclause (B) is hereinafter referred to as the
"EXCHANGE RATIO"). The "AVERAGE STOCK PRICE" shall equal the average per
share closing prices, as reported on the New York Stock Exchange ("NYSE")
Composite Tape, of Parent Shares during the period comprised of the 20
consecutive trading days ending on the fourth trading day prior to the
Closing Date.
(b) "ESTIMATED CLOSING VALUE" shall mean $26,363,671 plus or
minus, as appropriate, the Closing Adjustment Amount, subject to further
adjustment pursuant to Section 4.2 hereof.
(c) The "CLOSING ADJUSTMENT AMOUNT" shall mean:
(i) If the Net Worth (as hereinafter defined) as
reflected on the Estimated Closing Balance Sheet is less than
$5,800,000, the Estimated Closing Value shall be reduced by an
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<PAGE>
amount equal to the amount by which such Net Worth is less than $5,800,000;
and
(ii) If the Net Worth as reflected on the Estimated
Closing Balance Sheet is greater than $5,800,000, then the Estimated
Closing Value shall be increased by an amount equal to the amount by
which such Net Worth exceeds $5,800,000.
(d) The Company will cause to be delivered to Parent, two
days prior to Closing, (i) an estimated balance sheet as of the Closing Date
for the Company (the "ESTIMATED CLOSING BALANCE SHEET") to be prepared, in
good faith and consistent with the requirements for the preparation of the
Closing Date Balance Sheet (as hereinafter defined) pursuant to Section 4.2
hereof and (ii) a certificate as to the preparation of the Estimated Closing
Balance Sheet executed by the chief financial officer of the Company;
PROVIDED, HOWEVER, that such Estimated Closing Balance Sheet will not be
audited and will not include the inventory results required by Section 4.2(e)
hereof.
(e) All Shares to be converted into Parent Shares pursuant to
this Section 4.1 shall, by virtue of the Merger and without any action on the
part of the holders thereof, cease to be outstanding, be canceled and retired
and cease to exist, and each holder of a certificate representing any such
Shares shall thereafter cease to have any rights with respect to such Shares,
except the right to receive for each of the Shares, upon the surrender of
such certificate in accordance with Section 4.3 hereof, the amount of Parent
Shares specified above, as adjusted pursuant to Section 4.2 and Article 9
hereof (the "MERGER CONSIDERATION"). Without limiting the generality of the
foregoing, the Company and Parent agree that the Merger Consideration is
subject to adjustment for any amounts payable pursuant to Section 4.2 and
Article 9 hereof, to the extent of the Escrow Shares (as hereinafter
defined).
(f) At the Effective Time, each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Merger
Sub or the holder thereof, be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(g) If, between the date of this Agreement and the Effective
Time, the outstanding Parent Shares shall be changed into a different number
of shares or a different class by reason of any reclassification,
reorganization, consoli-
5
<PAGE>
dation, merger, recapitalization, split-up, stock-split, combination or
exchange of shares or if a stock dividend thereon shall be declared with a
record date within said period, the number of Parent Shares to be issued in
the Merger shall be appropriately adjusted.
4.2 PURCHASE PRICE ADJUSTMENT.
(a) After the Closing, the Estimated Closing Value shall be
adjusted as follows:
(i) If the amount equal to the total assets less total
liabilities ("NET WORTH") set forth on the Adjusted Closing Date
Balance Sheet (the "ADJUSTED NET BOOK VALUE") is less than the Net
Worth of the Company set forth on the Estimated Closing Balance Sheet,
then the stockholders of the Company shall surrender to Parent an
amount of Escrow Shares equal to (A) the difference between (1) the
Net Worth of the Company set forth on the Estimated Closing Balance
Sheet and (2) the Adjusted Net Book Value, divided by (B) the Average
Stock Price (the "SURRENDERED PARENT SHARES"). Pursuant to Section
9.6 hereof and the terms of the Escrow Agreement (as hereinafter
defined), the Escrow Agent (as hereinafter defined) shall be obligated
to deliver Surrendered Parent Shares to Parent, within two business
days following the determination of the Adjusted Closing Date Balance
Sheet.
(ii) If the Adjusted Net Book Value is greater than
the Net Worth of the Company set forth on the Estimated Closing
Balance Sheet, then the stockholders of the Company shall be entitled
to receive additional Parent Shares (the "ADDITIONAL PARENT SHARES")
in an amount equal to (A) the difference between (1) the Net Worth of
the Company set forth on the Estimated Closing Balance Sheet and (2)
the Adjusted Net Book Value, divided by (B) the Average Stock Price.
The Additional Parent Shares shall be distributed by Parent, within
two business days following the determination of the Adjusted Closing
Date Balance Sheet, to the stockholders of the Company, pro rata, in
proportion to each of their holdings of Shares immediately prior to
the Effective Time.
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<PAGE>
(b) As soon as practicable, but in no event later than 60
days following the Closing Date, Parent shall prepare or cause the
Stockholder and/or the Company to prepare a balance sheet of the Company, as
of the close of business on the Closing Date (including the notes thereto,
the "CLOSING DATE BALANCE SHEET"), audited by Coopers & Lybrand, LLP,
certified public accountants (the "ACCOUNTANTS"), on a basis consistent with
the 1997 Balance Sheet (as hereinafter defined). The Closing Date Balance
Sheet shall be prepared in conformity with United States generally accepted
accounting principles ("GAAP") in order to fairly present the financial
position of the Company in accordance with GAAP; PROVIDED, HOWEVER, that (i)
any liabilities related to employee benefit plans of the Company (including,
without limitation, the employment and post-retirement arrangements with Mr.
& Mrs. Parker Tyler) will be included in the Closing Date Balance Sheet as
liabilities at their actuarially determined cost; (ii) the Closing Date
Balance Sheet shall utilize the results of the physical inventory taken
pursuant to Section 4.2(e) as adjusted for actual sales and purchase of
inventory between the Inventory Date and the Closing Date; (iii) any amounts
paid in connection with any severance or non-competition agreements between
the Company and Sam Mazzilli and between the Company and Jim Rowland shall be
valued at the appropriate tax-effected amount not to exceed $600,000.00; (iv)
any loans from the Company to any stockholder of the Company which have been
forgiven by the Company as reflected on the Company Disclosure Schedule shall
be valued at an aggregate amount as reflected on the Company Disclosure
Schedule; (v) no amounts will be accrued with respect to vacation
compensation owed to employees of the Company through the Closing Date; (vi)
any amounts related to any pending tax audit for the fiscal year 1995 shall
be accrued on the Closing Date Balance Sheet; (vii) the value of assets may
not be written up on the Closing Date Balance Sheet from the values set forth
on the September 30, 1997 balance sheet of the Company; and (viii) no
non-cash Settlement (as hereinafter defined), if any, shall be included in
accordance with Section 6.1(a)(xiii) hereof.
(c) Parent, or the Accountants, shall deliver a copy of the
Closing Date Balance Sheet, together with the work papers used in the
preparation thereof, to the Stockholder promptly after it has been prepared.
After receipt of the Closing Date Balance Sheet, the Stockholder shall have
30 days to review the Closing Date Balance Sheet, together with work papers
used in the preparation thereof. The Stockholder and his authorized
representatives shall have full access to all relevant books and records and
employees of the Company, Parent and the Accountants to the extent required
to complete their review of the Closing Date Balance Sheet. Unless the
Stockholder delivers written notice to Parent on or prior to the 30th day
after the Stockholder's receipt of the Closing Date Balance Sheet
7
<PAGE>
specifying in reasonable detail all disputed items and the basis therefor,
the Stockholder shall be deemed to have accepted and agreed to the Closing
Date Balance Sheet. If the Stockholder so notifies Parent of the
Stockholder's objection to the Closing Date Balance Sheet, Parent and the
Stockholder shall, within 30 days following the date of such notice (the
"RESOLUTION PERIOD"), attempt to resolve their differences and any resolution
by them as to any disputed amounts shall be final, binding and conclusive.
If following resolution of any disputed amounts, there do not remain in
dispute amounts the aggregate net effect of which exceeds $5,000, then all
amounts remaining in dispute shall be deemed to have been resolved in favor
of the Closing Date Balance Sheet delivered by Parent to the Stockholder.
(d) If at the conclusion of the Resolution Period, the
aggregate net effect of all amounts remaining in dispute exceeds $5,000, then
all amounts remaining in dispute shall be submitted to Arthur Andersen LLP,
certified public accountants (the "NEUTRAL AUDITOR"). Each party agrees to
execute, if requested by the Neutral Auditor, a reasonable engagement letter.
All fees and expenses relating to the work, if any, to be performed by the
Neutral Auditor shall be borne by the losing party. The Neutral Auditor
shall act as an arbitrator to determine, based solely on presentations by
Parent, the Company and the Stockholder, and not by independent review, only
those issues remaining in dispute. The Neutral Auditor's determination shall
be made within 30 days of its engagement, shall be set forth in a written
statement delivered to Parent and the Stockholder and shall be final, binding
and conclusive. The term "ADJUSTED CLOSING DATE BALANCE SHEET," as used in
this Agreement, shall mean the definitive Closing Date Balance Sheet agreed
to by the Stockholder and Parent in accordance with Section 4.2(c) hereof or
the definitive Closing Date Balance Sheet resulting from the determinations
made by the Neutral Auditor in accordance with this Section 4.2(d) (in
addition to those items theretofore agreed to by Parent and the Stockholder),
in each case prepared in the manner set forth in the last sentence of Section
4.2(b) hereof.
(e) On a date or dates mutually agreeable to the parties, and
in any event within five days prior to or five days following the Closing
Date (the "INVENTORY DATE"), the Stockholder and/or the Company will take a
physical inventory at each and every location of the Company, observed by
Parent, the Accountants and/or their representative. The inventory shall
only include parts which (i) do not infringe third party Proprietary Rights
(as hereinafter defined) or other property rights; (ii) meet the Company's
specifications and industry standards applicable to such inventory and (iii)
are usable and saleable in the ordinary course of the Com-
8
<PAGE>
pany's business, as presently conducted by the Company. Said physical
inventory shall list the type and quantity of the inventory as of the
Inventory Date.
(f) In order to facilitate the carrying out the terms of this
Agreement and the Escrow Agreement, including the determination of any
adjustment to the Merger Consideration pursuant to this Section 4.2 and
Article 9 hereof, the Company hereby irrevocably makes, constitutes and
appoints the Stockholder as its agent and representative (in this capacity,
the "STOCKHOLDER REPRESENTATIVE"), with full power of substitution, for
purposes of carrying out the terms of this Section 4.2 and Article 9 hereof.
The Company agrees that the Stockholder Representative may be reimbursed out
of the Escrow Fund, in accordance with the Escrow Agreement, for all
reasonable expenses, disbursements and advances incurred or made by the
Stockholder Representative in the good-faith performance of his duties as the
Stockholder Representative hereunder; provided, however, that any such
payment shall be made only after any pending claims, if any, for which
Parent seeks indemnification shall have been fully paid and prior to final
distribution of any remaining Escrowed Shares, if any, to former stockholders
of the Company. The Company agrees that it will not pursue any action
against the Stockholder Representative, in his capacity as the Stockholder
Representative, on behalf of the former stockholders of GCS; PROVIDED,
HOWEVER, that the Stockholder Representative has acted in good faith and in
his own best judgement.
4.3 EXCHANGE OF SHARES IN THE MERGER.
(a) EXCHANGE AGENT. Following the Effective Time, Parent
shall deposit, or shall cause to be deposited, with a third party selected by
Parent and reasonably acceptable to the Company (the "EXCHANGE AGENT"), for
the benefit of the stockholders of the Company, for exchange in accordance
with this Section 4.3, certificates representing the Parent Shares, less the
Escrow Shares, pursuant to the terms of the Escrow Agreement and Section 9.6
hereof (such certificates for Parent Shares being hereinafter referred to as
the "EXCHANGE FUND") to be issued pursuant to Section 4.1 hereof in exchange
for the Shares.
(b) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of an
outstanding certificate which, prior to the Effective Time, represented a
Share (a "CERTIFICATE") (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 delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the
9
<PAGE>
surrender of the Certificates in exchange for certificates representing
Parent Shares. Upon surrender of a Certificate for cancellation to the
Exchange Agent or Parent, together with such letter of transmittal, duly
executed, the holder of such Certificate(s) shall be entitled to receive in
exchange therefor a Parent certificate representing that number of Parent
Shares into which the Shares have been converted pursuant to Section 4.1
hereof less the number of Parent Shares required to be deposited into escrow
pursuant to Section 9.6 hereof and the Certificate so surrendered shall be
cancelled. If any certificate representing Parent Shares is to be issued in
a name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof that
the Certificate so surrendered shall be properly endorsed (or accompanied by
an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of
the issuance of a certificate representing Parent Shares in any name other
than that of the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable. Until
surrendered as contemplated by this Section 4.3, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing Parent Shares into
which the Shares have been converted.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared with respect to Parent Shares and
payable to the holders of record thereof after the Effective Time shall be
paid to the holder of any unsurrendered Certificate until the holder thereof
shall surrender such Certificate in accordance with this Article 4. After
the surrender of a Certificate in accordance with this Article 4, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to Parent Shares represented by such Certificate. No
holder of an unsurrendered Certificate shall be entitled, until the surrender
of such Certificate, to vote the Parent Shares into which Shares shall have
been converted.
(d) LOST OR STOLEN SHARES. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, in accordance with its normal and
customary procedures, the posting by such person of a bond in such amount as
Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will
10
<PAGE>
issue in exchange for such lost, stolen or destroyed Certificate the Parent
Shares deliverable in respect thereof pursuant to this Agreement.
(e) NO FURTHER OWNERSHIP RIGHTS IN THE SHARES. After the
Effective Time, there shall be no transfers on the stock transfer books of
the Company of the Shares which were issued and outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange Agent,
they shall be cancelled and exchanged for certificates representing Parent
Shares as provided in this Article 4.
4.4 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
that remains unclaimed by the stockholders of the Company for twenty-four
(24) months after the Effective Time shall be paid to Parent. Any
stockholders of the Company who have not theretofore complied with this
Article 4 shall thereafter look only to Parent for payment of their Parent
Shares and any unpaid dividends and distributions on the Parent Shares
deliverable in respect of each Share such stockholder holds as determined
pursuant to this Agreement, without any interest thereon. Any portion of the
Escrow Shares that remains unclaimed by the stockholders of the Company for
thirty-six (36) months after the Effective Time shall be paid to Parent.
Notwithstanding the foregoing, none of Parent, the Company, the Exchange
Agent or any other person shall be liable to any former holder of Shares for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
4.5 FRACTIONAL SHARES. No fractional Parent Shares shall be
issued in the Merger or returned to Parent pursuant to Section 4.2. Each of
the stockholders of the Company who would otherwise have been entitled to a
fraction of a Parent Share upon surrender of certificates for exchange
pursuant to this Article 4 will be issued one additional Parent Share. If
Parent is otherwise entitled to a fractional Surrendered Parent Share, Parent
will receive the next lower whole number of Surrendered Parent Shares.
4.6 TRANSFER OF SHARES. The Stockholder agrees not to sell,
pledge, encumber or otherwise transfer his Shares except in accordance with
the terms of this Agreement.
4.7 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of the Company which immediately prior to the
Effective Time are held by stockholders who have properly exercised and
perfected dissenters'
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rights under Section 262 of the DGCL (the "DISSENTING SHARES") shall not be
converted into the right to receive Parent Shares as provided in Section 4.1
hereof, but the holders of Dissenting Shares shall be entitled to receive
consideration as shall be determined pursuant to Section 262 of the DGCL;
PROVIDED, HOWEVER, that if any such holder shall have failed to perfect or
shall withdraw or lose dissenter's rights, such holder's shares shall
thereupon be deemed to have been converted into Parent Shares as of the
Effective Time, without any interest thereon, as provided in Section 4.1
hereof, and such shares shall no longer be Dissenting Shares.
4.8 STOCK OPTIONS. The Company shall take all action as may be
necessary to cause each holder of unexpired and unexercised options granted
under the 1992 Stock Option and Restricted Stock Plan of GCS Service, Inc.,
as amended (each a "COMPANY OPTION"), to exercise in full or terminate, on or
prior to the date hereof, all Company Options held by such stockholder. At
the Effective Time, each Company Option to purchase Shares which is
outstanding and unexercised immediately prior thereto, shall be cancelled and
all rights thereunder shall be extinguished.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDER. The Company and the Stockholder, jointly and severally,
represent and warrant to Parent and Merger Sub as follows:
(a) CORPORATE ORGANIZATION AND QUALIFICATION.
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and is qualified and in good standing as
a foreign corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted by it require such
qualification, except where failure to so qualify or be in good
standing would not have a Material Adverse Effect (as hereinafter
defined) on the Company. The Company has all requisite power and
authority (corporate or otherwise) to own its properties and to carry
on its business as it is now being conducted. The Company has
heretofore
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provided to Parent true and complete copies of the Company's
Certificate of Incorporation and Bylaws as currently in effect.
(ii) Southern Appliance Parts Company, Inc. ("SOUTHERN
APPLIANCE") is the only corporation in which the Company, directly or
indirectly, beneficially owns any shares of capital stock, partnership
interests or limited liability company interests. Southern Appliance
conducts no operations and has no liabilities or obligations of any
nature. For purposes of this Article V and Article VI hereof, the
"Company" shall be deemed to include Southern Appliance.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of 500,000 shares of common stock, $.01 par value per share, of which
147,118 shares are issued and outstanding, excluding 185,818 shares held in
treasury and options to purchase 14,025 shares of common stock of the Company,
subject to Section 4.8 hereof. All of the outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable. The only holders of record and the only beneficial owners of
Shares are as set forth in Section 5.1(b) of the Company Disclosure Schedule (as
hereinafter defined). Except as set forth in Section 5.1(b) on the Company
Disclosure Schedule, none of the Shares are subject to any option, warrant, put
right or call, preemptive right or commitment of any kind or character. There
are not as of the date hereof, and there will not be at the Effective Time, any
outstanding or authorized options, warrants, calls, put rights, commitments or
any other agreements of any character requiring the Company or any stockholder
of the Company to issue, transfer, sell, purchase, redeem or acquire Shares or
any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock of the Company or its subsidiary. The Stockholder, and to the
knowledge of the Stockholder, the stockholders of the Company, have and will
have at the Effective Time, good and marketable title to the Shares, free and
clear of any and all Liens (as hereinafter defined). Except as set forth in
Section 5.1(b) of the Company Disclosure Schedule, neither the Company nor the
Stockholder has received any notice of any adverse claim to the ownership of any
Shares and does not have any reason to know of any such adverse claims that may
be justified. Except as set forth in Section 5.1(b) of the Company Disclosure
Schedule, there are no stockholder agreements, buy-sell agreements, voting
trusts or other agreements or understandings to which the Company or any of the
stockholders of the Company is a
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party or to which it or any of them is bound relating to the voting of any
shares of the capital stock of the Company.
(c) APPROVALS; FAIRNESS OPINIONS.
(i) The Board of Directors of the Company, at a
meeting duly called and held, has, in light of and subject to the
terms and conditions set forth herein, (A) determined that this
Agreement, the Merger and the other transactions contemplated hereby
are fair to, and in the best interests of, all of the stockholders of
the Company, (B) approved this Agreement, the Merger and the other
transactions contemplated hereby and (C) resolved to recommend
approval and adoption of this Agreement, the Merger and the other
transactions contemplated hereby to all of the stockholders of the
Company.
(ii) The Board of Directors of the Company has
received (or will have received prior to the Closing) an opinion from
Carter Capital Corporation, the Company's financial advisor, to the
effect that, as of the date of such opinion, the consideration to be
received by the stockholders of the Company in the Merger is fair to
all of the stockholders of the Company from a financial point of view.
Such opinion has not been (and will not have been prior to the
Closing) withdrawn, revoked or modified. A true and complete copy of
such opinion will be delivered to Parent at the Closing.
(d) AUTHORITY RELATIVE TO THIS AGREEMENT. The Stockholder has
the full right, power and authority to execute and deliver this Agreement,
the Escrow Agreement and any other agreement, certificate or other instrument
required to be delivered in connection with this Agreement (collectively, the
"ANCILLARY AGREEMENTS") and to consummate the transactions contemplated
hereby and thereby. The Company has the requisite corporate power and
authority to approve, authorize, execute and deliver this Agreement and the
other Ancillary Agreements and, upon approval of its stockholders in
accordance with the law, to consummate the transactions contemplated hereby
and thereby, including, without limitation, the Merger. This Agreement and
the other Ancillary Agreements and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Company and the Board of
Directors of the Company will recommend approval of this Agreement by the
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Company's stockholders at the Special Meeting described in Section 6.12
hereof. No other corporate proceedings on the part of the Company or the
stockholders of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby, other than the approval and
adoption of this Agreement by stockholders holding a majority of the Shares
entitled to vote thereon. This Agreement and the other Ancillary Agreements
have been, and will be, duly and validly executed and delivered by the
Company and the Stockholder and, assuming this Agreement and the other
Ancillary Agreements constitute the valid and binding agreements of Parent,
Merger Sub and the Escrow Agent, as applicable, constitute the valid and
binding agreement of the Company and the Stockholder, enforceable against the
Company and the Stockholder in accordance with their terms.
(e) NO VIOLATION. Neither the execution and delivery of this
Agreement nor the other Ancillary Agreements by the Company and the
Stockholder and the performance by each of the Company and the Stockholder of
their respective obligations hereunder and thereunder nor the consummation by
the Company or the Stockholder of the transactions contemplated hereby and
thereby will (i) violate, conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws of the Company; (ii)
except as set forth in Section 5.1(e) of the written statement delivered by
the Company on or prior to the date hereof (the "COMPANY DISCLOSURE
SCHEDULE"), violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or result in the acceleration of, or
entitle any party to accelerate (whether as a result of a change in control
of the Company or otherwise) any obligation, or result in the loss of any
benefit, or give rise to the creation of any Liens upon any of the respective
properties or assets of the Company under any of the terms, conditions or
provisions of any contract, agreement, license, lease or other instrument or
obligation to which the Company or the Stockholder are a party or by which
they or any of their respective properties or assets may be bound or affected
or (iii) violate any order, writ, judgment, injunction, decree or, to the
knowledge of the Company, any statute, rule or regulation of any court or
governmental authority, applicable to the Company or, to the knowledge of the
Stockholder, the stockholders of the Company or any of their respective
properties or assets.
(f) CONSENTS AND APPROVALS. Except for (i) filings pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT"); (ii) applicable requirements under the Securities Act of 1933, as
amended (the "SECURITIES ACT") and the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"); (iii) the filing of the Certificate of Merger;
(iv) applicable require-
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ments under corporation or "blue sky" laws of various states; (v) as
contemplated by this Agreement or (vi) as set forth in Section 5.1(f) of the
Company Disclosure Schedule, no filing or registration with, no notice to and
no permit, authorization, consent or approval of any third party or any
governmental authority is necessary for the consummation by the Company or
the Stockholder of the transactions contemplated by this Agreement or the
other Ancillary Agreements or to enable Parent to continue to conduct the
Company's business at its present locations after the Closing Date in a
manner which is consistent with that in which it is presently conducted.
(g) FINANCIAL STATEMENTS. The (i) audited balance sheet of
the Company for the fiscal years ended September 30, 1995, September 30, 1996
and September 30, 1997 (the "1997 BALANCE SHEET"), and the related income
statements and statements of cash flows and stockholders' equity for such
periods and (ii) the unaudited balance sheet of the Company as March 31,
1998, and the related income statement and statement of cash flows and
stockholders' equity for the six-month period then ended (collectively, the
"FINANCIAL STATEMENTS"), are set forth in Section 5.1(g) of the Company
Disclosure Schedule. The Financial Statements are true, complete and
accurate in all material respects and present fairly the assets, liabilities,
results of operations and financial condition of the Company as of the dates
specified, all in accordance with GAAP consistently applied throughout the
periods involved. Except as set forth in the GCS Service, Inc. Special
Review by KPMG Peat Marwick, LLP dated May 6, 1998 (the "KPMG REPORT")
attached to Section 5.1(g) of the Company Disclosure Schedule, all of the (i)
financial books and records of the Company are true, complete and accurate in
all material respects and (ii) material transactions of the Company have been
executed with appropriate management authorization and are properly recorded.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. There are no
liabilities or obligations of the Company of any kind whatsoever (whether
absolute, accrued, contingent or otherwise, and whether due or to become
due), and the Company and the Stockholder know of no valid basis for the
assertion of any such liabilities or obligations, whether or not accrued and
whether or not contingent or absolute, determined or determinable, and no
existing condition, situation or set of circumstances which could reasonably
be expected to result in such a liability or obligation, other than:
(i) liabilities and obligations adequately reflected
and reserved for in the Financial Statements;
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(ii) liabilities and obligations incurred in the
ordinary and usual course of business consistent with past practice
since September 30, 1997 which are not, individually or in the
aggregate, material, all of which shall be reflected on the Adjusted
Closing Date Balance Sheet; and
(iii) other liabilities and obligations which, either
individually or in the aggregate, would not have a Material Adverse
Effect with respect to the Company.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth in Section 5.1(i) of the Company Disclosure Schedule, since September 30,
1997, (A) the Company has conducted its businesses only in the ordinary and
usual course of business consistent with past practice and (B) the Company has
not:
(i) suffered any adverse change in the business,
customers or customer relations, operations, properties, prospects,
assets, working capital, liabilities or condition (financial or
otherwise) of the Company which resulted in or could reasonably be
expected to result in a Material Adverse Effect with respect to the
Company and there has not been any damage, destruction, loss or other
event which resulted in or could reasonably be expected to result in a
Material Adverse Effect with respect to the Company;
(ii) incurred any liabilities or obligations
(absolute, accrued, contingent or otherwise) except items incurred in
the ordinary course of business and consistent with past practice,
none of which exceeds $20,000 (counting obligations or liabilities
arising from one transaction or a series of similar transactions, and
all periodic installments or payments under any lease or other
agreement providing for periodic installments or payments, as a single
obligation or liability), or increased, or experienced any change in
any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves, except for leases of vehicles, office
equipment or branch sites which do not exceed $100,000 in the
aggregate;
(iii) paid, discharged or satisfied any claim,
liabilities or obligations (absolute, accrued, contingent or
otherwise) other than the payment, discharge or satisfaction in the
ordinary
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course of business and consistent with past practice of
liabilities and obligations reflected or reserved against in the
Financial Statements or incurred in the ordinary course of business and
consistent with past practice;
(iv) permitted or allowed any of its property or
assets (real, personal or mixed, tangible or intangible) to be
subjected to Liens, except for (A) Liens on receivables and inventory
resulting from bank financings incurred in the ordinary course of
business, (B) Liens for Taxes (as hereinafter defined) and assessments
not yet due and payable; (C) Liens for Taxes, assessments and charges
and other claims, the validity of which are being contested in good
faith and (D) worker's, mechanic's, repairmen's, warehousemen's,
carriers' and statutory landlord's liens arising in the ordinary
course of business which, in each case, to the extent such Liens have
arisen as a result of any of the foregoing, are adequately accrued for
in the Adjusted Closing Date Balance Sheet ("PERMITTED ENCUMBRANCES");
(v) written down the value of any inventory (including
write-downs by reason of shrinkage or mark-down) or written off as
uncollectible any notes or accounts receivable, except for write-downs
and write-offs in the ordinary course of business and consistent with
past practice;
(vi) except as set forth in Section 5.1(i)(B)(vi) of
the Company Disclosure Schedule, cancelled any debts or waived any
claims or rights of substantial value except in the ordinary course of
business and consistent with past practice;
(vii) sold, transferred, or otherwise disposed of any
of its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent
with past practice;
(viii) except for (A) annual increases in compensation
in the ordinary course of business and consistent with past practice
or (B) as set forth in Section 5.1(i)(B)(viii) of the Company
Disclosure Schedule, granted any general increase in the compensation
of officers or employees (including any such increase pursuant to
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any bonus, pension, profit-sharing or other plan or commitment), or any
increase in the compensation payable or to become payable to any
officer or employee, and no such increase is required by agreement or
understanding;
(ix) except as set forth in Section 5.1(i)(B)(ix) of
the Company Disclosure Schedule, made any capital expenditure or
commitment for additions to property, plant, equipment or intangible
capital assets which exceeds $20,000 in cost;
(x) declared, paid or set aside for payment any
dividend or other distribution in respect of its capital stock or
redeemed, purchased or otherwise acquired, directly or indirectly, any
shares of capital stock or other securities of the Company;
(xi) made any material change in any method of
financial or tax accounting or financial or tax accounting practice;
(xii) except as set forth in Section 5.1(i)(B)(xii) of
the Company Disclosure Schedule, paid, loaned or advanced any amount
to, or sold, transferred or leased any properties or assets (real,
personal or mixed, tangible or intangible) to, or entered into any
agreement or arrangement with, any of its officers or directors or any
affiliate or associate of any of its officers or directors; or
(xiii) agreed, whether in writing or otherwise, to
take any action described in this Section.
(j) LITIGATION. Except as set forth in Section 5.1(j) of the
Company Disclosure Schedule, there is no action, claim, suit, judicial or
administrative proceeding or arbitration pending or to the knowledge of the
Company or the Stockholder, investigation pending or, to the knowledge of the
Company or the Stockholder, (i) threatened against or involving the Company or
any of the properties, assets or rights of the Company or (ii) threatened
against the Stockholder and involving the Company or any of the properties,
assets or rights of the Company or that could impair the ability of the
Stockholder to consummate the transactions contemplated by this Agreement or the
Ancillary Agreements, before any court, arbitrator or administrative or
governmental body. Except as set forth on Section 5.1(j) of the Company
Disclosure Schedule, there is no judgment, decree, injunction,
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rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against (i) the Stockholder
that could impair the ability of the Stockholder to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements
or (ii) the Company that could impair the ability of the Company to
consummate the transactions contemplated by this Agreement or the
Ancillary Agreements.
(k) ASSETS OF THE BUSINESS. Except as set forth in Section
5.1(k)(i) of the Company Disclosure Schedule, all real and personal properties
and assets owned by the Company are free and clear of all title defects, liens,
pledges, claims, security interests, restrictions, mortgages, options or
encumbrances of any kind (collectively, "LIENS"), except for Permitted
Encumbrances. Except as set forth in Section 5.1(k)(ii) of the Company
Disclosure Schedule, and except for equipment leases whose total rate of annual
renumeration is less than $25,000, all of the real and personal properties and
assets which are necessary or useful for the conduct of the business of the
Company as such business is presently conducted are owned by the Company or
leased by the Company pursuant to leases with remaining terms of not less than
one year and are in reasonably good working condition in accordance with
industry practice and as such are, in the aggregate, adequate to conduct the
business of the Company as presently conducted, normal wear and tear excepted.
Neither the whole nor any portion of the leaseholds nor any other assets of the
Company are subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor to the knowledge of the Company or
the Stockholder has any such condemnation, expropriation or taking been
proposed. Except as set forth in Section 5.1(k)(iii) of the Company Disclosure
Schedule, the Company has received no written, or, to the knowledge of the
Company or the Stockholder, oral, notification that it is in violation of any
applicable building, zoning, health or other law, ordinance or regulation in
respect of its plants or structures or their operations and, to the knowledge of
the Company or the Stockholder, no such violation exists.
(l) CERTAIN CONTRACTS.
(i) Section 5.1(l)(i) of the Company Disclosure
Schedule lists all contracts, instruments, notes, security agreements
leases, agreements or understandings, oral or written, whose total
rate of annual remuneration exceeds $25,000 under which the Company
may be obligated or by which it or any of its properties or assets may
be bound ("LISTED AGREEMENTS"), including, without limitation, (A) all
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employment or other written, or to the knowledge of the Company, oral
contracts (including, without limitation, non-competition, severance
or indemnification agreements) with any employee or current or former
officer or director of the Company (or any company which is controlled
by any such individual) whose total rate of annual remuneration
exceeds $25,000; (B) all consulting contracts; (C) union, guild or
collective bargaining contracts relating to employees of the Company
or its subsidiary; (D) instruments for money borrowed (including,
without limitation, any indentures, guarantees, loan agreements, sale
and leaseback agreements, or purchase money obligations incurred in
connection with the acquisition of property other than in the ordinary
and usual course of business consistent with past practice) in excess
of $25,000; (E) underwriting, purchase or similar agreements entered
into in connection with the Company's currently existing indebtedness;
(F) agreements for acquisitions or dispositions (by merger, purchase
or sale of assets or stock or otherwise) of material assets entered
into within the last five years, as to which the transactions
contemplated have been consummated or are currently pending; (G) joint
venture or partnership agreements; (H) licensing, merchandising and
distribution contracts which are not cancellable upon thirty (30) days
written notice without penalty, except for any restocking charges
associated with contracts for the purchase of inventory that are not
in excess of 20% of the total remuneration of such contract; (I)
purchase and supply contracts which are not cancellable upon thirty
(30) days written notice without penalty, except for any restocking
charges associated with contracts for the purchase of inventory that
are not in excess of 20% of the total remuneration of such contract
and (J) guarantees, suretyships, indemnification and contribution
agreements. Except as indicated in Section 5.1(l) of the Company
Disclosure Schedule, a true and complete copy of each Listed Agreement
(together with all amendments thereto) has been provided to Parent.
Each Listed Agreement is a valid and binding obligation of the Company
and, to the knowledge of the Company and the Stockholder, the other
parties thereto, enforceable against the Company and, to the knowledge
of the Company and the Stockholder, the other parties thereto, in
accordance with its terms. The Company is not in breach or default in
any material respect under any of the Listed Agreements and to the
knowledge of the Company or the Stockholder, there has not been any
breach or default in any material
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respect of any of Listed Agreements by any party thereto (other than the
Company).
(ii) Except as set forth in Section 5.1(l)(ii) of the
Company Disclosure Schedule, no contract, commitment, agreement or
other understanding, license or permit restricts the ability of the
Company or the Stockholder to own, possess or use the Company's assets
or conduct the Company's operations in any geographic area.
(iii) Except as set forth in Section 5.1(l)(iii) of
the Company Disclosure Schedule:
(A) No purchase contracts or commitments or any other
contracts of the Company continue for a period of more than six months from
the Closing Date;
(B) There are no outstanding sales contracts,
commitments or proposals of the Company, which are not cancellable upon
thirty (30) days written notice without penalty, except for any restocking
charges associated with contracts for the purchase of inventory that are
not in excess of 20% of the total remuneration of such contract, which
continue for a period of more than six months from the Closing Date or are
intended to result in any loss to the Company upon completion or
performance thereof, after allowance for direct distribution expenses, nor
are there any outstanding contracts, bids, or sales or service proposals
quoting prices which are not reasonably expected to result in a normal
profit;
(C) The Company has no outstanding contracts with
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancellable by it on
notice of not longer than 30 days and without liability, penalty or premium
or any agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings;
(D) The Company is not under any liability or
obligation with respect to the return of inventory or merchandise in the
possession of wholesalers, distributors, retailers or other customers; and
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(E) The Company is not a party to any federal supply
schedule contract or other contract with any Federal, state or local
government.
(m) EMPLOYEE BENEFIT PLANS; ERISA.
(i) Section 5.1(m)(i) of the Company Disclosure
Schedule sets forth a true and complete list of each employee benefit
or compensation plan of the Company, including, without limitation,
each bonus, deferred compensation, incentive compensation, stock
purchase, stock option, employment, consulting, severance or
termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program, agreement or arrangement, and each other
"employee benefit plan" (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations promulgated thereunder ("ERISA")), whether
formal or informal, written or oral and whether legally binding or
not, that is sponsored, maintained or contributed to or was sponsored,
maintained or contributed to at any time by the Company or by any
trade or business, whether or not incorporated which together with the
Company would be deemed a "single employer" within the meaning of
Section 4001 of ERISA (an "ERISA AFFILIATE"), within the last six
years, for the benefit of any employee, former employee, consultant,
officer or director of the Company or any ERISA Affiliate (a "BENEFIT
PLAN").
(ii) With respect to each Benefit Plan, the Company
has heretofore delivered to Parent true and complete copies of each of
the following documents:
(A) a copy of the Benefit Plan (including all
amendments thereto);
(B) a copy of any annual report, including any annual
report required under ERISA or other applicable law, with respect to each
such Benefit Plan for the last three most recently completed plan years;
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(C) a copy of any actuarial report, including any
actuarial report required under ERISA or other applicable law, with respect
to each such Benefit Plan for the three most recently completed plan years;
(D) a copy of the most recent Summary Plan
Description, together with each Summary of Material Modifications, if
required under ERISA with respect to each such Benefit Plan, and all
material employee communications relating to each such Benefit Plan;
(E) if the Benefit Plan is funded through a trust or
any third party funding vehicle, a copy of the trust or other funding
agreement (including all amendments thereto) and the latest financial
statements thereof;
(F) all contracts relating to any Benefit Plan with
respect to which the Company or any ERISA Affiliate may have any liability,
including, without limitation, insurance contracts, investment management
agreements, subscription and participation agreements and record keeping or
other servicing or administration agreements; and
(G) the most recent determination letter received from
the Internal Revenue Service with respect to each Benefit Plan that is
intended to be qualified under Section 401 of the Code.
(iii) No Benefit Plan is a "multiemployer plan," as
such term is defined in Section (3)(37) of ERISA or a "multiple
employer plan" within the meaning of Section 4063 or 4064 of ERISA;
each of the Benefit Plans is, and has always been, operated in all
material respects in accordance with the requirements of all
applicable law; each of the Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified and
has received a favorable determination letter from the Internal
Revenue Service to that effect; no Benefit Plan has an accumulated or
waived funding deficiency within the meaning of Section 412 of the
Code; neither the Company nor any ERISA Affiliate has incurred,
directly or indirectly, any liability (including any material
contingent liability) to or on account of a Benefit Plan pursuant to
Title IV of ERISA; no proceedings have been instituted to terminate
any Benefit Plan that is
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subject to Title IV of ERISA; no "reportable event," as such term is
defined in Section 4043(b) of ERISA, has occurred with respect to any
Benefit Plan; and no condition exists that presents a material risk to
the Company or any ERISA Affiliate of incurring a liability to or on
account of a Benefit Plan pursuant to Title IV of ERISA.
(iv) The current value of the assets of each of the
Benefit Plans that is subject to Title IV of ERISA exceeds the present
value of the accrued benefits under each such Benefit Plan, based upon
the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared for such Benefit Plan. Full payment has
been made, or will be made in accordance with section 404(a)(6) of the
Code, of all amounts which the Company or any ERISA Affiliate is
required to pay under the terms of each of the Benefit Plans as of the
last day of the most recent plan year thereof ended prior to the date
of this Agreement, and all such amounts properly accrued through the
Closing Date with respect to the current plan year thereof will be
paid by the Company on or prior to the Closing Date or will be
properly reflected on the Adjusted Closing Date Balance Sheet.
(v) No Benefit Plan provides benefits, including,
without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees of the Company
or any ERISA Affiliate for periods extending beyond their retirement
or other termination of service (other than (A) coverage mandated by
applicable law; (B) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of
ERISA; (C) deferred compensation benefits accrued as liabilities on
the books of the Company or an ERISA Affiliate or (D) benefits the
full cost of which is borne by the current or former employee (or his
beneficiary)). No amounts payable under the Benefit Plans will fail
to be deductible for Federal income tax purposes by virtue of Section
280G of the Code.
(vi) There has been no prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any Benefit Plan; the Company has not incurred any
liability for any excise tax arising under Section 4972 or 4980B of
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the Code and no fact or event exists that could give rise to any such
liability with respect to the filing of reports with respect to any
Benefit Plan; there are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against
any of the Benefit Plans, or any trusts related thereto or any trustee
or administrator thereof, and no litigation or administrative or other
proceeding (including, without limitation, any litigation or
proceeding under Title IV of ERISA) has occurred or, to the best of
the Company's or the Stockholder's knowledge, is threatened involving
any Benefit Plan or any trusts related thereto or any trustee or
administrator thereof.
(vii) Except as set forth in Section 5.1(l)(vii) of
the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (A) entitle any current or
former employee or officer of the Company or any of its subsidiaries
to severance pay, unemployment compensation or any other similar
payment, except as expressly provided in this Agreement; (B)
accelerate the time of payment or vesting or increase the amount of
compensation due any such employee or officer; (C) result in any
employment-related expenses or liabilities the full cost of which will
not be paid by the Company or (D) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for
which an exemption is not available.
(n) ENVIRONMENTAL PROTECTION. Except as set forth in Section
5.1(n) of the Company Disclosure Schedule:
(i) The Company has obtained all material permits,
licenses and other authorizations which are required under the
Environmental Laws for the ownership, use and operation of each
location, or portion thereof owned, operated or leased by the Company
(the "PROPERTY"), all such permits, licenses and authorizations are in
effect, no appeal nor any other action is pending to revoke any such
permit, license or authorization, and the Company is in compliance
with all terms and conditions of all such permits, licenses and
authorizations. The Company has listed all such permits, licenses and
other authorizations, including the expiration dates of such permits,
licenses and authorizations, in Section 5.1(n) of the Company
Disclosure Schedule.
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(ii) The Company and the Property are in compliance in
all material respects with all Environmental Laws including, without
limitation, all restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws or contained in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder.
(iii) The Company has heretofore delivered to Parent
true and complete copies of all environmental studies made in the last
five years as to which the Company has knowledge relating to the
Property or any other property or facility previously owned, operated
or leased by the Company.
(iv) There is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter existing or
pending, or to the knowledge of the Company or the Stockholder
threatened, relating to the Company or the Property relating in any
way to the Environmental Laws or any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(v) The Company has not, and to the knowledge of the
Company or the Stockholder, no other Person has, Released, placed,
stored, buried or dumped any Hazardous Substances, Oils, Pollutants or
Contaminants or any other wastes produced by, or resulting from, any
business, commercial or industrial activities, operations or
processes, on, beneath or adjacent to the Property or any Property
formerly owned, operated or leased by the Company except for
inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company (which
inventories and wastes, if any, were and are stored or disposed of in
accordance with applicable laws and regulations and in a manner such
that there has been no Release of any such substances into the
environment).
(vi) No Release or Cleanup has occurred at the
Property or any other Property formerly owned or used by the Com-
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pany during its period of ownership, operation or tenancy, which could
result in the assertion or creation of a lien on the Property by any
governmental body or agency with respect thereto, nor has any such
assertion of a lien been made by any governmental body or agency with
respect thereto.
(vii) To the knowledge of the Company or the
Stockholder, no employee of the Company in the course of his or her
employment with the Company has been exposed to any Hazardous
Substances, Oils, Pollutants, Contaminants or other substance,
generated, produced or used by the Company in a manner or to an extent
which could give rise to any claim against the Company.
(viii) The Company has not received any notice or
order from any governmental agency or private or public entity
advising it that it is responsible for or potentially responsible for
Cleanup or paying for the cost of Cleanup of any Hazardous Substances,
Oils, Pollutants or Contaminants or any other waste or substance and
the Company has not entered into any agreements concerning such
Cleanup, nor does the Company have any knowledge of any facts which
might reasonably give rise to such notice, order or agreement.
(ix) The Property does not contain any: (A)
underground storage tanks; (B) friable asbestos; (C) equipment using
PCBs; (D) underground injection wells, to the knowledge of the
Company; or (E) septic tanks in which process waste water or any
Hazardous Substances, Oils, Pollutants or Contaminants have been
disposed.
(x) Other than bank financing documents and leases set
forth in Section 5.1(l) of the Company Disclosure Schedule and entered
into in the ordinary course of business, the Company has not entered
into any agreement that may require it to pay to, reimburse,
guarantee, pledge, defend, indemnify or hold harmless any Person for
or against any Environmental Liabilities and Costs.
(xi) With regard to the Company and the Property,
there are no past or present or, to the knowledge of the
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Company or the Stockholder, future events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere
with or prevent compliance or continued compliance in any material
respect with the Environmental Laws as in effect on the date hereof or
with any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved
thereunder, or which may give rise to any common law or legal liability
under the Environmental Laws, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, generation,
processing, distribution, use, treatment, storage, place of disposal,
transport or handling, or the Release or threatened Release into the
indoor or outdoor environment by the Company or a facility of the
Company, of any Hazardous Substances, Oils, Pollutants or Contaminants.
(o) TAXES.
(i) All Tax Returns required to be filed with respect to
the Company or any of its Affiliates or any of their income, properties
or operations have been timely filed and all information reported
therein is true, complete and accurate. All Taxes attributable to the
assets, business or operations of the Company or any of its Affiliates
that are or were due and payable have been paid (whether or not shown as
due on any Tax Return) and adequate provision for Taxes not yet due in
respect of the current taxable year of the Company and its Affiliates is
reflected on the Financial Statements. The Company and its Affiliates
have withheld from all employees, customers and any other applicable
payees proper amounts in compliance with all tax withholding provisions
(including, without limitation, income, social security and employment
tax withholding and withholding on payments to non-United States
Persons). Except as set forth in Section 5.1(o)(i) of the Company
Disclosure Schedule, there is no action, claim, suit, proceeding,
deficiency or assessment pending, or to the knowledge of the Company or
the Stockholder, threatened against the Company or any of its Affiliates
for any Tax deficiency, and there is no audit or investigation currently
being conducted that could cause the Company or any of its Affiliates to
be liable for any Taxes. Except as set forth in Section 5.1(o)(i) of the
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Company Disclosure Schedule, there are no agreements in effect extending
the period of limitations for the assessment or collection of any Tax
for which the Company or any of its Affiliates may be liable. None of
the Company or any of its Affiliates has been a U.S. real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(ii) Except as set forth in Section 5.1(o)(ii) of the
Company Disclosure Schedule, the Company (A) is not a party to any
agreement providing for the payment of "excess parachute payments"
under Section 280G of the Code, or to any tax sharing agreement or
other arrangement under which the Company has or may have any
obligation to contribute to the payment of any Tax; (B) has not made
any election under Section 341 of the Code; and (C) is not required to
include in income for any period after Closing any adjustments
required under Section 481 of the Code. No tax is required to be
withheld pursuant to Section 1445 of the Code as a result of any of
the transfers contemplated by this Agreement.
(iii) None of the Company or any of its Affiliates is
a party to any Tax sharing or Tax allocation agreement or any similar
agreement or arrangement, and none of the Company or any of its
Affiliates owes any amounts under any such agreement or arrangement.
None of the Company or any of its Affiliates has been a member of a
group filing a consolidated Federal income Tax Return (other than a
group the common parent of which was the Company). None of the
Company or any of its Affiliates has any liability for the Taxes of
any Person (other than the Company or any of its Affiliates) under
Treasury Regulation Section 1.1502-6 (or any corresponding provisions
of state, local or foreign Tax law), as a transferee or successor, by
contract, or otherwise. None of the Company or any of its Affiliates
has net operating losses or other tax attributes presently subject
(without regard to the transactions contemplated by this Agreement) to
limitation under Sections 382, 383 or 384 of the Code, or the Federal
consolidated return regulations. There are no Liens for Taxes upon
any of the assets of any of the Company or any of its Affiliates,
other than Liens for Taxes and assessments that are not yet due and
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payable and Liens for Taxes, assessments and charges and other claims,
the validity of which are being contested in good faith.
(p) COMPLIANCE WITH APPLICABLE LAW. Except as set forth in
Section 5.1(p) of the Company Disclosure Schedule, the Company holds, and at
all times, to the extent material to the Company's operations, has held, all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business as presently conducted under and pursuant to, and the
business of the Company is not being and has not been conducted in violation
of, any provision of any Federal, state, local statute, law, ordinance, rule,
regulation, judgment, order, grant, permit or license or other governmental
authorization or approval applicable to the Company.
(q) PROPRIETARY RIGHTS. Except as set forth in Section
5.1(q) of the Company Disclosure Schedule, the Company does not own or
license any Proprietary Rights (as hereinafter defined), nor are any
Proprietary Rights necessary for the conduct of its businesses as presently
conducted. Section 5.1(q) of the Company Disclosure Schedule contains an
accurate and complete description of all Proprietary Rights used by the
Company and all applications therefor. The consummation of the transactions
contemplated hereby will not alter or impair any Proprietary Rights. Except
as set forth in Section 5.1(q) of the Company Disclosure Schedule, no claims
have been asserted or, to the best of the Company's and the Stockholder's
knowledge, threatened by any Person to the use of any such Proprietary Rights
or challenging or questioning the validity or effectiveness of any such
license or agreement, or by the Company or the Stockholder to protect or
defend such rights; and, to knowledge of the Company and the Stockholder, the
use of such Proprietary Rights by the Company does not infringe on the rights
of any Person, and no notice of infringement has been asserted or threatened
against the Company or the Stockholder.
(i) "PROPRIETARY RIGHTS" shall mean (A) Patents, (B)
Trademarks, (C) Trade Names, (D) rights in trade dress and packaging
and (E) shop rights, copyrights, inventions, trade secrets, service
marks and all other intellectual property rights whether registered or
not, in each case wherever such rights exist throughout the world, and
including the right to recover for any past infringements and (F)
Know-how.
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(ii) "PATENTS" shall mean patents (including all
reissues, divisions, continuations, continuations in part and
extensions thereof), patent applications and patent disclosures
docketed.
(iii) "KNOW-HOW" shall mean laboratory journals,
know-how (including, without limitation, product know-how and use and
application know-how), formulae, processes, product designs,
specifications, quality control, procedures, manufacturing,
engineering and other drawings, computer data bases and software,
technology, other intangibles, technical information, safety
information, engineering data and design and engineering
specifications, research records, market surveys and all promotional
literature, customer and supplier lists and similar data.
(iv) "TRADEMARKS" shall mean trademarks, service
marks, brand marks, registrations thereof, pending applications for
registration thereof, and such unregistered rights which are material
to the business of the Company as may exist through use.
(v) "TRADE NAMES" shall mean (A) trade names, (B)
brand names, and (C) logos and all other names and slogans material to
the business of the Company which, in each case embodying business or
product goodwill for which no trademark registration has been obtained
or applied for.
(r) LABOR RELATIONS. Except to the extent set forth in Section
5.1(r) of the Company Disclosure Schedule, (i) the Company is not a party to any
collective bargaining agreement; (ii) the Company is in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any practice that would constitute a violation of state or federal
labor laws; (iii) there is no unfair labor practice complaint pending, or to the
knowledge of the Company or the Stockholder, threatened, against the Company or
the Stockholder pending before the National Labor Relations Board; (iv) there is
no labor strike, dispute, slowdown or stoppage actually pending or, to the
knowledge of the Company or the Stockholder, threatened against or affecting the
Company; (v) with respect to the Company, no grievance or arbitration proceeding
arising out of or under collective bargaining agreements is pending and, to the
knowledge of the Company or the Stockholder, no claim therefor exists and (vi)
the Company has not experienced any
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work stoppage or other collective bargaining or union-organizing activity
since December 31, 1993.
(s) ACCOUNTS RECEIVABLE. All accounts receivable of the
Company, whether reflected in the Financial Statements or arising thereafter
in the ordinary course of business and reflected in the Estimated Closing
Date Balance Sheet, (i) arose or will arise in the ordinary course of
business from bona fide arm's-length transactions for the sale of goods or
performance of services by the Company (ii) are valid and (iii) to the
knowledge of the Company and the Stockholder are collectible in the ordinary
course of business and are not subject to counterclaims or setoffs, net of
allowances for doubtful accounts.
(t) INVENTORY. The inventories of the Company (i) to the
knowledge of the Company and the Stockholder do not infringe third party
Proprietary Rights or other property rights; (ii) meet the Company's
specifications and industry standards applicable to such inventories and
(iii) are usable or saleable in the ordinary course of the Company's
business, as presently conducted by the Company, less the Company's inventory
reserve.
(u) INSURANCE. Section 5.1(u) of the Company Disclosure
Schedule contains a true and complete list and description of all liability,
property, workers' compensation, directors and officers liability and other
similar insurance of the Company relating to the ownership, use or operation
of any of the assets or properties of the Company. The Company has delivered
copies of such insurance policies to Parent prior to the date hereof. Except
as set forth in Section 5.1(u) of the Company Disclosure Schedule, (i) the
insurance coverage provided by the policies described above will not
terminate or lapse by reason of the transactions contemplated by this
Agreement; (ii) all such policies are presently in full force and effect;
(iii) the Company is not in default under any such policy; (iv) the Company
has not failed to make payment of any premium; (v) there are no currently
outstanding claims with respect to such insurance coverage and (vi) neither
the Company nor the Stockholder has received notification of, or has
knowledge, of the existence of any grounds for, the cancellation or proposed
cancellation of any such policies or bonds or any reason why any such
policies or bonds would not be valid, binding and enforceable in all material
respects. Except as set forth in Section 5.1(u) of the Company Disclosure
Schedule, and to the knowledge of the Company or the Stockholder, the Company
has not failed to give or present (or is aware of any facts or circumstances
which may give rise to a claim for failure to give or present) any
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<PAGE>
notice or claim thereunder in accordance with such policies, such as would
permit the insurer to deny coverage under such policies.
(v) INSIDER INTERESTS AND AFFILIATE TRANSACTIONS. Except as
disclosed in Section 5.1(v) of the Company Disclosure Schedule or in the KPMG
Report, there are no (i) Affiliate or related party transactions, (ii)
transactions involving self-dealing or undisclosed ownership interests, (iii)
intercompany liabilities or obligations or (iv) other material business
relationships, between the Company, on the one hand, and any current or
former stockholder, director, officer or employee, including Alex W. Lau or
Lance Nelson, on the other hand, other than in such person's capacity as a
stockholder, director, officer or employee in the ordinary and usual course
of business. Without limiting the generality of the foregoing, no such
person directly or indirectly provides to the Company any goods, services,
assets or facilities, and the Company does not directly or indirectly provide
to any such person any goods, services, assets or facilities, other than in
such person's capacity as a stockholder, director, officer, employee in the
ordinary and usual course of business.
(w) PRODUCTS AND WARRANTIES. The products sold by the
Company and, to the knowledge of the Company or the Stockholder, the
products sold by the Company but manufactured by third parties, conform in
design in all material respects with, and meet or exceed the standards
required by, all applicable laws, ordinances and regulations now in effect,
and to the Company's or the Stockholder's knowledge, there is no pending
Federal legislation, not otherwise applicable to the Company's industry,
which if adopted or enacted would have an adverse effect upon the products
sold by the Company. The Company does not have any outstanding agreements,
contracts or proposals therefor which depart from its respective warranties
and customer service policies and practices. Except as set forth in Section
5.1(w) of the Company Disclosure Schedule, no written claims and, to the
knowledge of the Company or the Stockholder, no other material claims of
customers or others based upon an alleged or admitted defect of material,
workmanship or design or otherwise in respect of any of the Company's
products are presently pending or, to the knowledge of the Company or the
Stockholder, threatened against it.
(x) CUSTOMERS AND SUPPLIERS. Section 5.1(x) of the Company
Disclosure Schedule sets forth: (i) a list of (A) the 10 largest customers
of the Company by branch in terms of sales during the fiscal year ended
September 30, 1997, and (B) the 10 largest customers of the Company by branch
in terms of sales during the three months ended December 31, 1997, showing
the approximate total
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sales by the Company to each such customer during such time period; and (ii)
a list of (A) the 25 largest suppliers of the Company in terms of purchases
during the fiscal year ended September 30, 1997, and (B) the 25 largest
suppliers of the Company in terms of purchases during the three months ended
December 31, 1997, showing the approximate total purchases by the Company
from each such supplier during such time period. Except as set forth in
Section 5.1(x) of the Company Disclosure Schedule, there has not been any
material adverse change in the business relationship of the Company and any
of the 10 largest customers or 25 largest suppliers of the Company and
neither the Company nor the Stockholder has reason to believe that there will
be any material adverse change in the business relationship between such
customers and suppliers and Parent following the Closing.
(y) TAX MATTERS. None of the Company, any of its Affiliates
or the Stockholder have taken or agreed to take any action that would
reasonably be expected to prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
(z) DISCLOSURE. No representation or warranty by the Company
or the Stockholder contained in this Agreement and no statement contained in
the Company Disclosure Schedule or any certificate, instrument or other
document delivered by the Company or the Stockholder to Parent pursuant to
this Agreement contains any untrue statement of a material fact, or omits to
state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not
misleading, it being understood that as used in this Section 5.1(z)
"material" means material to the Company and all of the foregoing accurately,
completely and correctly present the information required or purported to be
set forth herein or therein.
(aa) BROKERS' FEES AND COMMISSIONS. None of the Stockholder,
the Company nor any of their or its Affiliates has employed any investment
banker, broker, finder, consultant or intermediary which would be entitled to
any investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
(bb) HART-SCOTT FILING. To the knowledge of the Stockholder,
after consultation and based upon advice of counsel, neither the Stockholder,
nor, to the knowledge of the Company or the Stockholder, any other person or
entity, other than the Company, is required to make any filing pursuant to
the applicable require-
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<PAGE>
ments, if any, of the HSR Act (though nothing in the representation shall be
deemed to apply to Parent or any of its Affiliates).
(cc) DISCLOSURE DOCUMENTS. None of the information supplied
or to be supplied by the Company or the Stockholder for inclusion in (i) the
proxy statement relating to the Special Meeting (as hereinafter defined) to
be held in connection with the Merger (as the same may be amended or
supplemented from time to time, (the "PROXY STATEMENT/PROSPECTUS"), and (ii)
the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the Merger (as the same may be amended or supplemented from
time to time, the "REGISTRATION STATEMENT") including the Proxy
Statement/Prospectus included therein, will, in the case of the Proxy
Statement/Prospectus, either at the time of mailing of the Proxy
Statement/Prospectus to stockholders of the Company or at the time of the
Special 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 or will, in the case of the Registration
Statement either at the time the Registration Statement is filed with the SEC
or at the time the Registration Statement 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 except that no representation or
warranty is made by the Company or the Stockholder with respect to the
information supplied by Parent.
5.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Each
of Parent and Merger Sub represents and warrants to the Company and the
Stockholder as follows:
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Each of Parent
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and
is qualified and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except where the failure to so
qualify or be in such good standing would not have a Material Adverse Effect
on Parent or Merger Sub, as the case may be. Parent has all requisite power
and authority (corporate or otherwise) to own its properties and to carry on
its business as it is now being conducted. Parent and Merger Sub have
heretofore provided to the Company true and complete copies of their
respective Certificate of Incorporation and their respective Bylaws as
currently in effect.
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(b) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has the requisite corporate power and authority to approve,
authorize, execute and deliver this Agreement and the other Ancillary Agreements
and to consummate the transactions contemplated hereby and thereby. This
Agreement and the other Ancillary Agreements and the consummation by Parent and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective Boards of Directors of Parent and
Merger Sub and by Parent as sole stockholder of Merger Sub, and no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement and the other Ancillary Agreements or to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Ancillary Agreements have been, or will be duly and validly executed and
delivered by each of Parent and Merger Sub and, assuming this Agreement and the
other Ancillary Agreements constitutes the valid and binding agreement of the
Company, the Stockholder and the Escrow Agent, as applicable, constitutes valid
and binding agreements of Parent and Merger Sub, enforceable against them in
accordance with its terms.
(c) NO VIOLATION. Neither the execution and delivery of this
Agreement or the other Ancillary Agreements by Parent and Merger Sub and the
performance by each of Parent and Merger Sub of their respective obligations
hereunder and thereunder nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby and thereby will (i) violate, conflict with or
result in any breach of any provision of the Certificate of Incorporation or
Bylaws of Parent or Merger Sub; (ii) violate, conflict with or result in a
violation or breach of, or constitute a default (with or without due notice or
lapse of time or both) under, or permit the termination of, or result in the
acceleration of, or entitle any party to accelerate any obligation, or result in
the loss of any benefit, or give rise to the creation of any Liens upon any of
the respective properties or assets of Parent or Merger Sub under any of the
terms, conditions or provisions of any contract, agreement, license, lease or
other instrument or obligation to which Parent or Merger Sub are a party or by
which they or any of their respective properties or assets may be bound or
affected or (iii) violate any order, writ, judgment, injunction, decree,
statute, rule or regulation of any court or domestic or foreign governmental
authority applicable to Parent or Merger Sub or any of their respective
properties or assets.
(d) CONSENTS AND APPROVALS. No filing or registration with, no
notice to and no permit, authorization, consent or approval of any third party
or any domestic or foreign governmental authority is necessary for the
consummation by the Parent or Merger Sub of the transactions contemplated by
this Agreement or
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<PAGE>
the other Ancillary Agreements except (i) in connection with the applicable
requirements, if any, of the HSR Act; (ii) the filing of the Certificate of
Merger pursuant to the DGCL and appropriate documents with the relevant
authorities of other states in which the Parent is authorized to do business;
(iii) pursuant to the applicable requirements of the Securities Act and the
Exchange Act; (iv) such filing or consent as may be required by any
applicable state securities laws; (v) filings with, and approval of, the New
York Stock Exchange or (vi) such filing where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse Effect on
the Parent.
(e) SEC REPORTS; FINANCIAL STATEMENTS.
(i) Since December 31, 1996, Parent has timely filed
all forms, reports and documents with the Securities and Exchange
Commission (the "SEC") required to be filed by it pursuant to the
Federal securities laws and the SEC rules and regulations thereunder,
all of which complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder (all such reports, together
with any such reports filed after the date hereof and prior to the
Effective Time, collectively, the "SEC REPORTS"). None of the SEC
Reports, including, without limitation, any financial statements or
schedules included therein, at the time filed 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 not misleading.
(ii) The consolidated balance sheets and the related
statements of income, stockholders' equity and cash flow (including
the related notes thereto) of Parent included in the SEC Reports
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 applied on a basis consistent with
prior periods (except as otherwise noted therein or, in the case of
unaudited financial statements, as permitted by Form 10-Q), and
present fairly the consolidated financial position of Parent and its
consolidated subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for the
periods
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presented therein (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and the
absence of footnotes).
(f) AUTHORIZATION FOR PARENT SHARES. Prior to the Effective
Time, Parent will have taken all necessary action to permit it to issue the
number of Parent Shares required to be issued pursuant to Article 4. Parent
Shares issued pursuant to Article 4 will, when issued, be validly issued, fully
paid and nonassessable and no stockholder of Parent will have any preemptive
right of subscription or purchase in respect thereof.
(g) BROKERS' FEES AND COMMISSIONS. Neither Parent nor Merger
Sub has employed any investment banker, broker, finder, consultant or
intermediary which would be entitled to any investment banking, brokerage,
finder's or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
(h) TAX MATTERS. Neither Parent nor Merger Sub has taken or
agreed to take any action that would reasonably be expected to prevent the
Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code.
(i) DISCLOSURE. No representation or warranty by Parent or
Merger Sub in this Agreement and no statement contained in any certificate,
instrument or other document delivered by Parent or Merger Sub pursuant to this
Agreement when taken together as a whole contains any untrue statement of a
material fact, or omits to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading, it being understood that as used in this Section 5.2(i)
"material" means material to Parent and its subsidiaries taken as a whole.
(j) LITIGATION. Except as disclosed in the SEC Reports, there
is no action, suit, judicial or administrative proceeding, arbitration or
investigation pending before any court, arbitrator or administrative or
governmental body or, to the best of Parent's and the Merger Sub's knowledge,
threatened against or involving Parent or the Merger Sub or any of their
properties, assets or rights that would reasonably be expected to have a
Material Adverse Effect with respect to Parent.
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(k) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Reports, since December 31, 1997, there has not been any change in the
businesses, operations, properties, assets, working capital, liabilities or
condition (financial or otherwise) of Parent which resulted in or could
reasonably be expected to result in a Material Adverse Effect with respect to
Parent.
(l) DISCLOSURE DOCUMENTS. None of the information supplied or
to be supplied by Parent for inclusion in the Proxy Statement/Prospectus and the
Registration Statement will, in the case of the Proxy Statement/Prospectus,
either at the time of mailing of the Proxy Statement/Prospectus to stockholders
of the Company, or at the time of the Special Meeting, contain any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading or will,
in the case of the Registration Statement, either at the time the Registration
Statement is filed with the SEC or at the time the Registration Statement
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. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act, except that no representation or warranty is
made by Parent with respect to (i) any forward-looking information regarding or
statements made by Parent (whether or not included in the Registration
Statement) or (ii) information supplied by the Company or the Stockholder.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 CONDUCT OF BUSINESS BY THE COMPANY. The Company and the
Stockholder covenant and agree that, during the period from the date of this
Agreement to the Effective Time (unless Parent shall otherwise agree in writing
and except as otherwise contemplated by this Agreement):
(a) The Company shall and shall cause its subsidiary to conduct
its operations according to its ordinary and usual course of business consistent
with past practice and with the same degree of effort as would be applied in the
absence of this Agreement, and the Company and the Stockholder shall use all
reasonable efforts to preserve intact the Company's current business
organizations,
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keep available the services of the Company's current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses of
the Company shall not be materially impaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise permitted
in this Agreement, prior to the Effective Time, neither the Company nor its
subsidiary shall:
(i) issue, deliver, sell, dispose of, pledge or
otherwise encumber, or authorize or propose the issuance, sale,
disposition or pledge or other encumbrance of (A) any additional
shares of capital stock of any class (including the Shares), or any
securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for any shares of capital stock or any rights,
warrants, options, calls, commitments or any other agreements of any
character to purchase or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for, any shares of capital stock, or (B) any
other securities in respect of, in lieu of, or in substitution for,
Shares outstanding on the date hereof;
(ii) redeem, purchase or otherwise acquire, or propose
to redeem, purchase or otherwise acquire, any of its outstanding
securities (including the Shares);
(iii) split, combine, subdivide or reclassify any
shares of its capital stock or declare, set aside for payment or pay
any dividend, or make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or
otherwise make any payments to any of the stockholders of the Company
in their capacity as such;
(iv) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization (other than the Merger);
(v) adopt any amendments to its Certificate of
Incorporation or Bylaws or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of any of its subsidiaries;
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(vi) change any of the accounting principles or
practices used by it;
(vii) make or change any material election in respect
of Taxes, adopt or change any accounting method in respect of Taxes,
file any material Tax Return or any amendment to a material Tax
Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in
respect of Taxes;
(viii) grant any material increases in the
compensation of any of its directors, officers or employees, except in
the ordinary course of business and in accordance with its customary
past practices;
(ix) except pursuant to Section 4.8 hereof, pay or
agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated by any of the Company's Benefit
Plans, as in effect on the date hereof;
(x) except as set forth in Section 6(a)(x) of the
Company Disclosure Schedule, enter into any new or materially amend
any existing employment or severance agreement with any director,
officer or employee;
(xi) except as may be required to comply with
applicable law, become obligated under any new Benefit Plan
(including, without limitation, any pension plan, welfare plan,
multi-employer plan, employee benefit plan, severance plan, benefit
arrangement, or similar plan or arrangement), which was not in
existence on the date hereof, or amend any Benefit Plan in existence
on the date hereof if such amendment would have the effect of
enhancing any benefits thereunder;
(xii) make any acquisition, by means of merger,
consolidation or otherwise, or disposition of assets (other than an
immaterial amount of assets in the ordinary course of business
consistent with past practice) or securities;
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(xiii) enter into any new material contracts or amend
the terms of any existing material contract, including, without
limitation, any release or settlement agreement (a "SETTLEMENT") with
any past or present stockholder, officer or employee to the extent
that any Settlement (A) would require any payment from the Company to
any party to the Settlement other than pursuant to the terms of the
Escrow Agreement; (B) would require either the Company or Parent to
perform any obligations to a party to the Settlement after the Closing
Date other than the receipt and payment of the appropriate amount to
the Escrow Agent; (C) would not expressly include Parent as a third
party beneficiary of the Settlement; or (D) would involve payment from
a party to the Settlement to either the Company or Parent in any form
other than by wire transfer of immediately available funds (except
that for any future payment, a receivable shall be permissible only if
not included on the Estimated or Closing Date Balance Sheet), other
than in the ordinary course of business and consistent with past
practice;
(xiv) incur any indebtedness for borrowed money or
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or investments in, any other Person, other than in
the ordinary course of business and consistent with past practice and
which do not exceed $100,000 in the aggregate;
(xv) sell, transfer, or otherwise dispose of any of
its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent
with past practice;
(xvi) dispose of or permit to lapse any rights to the
use of any Patent, Trademark, Trade Name or copyright, or dispose of
or disclose (except as necessary in the conduct of its business) to
any Person other than representatives of Parent any trade secrets,
formula, process or Know-How not theretofore a matter of public
knowledge; or
(xvii) authorize, recommend, propose or announce an
intention to do any of the foregoing, or enter into any
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contract, agreement, commitment or arrangement to do any of the foregoing.
(b) The Company and the Stockholder shall promptly notify Parent
upon the occurrence or discovery of any matter or event which is material to the
business, operations, properties, condition (financial or otherwise), assets,
working capital, prospects or liabilities of the Company taken as a whole, or
which would prevent any condition to closing specified in Article 7 from being
met.
(c) The Company and the Stockholder shall use all reasonable
efforts to maintain in full force and effect all of the Company's presently
existing policies of insurance or insurance comparable to the coverage afforded
by such policies.
6.2 FURTHER EFFORTS.
(a) The Company and Parent shall: (i) promptly make their
respective filings and thereafter make any other submissions required under all
applicable laws with respect to the Merger and the other transactions
contemplated hereby and (ii) use all reasonable efforts to promptly take, or
cause to be taken, all other actions and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. In addition, in the event of any
action, suit, proceeding or investigation relating hereto or to the transactions
contemplated by this Agreement, the parties hereto agree to cooperate and use
all reasonable efforts to vigorously defend against and respond thereto.
(b) Without limiting the generality of the foregoing, each of
the Company, the Stockholder, Parent and Merger Sub agrees to make as promptly
as practicable all filings necessary under the HSR Act in order to obtain the
required regulatory clearance in connection with the Merger. Subject to the
limitations contained in the last sentence of this Section 6.2(b), each of the
Company, the Stockholder, Parent and Merger Sub shall use all reasonable efforts
to resolve such objections, if any, that any governmental or regulatory
authorities with jurisdiction over the enforcement of the HSR Act may assert
with respect to the Merger. Parent and the Company shall have joint
responsibility for dealing with such authorities and for resolving any such
objections; PROVIDED, HOWEVER, that the parties shall consult with each other
before submitting any application or other written communication to any such
authority. Notwithstanding the foregoing or any other provisions contained
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in this Agreement to the contrary, neither the Company, the Stockholder,
Parent nor any of its Affiliates shall be under any obligation of any kind to
enter into any negotiations or to otherwise agree with any governmental or
regulatory authority, including but not limited to any governmental or
regulatory authority with jurisdiction over the enforcement of the HSR Act,
or any other party to sell or otherwise dispose of, hold separate (through
the establishment of a trust or other wise) particular assets or categories
of assets or businesses of any of the Company, Parent or any of Parent's
Affiliates. Parent shall be solely responsible for paying any and all filing
fees required by the HSR Act.
6.3 ACCESS TO INFORMATION. From the date hereof until the Closing
Date, the Stockholder and the Company shall afford Parent and its
representatives, during regular business hours and upon reasonable notice, such
access to the employees, customers, properties, books and records of the Company
as Parent may reasonably request in order to make its due diligence
investigations (including preliminary or detailed environmental audits and
reports) or otherwise in connection with the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that such access shall not affect Parent's right
to rely on the representations and warranties of the Company and the Stockholder
set forth herein and such investigations shall not unreasonably interfere with
the operation of the Company's business.
6.4 PUBLICITY. The parties hereto shall not make any public
statement disclosing information relating to this Agreement or any of the other
Ancillary Agreements or the transactions contemplated hereby or thereby that is
in addition to information the parties previously agreed to disclose, including
any disclosure to employees that has not been mutually agreed upon; PROVIDED,
HOWEVER, that any disclosure (except as to employees) that either the Company or
Parent consider to be required to be made to any governmental agency or to be
mandated by law or applicable stock exchange requirements may be made at the
time required or mandated whether or not there is any agreement on the need for,
or text of, such disclosure.
6.5 AFFILIATES LETTERS. The Stockholder and each director and
officer of the Company shall, deliver to Parent on or prior to the Effective
Time, a written agreement, in the form attached hereto as Exhibit A (the
"AFFILIATE LETTER").
6.6 REPRESENTATIONS AND WARRANTIES. Neither the Company and the
Stockholder, on the one hand, nor Parent and Merger Sub, on the other, shall
take any action that would cause any of the representations and warranties set
forth in
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Section 5.1 or 5.2, as the case may be, not to be true and correct in all
material respects at and as of the Effective Time.
6.7 ACQUISITION PROPOSALS. For a period of three months from the
date of this Agreement, neither the Company nor the Stockholder shall solicit,
negotiate, offer or accept any other proposal with respect to a merger,
consolidation, share exchange or similar transaction involving the Company, any
purchase of Shares, any purchase of all or any significant portion of the assets
of the Company or any equity interest in the Company, or any purchase of all or
any significant portion of the assets of or any equity interest in any business
or any corporation, partnership, association or other business organization or
division thereof, other than the transactions contemplated hereby.
6.8 SUPPLEMENTS TO COMPANY DISCLOSURE SCHEDULE. From time to time
prior to the Closing, the Company shall promptly supplement or amend the Company
Disclosure Schedule with respect to any matter, condition or occurrence
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in the Company Disclosure
Schedule. No supplement to or amendment of the Company Disclosure Schedule
shall be deemed to serve as or imply a waiver by Parent of any breach of any
representation or warranty made in this Agreement so as to (a) permit the
Closing to occur unless Parent specifically agrees thereto in writing or (b)
affect Parent's rights to indemnification hereunder.
6.9 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights, properties
or assets of the Company and Merger Sub acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.
6.10 NONCOMPETITION AGREEMENTS.
(a) "COMPANY BUSINESS" shall mean the line of business or
activities in which the Company is presently engaged or is planning, as
evidenced in any memorandum, note, record or other writing of Parent or any
director, officer or
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employee of Parent, a copy of which has been provided to the Stockholder
during his period of employment, to become engaged on or prior to Closing
Date.
(b) "COMPETING BUSINESS" means any person, concern, or entity
that is directly or indirectly engaged in or conducts a business substantially
similar to the Company Business.
(c) "TERRITORY" means every county, city and political
subdivision of the United States of America and Canada, which the parties hereby
acknowledge to be the geographic area in which the Company conducts the Company
Business on the date of this Agreement.
(d) "TRADE SECRETS" means information relating to the Company or
the Company Business, including, without limitation, technical and nontechnical
data, service plans or policies, procedures and processes, financial data,
financial plans, product plans, pricing information, marketing information, and
lists and information with respect to actual or potential customers or
suppliers, which is not generally known to or readily ascertainable by proper
means by persons other than the Company.
(e) The Stockholder acknowledges that, by virtue of his special
knowledge of the affairs, business, customers, suppliers, vendors and the
operations of the Company Business, Parent and the Company would suffer
substantial damage if the Stockholder breaches or violates any of the covenants
and agreements set forth in this Section 6.10. Therefore, the Stockholder
hereby agrees to the following covenants and agreements:
(i) The Stockholder covenants and agrees that he shall
not, for a period of five (5) years from and after the date hereof
(the "NONCOMPETITION PERIOD"), directly or indirectly, in the
Territory, for his own account or as an owner, partner, member,
stockholder, joint venturer, investor, lender, director, officer,
employee, consultant, manager, independent contractor, or in any
other capacity, own, engage in, conduct, manage, operate, finance or
participate in any Competing Business without the prior written
consent of Parent; PROVIDED, HOWEVER, that the Stockholder may acquire
and hold as a passive investment not more than 5% of the capital stock
of a Competing Business.
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(ii) During the Noncompetition Period, the Stockholder
covenants and agrees that he shall not, directly or indirectly, on his
own behalf or in the service or on behalf of others, solicit, divert
or appropriate to a Competing Business, or attempt to solicit, divert
or appropriate to or for any Competing Business, any persons and/or
entities who are, or were, customers of the Company or Parent in the
Territory prior to the Closing Date, or any person and/or entity in
the Territory to whom the Company has sold or provided any products
or services during the five (5) year period immediately preceding the
date of this Agreement.
(iii) During the Noncompetition Period, the
Stockholder covenants and agrees that he shall not, directly or
indirectly, on his own behalf or in the service or on behalf of
others, hire or attempt to hire any temporary or full-time employee of
Parent or the Company, or to cause any such employee to leave his or
her employment with Parent or the Company, or in any way interfere
with the relationship between Parent or the Company and said employee.
(iv) The Stockholder covenants and agrees to hold in
trust and strictest confidence, and not to use, reproduce, distribute,
disclose or otherwise disseminate, except in connection with the
operation of the Company Business, any confidential and proprietary
information developed, utilized, or received by the Stockholder
relating to the Company's operation of the Company Business prior to
the Closing Date, including, without limitation, all Trade Secrets and
all information which has been disclosed to the Company by any third
party which the Company has treated as confidential.
(f) In the event any court of competent jurisdiction should
determine that any of the terms of this Section 6.10 are unreasonable or
unenforceable in scope, the Stockholder, Parent and the Company consent to the
exercise by such court of its equitable jurisdiction to reform such terms in
accordance with applicable law.
(g) The Stockholder agrees that if he breaches any provision of
this Section 6.10, the damage to Parent or the Company would be difficult to
ascertain, and money damages would not afford Parent or the Company an adequate
remedy. Therefore, if the Stockholder is in breach of this Section 6.10, the
parties
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hereto agree that Parent or the Company shall be entitled, in addition to any
and all rights and remedies as would be provided by law, to specific
performance, injunctive, and other equitable relief to prevent or restrain a
breach of this Section 6.10. The rights of Parent or the Company under this
Section 6.10 are in addition to, and not in lieu of, any and all rights
Parent or the Company may have at law or in equity to protect its business
interests. The Stockholder agrees to be liable for any and all costs and
expenses, including attorneys fees, resulting from the breach by the
Stockholder of any provision of this Section 6.10.
(h) Parent acknowledges that any damages that may be sought
by Parent due to any breach on the part of the Stockholder of the terms of
this Section 6.10 may not be sought from any amounts held in escrow pursuant
to Section 9.6 hereof.
6.11 PROXY STATEMENT.
(a) The Company and Parent shall prepare as soon as
practicable, following the date of this Agreement, and shall file with the
SEC, the Registration Statement under the Securities Act. The Company and
Parent each shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing. The respective parties will cause the
Registration Statement to comply as to form in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the rules
and regulations thereunder. The Company and Parent shall also use all
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "blue sky" permits or
approvals required to carry out the transactions contemplated by this
Agreement.
(b) Each of the Company and Parent shall furnish all
information concerning it required to be included in the Registration
Statement. Parent agrees that the Registration Statement and each amendment
or supplement thereto at the time it is filed or becomes effective, and at
the time that the Proxy Statement/Prospectus which forms a part thereof is
mailed to the stockholders of the Company, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
Parent in reliance upon and in conformity with written information concerning
the
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Company furnished to Parent by the Company or the Stockholder specifically
for use in the Registration Statement. The Company and the Stockholder agree
that the written information provided by it specifically for inclusion in the
Registration Statement and each amendment or supplement thereto, at the time
it is filed or becomes effective, and at the time that the Proxy
Statement/Prospectus which forms a part thereof is mailed to the stockholders
of the Company, will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
6.12 STOCKHOLDERS MEETING. As soon as practicable after the
Registration Statement is declared effective by the SEC, the Company shall
and the Stockholder shall cause the Company to, call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon this Agreement and related matters (the "SPECIAL MEETING"). The Company
shall, through its Board of Directors, unanimously recommend to the Company
stockholders approval of such matters, shall not withdraw, modify, or amend
such recommendations; and shall use its best efforts to obtain such
stockholder approval. The Company shall coordinate and cooperate with Parent
with respect to the timing of such meeting and shall use its best efforts to
hold such meeting as soon as practicable after the date hereof. The Company
shall not, at its stockholder meeting, submit any other matter for approval
of its stockholders.
6.13 FEES. If this Agreement or the transactions contemplated
hereby are terminated, except pursuant to clauses (i) and (ii) of Section 8.4
hereof, and if the stockholders of the Company shall have failed to approve
by majority vote this Agreement and the transactions contemplated hereby,
then the Company shall promptly (and in any event within five (5) business
days after such termination) pay Parent a fee equal to $900,000.
6.14 CERTAIN CLAIMS; ALLOCATION OF RECOVERY. The Parent, in its
sole and absolute discretion, may elect to, or cause the Company to, pursue
or not pursue any of the claims, suits, proceedings or other actions the
Parent or the Company may have against either or both of Alex W. Lau ("LAU")
and/or Lance Nelson ("NELSON") arising from, in connection with or due to any
fraud, misrepresentation, defalcation, theft or other action taken while
employed by the Company. If Parent, in its sole and absolute discretion,
elects to, or causes the Company to, pursue any such claim, then, to the
extent any recovery in favor of the Parent or the Company (net of any and all
costs and expenses, including without limitation all accounting and legal
fees, related
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to such claim incurred after the Closing) is obtained in the two-year period
following the Closing Date, 50% of such recovery shall be allocated to the
former stockholders of the Company. 50% of such recovery shall be
transmitted directly to the Escrow Agent for the benefit of the former
stockholders to be paid by the Escrow Agent to such stockholders in
proportion to the number of shares held by such stockholders as of the
Effective Time.
6.15 CERTAIN PROPERTIES. The Company agrees to use all reasonable
efforts to (i) cause any mortgage on the Company's property located at
817-825 No. 3rd Street, Philadelphia, Pennsylvania to be released in full
prior to Closing and (ii) change the name on the title for such property to
reflect the reincorporation of the Company from the State of California to
the State of Delaware.
ARTICLE 7
CONDITIONS
7.1 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
respective obligations of Parent and Merger Sub to consummate the Merger are
subject to the fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part by Parent
or Merger Sub, as the case may be, to the extent permitted by applicable law;
provided such waiver, if any, shall not be deemed to waive any right to
indemnification hereunder.
(a) CERTIFICATE. The representations and warranties of the
Company and the Stockholder set forth in this Agreement shall be true and
correct in all material respects on and as of the Effective Time with the
same force and effect as though the same had been made on and as of the
Effective Time (except to the extent they relate to a particular date), the
Company shall have performed in all material respects all of its obligations
under this Agreement theretofore to be performed, and Parent shall have
received at the Effective Time a certificate to that effect dated the
Effective Time and executed by the Stockholder in his capacity as such and an
officer of the Company.
(b) STOCKHOLDER APPROVAL. The Merger shall have been duly
approved by consent of the requisite affirmative votes of the stockholders of
the Company.
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(c) INJUNCTION. There shall be in effect no preliminary or
permanent injunction or other order of a court or governmental or regulatory
agency of competent jurisdiction directing that the transactions contemplated
herein not be consummated.
(d) GOVERNMENTAL FILINGS AND CONSENTS. All governmental
filings required to be made prior to the Effective Time by the Company with,
and all governmental consents required to be obtained prior to the Effective
Time by the Company from, governmental and regulatory authorities in
connection with the execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby, either (i)
listed on Schedule 7.1(d) or (ii) where the failure to make such filing or
obtain such consent (either individually or in the aggregate) would have a
Material Adverse Effect on the Company or the Surviving Company (assuming the
Merger had taken place), shall have been made or obtained and the waiting
periods under the HSR Act shall have expired or been terminated.
(e) THIRD PARTY CONSENTS. All required authorizations,
consents and approvals of any third party (other than a governmental or
regulatory authority), either (i) listed on Schedule 7.1(e) or (ii) the
failure of which (either individually or in the aggregate) to obtain would
have a Material Adverse Effect on the Company or the Surviving Company
(assuming the Merger had taken place), shall have been obtained.
(f) AFFILIATE LETTER. The Stockholder and each of the
directors and officers of the Company receiving Parent Shares in the Merger
shall have executed and delivered to Parent an Affiliate Letter, together
with such other documents and instruments as Parent may reasonably request
related to compliance with the Securities Act.
(g) EMPLOYMENT, CONSULTING AND NONCOMPETE AGREEMENTS. The
Stockholder shall have entered into and delivered to Parent an employment,
consulting, and non-competition agreement with respect to the Stockholder in
substantially the form as is set forth in Exhibit E hereto.
(h) OPINION OF COUNSEL. Parent shall have received the
opinion of counsel for the Company and the Stockholder substantially in the
form attached hereto as Exhibit B.
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(i) ABSENCE OF CERTAIN CHANGES. Since the date hereof, there
shall not have occurred, and no fact or set of circumstances shall have
arisen or been discovered, which could be reasonably expected to result in a
Material Adverse Effect with respect to the Company.
(j) ESCROW AGREEMENT. Concurrently with the Closing, the
Stockholder shall have entered into and delivered to Parent the Escrow
Agreement substantially in the form attached hereto as Exhibit C.
(k) SECURITIES LAW COMPLIANCE. The Registration Statement
shall have become effective by an order of the SEC, the Parent Shares to be
issued in the Merger shall have been qualified or exempted under all
applicable state securities or blue sky laws, there shall have been no stop
order issued or threatened by the SEC that suspends the effectiveness of the
Registration Statement, and no proceeding shall have been commenced, pending,
or overtly threatened for such purpose.
(l) LISTING OF PARENT SHARES. The Parent Shares constituting
the aggregate Merger Consideration shall have been authorized for listing on
the NYSE, subject to notice of official issuance.
(m) SECTION 1445(B)(3) AFFIDAVIT. The Company shall have
furnished to Parent an affidavit under Section 1445(b)(3) of the Code that
will exempt the transactions contemplated by this Agreement from withholding
under Section 1445 of the Code.
(n) DIRECTOR AND OFFICER RESIGNATIONS. The Stockholder shall
have delivered the written resignations, effective at the Effective Time, of
all members of the Board of Directors of the Company and all officers of the
Company.
7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDER. The obligation of the Company and the Stockholder to consummate
the Merger is subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in whole or in
part by the Company and the Stockholder to the extent permitted by applicable
law.
(a) CERTIFICATE. The representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct
in all material respects on and as of the Effective Time with the same force
and effect as though the same had been made on and as of the Effective Time
(except to the extent they relate
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to a particular date), Parent and Merger Sub shall have performed in all
material respects all of their respective obligations under this Agreement
theretofore to be performed and the Company and the Stockholder shall have
received at the Effective Time a certificate to that effect dated the
Effective Time and executed by an officer of Parent and Merger Sub.
(b) INJUNCTION. There shall be in effect no preliminary or
permanent injunction or other order of a court or governmental or regulatory
agency of competent jurisdiction directing that the transactions contemplated
herein not be consummated.
(c) GOVERNMENTAL FILINGS AND CONSENTS. All governmental
filings required to be made prior to the Effective Time by Parent and Merger
Sub with, and all governmental consents required to be obtained prior to the
Effective Time by Parent and Merger Sub from, governmental and regulatory
authorities in connection with the execution and delivery of this Agreement
by Parent and Merger Sub and the consummation of the transactions
contemplated hereby shall have been made or obtained except where the failure
to make such filing or obtain such consent would not reasonably be expected
to have a Material Adverse Effect on Parent (assuming consummation of the
Merger) and the waiting periods under the HSR Act shall have expired or been
terminated.
(d) OPINION OF COUNSEL. The Company and the Stockholder
shall have received the opinion of counsel of Parent substantially in the
form attached hereto as Exhibit D.
(e) ESCROW AGREEMENT. Concurrently with the Closing, Parent
shall have entered into and delivered to the Stockholder the Escrow Agreement
substantially in the form attached hereto as Exhibit C.
(f) LISTING OF PARENT SHARES. The Parent Shares constituting
the aggregate Merger Consideration shall have been authorized for listing on
the NYSE, subject to notice of official issuance.
(g) ABSENCE OF CERTAIN CHANGES. Since the date hereof, there
shall not have occurred, and no fact or set of circumstances shall have
arisen or been discovered, which could be reasonably expected to result in a
Material Adverse Effect with respect to Parent.
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ARTICLE 8
TERMINATION
8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval by the stockholders of the Company, either
by the mutual written consent of Parent and the Company, or by mutual action
of their respective Boards of Directors.
8.2 TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned by either Parent or the
Company if (i) the Merger shall not have been consummated by November 30,
1998 (provided that the right to terminate this Agreement under this Section
8.2(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date) or (ii) any court of
competent jurisdiction in the United States or some other governmental body
or regulatory authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting
the Merger or permitting consummation of the Merger only subject to a
condition or restriction unacceptable to Parent and such order, decree,
ruling or other action shall have become final and nonappealable.
8.3 TERMINATION BY PARENT. This Agreement may be terminated, and
the Merger may be abandoned by Parent at any time prior to the Effective
Time, before or after the approval by stockholders of the Company, if (i) the
Company or the Stockholder shall have failed to comply with any of the
covenants, conditions or agreements contained in this Agreement to be
complied with or performed by the Company or the Stockholder at or prior to
such date of termination, which failure to comply would result in a Material
Adverse Effect with respect to the Company and has not been cured within five
business days following receipt by the Company of notice of such failure to
comply or (ii) any representation or warranty of the Company or the
Stockholder contained in the Agreement shall not be true in all material
respects when made and such breach would result in a Material Adverse Effect
with respect to the Company (provided such breach has not been cured within
five business days following receipt by the Company of notice of the breach)
or on and as of the Effective Time as if made on and as of the Effective Time
(except to the extent any such representation or warranty relates to a
particular date).
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8.4 TERMINATION BY THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time by
action of the Company, if (i) Parent or Merger Sub shall have failed to
comply with any of the covenants, conditions or agreements contained in this
Agreement to be complied with or performed by Parent or Merger Sub at or
prior to such date of termination, which failure to comply would result in a
Material Adverse Effect with respect to Parent and has not been cured within
five business days following receipt by the breaching party of notice of such
failure to comply, or (ii) any representation or warranty of Parent or Merger
Sub contained in this Agreement shall not be true in all material respects
when made and such breach would result in a Material Adverse Effect with
respect to Parent (provided such breach has not been cured within five
business days following receipt by the breaching party of notice of the
breach) or on and as of the Effective Time as if made on and as of the
Effective Time (except to the extent any such representation or warranty
relates to a particular date).
8.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of the
termination and abandonment of this Agreement pursuant to Article 8 hereof,
this Agreement shall forthwith become void and have no effect, without any
liability on the part of any party hereto or its affiliates, directors,
officers or stockholders, except for the provisions of Section 6.13 hereof
which shall remain in full force and effect following the termination of this
Agreement. Notwithstanding the foregoing sentence, nothing contained in this
Section 8.5 shall relieve any party from liability for any breach of this
Agreement.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE COMPANY AND THE STOCKHOLDER. (a)
Subject to the limits set forth in this Article 9, the Company and the
Stockholder shall jointly and severally indemnify, defend and hold Parent and
Merger Sub, its officers, directors, agents and affiliates, harmless from and
against any and all losses, liabilities, Taxes, damages, deficiencies,
claims, costs and expenses (collectively, "LOSSES") that they may suffer,
sustain, incur or become subject to arising out of, in connection with or due
to (i) any inaccuracy of any representation or the breach of any warranty,
covenant, undertaking or other agreement of the Company or the Stockholder
contained in this Agreement, any other Ancillary Agreement or the Company
Disclosure Schedule, (ii) any claim, suit, proceeding or any other action
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brought by or on behalf of any stockholder of the Company relating to the
transactions contemplated hereby, that may be brought within two years of the
Closing Date (other than claims brought by the Stockholder pursuant to the
terms of this Agreement) or (iii) any claim, suit, proceeding or any other
action accrued or resulting from or relating to facts and circumstances
existing prior to or as of the Closing Date, brought at any time by or on
behalf of Lau, Nelson, James A. O'Brien ("O'BRIEN") or Mr. or Mrs. Parker R.
Tyler, Jr. (collectively, "TYLER"), in connection with or due to (A) Lau's,
Nelson's, O'Brien's or Tyler's employment or other relationships or
agreements with the Company or the modification or termination thereof or (B)
Lau's Shares or Company Options or the issuance, modification, repurchase or
cancellation thereof.
(b) Notwithstanding any other provision of this Article 9,
the indemnification obligations of the Company pursuant to this Article 9
shall be satisfied by the transfer to Parent of the number of Escrow Shares
(as hereinafter defined) having a Fair Market Value equal to the Losses to be
paid by the Company to Parent pursuant to this Article 9 provided, that in
the event that any Losses to be paid by the Company or the Stockholder to
Parent pursuant to this Article 9 shall exceed the Escrow Amount (as
hereinafter defined) following any distribution of Escrow Shares pursuant to
Article 4 hereof, the Stockholder shall be solely responsible for payment to
Parent of any such Losses to the extent that any such Losses exceed the
Escrow Amount. For purposes of this Agreement, the term "LOSSES" shall
include interest, penalties, fees and reasonable professional fees and
expenses incurred in connection with any of the foregoing and in
investigating and seeking indemnification pursuant to this Article 9. For
purposes of this Section 9.1, "FAIR MARKET VALUE" shall be deemed to equal
the average per share closing prices of Parent Shares, as reported on the
NYSE Composite Tape during the period comprised of the 20 consecutive trading
days ending on the day prior to the date on which any Losses may be properly
paid hereunder.
9.2 INDEMNIFICATION BY PARENT. Subject to the limits set forth in
this Article 9, Parent shall indemnify, defend and hold the Stockholder
harmless from and against any and all Losses that he may suffer, sustain,
incur or become subject to arising out of, in connection with or due to (i)
any inaccuracy of any representation or the breach of any warranty contained
in Sections 5.2(a), 5.2(b), 5.2(c), 5.2(d), 5.2(f), 5.2(g) and 5.2(h) hereof
or (ii) any claim made by any stockholder of the Company related to any
forfeiture of any unclaimed portion of the Exchange Fund to Parent pursuant
to Section 4.4 hereof.
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9.3 CERTAIN TAX MATTERS.
(a) TAXABLE PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The
Company and the Stockholder shall be liable for, and shall, jointly and
severally, indemnify and hold Parent and its Affiliates harmless against, any
and all Taxes for any taxable year or taxable period ending on or before the
Closing Date due or payable by the Company, but only to the extent that the
amount of such Taxes is in excess of the specific reserves for Taxes set
forth in the Adjusted Closing Date Balance Sheet.
(b) TAXABLE PERIODS COMMENCING AFTER THE CLOSING DATE.
Parent shall be liable for, and shall indemnify and hold the Stockholder
harmless against, any and all Taxes for any taxable year or taxable period
commencing after the Closing Date due or payable by the Company.
(c) TAXABLE PERIOD COMMENCING BEFORE THE CLOSING DATE AND
ENDING AFTER THE CLOSING DATE. Parent shall cause the Company to pay all
Taxes due for any taxable year or taxable period commencing before and ending
after the Closing Date (the "SPLIT TAX PERIOD"). Upon timely notice from
Parent, the Stockholder shall pay to the Company prior to the date any
payment for Taxes as described in this Section 9.3(c) is due, an amount equal
to the excess, if any, of (i) the Taxes that would have been due if the Split
Tax Period had ended on the Closing Date over (ii) the Taxes for the Split
Tax Period which are described in this Section 9.3(c) and which have been
paid on or prior to the Closing Date or are specifically reserved for in the
Adjusted Closing Date Balance Sheet.
9.4 BASKET; LIMIT ON INDEMNIFICATION.
(a) Notwithstanding the provisions of Sections 9.1(a)(i) or
(ii) and 9.2 hereof, no indemnification shall be required to be made under
Sections 9.1(a)(i) or (ii) and 9.2 hereof until the aggregate amount of all
Losses under such Section 9.1(a)(i) or (ii) and 9.2 hereof exceeds $150,000,
in which case, the Company, the Stockholder or Parent, as the case may be,
shall be liable for all Losses arising thereafter; PROVIDED that such
limitation shall not apply to any breach of the representations and
warranties contained in Sections 5.1(a), 5.1(b), 5.1(c), 5.1(d) or 5.1(o)
hereof (the "REP BASKET") and FURTHER PROVIDED that the Rep Basket with
respect to Section 5.1(v) or clause (iii) of Section 9.1(a) (a "SECTION
9.1(A)(iii) CLAIM") shall be limited to $10,000. Notwithstanding anything
herein to the contrary, the Rep Basket shall not apply with respect to (A)
any fraudulent breach of any
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representation or warranty, (B) any claim by Parent or Merger Sub for any
Loss(es) with respect to Section 9.3 hereof or (C) any claim by Parent or
Merger Sub for any Loss(es) with respect to clause (iii) of Section 9.1(a)
hereof.
(b) Notwithstanding the provisions of Sections 9.1 and 9.2
hereof, the maximum amount of payments for indemnification provided pursuant
to Sections 9.1 and 9.2 hereof, shall be limited to an amount equal to 50% of
the aggregate Merger Consideration, in the aggregate (the "INDEMNIFICATION
CAP"), except that the Indemnification Cap shall not apply to any Loss(es)
attributable to: (i) breach of the representations and warranties contained
in Sections 5.1(a), 5.1(b), 5.1(c), 5.1(d) or 5.1(o); (ii) any fraudulent
breach of any representation or warranty or (iii) any obligation of the
Company or the Stockholder to indemnify Parent with respect to Section 9.3
hereof.
9.5 SUBROGATION. Upon making any payment for any Section
9.1(a)(iii) Claim as provided herein, the Company and the Stockholder will,
to the extent of such payment, be subrogated to the rights of Parent against
any third party in respect of the Loss to which the payment relates;
PROVIDED, HOWEVER, that until Parent recovers full payment of its Loss, any
and all claims of the Company or the Stockholder against any such third party
on account of such payment are hereby made expressly subordinated and
subjected in right of payment of Parent's rights against such third party.
9.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the parties contained in this Agreement or
in any instrument delivered pursuant hereto shall survive the Closing Date,
regardless of any investigation made by the parties, and shall remain in full
force and effect thereafter until two years after the Closing Date; provided,
however, that the representations and warranties contained in Sections
5.1(a), 5.1(b), 5.1(c), 5.1(d) and 5.1(k) shall survive for a period of four
years after the Closing, the representations and warranties contained in
Sections 5.1(m) and 5.1(o) shall survive until the applicable statutes of
limitations have run plus thirty (30) days. No action or proceeding may be
brought with respect to any claims hereunder unless written notice thereof,
setting forth in reasonable detail each such claim, shall have been sent to
the applicable party prior to the expiration of the applicable periods set
forth above. The right to indemnification or any other remedy based on
representations, warranties, covenants and obligations in this Agreement will
not be affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether before
or after the execution and delivery of this Agreement or the Closing Date,
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with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification or any other remedy based on such
representations, warranties, covenants and obligations.
9.7 ESCROW AGREEMENT. Subject to the terms and conditions of an
escrow agreement (the "ESCROW AGREEMENT") in substantially the form as is set
forth in Exhibit C hereto, to be executed by the appropriate stockholders of
the Company, Parent and Norwest Bank, Minnesota, N.A., as escrow agent
("ESCROW AGENT"), Parent Shares in an aggregate amount equal to the sum of
ten percent (10%) of the Merger Consideration owing to each holder of a
certificate representing Parent Shares to be issued in connection with the
transactions contemplated by Section 4.1 of this Agreement (the "ESCROW
AMOUNT") shall be deposited with the Escrow Agent pursuant to the terms of
the Escrow Agreement for the term of two years as collateral for the
indemnification of Parent and/or Merger Sub of possible claims pursuant to
Sections 4.2, 9.1 or 9.2 hereof (the "ESCROW SHARES"); it being understood
that such stockholders shall have all voting rights with respect to the
Escrow Shares and shall receive on a current basis all dividends and
distributions on the Escrow Shares. In the event Escrow Shares are returned
to Parent and/or Merger Sub for any purchase price adjustment pursuant to
Section 4.2 hereof or the indemnification of any claim(s) pursuant to Article
9 hereof, such Escrow Shares shall be valued, per share, at the Average Stock
Price. In the event that any Escrow Shares are returned to Parent or Merger
Sub for the indemnification of any claims pursuant to Article 9 hereof, such
Escrow Shares shall be valued at the Fair Market Value.
9.8 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude an indemnified party from asserting any
other rights or seeking any other remedies against the indemnifying party or
its successors or assigns.
ARTICLE 10
MISCELLANEOUS AND GENERAL
10.1 PAYMENT OF EXPENSES. Whether or not the Merger shall be
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transac-
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tions contemplated hereby (including, without limitation, the fees and
expenses of legal counsel, accountants, investment bankers and other
advisors); PROVIDED, HOWEVER, that the Stockholder agrees to pay all fees and
expenses incurred by the Company which are not reflected in the Adjusted
Closing Date Balance Sheet and were incurred in connection with this
Agreement and the transactions contemplated by this Agreement (including,
without limitation, the fees and expenses of Carter Capital Corporation).
10.2 MODIFICATION OR AMENDMENT. Subject to the applicable
provisions of the DGCL, at any time prior to the Effective Time, the parties
hereto may modify or amend this Agreement by written agreement executed and
delivered by duly authorized officers of the respective parties; PROVIDED,
HOWEVER, that after approval of the Merger by the stockholders of the
Company, no amendment shall be made which adversely changes the consideration
payable in the Merger or adversely affects the rights of the Company's
stockholders hereunder without the approval of such stockholders.
10.3 WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted
by applicable law.
10.4 COUNTERPARTS. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
10.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
10.6 NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to the other parties shall be in writing
and delivered personally or sent by registered or certified mail or overnight
courier with a national reputation, postage prepaid, or by facsimile
transmission (with a confirming copy sent by overnight courier), as follows:
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(a) If to the Company or the Stockholder, to
GCS Service, Inc.
191 Post Road West
Westport, Connecticut 06880
Attention: Wesley B. Tyler
Fax: (203) 221-2796
with a copy to:
Lorne W. McDougall
Edwards & Angell
101 Federal Street
Boston, Massachusetts 02110-1800
Fax: (617) 439-4170
(b) If to Parent or Merger Sub, to:
Ecolab Inc.
Ecolab Center
370 Wabasha
St. Paul, MN 55102
Attention: Senior Vice President, Corporate Planning
and Development
Facsimile: (612) 293-2573
with a copy to:
Ecolab Inc.
Ecolab Center
370 Wabasha
St. Paul, MN 55102
Attention: Lawrence T. Bell,
General Counsel
Facsimile: (612) 293-2573
and to:
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Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Peter C. Krupp, Esq.
Facsimile: (312) 407-0411
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice.
10.7 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, together with
the Confidentiality Agreement,(a) constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, among the parties
or any of them with respect to the subject matter hereof, and (b) shall not
be assigned by operation of law or otherwise, provided that (i) Parent may
assign its rights and obligations or those of Merger Sub to any direct wholly
owned subsidiary of Parent, but no such assignment shall relieve Parent of
its obligations hereunder if such assignee does not perform such obligations
and (ii) upon the death of the Stockholder, this Agreement shall be binding
on the Stockholder's beneficiaries, successors, heirs, legatees, assigns and
testamentary or intestate estate and the executor or administrator of such
estate.
10.8 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
10.9 CERTAIN DEFINITIONS. As used herein:
(a) "AFFILIATE" and with a correlative meaning "AFFILIATED"
means, with respect to any person, any direct or indirect subsidiary of such
person, and any other person that directly, or through one or more
intermediaries, controls or is controlled by or is under common control with
such first person, and, if such a person is an individual, any member of the
immediate family (including parents, spouses and children) of such individual
and any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any person who is controlled by any such
member or trust. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control
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with") shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
(b) "CLEANUP" means all actions required to: (i) clean up,
remove, treat or remediate Hazardous Substances, Oils, Pollutants or
Contaminants in the indoor or outdoor environment; (ii) prevent the Release
of Hazardous Substances, Oils, Pollutants or Contaminants so that they do not
migrate, endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care; or (iv) respond to any
government requests for information or documents in any way relating to
cleanup, removal, treatment or remediation or potential clean up, removal,
treatment or remediation of Hazardous Substances, Oils, Pollutants or
Contaminants in the indoor or outdoor environment.
(c) "ENVIRONMENTAL LAWS" means all foreign, federal, state
and local laws, regulations, rules and ordinances relating to pollution or
protection of the environment, including, without limitation, laws relating
to Releases or threatened Releases of Hazardous Substances, Oils, Pollutants
or Contaminants into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport or handling of
Hazardous Substances, Oils, Pollutants or Contaminants, and all laws and
regulations with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Substances, Oils, Pollutants or
Contaminants, and all laws relating to endangered or threatened species of
fish, wildlife and plants and the management or use of natural resources.
(d) "ENVIRONMENTAL LIABILITIES AND COSTS" means all
liabilities, obligations, responsibilities, obligations to conduct cleanup,
losses, damages, deficiencies, punitive damages, consequential damages,
treble damages, costs and expenses (including, without limitation, all
reasonable fees, disbursements and expenses of counsel, expert and consulting
fees and costs of investigations and feasibility studies and responding to
government requests for information or documents), fines, penalties,
restitution and monetary sanctions, interest, direct or indirect, known or
unknown, absolute or contingent, past, present or future, resulting from any
claim or demand, by any Person or entity, whether based in contract, tort,
implied or express warranty, strict liability, joint and several liability,
criminal or civil statute, including any Environmental Law, or arising from
environmental,
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health or safety conditions, the Release or threatened Release of Hazardous
Substances, Oils, Pollutants or Contaminants into the environment, as a
result of past or present ownership, leasing or operation of any Properties,
owned, leased or operated by the Company;
(e) "HAZARDOUS SUBSTANCES, OILS, POLLUTANTS OR CONTAMINANTS"
means all substances defined as such in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5, or defined as
such by, or regulated as such under, any Environmental Law.
(f) "MATERIAL ADVERSE EFFECT" with respect to the Company
shall mean any individual or cumulative adverse change in or effect on the
business, customers or customer relations, operations, properties, working
capital condition (financial or otherwise), assets, prospects or liabilities
of the Company and its subsidiary taken as a whole that would or is
reasonably expected to be materially adverse to the business operations,
properties, working capital condition (financial or otherwise), assets or
liabilities of the Company and its subsidiary taken as a whole or would
prevent the Company from consummating the Merger.
(g) "MATERIAL ADVERSE EFFECT" with respect to Parent shall
mean any individual or cumulative adverse change in or effect on the
business, customers or customer relations operations, properties, working
capital condition (financial or otherwise), assets, prospects or liabilities
of Parent and its subsidiaries taken as a whole that would or is reasonably
expected to be materially adverse to the business, operations, properties,
working capital condition (financial or otherwise), assets or liabilities of
Parent and its subsidiaries taken as a whole or would prevent Parent from
consummating the Merger.
(h) "PERSON" shall mean an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or, as applicable, any other entity.
(i) "RELEASE" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including,
without limitation, ambient air, surface water, groundwater, and surface or
subsurface strata) or into or out of any property, including the movement of
Hazardous Substances, Oils, Pollutants or Contaminants through or in the air,
soil, surface water, groundwater or property.
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(j) "RETURNS" means all reports, elections, estimates,
information statements, business licenses, registrations and returns.
(k) "SUBSIDIARY" shall mean, when used with reference to any
entity, any corporation or other Person a majority of the outstanding voting
securities or rights of which are owned directly or indirectly by such entity.
(l) "TAX RETURN" shall mean any report, return, information
return, or other document (including any related or supporting information
and any amendments thereto) filed or required to be filed with any Federal,
state, local, or foreign governmental entity or other authority in connection
with the determination, assessment or collection of any Tax (whether or not
such Tax is imposed on the Company) or the administration of any laws,
regulations or administrative requirements relating to any Tax, or any
statement required to be furnished to any Person under any Tax law.
(m) "TAXES" means all taxes, however denominated, including
any interest, penalties or additions to tax that may become payable in
respect thereof, imposed by any Federal, state, local or foreign government
or any agency or political subdivision thereof, which taxes shall include,
but not be limited to, all income, gross receipts, payroll, employee,
withholding, unemployment, value added, insurance, social security, sales and
use, leasing, occupation, excise, franchise, net worth, service, real and
personal property, stamp, transfer and workers' compensation taxes.
(n) "KNOWLEDGE" or "KNOWLEDGE OF THE COMPANY AND THE
STOCKHOLDER" means (i) actual knowledge of any of the directors, and Senior
Executives of the Company or the Stockholder; (ii) knowledge as would have or
should have come to the attention of such persons in the course of
discharging such individual's duties as a director or officer or member of
management of the Company (as appropriate) in a reasonable and prudent manner
consistent with sound business practice. As used in this Agreement, Senior
Executives means Wesley B. Tyler, Alex W. Lau and James A. O'Brien.
10.10 REMEDIES FOR BREACH. The parties hereto 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
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provisions hereof, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.11 CAPTIONS. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto and shall be effective as of the date first
herein above written.
ECOLAB INC.
By: /s/ Paul Delahunt
------------------------------
Name: Paul Delahunt
Title: Corporate Development V.P.
GCS ACQUISITION CORPORATION
By: /s/ Timothy P. Dordell
------------------------------
Name: Timothy P. Dordell
Title:
GCS SERVICE, INC.
By: /s/ Wesley B. Tyler
------------------------------
Name: Wesley B. Tyler
Title: President
WESLEY B. TYLER
/s/ Wesley B. Tyler
------------------------------
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[EXHIBIT A]
FORM OF AFFILIATE LETTER
______, 1998
Ecolab Inc.
Ecolab Center
370 N. Wabasha Street
St. Paul, Minnesota 55012
Gentlemen:
I am a holder of shares of common stock, $.01 par value per share
("Company Common Stock"), of GCS Service, Inc., a Delaware corporation (the
"Company"). I am aware that pursuant to the terms of the Agreement and Plan
of Merger, dated as of May __, 1998 (the "Agreement") among the Company,
Ecolab Inc., a Delaware corporation ("Ecolab"), GCS Acquisition Corporation,
a Delaware corporation ("Merger Sub") and Wesley B. Tyler, Merger Sub will be
merged (the "Merger") with and into the Company with the Company continuing
as the surviving corporation, and each of the shares of Company Common Stock
owned by me as of the time of such Merger shall be converted into shares of
common stock, par value $1.00 per share ("Ecolab Common Stock"), of Ecolab.
I understand and agree that it is intended that the Merger will be
treated as a tax free "reorganization" for federal income tax purposes. I
have been advised that as of the date hereof, I may be deemed an "affiliate"
of the Company, within the meaning of Rule 145 ("Rule 145") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), although
nothing contained herein should be construed as an admission of such fact.
If in fact I am deemed an "affiliate" of the Company under the
Securities Act, my ability to sell, assign or transfer Ecolab Common Stock
received by me in exchange for any shares of Company Common Stock pursuant to
the Merger may be restricted unless such transaction is registered under the
Securities Act or an exemption from such registration is available. I
understand that such exemptions are limited and I have obtained advice of
counsel as to the provisions of this letter agreement as well as the nature
and conditions of such exemptions,
<PAGE>
including information with respect to the applicability to the sale of such
securities of Rule 145(d) promulgated under the Securities Act, to the extent
applicable.
I understand that the representations and warranties and covenants
set forth herein will be relied upon by the Company, Ecolab, their respective
counsel and accounting firms and stockholders of the Company and Ecolab.
In connection with the above transactions, I represent and warrant
to Ecolab and agree that:
A. I have been advised that the issuance of Ecolab Common Stock to
me pursuant to the Merger will be registered with the Securities and Exchange
Commission (" SEC") under the Securities Act on a Registration Statement on
Form S-4. However, I have also been advised that because I may be deemed to
have been an "affiliate" of the Company at the time the Merger was submitted
for a vote of the stockholders of the Company, and because any distribution
by me of Ecolab Common Stock has not been registered under the Securities
Act, I may not sell, transfer, exchange, pledge, or otherwise dispose of, or
make any offer or agreement relating to any of the foregoing with respect to,
the Ecolab Common Stock acquired by me pursuant to the Merger, or any
securities that may be paid as a dividend or otherwise distributed thereon or
with respect thereto or issued or delivered in exchange or substitution
therefor (all such shares and other securities of Ecolab being herein
sometimes collectively referred to as "Restricted Securities"), or any
option, right or other interest with respect to any Restricted Securities,
unless (i) such transaction is permitted pursuant to Rules 145(c) and 145(d)
under the Securities Act, (ii) counsel reasonably satisfactory to Ecolab,
shall have advised Ecolab in a written opinion letter satisfactory to Ecolab
and Ecolab's legal counsel, and upon which Ecolab and its legal counsel may
rely, that no registration under the Securities Act would be required in
connection with the proposed sale, transfer or other disposition, (iii) a
registration statement under the Securities Act covering the Restricted
Securities proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, shall have been filed with
the SEC and made effective under the Securities Act, or (iv) an authorized
representative of the SEC shall have rendered written advice to me (sought by
me or counsel representing me, with a copy thereof and all other related
communications delivered to Ecolab) to the effect that the SEC would take no
action, or that the Staff of the SEC would not recommend that the SEC take
action, with respect to the proposed disposition if consummated.
B. I understand that Ecolab is under no obligation to register the
sale, transfer or other disposition of Restricted Securities by me or on my
behalf under the Securities Act or, except as set forth in the following
paragraph, to take any other ac-
2
<PAGE>
tion necessary in order to make compliance with an exemption from such
registration available.
C. From and after the effective date of the Merger (the "Effective
Time") and for so long as is necessary in order to permit me to sell the
Restricted Securities held by and pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Securities Act, Ecolab will use its best
efforts to file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended,
referred to in paragraph (c)(1) of Rule 144 under the Securities Act. Ecolab
is under no obligation to register the sale, transfer or other disposition of
any Restricted Securities by me or on my behalf or to take any other action
necessary (other than pursuant to the preceding sentence) in order to make
compliance with an exemption from registration available.
D. I understand that, in addition to the restrictions imposed
under this agreement, the provisions of Rule 145 limit any public resale by
me of Restricted Securities and that the restrictive legends described below
will be placed upon the Restricted Securities.
I understand that stop transfer instructions will be given to the
registrar of the certificates for the shares of Ecolab Common Stock and that
there will be placed on the certificates for the shares of Ecolab Common
Stock, or any substitutions therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION (THE ACQUISITION OF GCS SERVICE, INC.) TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), APPLIES AND MAY BE SOLD OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE LIMITATIONS OF SUCH
RULE 145, OR UPON RECEIPT BY ECOLAB INC., OF AN OPINION OF
COUNSEL ACCEPTABLE TO IT THAT SOME OTHER EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE, OR PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT.
Ecolab agrees to remove such legend to the extent that shares
evidenced by such certificates may properly be sold by me pursuant to this
agreement.
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<PAGE>
2. 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, Ecolab 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 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 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933.
E. I hereby agree that, for a period of one (1) year following the
Effective Time of the Merger, I will obtain an agreement similar to this
agreement from each transferee of the shares of Ecolab Common Stock sold or
otherwise transferred by me, but only if such sale or transfer is effected
other than in a transaction involving a registered public offering or as a
sale pursuant to Rule 145.
It is understood and agreed that this agreement will terminate and
be of no further force and effect and the legends set forth in Paragraph D
above will be removed by delivery of substitute certificates without such
legends, and the related transfer restrictions shall be lifted forthwith, if
(i) my shares of Ecolab Common Stock shall have been registered under the
Securities Act for sale, transfer, or other disposition by me or on my
behalf, (ii) I am not at the time an "affiliate" (as defined in Rule
144(a)(1) under the Securities Act) of Ecolab and have held the shares of
Ecolab Common Stock for at least one (1) year (or such other shorter period
as may be prescribed by the Securities Act and the Rules and Regulations) and
Ecolab has filed with the SEC all of the reports it is required to file under
the Securities Exchange Act of 1934, as amended, during the preceding twelve
(12) months, (iii) I am not and have not been for at least three (3) months
an "affiliate" of Ecolab and I have
4
<PAGE>
held the shares of Ecolab Common Stock for at least two (2) years, or (iv)
Ecolab shall have received a letter from the staff of the SEC, or an opinion
of counsel acceptable to Ecolab, to the effect that the stock transfer
restrictions and the legend are not required.
This agreement may be executed in several counterparts, each of which
shall constitute one in the same instrument.
5
<PAGE>
This agreement shall be binding on my heirs, legal representatives,
and successors.
Very truly yours,
------------------------------------------------
Name:(*)
Title:
Accepted this __ day of May __, 1998
ECOLAB INC.
By:
-------------------------------------------
____________________
(*) In the event this undertaking covers shares held jointly or held
individually by related parties who will sign this together, each joint or
related party shall sign.
6
<PAGE>
[EXHIBIT B]
FORM OF OPINION OF COUNSEL TO
THE COMPANY AND THE STOCKHOLDER
Based upon and subject to the foregoing, and the further limitations and
qualifications set forth below, we are of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own its properties and to carry on its business as it is now
being conducted.
2. The authorized capital stock of the Company consists solely of
500,000 shares of common stock, par value $.01 per share, of which only the
Shares are issued and outstanding. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. The only holders of record of the Shares are
as set forth on Exhibit A, attached hereto. To the best knowledge of
Counsel, there are not, as of the date hereof, any outstanding or authorized
options, warrants, calls, rights, commitments or any other agreements of any
character requiring the Company or any stockholder to issue, transfer, sell,
purchase, redeem or acquire the Shares or any shares of capital stock or any
securities or rights convertible into, or exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock of the Company.
3. The Stockholder has the full right, power and authority to execute
and deliver the Merger Agreement and the Ancillary Agreements and to
consummate the transactions contemplated thereby. The Company has the
corporate power and authority to approve, authorize, execute and deliver the
Merger Agreement and, to the extent it is a party thereto, the Ancillary
Agreements, and to consummate the transactions contemplated thereby.
4. The execution and delivery by the Company of the Merger Agreement
and the Ancillary Agreements to which it is a party, and the consummation by
the Company of the transactions contemplated thereby, have been duly and
validly authorized by the Board of Directors of the Company and by the
stockholders of the Company and no other corporate proceedings on the part of
the Company are necessary to authorize the Merger Agreement or the Ancillary
Agreements or to
<PAGE>
consummate the transactions contemplated thereby. Each of the Merger
Agreement and the Ancillary Agreements has been duly executed and delivered
by the Company and the Stockholder and is a valid and binding obligation of
the Company and the Stockholder, enforceable against the Company and the
Stockholder in accordance with its terms, except that enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in
proceeding in equity or at law).
5. The execution and delivery by the Company of the Merger Agreement
and the Ancillary Agreements to which it is a party and the performance by
the Company of all of its obligations under each such document in accordance
with its terms, do not (i) conflict with its Articles of Incorporation or
By-Laws, (ii) constitute a violation of or default under any Listed Agreement
set forth on Schedule 5.1(l) of the Merger Agreement (each, an "Applicable
Contract") or (iii) require the creation or imposition of any security
interest or lien upon any of the property of the Company pursuant to its
Articles of Incorporation, By-Laws or any Applicable Contract.
6. To the best knowledge of Counsel, there are no proceedings pending
or threatened against or affecting the Company or the Stockholder in any
court or before any governmental authority or arbitration board or tribunal
which are likely to (i) prevent or declare unlawful the transactions
contemplated by the Merger Agreement or cuase such transactions to be
rescinded or (ii) have a Material Adverse Effect with respect to the Company.
7. All necessary approvals, consents and other actions by, and notices
to and filings with, governmental authroities in connection with the transfer
to Parent of the Shares as eontemplated by the Merger Agreement have been
obtained or acomplished.
2
<PAGE>
[EXHIBIT C]
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of ______________________, 1998 (this
"Escrow Agreement"), is by and among Ecolab Inc., a Delaware corporation
("Parent"), GCS Service, Inc., a Delaware corporation (the "Company"), Wesley
B. Tyler (referred to herein as the "Stockholder Representative"), and
Norwest Bank Minnesota, National Association, as escrow agent (the "Escrow
Agent").
A. Parent, the Company, the Stockholder Representative and GCS
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Parent, entered into an Agreement and Plan of Merger dated as of
_________________, 1998 (the "Merger Agreement"), which sets forth the terms
and conditions of the Merger (as defined in the Merger Agreement).
B. Section 9.6 of the Merger Agreement provides for the placement in
escrow, pursuant to the terms of this Escrow Agreement, of an aggregate
amount equal to the sum of ten percent (10%) of the Merger Consideration (as
defined in the Merger Agreement) initially paid to each shareholder of the
Company, pursuant to Section 4.1 of the Merger Agreement, in order to provide
a non-exclusive source of funds which may be payable to Parent under the
Merger Agreement, including without limitation the obligations under Sections
4.2, 9.1 and 9.2 thereof (all Parent Shares held under this Escrow Agreement
are referred to herein as the "Escrow Shares").
C. The Company and the stockholders of the Company have appointed
Wesley B. Tyler as their agent and representative for, among other things,
all purposes related to this Escrow Agreement. [Add power of substitution].
D. The terms used herein with an initial capital letter, unless
otherwise defined herein, shall have the same meaning in this Escrow
Agreement as such terms have under the Merger Agreement.
In consideration of the representations, warranties, covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
agree as follows:
<PAGE>
1. ESCROW DEPOSIT. The Stockholder Representative, on behalf of
the Company and the stockholders of the Company, in consideration of the
transactions contemplated by the Merger Agreement, in order to induce Parent
to consummate the transactions contemplated by the Merger Agreement, and in
order to secure the obligations of the Company and the stockholders of the
Company pursuant to the Merger Agreement, hereby agree to the deposit by
Parent into escrow of the Escrow Shares pursuant to this Escrow Agreement.
In furtherance thereof, the Stockholder Representative hereby authorizes
Parent to deposit the Escrow Shares with the Escrow Agent at the Closing, in
the name of the Escrow Agent, to be held as nominee and for the benefit of
the stockholders of the Company. As so deposited, the Escrow Shares,
together with any distributions, property or other rights distributed
(including, without limitation, upon a stock split, stock dividend or other
recapitalization of Parent), other than Parent's regular quarterly cash
dividends which shall be distributed on a current basis, with respect to or
in exchange for, or otherwise attaching to, the Escrow Shares, are herein
collectively referred to as the "Escrow Fund." Each of the Company, Parent
and the Stockholder Representative acknowledge and agree that the Escrow
Shares will not be issued in the name of any stockholder of the Company until
released to such stockholder pursuant to this Escrow and that no stockholder
of the Company will be entitled to sell, transfer, encumber or otherwise
dispose of any Escrow Shares or other property constituting a part of the
Escrow Fund deposited hereunder or any interest therein unless and until such
Escrow Shares or other property constituting a part of the Escrow Fund are
delivered to the stockholders of the Company pursuant to the terms of this
Escrow Agreement, and any purported transfer in violation of the foregoing
restriction shall be null, void and of no force or effect. The Escrow Agent
will hold and administer the Escrow Fund in accordance with the provisions of
this Escrow Agreement.
2. AGENT FOR THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY.
The Stockholder Representative shall be the agent for the Company and the
stockholders of the Company under this Escrow Agreement and shall have the
sole power and authority to act on their behalf for the purposes of this
Escrow Agreement.
3. AUTHORITY OF ESCROW AGENT. The Stockholder Representative,
on behalf of the Company and the stockholders of the Company, by execution
and delivery of this Escrow Agreement, constitutes and appoints the Escrow
Agent as the true and lawful agent and attorney-in-fact to hold in its name
(or its nominee's name), and to assign and transfer the Escrow Shares and the
Escrow Fund for each of the stockholders of the Company and in the place and
stead of each of them, as fully and to all the same extent as each of them
could do in its own behalf, as shall from time to time
2
<PAGE>
be required in accordance with the provisions of this Escrow Agreement. In
furtherance of the foregoing and not in limitation thereof, the Escrow Agent
is specifically authorized to forward any certificates representing any
Escrow Shares or any other property constituting a part of the Escrow Fund to
Parent's transfer agent for purposes of having any such shares or other
property cancelled and returned to Parent as may be necessary to accomplish
the intent and purposes of this Escrow Agreement. Such authority of the
Escrow Agent shall not be affected by the subsequent bankruptcy, insolvency,
death, disability or incompetence of any of the stockholders of the Company.
4. OWNERSHIP OF ESCROW FUND. Unless and until assigned,
transferred and delivered to Parent in accordance with the provisions hereof,
the Escrow Shares and any other property constituting a part of the Escrow
Fund deposited with the Escrow Agent shall be held in trust for each
stockholder of the Company as designated by the Stockholder Representative,
in proportion to the number of shares held in the Escrow Fund for the benefit
of each stockholder of the Company, as set forth on Exhibit D hereto, such
amount being adjusted from time to time pursuant to the Merger Agreement,
(such amount being referred to herein, as with respect to each holder, its
"Pro Rata Share"). All distributions, property and other rights distributed
(including, without limitation, upon a stock split, stock dividend or other
recapitalization of Parent), except for Parent's regular quarterly cash
dividends which shall be distributed on a current basis, with respect to or
in exchange for, or otherwise attaching to, the Escrow Shares shall attach to
and run with, or be exchanged for, as the case may be, the Escrow Shares,
shall become a part of the Escrow Fund and shall be delivered to stockholders
of the Company as designated by the Stockholder Representative based upon
each stockholder's Pro Rata Share or assigned, transferred and delivered to
Parent, as the case may be, only as, if and when the Escrow Shares related to
such distributions, property and other rights are to be delivered to
stockholders of the Company based upon Pro Rata Share or to be assigned,
transferred and delivered to Parent, as the case may be, in accordance with
the terms of this Escrow Agreement. [Add provision that Escrow Agent will
pass on vote to the stockholders of the Company]
5. PURPOSE OF ESCROW FUND. The Escrow Fund shall be held by the
Escrow Agent as a non-exclusive source of funds for the satisfaction of the
obligations of the Company and the stockholders of the Company with respect
to the purchase price adjustments provided for in Section 4.2 of the Merger
Agreement and the indemnification provisions of Article 9 of the Merger
Agreement. The parties hereto acknowledge that (i) resort to the Escrow Fund
is not the sole or exclusive remedy of Parent to satisfy the obligations of
the stockholders of the Company under the Merger Agreement; (ii)
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<PAGE>
Parent may pursue any other remedies available to it, whether under the
Merger Agreement or otherwise, or at law or in equity and (iii) Parent shall
not be required to pursue or exhaust any other remedies available to it prior
to pursuing its rights under this Escrow Agreement.
6. DISTRIBUTION OF ESCROW FUND. Subject to the provisions of the
last paragraph of this Section 6, and Section 10 hereof, the Escrow Fund will
be delivered to the stockholders of the Company as designated by the
Stockholder Representative or assigned, transferred and delivered to Parent
as follows:
(a) Following the determination of the Adjusted Net Book
Value pursuant to Section 4.2 of the Merger Agreement, in the event that the
Merger Consideration is to be decreased pursuant thereto, the Stockholder
Representative agrees that Parent shall be authorized to direct the Escrow
Agent to assign, transfer and deliver to Parent the number of Escrow Shares
(and the distributions, property or other rights related to such Escrow
Shares, whether upon a stock split, stock dividend, recapitalization or
otherwise, as provided herein, except for Parent's regular quarterly cash
dividends which shall be paid on a current basis) in an amount equal to (A)
the difference between (1) the Net Worth of the Company set forth on the
Estimated Closing Balance Sheet and (2) the Adjusted Net Book Value divided
by (B) the Average Stock Price. The Stockholder Representative and the
Escrow Agent shall be jointly and severally obligated to deliver such Escrow
Shares to the Parent, within two (2) business days following determination of
the Adjusted Closing Date Balance Sheet.
(b) In the event that Parent shall pursue certain claims
described in Section 6.14 of the Merger Agreement, upon final judgment or
settlement of any such claims and distribution by Parent of any portion of
the cash recovery in favor of Parent under such claims to the Escrow Agent in
accordance with Section 6.14 of the Merger Agreement (the "Judgment
Proceeds"), the Escrow Agent shall deliver to each Stockholder of the Company
a portion of the Judgment Proceeds, if any, as determined in proportion to
each Stockholder's Pro Rata Share, in accordance with written instructions
provided by the Stockholder Representative
[Alternative: insert description of any settlement entered into prior
to Closing].
(c) On ____________, 2000, the two year anniversary of the
Closing Date, the Escrow Agent will deliver to each of the stockholders of
the Company its Pro Rata Share, according to written directions provided by
the Stockholder Representative, of the Escrow Shares (and the distributions,
property or other rights related to such Escrow Shares, whether upon a stock
split, stock dividend, recapitaliza-
4
<PAGE>
tion or otherwise, as provided herein, except for Parent's regular quarterly
cash dividends which shall be paid on a current basis) remaining in escrow,
reduced by the number of Escrow Shares equal to the dollar amount of any
claims then pending against the Escrow Fund, divided by the Fair Market Value.
(d) Following resolution of all claims consistent with
Section 6(c) above, the Escrow Agent will deliver to the Stockholder
Representative (as defined in the Merger Agreement) a number of Escrow Shares
equal to the dollar amount of any amounts for which the Stockholder
Representative may be entitled to reimbursement pursuant to Section 4.2(f) of
the Merger Agreement.
(e) Subject to Sections 6(c) and 6.2(d) above, upon the
termination of this Escrow Agreement, if there are no other claims or losses
pending, the balance, if any, of the Escrow Shares (and the distributions,
property or other rights related to such Escrow Shares, whether upon a stock
split, stock dividend, recapitalization or otherwise, as provided herein,
except for Parent's regular quarterly cash dividends which shall be paid on a
current basis) remaining in escrow under this Escrow Agreement shall be
distributed in accordance with this Section 6 hereof.
In the event Escrow Shares are returned to Parent and/or Merger Sub for
any adjustment to the purchase price pursuant to Section 4.2 of the Merger
Agreement, such Escrow Shares shall be valued per share, at the Average Stock
Price. In the event that any Escrow Shares are returned to Parent and/or
Merger Sub for the indemnification of any claims pursuant to Article 9 hereof
or the Stockholders Representatives pursuant to Section 6(d), such Escrow
Shares shall be valued at the Fair Market Value. Further, when Escrow Shares
are returned to Parent and/or Merger Sub the calculation shall be determined
on a per holder basis based on such stockholder's Pro Rata Share such that
following such return the number of shares held in the Escrow Fund in trust
for each such stockholder shall equal a whole number of shares.
7. CLAIMS AGAINST ESCROW FUND. If Parent desires to make a claim
against the Escrow Fund, Parent shall deliver to the Escrow Agent and to the
Stockholder Representative a notice setting forth a claim for adjustment or
indemnification under the Merger Agreement, which notice shall state in
reasonable detail the basis for and dollar amount of the claim and the number
of Escrow Shares necessary to discharge such claim in accordance with this
Escrow Agreement (the "Notice of Claim"). Each Notice of Claim shall be in
the form of EXHIBIT A attached hereto. If the Stockholder Representative
desires to dispute such claim or any part thereof, the Stockholder
Representative shall deliver to the Escrow Agent and to Parent, within
5
<PAGE>
twenty (20) days after the Notice of Claim has been delivered to the Escrow
Agent and the Stockholder Representative, a written notice (the "Rebuttal
Notice") setting forth in reasonable detail the basis for the dispute of such
claim. Each Rebuttal Notice shall be in the form of EXHIBIT B attached
hereto.
If, upon the expiration of twenty (20) days after the Notice of Claim
has been delivered to the Escrow Agent and the Stockholder Representative,
the Escrow Agent shall not have received a Rebuttal Notice from the
Stockholder Representative, then subject to the last paragraph of Section 6
the Escrow Agent shall deliver to Parent the number of Escrow Shares (and the
distributions, property or other rights related to such Escrow Shares as
provided herein) equal to the dollar amount of the claim provided for in the
Notice of Claim divided by the Fair Market Value.
If, prior to the expiration of such 20-day period, the Escrow Agent
shall receive a Rebuttal Notice, a conflict shall be deemed to have arisen
between the Notice of Claim and the Rebuttal Notice. Thereupon, the Escrow
Agent shall be entitled to refrain from taking any action until the Escrow
Agent shall be directed otherwise in writing executed by both of Parent and
the Stockholder Representative or by a court of competent jurisdiction.
8. APPOINTMENT, RESIGNATION, REMOVAL AND INDEMNIFICATION OF
ESCROW AGENT.
(a) Parent and the Stockholder Representative hereby appoint
the Escrow Agent in accordance with and to be governed by the terms and
conditions set forth in this Escrow Agreement, and the Escrow Agent hereby
accepts such appointment.
(b) The duties and responsibilities of the Escrow Agent shall
be limited to those expressly set forth herein and the Escrow Agent shall not
be obligated to recognize any other agreement between any of the parties
hereto, even though reference thereto may be made herein and whether or not
the Escrow Agent has knowledge thereof.
(c) The Escrow Agent shall not be personally liable for any
action taken or omitted to be taken hereunder if taken or omitted to be taken
by the Escrow Agent in good faith or in the exercise by the Escrow Agent of
its own best judgment. The Escrow Agent shall also be fully protected in
relying upon any written
6
<PAGE>
notice, demand, certificate or document that the Escrow Agent in good faith
believes to be genuine.
(d) Provided it acts in good faith, the Escrow Agent shall
not be responsible for the sufficiency or accuracy of the form, execution,
validity or genuineness of notices, documents or securities now or hereafter
deposited or delivered under this Escrow Agreement, or of any endorsement
thereof, or for any lack of endorsement thereof, or for any description
therein, nor shall the Escrow Agent be responsible or liable in any respect
on account of the identity, authority or rights of the persons executing or
delivering or purporting to execute or deliver this Escrow Agreement or any
such document, notice, security or endorsement.
(e) The Escrow Agent may resign at any time or be removed by
the mutual consent of Parent and the Stockholder Representative. No
resignation or removal of the Escrow Agent and no appointment of a successor
Escrow Agent, however, shall be effective until the acceptance of appointment
by the successor Escrow Agent in the manner herein provided. In the event of
the resignation or removal of the Escrow Agent, Parent and the Stockholder
Representative shall agree upon a successor Escrow Agent. Any successor
Escrow Agent shall execute and deliver to the predecessor Escrow Agent,
Parent and the Stockholder Representative an instrument accepting such
appointment and the transfer of the Escrow Fund and agreeing to the terms of
this Escrow Agreement, and thereupon such successor Escrow Agent shall,
without further act, become vested with all the estates, properties, rights,
powers and duties of the predecessor Escrow Agent as if originally named
herein. In the event Parent and the Stockholder Representative are unable to
agree upon a successor Escrow Agent within twenty (20) days of the creation
of the vacancy, Parent and the Stockholder Representative shall submit the
dispute for resolution to a court of competent jurisdiction.
(f) Parent and the Stockholder Representative hereby
indemnify and hold harmless the Escrow Agent from and against any and all
loss, liability, cost, damage and expense, including, without limitation,
reasonable counsel fees, which the Escrow Agent may suffer or incur by reason
of any action, claim or proceeding brought against the Escrow Agent arising
out of or relating in any way to this Escrow Agreement or any transaction to
which this Escrow Agreement relates unless such action, claim or proceeding
is the result of the bad faith conduct, willful misconduct or gross
negligence of the Escrow Agent. The Escrow Agent may consult counsel in
respect of any question arising under this Agreement and the Escrow Agent
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shall not be liable for any actions taken or omitted in good faith upon
advice of such counsel.
9. TERMINATION. This Escrow Agreement shall terminate as follows:
(a) On ____________, 2000, the two year anniversary of the
Closing Date, if there are no claims then pending against the Escrow Fund
that were made by proper delivery of a Notice of Claim prior to such date, in
which event the Escrow Agent shall deliver the remaining Escrow Fund, if any,
to the stockholders of the Company as designated by the Stockholder
Representative in their Pro Rata Shares; or
(b) Upon the distribution of the balance of the Escrow Fund
to Parent to satisfy claims of Parent in accordance herewith, if such
distribution occurs on or before _____________, 2000; or
(c) Upon final settlement of any claims of Parent that are
pending against the Escrow Fund on ____________, 2000, provided that such
claims were made by proper delivery of Notices of Claims on or before
___________, 2000, in which event the Escrow Fund shall be distributed by the
Escrow Agent in accordance with this Agreement; or
(d) Upon the mutual written agreement to terminate this
Agreement executed by Parent and the Stockholder Representative, provided
that this Escrow Agreement shall in any event terminate not later than the
five year anniversary of the Closing Date.
10. FRACTIONAL SHARES. Notwithstanding any other provision of
this Escrow Agreement to the contrary in lieu of any fractional share to
which any of the parties hereto may be entitled, Parent shall pay each of the
stockholders of the Company who would otherwise be entitled to a fraction of
a Parent Share, one additional Parent Share. If Parent becomes entitled to
receive any fraction of a share, then Parent will not receive such fractional
share but will receive the next lower whole number of Parent Share.
11. ESCROW AGENT'S FEE. The Escrow Agent shall be entitled to
compensation for its services as stated in the fee schedule attached hereto
as EXHIBIT C, which compensation shall be paid by Parent. The fee agreed
upon for the services rendered hereunder is intended as full compensation for
the Escrow Agent's services as contemplated by this Escrow Agreement;
PROVIDED, HOWEVER, that in the event that the
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<PAGE>
conditions for the disbursement of the Escrow Fund under this Escrow
Agreement are not fulfilled, or the Escrow Agent renders any material service
not contemplated in this Escrow Agreement, or there is any assignment of
interest in the subject matter of this Escrow Agreement, or any material
modification hereof, or if any material controversy arises hereunder, or the
Escrow Agent is made a party to any litigation pertaining to this Escrow
Agreement, or the subject matter hereof, then the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs and expenses, including reasonable attorney's fees, occasioned by any
delay, controversy, litigation or event, and the same be recoverable one-half
from Parent and one-half from the Stockholder Representative.
12. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be made in writing and
shall be deemed to have been duly given and effective: (a) on the date of
delivery, if delivered personally; (b) on the earlier of the fourth (4th) day
after mailing or the date of the return receipt acknowledgment, if mailed,
postage prepaid, by certified or registered mail, return receipt requested;
(c) on the date of delivery, if sent by facsimile, telecopy, telegraph, telex
or other similar telegraphic communications equipment (provided such
facsimile, telecopy, telegraph, telex or other similar telegraphic
transmissions is confirmed received during normal business hours); or (d) on
the date of delivery, if sent by a recognized overnight courier:
If to the Stockholder Representative or any of the individual
stockholders of the Company:
GCS Service, Inc.
191 Post Road West
Westport, Connecticut 06880
Attention: Wesley B. Tyler
Fax: (203) 221-2796
with a copy to:
Edwards & Angell
101 Federal Street
Boston, Massachusetts 02110-1800
Attention: Lorne W. McDougall, Esq.
Fax: (617) 439-4170
9
<PAGE>
or to such other person or address as the stockholders of the Company shall
furnish to the other parties hereto in writing in accordance with this
subsection.
If to Parent:
Ecolab Inc.
370 North Wabasha Street
St. Paul, Minnesota 55102
Attention: Senior Vice President,
Corporate Planning and Development
Fax: (612) 293-2573
with copies to:
Ecolab Inc.
370 North Wabasha Street
St. Paul, Minnesota 55102
Attention: Lawrence T. Bell, General Counsel
Fax: (612) 293-2471
and
Skadden, Arps, Slate, Meagher & Flom (Illinois)
Suite 2100
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Peter C. Krupp, Esq.
Fax: (312) 407-0411
or to such other person or address as Parent shall furnish to the other parties
hereto in writing in accordance with this subsection.
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If to the Escrow Agent:
Norwest Bank Minnesota, N.A.
Norwest Center
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Michelle Healy
Fax: (612) 667-9825
or to such other address as the Escrow Agent shall furnish to the other parties
hereto in writing in accordance with this subsection.
13. GENERAL.
(a) EXECUTION IN COUNTERPARTS. This Escrow Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) WAIVERS. No waiver of any term, covenant or condition of
this Escrow Agreement shall be effective unless made in a written instrument
duly executed by or on behalf of the party which has the benefit of such term,
covenant or condition.
(c) AMENDMENTS. The parties may agree to the amendment or
modification of this Escrow Agreement by an agreement in writing executed in the
same manner as this Escrow Agreement.
(d) ASSIGNMENT. This Escrow Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, successors and permitted
assigns, but neither this Escrow Agreement nor any of the rights, interests or
obligations hereunder shall be assigned (whether voluntarily, involuntarily, by
operation of law, or otherwise) by any of the parties hereto, without the prior
written consent of the other parties; PROVIDED, HOWEVER, that Parent may assign
this Escrow Agreement, in whole or in any part, and from time to time, to a
subsidiary or affiliate of Parent, if Parent remains bound hereby.
(e) GOVERNING LAW. This Escrow Agreement and the legal
relations among the parties hereto shall be governed by and construed in
accordance
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with the internal substantive laws of the State of Minnesota (without regard
to the laws of conflict that might otherwise apply) as to all matters,
including without limitation matters of validity, construction, effect,
performance and remedies.
(f) CAPTIONS. The captions of this Escrow Agreement are for
convenience of reference only and shall not affect in any manner any of the
terms, covenants or conditions hereof.
(g) INJUNCTIVE RELIEF. It is expressly agreed among the parties
hereto that monetary damages would be inadequate to compensate a party hereto
for any breach by any other party of its covenants and agreements herein.
Accordingly, the parties agree and acknowledge that any such violation or
threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party will be
entitled to injunctive relief against the threatened breach hereof or the
continuation of any such breach without the necessity of proving actual damages
and may seek to specifically enforce the terms hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be duly executed as of the day and year first above written.
ECOLAB INC.
By:_____________________________________
Title:__________________________________
GCS SERVICE, INC.
By:_____________________________________
Title:__________________________________
WESLEY B. TYLER
By:_____________________________________
Title:__________________________________
NORWEST BANK MINNESOTA, N.A.
By:_____________________________________
Title:__________________________________
<PAGE>
Exhibit A
NOTICE OF CLAIM UNDER ESCROW AGREEMENT
, 199__
Norwest Bank Minnesota, N.A.
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Michelle Healy
Fax: (612) 667-9825
_____________________________
_____________________________
_____________________________
Attention: Wesley Tyler
Fax:_________________________
Ladies and Gentlemen:
This Notice of Claim is being delivered pursuant to the Escrow Agreement
dated as of ___________________, 1998 by and among Ecolab Inc., Wesley B. Tyler
(as Stockholder Representative) and Norwest Bank Minnesota, National
Association, as escrow agent.
The basis for the claim(s) asserted by Ecolab Inc. under the Escrow
Agreement and the dollar amount(s) thereof are as follows: [SPECIFY CLAIMS IN
REASONABLE DETAIL] _____________________.
The number of Escrow Shares necessary to discharge such claim(s)
is________.
Sincerely,
ECOLAB INC.
By:_____________________________________
Title:__________________________________
cc: Lorne W. McDougall
Edwards & Angell
A-1
<PAGE>
Exhibit B
REBUTTAL NOTICE UNDER ESCROW AGREEMENT
, 199
Norwest Bank Minnesota, N.A.
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Michelle Healy
Fax: (612) 667-9825
Ecolab Inc.
Ecolab Center
370 North Wabasha Street
St. Paul, Minnesota 55102
Attention: Senior Vice President,
Corporate Planning and Development
Fax: 612-293-2173
Ladies and Gentlemen:
This Rebuttal Notice is being delivered pursuant to the Escrow Agreement
dated as of ________________, 1998 by and among Ecolab Inc., a Delaware
corporation, Wesley B. Tyler (as Stockholder Representative) and Norwest Bank
Minnesota, National Association, as escrow agent, to dispute, to the extent
described below, the claims of Ecolab Inc. asserted in its Notice of Claim dated
___________________, 199__.
The claim(s) asserted by Ecolab Inc. that are disputed by the stockholders
of GCS and the basis for such dispute(s) are as follows:_____________________
[SPECIFY BASIS FOR DISPUTE(S) IN REASONABLE DETAIL]
____________________________.
Sincerely,
Wesley Tyler
cc: Ecolab Inc., Attention: General Counsel
Peter C. Krupp, Skadden, Arps, Slate, Meagher & Flom (Illinois)
B-1
<PAGE>
[EXHIBIT D]
FORM OF OPINION OF INSIDE COUNSEL TO PARENT
Based upon and subject to the foregoing and to the qualifications and
limitations set forth in this letter, we are of the opinion that:
1. Parent is a corporation validly existing and in good standing under
the laws of the State of Delaware. Parent has the corporate power and
corporate authority to carry on its businesses as it is now being conducted.
2. Parent has the corporate power and corporate authority to execute
and deliver the Merger Agreement and the Ancillary Agreements, and to perform
any and all obligations contemplated thereby.
3. The execution and delivery by parent of the Merger Agreement and the
Ancillary Agreements and the consummation by Parent of the transactions
contemplated thereby have been authorized by all requisite corporate action
on the part of Parent. Each of the Merger Agreement and the Ancillary
Agreements has been duly executed and delivered by Parent and is a valid and
binding obligation of Parent, enforceable against Parent in accordance with
its terms, except that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
enforceability is considered in proceeding in equity or at law).
4. The execution and delivery by Parent of the Merger Agreement and the
Ancillary Agreements and the performance by Parent of all of its obligations
under each such document in accordance with its terms, do not (i) conflict
with its Certificate of Incorporation or By-Laws; (ii) constitute a violation
of or default under any contract listed on Exhibit A hereto (each, an
"Applicable Contract") or (iii) require the creation or imposition of any
security interest or lien upon any of the property of Parent pursuant to its
Certificate of Incorporation, By-Laws or any Applicable Contract.
5. All of the Parent Shares will be, when issued in accordance with the
Merger Agreement, duly authorized, validly issued, fully paid and
nonassessable.
<PAGE>
Exhibit A to Opinion
1. Rights Agreement dated as of February 24, 1996 - Incorporated by reference
to Exhibit (4) of the Company's Current Report on Form 8-K dated February
24, 1996.
2. Note Agreement dated as of October 1, 1991 relating to $100,000,000 9.68%
Senior Notes Due October 1, 2001 between the Company and the insurance
companies named therein - Incorporated by reference to Exhibit (4)F of the
Company's Form 10-K Annual Report for the year ended December 31, 1991.
3. Multicurrency Credit Agreement ("Credit Agreement") dated as of September
29, 1993, as Amended and Restated as of October 17, 1997, among the
Company, the financial institutions party thereto, Citibank, N.A., as
Agent, Citibank International Plc, as Euro-Agent and Morgan Guaranty Trust
Company of New York as Co-Agent - Incorporated by reference to Exhibit (4)A
of the Company's Form 10-Q for the quarter ended September 30, 1997.
4. Australian Dollar Local Currency Addendum to the Credit Agreement -
Incorporated by reference to Exhibit (4)B of the Company's Form 10-Q for
the quarter ended September 30, 1997.
5. Indenture dated as of November 1, 1996 as amended and supplemented, between
the Company and the First National Bank of Chicago as Trustee -
Incorporated by reference to Exhibit 4.1 of the Company's Amendment No. 1
to Form S-3 filed November 15, 1996.
6. Amended and Restated Umbrella Agreement between Henkel KGaA and Ecolab Inc.
dated June 26, 1991 - Incorporated by reference to Exhibit 13 of HC
Investments, Inc.'s and Henkel KGaA's Amendment No. 4 to Schedule 13D dated
July 16, 1991.
7. Amended and Restated Joint Venture Agreement between Henkel KGaA and Ecolab
Inc. dated June 26, 1991 - Incorporated by reference to Exhibit 14 of HC
Investments, Inc.'s and Henkel KGaA's Amendment No. 4 to Schedule 13D dated
July 16, 1991.
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8. Amended and Restated ROW Purchase Agreement between Henkel KGaA and Ecolab
Inc. dated June 26, 1991 - Incorporated by reference to Exhibit (7) of the
Company's Current Report on Form 8-K dated July 11, 1991.
9. Amended and Restated Stockholder's Agreement between Henkel KGaA and Ecolab
Inc. dated June 26, 1991 - Incorporated by reference to Exhibit 15 of HC
Investments, Inc.'s and Henkel KGaA's Amendment No. 4 to Schedule 13D dated
July 16, 1991.
3
<PAGE>
EXHIBIT E is intentionally omitted.
<PAGE>
ANNEX II
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
ha 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 Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger
effected pursuant to Section 251 (g) of this title), Section 252, Section 254,
Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal
rights under this section shall be available for the shares of any
class or series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting
of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or 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 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided m subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
<PAGE>
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 Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
(i) Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts
in respect thereof;
(ii) Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or 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 holders;
(iii) Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
(iv) Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a
subsidiary Delaware corporation party to a merger effected under
Section 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
2
<PAGE>
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 m such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, 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 chat 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 Section 228 or Section 253 of this title, each
constituent corporation, either before the effective date of the
merger or consolidation or within ten days thereafter shall notify
each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and chat appraisal rights are
available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy
of this section; provided that,
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<PAGE>
if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such
notice may, and, if given on or after the effective date of the merger
or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within l0 days after such effective date, provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice chat such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is
given.
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(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
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 l0 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 l or more publications at
least l 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
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<PAGE>
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 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,
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<PAGE>
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. Nothwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed to any stockholder without approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) 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. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
7
<PAGE>
Annex III
Board of Directors
GCS Service, Inc.
83 Wooster Heights Road
Danbury, CT 06810
Gentlemen:
GCS Service, Inc. (the "Company") and Ecolab, Inc. (the "Acquirer") have
entered into an Agreement and Plan of Merger Among Ecolab, Inc., GCS
Acquisition Corporation, GCS Service, Inc. and Wesley B. Tyler, dated the
date hereof, (the "Agreement"). Pursuant to the Agreement, all the Company's
outstanding common stock, $.01 per share par value per share, will be
acquired by the Acquirer for $26,363,671 in shares of the Acquirer's Common
Stock ("Ecolab Stock") with similar terms and conditions to its existing
Common Stock, together with the associated rights to purchase shares of
Series A Junior Participating Preferred Stock of the Acquirer issued pursuant
to the Rights Agreement dated February 24, 1996.
You have asked us whether, in our opinion, the proposed consideration to be
received by the holders of the Company's outstanding shares, taken as a
whole, is fair, to such shareholders from a financial point of view. Our
opinion does not address the allocation of the consideration among the
shareholders of the Company, whether pursuant to the Agreement, the Company's
Certificate of Incorporation or otherwise.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's financial statements and related financial
information for the four fiscal years ended September 30, 1997, and the
related unaudited financial information for the quarterly period ended
March 31, 1998;
2. Reviewed the Acquirer's Annual Report, Form 10-K for the fiscal year ended
December 31, 1997 and the Form 10-Q and the related unaudited financial
information for the quarterly period ended March 31, 1998;
3. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
4. Conducted discussions with members of senior management and the Board of
Directors of the Company concerning its business and prospects;
5. Compared the Company's contemplated transaction with that of certain other
transactions which we deemed to be reasonably similar;
<PAGE>
Board of Directors
Page 2
6. Reviewed the Agreement dated as of May 12, 1998;
7. Reviewed the draft of Wesley B. Tyler's Employment contract appended to the
Agreement dated May 12, 1998 and the draft of the Stay and Pay Agreements
of Sam Mazzilli and James Rowland;
8. Reviewed the Restated Certificate of Incorporation of Ecolab, Inc. dated
October 22, 1997;
9. Reviewed such other financial information and analysis and performed such
other investigations and took into account such other matters as we deemed
appropriate, including our assessment of general economic, market, monetary
and other conditions as they exist on the date hereof and further
including our review certain financial information provided by the
Company's independent auditors.
In preparing our opinion, we have relied on and assumed the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company. We have not independently verified any such information or
assumptions, including financial forecasts, or undertaken (and have assumed
no responsibility to undertake), and have not been provided with, an
independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company and the Acquirer and have assumed that all
assets or liabilities (contingent or otherwise, known or unknown) of the
Company and the Acquirer are as set forth in their respective consolidated
financial statements. With respect to the financial forecasts furnished by
the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company.
Our opinion is based upon regulatory, general economic, market and monetary
conditions existing on the date hereof.
Our opinion set forth below is directed to the Board of Directors of the
Company and does not constitute a recommendation to any shareholder of the
Company with respect to the approval of the transactions contemplated by the
Agreement. Our opinion does not address the relative merits of the
transaction and any other transactions or business strategies discussed by
the Board of Directors of the Company as alternatives to the transaction or
the decision of the Board of Directors of the Company to proceed with the
transaction. This letter is for the information of the Board of Directors of
the Company only in connection with its consideration of the Agreement and is
not to be reproduced, summarized, quoted or referred to, in whole or in part,
except in the proxy statement, S-4, and other document prepared in connection
with the transactions contemplated by the Agreement, nor shall this letter be
used for any other purposes or publicly disclosed except as provided, without
our prior written consent.
<PAGE>
Board of Directors
Page 3
We have acted as financial advisor to the Board of Directors of the Company
in connection with the transaction contemplated by the Agreement and will
receive a fee for our services. None of Carter Capital Corporation's
employees have any past, present, prospective, direct, or indirect interest
in the stock of the Company. Further, the compensation for this opinion is
neither based upon nor contingent upon the conclusion reported.
On the basis of, and subject to the foregoing, we are of the opinion that the
proposed stock consideration to be received by the Company's stockholders,
taken as a whole, is fair to such stockholders from a financial point of view.
Very Truly Yours,
CARTER CAPITAL CORPORATION
_________________________________
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of
Delaware ("DGCL") empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent
or another corporation or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding 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, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify
any person who was or is a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth, above against expenses
actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted under
similar standards, except that no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine that, despite the adjudication of liability, such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that, to the extent a director or
officer of a corporation has been successful in the defense of any action,
suit or proceeding refereed to in referred to in subsections (a) and (b) or
in the defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith; that indemnification provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and that the scope of indemnification
extends to directors, officers, employees or agents of a constituent
corporation absorbed in a consolidation or merger and persons serving in that
capacity at the request of the constituent corporation for another. Section
145 also empowers the corporation to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against or incurred by such person in any such capacity or arising
out of such person's status as such, whether or not the corporation would
have the power to indemnify such person against such liabilities under
Section 145, including liabilities under the Securities Act.
Article V of Ecolab's By-Laws provides for indemnification of
Ecolab's officers and directors to the full extent allowed by Delaware law.
In addition, Article IV of Ecolab's Restated Certificate of
Incorporation provides that Ecolab's directors do not have personal liability
to Ecolab or its stockholders for monetary damages for any breach of their
fiduciary duty as directors, except (i) for a breach of the duty of loyalty;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of the law; (iii) for willful or negligent
violations of certain provisions under the DGCL imposing certain requirements
with respect to stock repurchases, redemptions and dividends, or (iv) for any
transaction from which the director derived an improper personal benefit.
Subject to these exceptions, under Article IV, directors do not have any
personal liability to Ecolab or its stockholders for any violation of their
fiduciary duty.
Ecolab has directors and officers liability insurance which protects
each director or officer from certain claims and suits, including stockholder
derivative suits, even where the director may be determined to not be
entitled to indemnification under the DGCL and claims and suits arising under
the Securities Act. The policy may also afford coverage under circumstances
where the facts do not justify a finding that the director or officer acted
in good faith and in a manner that was in or not opposed to the best
interests of Ecolab.
Ecolab has entered into indemnification agreements with each of its
directors (the "Indemnification Agreements"). The Indemnification Agreements
provide for the prompt indemnification "to the fullest extent permitted by
law" and for the prompt advancement of expenses, including attorneys' fees
and other costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness or participating in (including on
appeal) any threatened, pending or completed action, suit or proceeding
related to the fact that such director is or was a director, officer,
employee, trustee, agent or fiduciary of Ecolab or is
<PAGE>
or was serving at the request of Ecolab as a director, officer, employee,
trustee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan trust or other enterprise, or by reason of
anything done or not done by a director in any such capacity. The
Indemnification Agreements further provide that Ecolab has the burden of
proving that a director is not entitled to indemnification in any particular
case.
The foregoing represents a summary of the general effect of the
DGCL, Ecolab's By-Laws and Restated Certificate of Incorporation, Ecolab's
directors and officers liability insurance coverage and the Indemnification
Agreements for purposes of general description only.
<PAGE>
ITEM 21. EXHIBITS
2.** Agreement and Plan of Merger, dated May 12, 1998, between the Registrant,
GCS Acquisition Corporation, GCS Service, Inc. and Wesley B. Tyler.
(Included as Annex I to the Proxy Statement/Prospectus contained in this
Registration Statement)
5.1** Opinion and Consent of Kenneth A. Iverson, Esq., Vice President and
Secretary, Ecolab Inc.
15.1* Letter of Coopers & Lybrand L.L.P. regarding unaudited interim financial
information.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Coopers and Lybrand L.L.P.
23.3* Consent of KPMG Deutsche Treuhand - Gessellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
23.4** Consent of Kenneth A. Iverson, Esq. (Included in Exhibit 5 to this
Registration Statement and incorporated herein by reference)
23.5* Consent of Carter Capital Corporation
24** Powers of Attorney.
99.1** Form of Proxy Card of GCS Service, Inc.
99.2* Opinion of Carter Capital Corporation (included as Annex III to the
Proxy Statement/Prospectus contained in this Registration Statement).
* Filed herewith.
** Previously filed as an Exhibit to this Registration Statement on Form S-4,
file number 333-55869
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or 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 Proxy State
ment/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 Proxy State ment/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 Proxy Statement/Prospectus (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that
purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 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
of 1933, 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. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions described under Item 20 above 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 of
1933 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 Act and will be governed by the final adjudication of
such issue.
5. To respond to requests for information that is incorporated by
reference into the Proxy Statement/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.
6. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of St. Paul, State of Minnesota.
Dated: June 11, 1998
ECOLAB INC.
By: /s/ ALLAN L. SCHUMAN
--------------------
Allan L. Schuman
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ ALLAN L. SCHUMAN President and Chief Executive June 11, 1998
- ---------------------------- Officer (Principal Executive
Allan L. Schuman Office and Director)
/s/ MICHAEL E. SHANNON Chairman of the Board, Chief June 11, 1998
- ---------------------------- Financial and Administrative
Michael E. Shannon Officer (Principal Financial
Officer and Director)
/s/ ARTHUR E. HENNINGSEN, JR. Senior Vice President and June 11, 1998
- ----------------------------- Controller (Principal
Arthur E. Henningsen, Jr. Accounting Officer)
/s/ KENNETH A. IVERSON Directors June 11, 1998
- -----------------------------
Kenneth A. Iverson,
as attorney-in-fact for
Les S. Biller, Ruth S. Block,
James J. Howard, Joel W.
Johnson, Jerry W. Levin,
Reuben F. Richards, Richard L. Schall,
Roland Schulz, Philip L.
Smith, Hugo Uyterhoeven and
Albrecht Woeste
</TABLE>
<PAGE>
EXHIBIT INDEX
1** Agreement and Plan of Merger, dated May 12, 1998, between the Registrant,
GCS Acquisition Corporation, GCS Service, Inc. and Wesley B. Tyler.
(Included as Annex I to the Proxy Statement/Prospectus contained in this
Registration Statement)
5.1** Opinion and Consent of Kenneth A. Iverson, Esq., Vice President and
Secretary, Ecolab, Inc.
15.1* Letter of Coopers & Lybrand L.L.P. regarding the unaudited interim
financial information
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of KPMG Deutsche Truehand-Gessellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
23.4** Consent of Kenneth A. Iverson, Esq. (Included in Exhibit 5 to this
Registration Statement and incorporated herein by reference)
23.5* Consent of Carter Capital Corporation
24** Powers of Attorney
99.1** Form of Proxy Card of GCS Service, Inc.
99.2* Opinion of Carter Capital Corporation (included as Annex III to the
Proxy Statement/Prospectus contained in this Registration Statement).
* Filed herewith.
** Previously filed as an Exhibit to this Registration Statement on Form S-4,
file number 333-55869
<PAGE>
Exhibit 15.1
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
We are aware that our report dated April 24, 1998 on our reviews of interim
financial information of Ecolab Inc. for the periods ended March 31, 1998 and
1997, and included in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, is incorporated by reference in this registration
statement. Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/Coopers & Lybrand L.L.P.
--------------------------------
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
June 11, 1998
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
GCS Service, Inc.:
We consent to the use our reports with respect to the financial statements of
GCS Service, Inc. included herein and to the reference to our firm under the
heading "Independent Certified Public Accountants" in the registration
statement on Form S-4 filed by Ecolab Inc.
/s/ KPMG Peat Marwick LLP
---------------------------
KPMG Peat Marwick LLP
Stamford, Connecticut
June 10, 1998
<PAGE>
Exhibit 23.2
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference in this Registration Statement of
Ecolab Inc. on Form S-4 of our reports dated February 23, 1998, on our audits of
the consolidated financial statements and related financial statement schedule
of Ecolab Inc. as of December 31, 1997, 1996 and 1995 and for the years ended
December 31, 1997, 1996 and 1995, which reports are included or incorporated by
reference in Ecolab Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the references to our firm under the
caption "Independent Public Accountants."
/s/Coopers & Lybrand L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.
Saint Paul, Minnesota
June 11, 1998
<PAGE>
Exhibit 23.3
CONSENT OF KPMG DEUTSCHE TREUHAND-GESELLSCHAFT
AKTIENGESELLSCHAFT WIRTSCHAFTSPRUFUNGSGESELLSCHAFT
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report dated January 23, 1998, on our audit of the
combined financial statements and schedule of the Henkel-Ecolab Joint-Venture
as of November 30, 1997, 1996 and 1995 and for the periods beginning December
1, 1996, 1995 and 1994 and ended November 30, 1997, 1996 and 1995, which
report is included in Ecolab Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997. We also consent to the reference to our firm under
the caption "Independent Public Accountants."
Dusseldorf, Germany
June 11, 1998
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/Stefan Haas /s/Bernhard Momken
Stefan Haas Bernhard Momken
Wirtschaftsprufer Wirtschaftsprufer
<PAGE>
EXHIBIT 23.5
CONSENT OF CARTER CAPITAL CORPORATION
Carter Capital Corporation hereby consents to (i) the use of its
name in the Proxy Statement and Prospectus forming part of this Registration
Statement on Form S-4, (ii) the filing of its opinion letter, attached as
Exhibit 99.2 to the Proxy Statement and Prospectus and (iii) the description
of such opinion letter under the caption "Fairness Opinion" thereof. By
giving such consent we do not thereby admit that we are experts with respect
to any part of this Registration Statement within the meaning of the term
"expert" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
(the "Act") or that we come within the category of persons whose consent is
required under the Act.
CARTER CAPITAL CORPORATION
By: /s/ Michael Carter
---------------------------------
