<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1999
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALCOA INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 3334 25-0317820
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Identification Number)
of Incorporation or Classification Code
Organization) Number)
201 Isabella Street
Pittsburgh, Pennsylvania 15212
(412) 553-4545
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Lawrence R. Purtell
Executive Vice President and General Counsel
Alcoa Inc.
201 Isabella Street
Pittsburgh, Pennsylvania 15212
(412) 553-4545
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------
Copies to:
J. Michael Schell, Esq. Andrew R. Brownstein, Esq.
Margaret L. Wolff, Esq. Wachtell, Lipton, Rosen & Katz
Skadden, Arps, Slate, Meagher & Flom 51 West 52nd Street
LLP New York, New York 10019
919 Third Avenue (212) 403-1000
New York, New York 10022
(212) 735-3000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger (the "Merger") of
a subsidiary of the Registrant with and into Reynolds Metals Company
("Reynolds") pursuant to the Agreement and Plan of Merger, dated as of August
18, 1999, described in the enclosed proxy statement and prospectus.
---------------
If the securities being registered on this form are to be 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 same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
Calculation of Registration Fee
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Proposed Amount of
Securities Being Amount To Maximum Offering Price Maximum Aggregate Registration
Registered(1) Be Registered(2) Per Share(3) Offering Price(4) Fee(5)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$1.00 per share....... 72,382,585 $66.21 $4,792,450,952.85 $1,265,207.05
- ------------------------------------------------------------------------------------------------
</TABLE>
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(1) The Registration Statement relates to the Common Stock, par value $1.00
per share, of the Registrant (the "Alcoa Common Stock") issuable to
holders of the Common Stock, no par value per share, of Reynolds (the
"Reynolds Common Stock") in connection with the Merger.
(2) The number of shares to be registered pursuant to this Registration
Statement is based on the maximum number of shares of Alcoa Common Stock
issuable to stockholders of Reynolds in the Merger.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as amended
(the "Securities Act"), based on the average of the high and low prices of
Reynolds Common Stock on December 22, 1999, as reported on the New York
Stock Exchange, Inc., at an exchange ratio of 1.06 shares of Alcoa Common
Stock per share of Reynolds Common Stock.
(4) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act, based on the product of the
estimated maximum number of shares of Reynolds Common Stock to be acquired
in the Merger multiplied by the proposed maximum offering price per share
calculated as described in (3) above.
(5) Calculated by multiplying 0.000264 by the proposed maximum aggregate
offering price. $760,154.20 of such amount is offset pursuant to Rule
457(b) by fees previously paid.
---------------
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 of 1933, or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
YOUR VOTE ON OUR PROPOSED MERGER IS VERY IMPORTANT!
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Reynolds Metals Company to be held at the offices of Reynolds Metals Company,
6601 West Broad Street, Richmond, Virginia, on February 11, 2000, at 3:00 p.m.,
local time.
At the meeting you will be asked to approve and adopt a merger agreement
among Reynolds, Alcoa Inc. and RLM Acquisition Corp., a newly formed, wholly
owned subsidiary of Alcoa. If our stockholders approve and adopt the merger
agreement, RLM Acquisition Corp. would merge with Reynolds and Reynolds would
become wholly owned by Alcoa. In the merger you would receive 1.06 shares of
common stock of Alcoa for each Reynolds share you currently own. More
information about the merger is contained in the materials that accompany this
letter.
The board of directors of Reynolds has approved the merger and recommends
that Reynolds stockholders vote for the merger proposal as described in the
attached materials.
Your vote is important, regardless of the number of shares you own. Please
vote as soon as possible to make sure that your shares are represented at the
special meeting. To vote your shares, please complete and return the enclosed
proxy card. You also may cast your vote in person at the special meeting.
Very truly yours,
/s/ Jeremiah J. Sheehan
Jeremiah J. Sheehan
Chairman of the Board and
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock to be issued under
this proxy statement and prospectus or determined if this proxy statement and
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
This proxy statement and prospectus is dated December 30, 1999, and is first
being mailed to stockholders on or about January 7, 2000.
<PAGE>
REYNOLDS METALS COMPANY
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 11, 2000
Richmond, Virginia
December 30, 1999
A special meeting of stockholders of Reynolds Metals Company will be held at
the offices of Reynolds Metals Company, 6601 West Broad Street, Richmond,
Virginia, on February 11, 2000, at 3:00 p.m., local time, for the following
purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of August 18, 1999, among Alcoa Inc., RLM
Acquisition Corp. and Reynolds Metals Company, and to approve the
transactions contemplated thereby. We have included a copy of the merger
agreement as Annex A to the attached proxy statement and prospectus.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on December 29, 1999
will be entitled to vote at the special meeting. To vote your shares, please
complete and return the enclosed proxy card. You also may cast your vote in
person at the special meeting. Please vote promptly whether or not you expect
to attend the special meeting.
By order of the Board of Directors,
/s/ Donna C. Dabney
Donna C. Dabney
Secretary
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON
THE ENCLOSED PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
Alcoa Inc............................................................... 3
Reynolds Metals Company................................................. 3
Vote Required to Approve the Merger..................................... 3
What You Will Receive in the Merger..................................... 3
Reynolds' Reasons for the Merger........................................ 4
Our Recommendation to Stockholders...................................... 4
Opinions of Financial Advisors.......................................... 4
Interests of Certain Persons in the Merger.............................. 4
Conditions to the Merger................................................ 4
Alternative Transactions................................................ 5
Termination of the Merger Agreement..................................... 5
Termination Fees........................................................ 5
Regulatory Matters...................................................... 5
United States Federal Income Tax Consequences of the Merger............. 6
Accounting Treatment.................................................... 6
No Appraisal Rights..................................................... 6
Comparative Per Share Market Price Information.......................... 6
Selected Historical Financial Information............................... 7
Alcoa Inc. Selected Historical Financial Information.................... 7
Reynolds Metals Company Selected Historical Financial Information....... 8
Unaudited Selected Pro Forma Condensed Consolidated Financial
Information............................................................ 9
Comparative Per Share Information....................................... 11
RISK FACTORS.............................................................. 12
Merger Consideration Is Fixed Despite Potential Changes in Stock
Prices................................................................. 12
Integration of Alcoa and Reynolds Operations May Be Difficult........... 12
Commodity Price Risks................................................... 12
Fluctuations in Foreign Exchange and Interest Rates..................... 13
Environmental Contingencies............................................. 13
Year 2000 Issue......................................................... 14
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 18
THE REYNOLDS SPECIAL MEETING.............................................. 20
When and Where the Special Meeting Will be Held......................... 20
What Will be Voted Upon................................................. 20
Only Reynolds Common Stockholders of Record as of December 29, 1999 Are
Entitled to Vote....................................................... 20
A Majority of Outstanding Shares Must be Represented For a Vote to be
Taken.................................................................. 20
Vote Required for Approval.............................................. 20
Voting Your Shares and Changing Your Vote............................... 20
How Proxies Are Counted................................................. 21
Cost of Solicitation.................................................... 21
THE MERGER................................................................ 22
The Companies........................................................... 22
Background of the Merger................................................ 22
Reasons for the Merger and Recommendations of the Reynolds Board........ 29
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Opinions of Reynolds' Financial Advisors................................ 31
Management and Operations of Reynolds After the Merger.................. 43
Accounting Treatment.................................................... 43
United States Federal Income Tax Consequences of the Merger............. 43
Antitrust............................................................... 44
Other Regulatory Matters................................................ 46
No Appraisal Rights..................................................... 46
Federal Securities Laws Consequences; Stock Transfer Restriction
Agreements............................................................. 47
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION............... 48
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........... 50
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 59
Severance Agreements.................................................... 59
Reynolds Nonqualified Stock Option Plans................................ 59
Reynolds Restricted Stock Plan for Outside Directors.................... 60
Reynolds Long-Term Performance Share Plan............................... 60
Reynolds Deferral Plans................................................. 60
Reynolds Grantor Trust.................................................. 60
Indemnification and Insurance........................................... 61
THE MERGER AGREEMENT...................................................... 62
Form of Merger.......................................................... 62
Consideration to be Received in the Merger.............................. 62
Exchange Agent; Procedures for Exchange of Certificates................. 62
Representations and Warranties in the Merger Agreement.................. 63
Covenants in the Merger Agreement....................................... 64
Solicitation of Alternative Takeover Proposals.......................... 66
Stock Options........................................................... 67
Benefits Matters........................................................ 67
Indemnification; Directors' and Officers' Insurance..................... 68
Conditions Precedent to the Merger...................................... 68
Termination............................................................. 69
Termination Fees........................................................ 70
Costs and Expenses...................................................... 70
Amendment............................................................... 70
Waiver.................................................................. 70
OWNERSHIP OF REYNOLDS COMMON STOCK........................................ 71
Beneficial Ownership of Directors and Management of Reynolds............ 71
Beneficial Ownership of Certain Stockholders............................ 72
DESCRIPTION OF ALCOA CAPITAL STOCK........................................ 73
Authorized Capital Stock................................................ 73
Alcoa Common Stock...................................................... 73
Alcoa Preferred Stock................................................... 74
Transfer Agent and Registrar............................................ 76
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 77
Board of Directors...................................................... 77
Limitation of Director Liability........................................ 77
Indemnification of Directors and Officers............................... 78
Amendments to Charter................................................... 79
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mergers and Other Fundamental Transactions.............................. 80
Authorized Capital Stock................................................ 80
Dividends............................................................... 80
Stock Repurchases....................................................... 81
Election of Directors................................................... 81
Appraisal or Dissenters' Rights......................................... 81
Amendments to Bylaws.................................................... 82
Action by Written Consent............................................... 82
Stockholder Meetings.................................................... 82
Rights of Inspection.................................................... 84
Case Law................................................................ 84
Court Systems........................................................... 84
Fiduciary Duties of Directors........................................... 85
Anti-Takeover Laws...................................................... 87
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION
OF REYNOLDS COMMON STOCK................................................. 89
INDEPENDENT ACCOUNTANTS................................................... 89
LEGAL MATTERS............................................................. 89
WHERE YOU CAN FIND MORE INFORMATION....................................... 90
ANNEX A--AGREEMENT AND PLAN OF MERGER
ANNEX B--OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
ANNEX C--OPINION OF GOLDMAN, SACHS & CO.
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the companies proposing the merger?
A: We believe that combining our two companies should result in a company that
is better positioned to address the ongoing globalization of the metals
industry and the new competitive landscape that globalization is creating.
We believe that combining will permit us to achieve greater efficiencies
and cost reductions required to compete effectively in our industry. The
combined company would be the world leader in aluminum manufacturing with
over 300 operating locations in 36 countries. The businesses in which
Reynolds is strong are complementary to Alcoa's, enabling us to deliver a
better, more well-rounded product line to customers. We believe that
combining Reynolds' complementary product lines and operations with Alcoa's
technology and know-how will create an enterprise with the ability to
provide value to our customers, employees and stockholders.
Q: What will I receive in exchange for my shares of Reynolds common stock?
A: Stockholders will receive 1.06 shares of Alcoa common stock in exchange for
each share of Reynolds common stock owned. Stockholders will receive cash
instead of any resulting fraction of a share, in an amount reflecting the
market value of the fraction of a share.
Example: If you currently own 10 shares of Reynolds common stock, after the
merger you will be entitled to receive 10 shares of Alcoa common stock and
a check for the market value of six-tenths of a share of Alcoa common
stock.
Q: Will I receive a certificate representing the shares of Alcoa common stock
that I receive in the merger?
A: You will receive your shares of Alcoa common stock in uncertificated book-
entry form through Alcoa's direct registration system, unless you elect to
receive a certificate representing those shares. Under the direct
registration system, First Chicago Trust Company of New York, Alcoa's
transfer agent, will establish a book-entry account for each Reynolds
stockholder who has delivered his or her Reynolds stock certificates to the
exchange agent under the merger agreement. Instead of certificates
representing shares of Alcoa common stock, those stockholders will receive
account statements reflecting their holdings of Alcoa common stock. Book-
entry shares will be held with the transfer agent, who will serve as the
record keeper for all holders of Alcoa common stock. However, if you want
to receive a physical certificate evidencing your shares of Alcoa common
stock, you will be able to elect to obtain one at no charge.
Q: When do the companies expect to complete the merger?
A: We are working to complete the merger as quickly as possible. In addition
to obtaining the approval of the Reynolds stockholders, we must satisfy the
specified waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. We hope to complete the merger in the first half
of 2000. However, no assurances can be made that we will complete the
merger by then.
Q: What are the U.S. federal tax consequences of the merger to Reynolds
stockholders?
A: In general, holders of Reynolds common stock will not be required to pay
any U.S. federal income tax as a result of the merger until they sell their
shares, except for tax, if any, imposed on cash Reynolds stockholders
receive instead of fractions of shares.
Q: Do Reynolds stockholders have appraisal rights?
A: No. Under applicable law, appraisal rights are not available to the holders
of Reynolds common stock in connection with the merger.
Q: What vote is required to approve the merger?
A: For the merger to occur, the holders of at least a majority of all the
outstanding stock of Reynolds entitled to vote must approve and adopt the
merger agreement at the special meeting.
<PAGE>
Q: Who is entitled to vote on the merger?
A: Only holders of record of Reynolds common stock as of the close of business
on December 29, 1999 will be entitled to notice of and to vote at the
special meeting to approve and adopt the merger agreement. Beneficial
holders as of that date who are not holders of record will only be allowed
to vote in person at the special meeting if they present a letter signed by
the record holder indicating the number of shares such beneficial holder is
entitled to vote.
Q: When and where is the special meeting?
A: The special meeting will be held on February 11, 2000, at 3:00 p.m., local
time, at the offices of Reynolds Metals Company, 6601 West Broad Street,
Richmond, Virginia.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Just send in a written revocation or a later dated, signed proxy card
before the special meeting or simply attend the special meeting and vote in
person.
Q: What do I need to do now?
A: Please vote your shares as soon as possible, so that your shares may be
represented at the special meeting. You may vote by signing your proxy card
and mailing it in the enclosed return envelope, or you may vote in person at
the special meeting. Since a majority of the outstanding Reynolds shares is
required to approve the merger, your failure to vote is the same as your
voting against the merger.
Q: Should I send in my stock certificates now?
A: No. Soon after the merger is completed, you will receive written
instructions for sending in your stock certificates and creating a book-
entry account reflecting your holdings of Alcoa common stock.
Q: Whom should I call if I have questions?
A: If you have questions about the merger or the merger proposal you may call
our proxy solicitor, Morrow & Co., Inc., at 1-800-566-9061.
2
<PAGE>
SUMMARY
This section summarizes particular selected information about the merger
from this proxy statement and prospectus and may not contain all of the
information that is important to you. To understand the merger fully, we
strongly encourage you to read carefully this entire proxy statement and
prospectus and the documents that Alcoa and Reynolds have filed with the
Securities and Exchange Commission. We have included a copy of the merger
agreement in this proxy statement and prospectus as Annex A. For information on
how to obtain the documents that have been filed with the Securities and
Exchange Commission, see "Where You Can Find More Information" on page 90.
The Companies (See Page 22)
Alcoa Inc.
201 Isabella Street
Pittsburgh, Pennsylvania 15212
(412) 553-4545
website: http://www.alcoa.com
Alcoa Inc., a Pennsylvania corporation, is the world's leading producer of
primary aluminum, fabricated aluminum and alumina and a major participant in
all segments of the industry: mining, refining, smelting, fabricating and
recycling. Alcoa serves customers worldwide primarily in the packaging,
transportation (including aerospace, automotive, rail and shipping), building
and industrial markets with a great variety of fabricated and finished
products. Alcoa is organized into 24 independently managed business units and
has over 215 operating locations in 31 countries.
For additional information about Alcoa and its business, see "The Merger--
The Companies--Alcoa Inc." and "Where You Can Find More Information."
Reynolds Metals Company
6601 West Broad Street
Richmond, Virginia 23230
(804) 281-2000
website: http://www.rmc.com
Reynolds Metals Company, a Delaware corporation, is the world's third-
largest aluminum producer and the world's leading aluminum foil producer.
Reynolds serves customers in growing world markets including the alumina and
primary aluminum, packaging and consumer, commercial construction,
distribution, and automotive markets, with a wide variety of aluminum, plastic
and other products. Reynolds employs approximately 18,000 people. Reynolds has
operations or interests in operations at more than 100 locations in 24
countries.
For additional information about Reynolds and its business, see "The
Merger--The Companies-- Reynolds Metals Company" and "Where You Can Find More
Information."
Vote Required to Approve the Merger
(See Page 20)
Reynolds stockholders will vote on a proposal to approve and adopt the
merger agreement and approve the merger and the other transactions described in
the merger agreement. Approval of the merger proposal requires the affirmative
vote of the holders of at least a majority of all shares of Reynolds common
stock that are outstanding and entitled to vote at the special meeting. Each
share of Reynolds common stock is entitled to one vote. Reynolds directors and
executive officers as a group own and are entitled to vote approximately 1.0%
of the outstanding shares of Reynolds common stock. If a stockholder does not
vote at the special meeting, either in person or by proxy, it will have the
same effect as a vote against the merger.
What You Will Receive in the Merger
(See Page 62)
As a result of the merger, each share of Reynolds common stock will be
converted into 1.06 shares of Alcoa common stock. You will receive cash instead
of any resulting fraction of a share, in an amount reflecting the market value
of the fraction of a share.
We encourage you to read the merger agreement carefully because it is the
legal document that governs the merger.
3
<PAGE>
Reynolds' Reasons for the Merger (See Page 29)
In reaching its decision, the Reynolds Board consulted with its financial
and legal advisors and considered a variety of factors, including possible
alternatives to a negotiated merger with Alcoa, the improvements that had been
made in the Alcoa proposal versus the initial $65.00 per share offer and the
initial form of merger agreement, the recent trend of consolidation in the
aluminum and packaging industries, the premium represented by the merger
consideration, the opportunity for Reynolds stockholders to participate in the
combined company and the tax consequences of the merger to Reynolds
stockholders.
Our Recommendation to Stockholders
(See Page 31)
The Reynolds Board of Directors believes that the terms of the merger are
advisable, fair to and in the best interests of Reynolds and its stockholders
and recommends that you vote FOR the merger proposal.
Opinions of Financial Advisors (See Page 31)
In connection with the merger, the Reynolds Board of Directors received
opinions from its financial advisors. The opinions of the financial advisors
are directed to the Board of Directors of Reynolds and are not recommendations
to stockholders with respect to any matter relating to the merger.
Reynolds received written opinions dated August 18, 1999 from its financial
advisors, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs
& Co., to the effect that, as of the date of such opinions, and based upon and
subject to the matters described in such opinions, the exchange ratio was fair
from a financial point of view to the stockholders of Reynolds. We have
included these opinions in this proxy statement and prospectus as Annexes B and
C. Reynolds urges its stockholders to read the opinions of Merrill Lynch and
Goldman Sachs in their entirety.
Interests of Certain Persons in the Merger
(See Page 59)
In addition to their interests as stockholders, the directors and executive
officers of Reynolds have interests in the merger that are different from, or
in addition to, your interests. These interests exist because of rights they
have pursuant to the terms of benefit and compensation plans maintained by
Reynolds and pursuant to the terms of severance agreements.
Some of the compensation and benefit plans provide for the accelerated
vesting or lapse of restrictions on stock-based rights and the distribution of
certain specified benefits in connection with the merger. The severance
agreements provide the executive officers with severance benefits if their
employment is terminated under specified circumstances following the merger.
In addition, Alcoa will indemnify the officers and directors of Reynolds for
events occurring before the merger.
The members of the Reynolds Board of Directors knew about these additional
interests and considered them when approving the merger.
Conditions to the Merger (See Page 68)
Completion of the merger requires:
. approval of the merger proposal by Reynolds stockholders;
. absence of any law or injunction preventing the merger;
. expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976;
. approval for listing of the Alcoa common stock to be issued in the merger
on the New York Stock Exchange;
. receipt of legal opinions from counsel to Alcoa and to Reynolds,
respectively, stating that the merger will qualify as a reorganization
under the Internal Revenue Code;
. compliance in all material respects with all agreements and obligations
of each of Alcoa and Reynolds that are required to be complied with
before the consummation of the merger; and
4
<PAGE>
. absence of breaches of representations and warranties contained in the
merger agreement which have or are reasonably expected to have a material
adverse effect on Alcoa or Reynolds.
Other than the conditions pertaining to stockholder approval, the Hart-
Scott-Rodino waiting period and the legality of the merger, both Alcoa and
Reynolds could elect to waive conditions to their own performance and complete
the merger. However, the parties may not waive the condition relating to the
receipt of the tax opinions from counsel after the Reynolds stockholders
approve the merger proposal unless further stockholder approval is obtained
with appropriate disclosure.
Alternative Transactions (See Page 66)
The merger agreement permitted Reynolds to solicit a transaction with a
third party until September 17, 1999. After that date, the merger agreement
limits the ability of the Board of Directors of Reynolds to solicit or
participate in discussions with any third party about alternative transactions.
However, Reynolds may engage in discussions with or provide information to a
third party who makes an unsolicited bona fide written acquisition proposal, so
long as its Board of Directors concludes in good faith that the acquisition
proposal is reasonably capable of being completed and would result in a
transaction more favorable to Reynolds' stockholders than the proposed merger
with Alcoa. In addition, the Reynolds Board may terminate the merger agreement
if it determines to accept a superior proposal from a third party and follows
certain procedures summarized below.
Termination of the Merger Agreement
(See Page 69)
Alcoa and Reynolds may mutually agree to terminate the merger agreement at
any time. In addition, either company may terminate the merger agreement if
specified events do or do not occur. These include:
. if the merger is not completed by August 30, 2000, unless at that time
the waiting period under the Hart-Scott-Rodino Act has not ended or the
merger is prohibited by any court order or other government action, in
which case the date will be extended to February 28, 2001;
. if a law, court order or other government action prohibits the merger; or
. if the stockholders of Reynolds vote against the merger proposal.
In addition, Reynolds may terminate the merger agreement if the Reynolds
Board determines that it intends to enter into an agreement with a third party
for a superior alternative transaction. Reynolds may only terminate under this
circumstance as long as Reynolds complies with the requirements specified in
the merger agreement, including providing Alcoa with the opportunity to make a
revised offer to Reynolds.
Termination Fees (See Page 70)
The merger agreement requires Reynolds to pay Alcoa a termination fee of
$100 million if the merger agreement terminates and specified events occur.
This fee is payable by Reynolds if:
. Reynolds terminates the merger agreement in order to enter into a
superior alternative transaction with a third party; or
. An alternative acquisition proposal is publicly announced, the merger
agreement is terminated because the Reynolds stockholders vote against
approval of the merger, and within 12 months of termination of the merger
agreement Reynolds completes such alternative transaction.
Regulatory Matters (See Page 44)
The Hart-Scott-Rodino Act prohibits Alcoa and Reynolds from completing the
merger until certain information has been furnished to the Antitrust Division
of the Department of Justice and the Federal Trade Commission, and until
certain waiting period requirements have been satisfied. Alcoa filed a Hart-
Scott-Rodino Premerger Notification and Report Form on August 24, 1999, and
Reynolds filed such a Form on August 30, 1999. On September 29, 1999, the
Antitrust Division issued a request for additional information and documentary
material (a "second request"). Under the applicable provisions of the Hart-
Scott-Rodino Act, the merger may not be consummated until the expiration of a
5
<PAGE>
statutory waiting period, which expires 20 days after both Alcoa and Reynolds
substantially comply with the second request.
In Europe certain regulations require that Alcoa file a premerger
notification form with the Commission of the European Communities prior to
consummation of the proposed merger. Alcoa filed such notification on November
18, 1999. This filing began an initial one-month review period in which the
European Commission was required to determine whether there are sufficiently
"serious doubts" about the proposed merger's compatibility with the common
market to require a more complete review. The initial one-month period expired
on December 20, 1999, whereupon the European Commission issued a determination
that the proposed merger did require a more complete review. The European
Commission must complete its investigation and make a final determination with
respect to the proposed merger no later than four months after December 20,
1999. Because EU holidays, which have not yet been determined for the upcoming
year, automatically extend timetables under the merger regulations, a final
determination regarding the proposed merger must be made no later than the
first half of May 2000.
Alcoa and Reynolds have also made filings under the competition laws of
Canada, Australia and certain other countries.
United States Federal Income Tax Consequences of the Merger (See Page 43)
The parties have structured the merger so that it is anticipated that the
merger will be a reorganization for U.S. federal income tax purposes. The
parties will not be obligated to complete the merger unless they receive legal
opinions to that effect. The condition related to those opinions is not
waivable after receipt of stockholder approval unless further stockholder
approval is obtained with appropriate disclosure. If the merger is a
reorganization, stockholders will not recognize gain or loss for U.S. federal
income tax purposes in the merger (except for gain or loss recognized because
of cash received instead of fractional shares).
Accounting Treatment (See Page 43)
The merger will be accounted for using the purchase method of accounting as
such term is used under U.S. generally accepted accounting principles. The
purchase method accounts for a merger as an acquisition of one company by
another. See "Pro Forma Condensed Consolidated Financial Information" and "The
Merger--Accounting Treatment."
No Appraisal Rights (See Page 46)
Under the law of Delaware, where Reynolds is incorporated, holders of
Reynolds common stock do not have the right to receive an appraisal of the
value of their shares in connection with the merger.
Comparative Per Share Market Price Information (See Page 48)
Reynolds common stock is listed on the New York Stock Exchange under the
symbol "RLM." Alcoa common stock is listed on the New York Stock Exchange under
the symbol "AA."
Set forth below are the closing stock prices of Reynolds common stock and
Alcoa common stock on the New York Stock Exchange on the following dates:
. August 10, 1999, the last full trading day before the announcement by
Alcoa of its $65.00 per share 50/50 cash and stock proposal;
. August 13, 1999, the last full trading day before the announcement by
Alcoa of its intention to commence an all cash tender offer for all of
the outstanding Reynolds common stock at $65.00 per share;
. August 18, 1999, the last full trading day before the public announcement
of the merger; and
. December 29, 1999, the latest practicable date before the effective date
of the registration statement of which this proxy statement and
prospectus is a part.
<TABLE>
<CAPTION>
Reynolds Alcoa
Common Common
Stock Stock
-------- --------
<S> <C> <C>
August 10, 1999............................................... $55.8750 $66.4375
August 13, 1999............................................... 69.3750 66.5000
August 18, 1999............................................... 68.2500 66.8750
December 29, 1999............................................. 76.5625 81.7500
</TABLE>
6
<PAGE>
Selected Historical Financial Information
The selected consolidated financial data of Alcoa as of and for the years
ended December 31, 1998 and 1997 and the income statement data for the year
ended December 31, 1996 have been derived from the consolidated financial
statements of Alcoa which have been audited by PricewaterhouseCoopers LLP,
independent accountants, and incorporated by reference into this proxy
statement and prospectus. The balance sheet and other financial data as of
December 31, 1996 and the selected consolidated financial data of Alcoa as of
and for the years ended December 31, 1995 and 1994 have been derived from the
audited consolidated financial statements of Alcoa previously filed with the
SEC but not incorporated by reference in this proxy statement and prospectus.
The consolidated financial data of Alcoa as of and for the nine months ended
September 30, 1998 and 1999 have been derived from the unaudited consolidated
financial statements of Alcoa for those periods contained in Alcoa's Quarterly
Reports on Form 10-Q for the quarterly periods ended September 30, 1998 and
1999, respectively. This information is qualified in its entirety by, and
should be read in conjunction with, the consolidated financial statements, the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for Alcoa incorporated by reference in this proxy
statement and prospectus.
Alcoa Inc.
Selected Historical Financial Information
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited) Year Ended December 31,
----------------- -------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $ 12,070 $ 11,141 $ 15,340 $ 13,319 $ 13,061 $ 12,500 $ 9,904
Income before
extraordinary
loss/2/ ............... 720 635 853 805 515 791 443
Extraordinary loss/3/ .. -- -- -- -- -- -- (68)
Net income/2/ .......... 720 635 853 805 515 791 375
Basic earnings per
common share/1/:
Before extraordinary
loss/3/ ............. 1.96 1.84 2.44 2.33 1.47 2.22 1.24
Net income............ 1.96 1.84 2.44 2.33 1.47 2.22 1.05
Diluted earnings per
common share/1/:
Before extraordinary
loss/3/ ............. 1.91 1.83 2.42 2.31 1.46 2.20 1.23
Net income............ 1.91 1.83 2.42 2.31 1.46 2.20 1.04
Cash dividends paid per
common share/1/ ....... 0.60375 0.5625 0.75 0.488 0.665 0.45 0.40
Total assets............ 16,865 17,893 17,463 13,071 13,450 13,643 12,353
Long-term debt
(noncurrent)........... 2,669 2,921 2,877 1,457 1,690 1,216 1,030
</TABLE>
- --------
1 All per share amounts have been restated to reflect the two-for-one stock
split declared on January 8, 1999.
2 Includes a net after-tax gain of $44 in 1997, and net after-tax charges of
$122 in 1996, $10 in 1995 and $50 in 1994. Also included in 1994 is a gain
of $300 related to the Alcoa/WMC transaction.
3 The extraordinary loss relates to the early retirement of debentures.
7
<PAGE>
The selected consolidated financial data of Reynolds as of and for the years
ended December 31, 1998 and 1997 and the income statement data for the year
ended December 31, 1996 have been derived from the consolidated financial
statements of Reynolds which have been audited by Ernst & Young LLP,
independent auditors, and incorporated by reference into this proxy statement
and prospectus. The balance sheet and other financial data as of December 31,
1996 and the selected consolidated financial data of Reynolds as of and for the
years ended December 31, 1995 and 1994 have been derived from the audited
consolidated financial statements of Reynolds previously filed with the SEC but
not incorporated by reference in this proxy statement and prospectus. The
consolidated financial data of Reynolds as of and for the nine months ended
September 30, 1998 and 1999 have been derived from the unaudited consolidated
financial statements of Reynolds for those periods contained in Reynolds'
Quarterly Reports on Form 10-Q for the quarterly periods ended September 30,
1998 and 1999, respectively. This information is qualified in its entirety by,
and should be read in conjunction with, the consolidated financial statements,
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for Reynolds incorporated by reference in
this proxy statement and prospectus.
Reynolds Metals Company
Selected Historical Financial Information
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited) Year Ended December 31,
----------------- -----------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $ 3,438 $ 4,479 $ 5,859 $ 6,900 $ 7,016 $ 7,252 $ 5,925
Income before income
taxes, extraordinary
loss and cumulative
effects of accounting
changes................ 80 286 197 240 153 548 190
Income before
extraordinary loss and
cumulative effects of
accounting
changes/1/ ............ 61 197 152 136 104 389 122
Extraordinary loss/2/ .. -- (63) (63) -- -- -- --
Cumulative effects of
accounting
changes/3/ ............ -- (23) (23) -- (15) -- --
Net income/1/ .......... 61 111 66 136 89 389 122
Basic earnings per
share:
Income before
extraordinary loss
and cumulative
effects of accounting
changes.............. 0.95 2.76 2.18 1.86 1.06 5.60 1.42
Net income............ 0.95 1.55 0.94 1.86 0.82 5.60 1.42
Diluted earnings per
share:
Income before
extraordinary loss
and cumulative
effects of
accounting changes... 0.95 2.76 2.18 1.84 1.06 5.25 1.41
Net income............ 0.95 1.55 0.94 1.84 0.82 5.25 1.41
Cash dividends declared
per common share....... 1.05 1.05 1.40 1.40 1.40 1.20 1.00
Total assets............ 5,968 6,118 6,134 7,226 7,516 7,740 7,461
Long-term debt.......... 1,009 996 1,035 1,501 1,793 1,853 1,848
</TABLE>
- --------
1 Includes net after-tax gain/(charges) for operational restructuring of $5 in
the nine months ended September 30, 1998, $(90) in 1998, $(78) in 1997 and
$(23) in 1996. Also includes after tax merger-related expenses of $9 in the
nine months ended September 30, 1999.
2 The extraordinary loss was for the early retirement of debt.
3 The accounting changes were for the adoption of Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities" in 1998 and Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1996.
8
<PAGE>
Unaudited Selected Pro Forma Condensed Consolidated Financial Information
The following Unaudited Selected Pro Forma Condensed Consolidated Financial
Information is based on and should be read in conjunction with the historical
consolidated financial statements of Alcoa and Reynolds, including the notes
thereto, which are incorporated by reference in this proxy statement and
prospectus. This financial information has been adjusted to give effect to (1)
Alcoa's merger with Alumax Inc., which was completed in July 1998, (2)
Reynolds' sale of its North American aluminum beverage can operations in August
1998 and (3) the proposed merger with Reynolds. The Income Statement Data
presented below does not (a) purport to represent what the results of
operations actually would have been if the above transactions had occurred as
of the date indicated or what such results will be for any future periods or
(b) give effect to certain nonrecurring charges expected to result from the
Reynolds acquisition.
The Unaudited Income Statement Data for the nine-month period ended
September 30, 1999 and for the year ended December 31, 1998 give effect to the
Reynolds merger and related transactions as if such transactions had occurred
on January 1, 1998. The Unaudited Income Statement Data for the year ended
December 31, 1998 also gives effect to (1) the Alumax merger and (2) Reynolds'
disposition of its North American can operations, as if such transactions had
occurred on January 1, 1998. The Unaudited Balance Sheet Data as of September
30, 1999 gives effect to the Reynolds merger and related transactions as if
such transactions had occurred on that date.
The pro forma adjustments are based upon available information and include
certain assumptions and adjustments which the managements of Alcoa and Reynolds
believe to be reasonable. These adjustments are directly attributable to the
transactions referenced above and are expected to have a continuing impact on
Alcoa's business, results of operations and financial position. Alcoa and
Reynolds are currently awaiting approval for the merger transaction from
various government authorities. Therefore, at the present time, the amount of
information that the two companies can share is limited. Reynolds has certain
severance plans, agreements and policies applicable to its executive management
and salaried employees. It is probable that some covered persons will become
entitled to severance benefits under these arrangements following the
completion of the merger. The maximum amount payable under such arrangements is
in the range of $200 to $225 million. The actual amount to be paid cannot be
determined at present because Alcoa has not yet identified the employees who
might be affected. In addition, Alcoa has initiated an assessment of
restructuring costs and potential benefits from synergies; however, for the
reasons noted above, these studies cannot be completed. Based on these facts,
an estimate of the potential benefit from synergies or the amount of
restructuring costs is not yet available. However, it is possible that the
amounts involved related to the effects of restructuring could have a material
impact on the purchase price allocation.
The acquisition of Reynolds will be accounted for using the purchase method
of accounting, so the total purchase costs of the acquisition will be allocated
to the tangible and intangible assets and liabilities acquired based upon their
estimated fair values. The purchase price allocation is preliminary, based on
facts currently known to the companies. Alcoa and Reynolds are not aware of any
significant unrecorded obligations or contingencies, other than the severance
arrangements referred to above, and do not believe that the final purchase
price allocation will materially differ from that included in the pro forma
financial information contained herein. The final allocation of the purchase
price will be made based upon valuation and other studies that have not been
completed.
9
<PAGE>
You should not rely on the Unaudited Selected Pro Forma Condensed
Consolidated Financial Information as being indicative of the historical
results that Alcoa would have had or the future results that Alcoa will
experience after the merger. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements" on page 50.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------------
Historical
-------------------- Pro Forma Pro Forma
Alcoa Reynolds Adjustments Combined
-------- ----------- ----------- ---------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Income Statement Data
Sales............................. $12,070 $ 3,434 $ (101) $ 15,403
Net Income........................ 720 61 (39) 742
Basic earnings per common share... 1.96 .95 -- 1.69
Diluted earnings per common
share............................ 1.91 .95 -- 1.65
Cash dividends per common share... .60375 1.05 (1.05) .60375
<CAPTION>
Year Ended December 31, 1998
------------------------------------------
Pro
Forma Pro Forma Pro Forma Pro Forma
Alcoa/1/ Reynolds/2/ Adjustments Combined
-------- ----------- ----------- ---------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Income Statement Data
Sales............................. $16,766 $ 5,067 $ (173) $ 21,660
Income before extraordinary loss
and the cumulative effect of
accounting change................ 876 (82) (61) 733
Basic earnings per common share
before extraordinary loss and the
cumulative effect of accounting
change........................... 2.36 (1.24) -- 1.65
Diluted earnings per common share
before extraordinary loss and the
cumulative effect of accounting
change........................... 2.35 (1.24) -- 1.65
Cash dividends per common share... .75 1.40 (1.40) .75
- --------
1 Includes the effects of the Alumax merger as if such merger had occurred on
January 1, 1998. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements" on page 50.
2 Includes the effects of Reynolds' sale of its North American Can Operations
as though it occurred on January 1, 1998. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements" on page 50.
<CAPTION>
As of September 30, 1999
------------------------------------------
Historical
-------------------- Pro Forma Pro Forma
Alcoa Reynolds Adjustments Combined
-------- ----------- ----------- ---------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Balance Sheet Data
Total assets...................... $16,865 $ 5,968 $ 3,401 $ 26,234
Total cash and marketable
securities....................... 297 62 (35) 324
Long-term debt.................... 2,669 1,009 -- 3,678
Stockholders' equity.............. 5,956 2,094 2,727 10,777
Book value per common share....... 16.11 33.12 -- 24.42
</TABLE>
For further discussion of the pro forma adjustments and more detailed pro
forma financial statements, see "Unaudited Pro Forma Condensed Consolidated
Financial Statements."
10
<PAGE>
Comparative Per Share Information
We have summarized below certain earnings, dividend and book value per share
information for Alcoa and Reynolds on an historical and on an historical
equivalent basis. You should read the comparative per share information below
in conjunction with the selected historical financial data on pages 7 and 8 and
the unaudited pro forma condensed consolidated financial statements appearing
on pages 50 through 58 of this proxy statement and prospectus.
<TABLE>
<CAPTION>
At or For the Nine At or For the Year
Months Ended Ended December 31,
September 30, 1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
Alcoa Historical
Earnings per common share:
Basic................................. $ 1.96 $ 2.44
Diluted............................... 1.91 2.42
Cash dividends declared per common
share................................ 0.60375 0.75
Book value per common share........... 16.11 16.36
Reynolds Historical
Earnings per common share:
Basic................................. $ 0.95 $ 0.94
Diluted............................... 0.95 0.94
Cash dividends declared per common
share................................ 1.05 1.40
Book value per common share........... 33.12 34.03
Equivalent Pro Forma per share data for
Reynolds stockholders (a)
Earnings per common share:
Basic................................. $ 1.79 $ 1.75
Diluted............................... 1.75 1.75
Cash dividends declared per common
share (b)............................ 0.63998 .795
Book value per common share........... 24.42 --
</TABLE>
- --------
(a) Represents pro forma information multiplied by the exchange ratio of 1.06.
(b) Equivalent pro forma cash dividends per share have been computed by
multiplying the historical cash dividend paid by Alcoa by the exchange
ratio of 1.06.
11
<PAGE>
RISK FACTORS
In addition to the other information included in this proxy statement and
prospectus (including the matters addressed in "Cautionary Statement Concerning
Forward-Looking Statements" at page 18), you should consider the following in
determining whether to vote in favor of the merger.
Merger Consideration Is Fixed Despite Potential Changes in Stock Prices
When the merger is completed, each share of Reynolds common stock will be
converted into 1.06 shares of Alcoa common stock. The merger agreement does not
contain any provision that would adjust this exchange ratio based on
fluctuations in the price of either company's common stock. The value of the
consideration you receive depends on the market price of Alcoa common stock at
the time the merger is completed. All required regulatory approvals for the
merger have not yet been obtained. Under the terms of the merger agreement
(which could be amended to extend the time further), it is possible that
completion of the merger could be delayed as late as February 2001, or twelve
months after the special meeting. In addition, regulatory authorities may
impose conditions on the combined operations or require divestitures as a
condition to approving the merger. While the parties intend to work promptly
toward completion of the merger, they cannot predict with certainty whether
regulatory delays will be encountered, regulatory conditions to the merger
imposed or the possible effects of such actions. As of August 18, 1999, the
date of the merger agreement, the exchange ratio of 1.06 shares of Alcoa common
stock for each share of Reynolds common stock reflected a premium to be paid to
holders of Reynolds common stock. The market price of Alcoa common stock could
decline before the effective time of the merger.
Integration of Alcoa and Reynolds Operations May Be Difficult
The merger involves the integration of two companies that have previously
operated independently. Alcoa may not be able to integrate Reynolds' operations
without encountering difficulties or experiencing the loss of key employees,
customers or suppliers. In addition, we cannot assure you that the benefits we
expect from such integration will be realized.
Commodity Price Risks
Alcoa is a leading global producer of aluminum ingot and aluminum fabricated
products. Aluminum ingot is an internationally-produced, priced and traded
commodity. The principal trading market for ingot is the London Metal Exchange.
Alcoa participates in this market by buying and selling future portions of its
aluminum requirements and output.
The aluminum industry is highly cyclical in nature, and Alcoa's results of
operations are influenced by LME-based prices of primary aluminum. This price
sensitivity impacts a portion of Alcoa's alumina sales and many of Alcoa's
aluminum products, with less impact on the more specialized and value-added
products. In the normal course of business, Alcoa enters into long-term
contracts with a number of its fabricated products customers. In order to hedge
the risk of higher prices for the anticipated metal purchases required to
fulfill these long-term customer contracts, Alcoa enters into long positions,
principally using futures and options. Alcoa follows a stable pattern of
purchasing metal; therefore, it is highly likely that anticipated metal
requirements will be met. Although Alcoa has attempted to lessen the effects of
fluctuations in primary aluminum prices through such hedging programs, there
can be no assurance that such price fluctuations will not have an adverse
effect on Alcoa's financial condition and results of operations.
Alcoa intends to close out the hedging positions at the time it purchases
the metal from third parties, thus creating the right economic match both in
time and price. The expiration dates of the options and the delivery dates of
the futures contracts do not always coincide exactly with the dates on which
Alcoa is required to purchase metal to meet its contractual commitments with
customers. Accordingly, some of the futures and options positions will be
rolled forward. This may result in significant cash inflows if the hedging
contracts are
12
<PAGE>
"in-the-money" at the time they are rolled forward. Conversely, there could be
significant cash outflows if metal prices fall below the price of contracts
being rolled forward. A significant cash outflow could have an adverse effect
on Alcoa's financial position and results of operations.
Fluctuations in Foreign Exchange and Interest Rates
Alcoa is subject to significant exposure from fluctuations in foreign
currencies. As a matter of company policy, foreign currency exchange contracts,
including forwards and options, are sometimes used to limit the risk of
fluctuating exchange rates. In addition, Alcoa attempts to maintain a
reasonable balance between fixed and floating rate debt and uses interest rate
swaps and caps to manage that risk. However, there can be no assurance that
exchange or interest rate fluctuations will not have an adverse effect on
Alcoa's financial condition and results of operations.
Environmental Contingencies
Both Reynolds and Alcoa have ongoing environmental investigations at sites
for which they have or are alleged to have partial or full responsibility. It
is reasonably possible that following the merger results of operations for
Alcoa could be materially affected by liabilities at the Massena, New York,
Point Comfort, Texas and Troutdale, Oregon locations described below. With the
exception of the Massena, Point Comfort and Troutdale locations discussed
below, based upon available information and current reserves, management of
Alcoa does not believe that it is reasonably possible that results of
operations could be materially affected by other existing environmental
contingencies.
Alcoa
Alcoa--Massena, New York/Grasse River
Sediments and fish in the Grasse River adjacent to Alcoa's Massena, New York
plant site contain varying levels of polychlorinated biphenyl, or PCB. The
United States Environmental Protection agency has identified Alcoa as
potentially responsible for this contamination and, since 1989, Alcoa has been
conducting investigations and studies of the river under order from the EPA
issued under the Comprehensive Environmental Response, Compensation and
Liability Act, also known as Superfund.
During 1999, Alcoa continued to perform studies and investigations on the
Grasse River. A planned pilot test of certain sediment capping techniques,
intended for 1999, could not be completed because a final scope of work could
not be developed with EPA in time to complete the project before the
construction season concluded. In addition, in the 1999 fourth quarter, Alcoa
submitted an Analysis of Alternatives to EPA. This report identifies seven
potential courses of remedial action related to the PCB contamination of the
river. Alcoa has proposed to EPA that the planned pilot scale tests be
conducted to assess the feasibility of performing certain sediment covering
techniques before selection and approval of a remedial alternative by EPA. The
costs of these pilot scale tests have been fully reserved. The results of these
tests and discussions with EPA regarding all of the alternatives identified
should provide additional information for the selection and approval of the
appropriate remedial alternative. Alcoa intends to seek EPA approval for the
pilot tests in the first half of 2000.
The analysis report and the results of the pilot tests must be reviewed and
approved by EPA. Currently, no one of the alternatives noted above is more
likely to be selected than any other. The range of additional costs associated
with the seven potential courses of remedial action is between zero and $53
million. Alcoa is also aware of a natural resource damage claim that certain
federal, state and tribal natural resource trustees may assert at this
location.
Alcoa--Point Comfort/Lavaca Bay
In 1990, Alcoa began discussions with certain state and federal natural
resource trustees concerning alleged releases of mercury from its Pt. Comfort,
Texas facility into the adjacent Lavaca Bay. In March 1994, EPA listed the
"Alcoa (Point Comfort)/Lavaca Bay Site" on the National Priorities List and,
shortly thereafter, Alcoa and EPA entered into an administrative order on
consent under which Alcoa is obligated to conduct certain remedial
investigations and feasibility studies. In accordance with this order, Alcoa
recently submitted a draft remedial investigation, a draft feasibility study
and a draft baseline risk assessment to EPA.
13
<PAGE>
In addition, Alcoa recently commenced construction of the EPA-approved project
to fortify an offshore dredge disposal island. The probable and estimable costs
of these actions are fully reserved. Additional costs to complete a remedy
currently cannot be estimated since they will depend on the extent of
remediation required, if any, the remedial method chosen and the time frame to
complete any remediation activity. Since the order with EPA, Alcoa and the
natural resource trustees have continued efforts to understand natural resource
injury and ascertain appropriate restoration alternatives. That process is
currently expected to be complete by late 2000 or early 2001.
Reynolds
Reynolds has been identified as a potentially responsible party, or PRP, and
is involved in remedial investigations and remedial actions under the Superfund
and similar state laws regarding the past disposal of wastes at various sites
in the United States. In addition, Reynolds is investigating possible
environmental contamination, which may also require remedial action, at certain
of its present and former United States manufacturing facilities. Two sites,
which are described below, are individually significant and account for a
material portion of Reynolds' accrual for known remediation requirements at
December 31, 1998.
Reynolds--Massena, New York/St. Lawrence River
In 1988, Reynolds discovered that soils in the area of the heat transfer
medium system at Reynolds' primary aluminum production plant in Massena, New
York were contaminated with polychlorinated biphenyls, or PCBs, and other
contaminants. At December 31, 1998, Reynolds had substantially completed
remediation of the contaminated soils and other contaminated areas of the
plant. Portions of the St. Lawrence River system adjacent to Reynolds' Massena
plant are also contaminated with PCBs. Since 1989, Reynolds has been conducting
investigations and studies of the river system under order from the EPA issued
under Superfund. Reynolds is in the process of working with the EPA to better
define the scope of the dredging program which is planned for 2000, including
the requirements for disposal and treatment of sediments.
Reynolds is also aware of a natural resource damage claim arising out of the
discharge of PCBs and other contaminants into the St. Lawrence River system
that certain federal, state and tribal natural resource trustees may assert at
this location.
Reynolds--Troutdale, Oregon
In 1994, the EPA added Reynolds' Troutdale, Oregon primary aluminum
production plant to the National Priorities List of Superfund sites. Reynolds
is cooperating with the EPA and, under a September 1995 consent order, is
working with the EPA in investigating potential environmental contamination at
the Troutdale site and promoting more efficient cleanup at the site.
Reynolds accrues remediation costs when it becomes probable that remedial
efforts will be required and the costs can be reasonably estimated. The amount
accrued from time to time reflects management's best estimate of Reynolds'
ultimate liability for such costs. However, estimated costs for future
environmental compliance and remediation are necessarily imprecise because of
factors such as the continuing evolution of environmental laws and regulatory
requirements; the numerous choices and costs associated with diverse
technologies that may be used in remedial actions at such sites; the
identification of presently unknown remediation requirements; and cost
allocations among PRPs. Further, it is not possible to predict the amount or
timing of future costs of environmental remediation that may subsequently be
determined, including remediation costs for additional sites at which Reynolds
may be alleged in the future to have partial or full responsibility.
Year 2000 Issue
Alcoa
Alcoa, like other businesses, is facing the Year 2000 issue. The Year 2000
issue arises from the past practice of utilizing two digits (as opposed to
four) to represent the year in some computer programs and software. If
uncorrected, this could result in computational errors as dates are compared
across the century boundary.
14
<PAGE>
As a basic materials supplier, the vast majority of the products produced
and sold by Alcoa are unaffected by Year 2000 issues in use or operation since
they contain no microprocessors. Alcoa is addressing the Year 2000 issue
through a formal program that reports to Alcoa's chief information and
financial officers. Alcoa's methodology encompasses four phases:
Awareness/Inventory; Assessment; Remediation and Compliance Testing. Ongoing
leadership is provided by a Global Program Office, which is directly linked
into Alcoa's business units and resource units, including the acquired Alumax
facilities. The Global Program Office provides processes and tools to the
business units and monitors progress through systematic reporting and on-site
verification reviews in cooperation with Alcoa's internal auditors. Progress is
reported regularly to Alcoa's senior executives and to the Audit Committee of
Alcoa's Board of Directors.
Internally, computer and microprocessor based systems such as mainframe,
mini-computer and personal computer systems and the software they utilize have
been assessed. Operational support, process control, facilities, infrastructure
and mechanical systems are being addressed as well. These systems assist in the
control of Alcoa's operations by performing such functions as maintaining
manufacturing parameters, monitoring environmental conditions and assisting
with facilities management and security. Many of these systems rely on software
or contain embedded electronic components that could be affected by Year 2000
compliance issues. Since many of these systems are common across operating
locations, information sharing and efficiencies have been realized in the Year
2000 efforts. Priority for any required remediation efforts has been assigned
based on the criticality of the system or business process affected. As of
November 30, 1999, the remediation phase had been completed for 99.9% of
Alcoa's critical components with 99.8% of all critical components having
completed compliance testing. The majority of remaining critical systems are
planned for remediation as part of scheduled maintenance and system upgrades.
Alcoa relies on numerous third parties for a wide variety of goods and
services, including raw materials, telecommunications and utilities such as
water and electricity. Many of Alcoa's operating locations would be adversely
affected if these supplies and services were curtailed as a result of a
supplier's Year 2000 noncompliance. Alcoa has surveyed its vendors and
suppliers using questionnaires and, based on the response and significance to
Alcoa's operations, is conducting follow-up activities with critical and
important suppliers. If Alcoa concludes that a third party presents a
substantial risk of a Year 2000 based business disruption, an effort will be
made to resolve the issue. If necessary, a new vendor or supplier will be
qualified and secured. Communication with these third parties regarding Year
2000 issues is a continuing process.
Alcoa and certain of its trading partners utilize electronic data
interchange (EDI) to effect business communications. Alcoa's EDI system
software has been upgraded to support transactions in a Year 2000 compliant
format. Migration of EDI transactions to this new format will occur as Alcoa
and its EDI trading partners, on a case-by-case basis, modify existing EDI
transaction formats. Some Alcoa customers have indicated that they will not
modify EDI transaction sets but will rely on other techniques to achieve Year
2000 capability. Alcoa does not expect Year 2000-related disruptions to occur
in these situations.
In order to minimize operational effects, Alcoa is utilizing a structured
contingency planning process throughout the company to identify and analyze
Year 2000 operational risks. This is in addition to disaster recovery plans
that already exist for critical systems within the company. Each business unit
is required to identify planning units based on key departments or business
processes. Risk assessment workshops are conducted for each planning unit with
cross-departmental participation. The resulting risk scenarios identified in
the workshops are documented and reviewed by operational management, and
detailed contingency plans are developed for scenarios of greatest risk. As of
November 30, 1999, 96.3% of Alcoa's contingency plans were complete. In
addition to contingency plans, Alcoa businesses are refining plans for the Year
2000 transition. These include site specific preparations to ensure a safe Year
2000 transition and communication activities to permit global sharing of
transition information within Alcoa.
Alcoa's Year 2000 program utilizes on-site verification of Year 2000 efforts
at its various operating locations. Using audit-like techniques, the Year 2000
Global Program Office and Alcoa's internal auditors verify that business and
resource units have followed the prescribed processes and methodologies and
also
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sample local Year 2000 readiness. During 1998 and through the third quarter of
1999, Alcoa has conducted over 170 reviews of U.S. and non-U.S. locations and
has found consistent adherence to the Alcoa Year 2000 methodology globally.
Based on internal efforts and formal communications with third parties,
Alcoa does not believe that Year 2000 issues are likely to result in
significant operational problems or will have a material adverse impact on its
consolidated financial position, operations or cash flow. Based on current
information, Alcoa believes that the most likely worst case scenario to result
from a Year 2000 failure by Alcoa, its suppliers or customers would be a short-
term reduction in manufacturing capability at one or more of Alcoa's operations
and a temporary limitation on Alcoa's ability to deliver products to customers.
Nonetheless, failures of suppliers, third-party vendors or customers resulting
from Year 2000 issues could result in a short-term material adverse effect.
From January 1, 1999 through November 30, 1999, Alcoa incurred approximately
$31.147 million of direct costs in connection with its Year 2000 program. These
costs include external consulting costs and the cost of hardware and software
replaced as a result of Year 2000 issues. Total direct costs for 1999 are
estimated to be between $35 million and $40 million.
Reynolds
Left unrepaired, many of Reynolds' systems, including information and
computer systems and automated equipment, could be affected by the Year 2000
issue. Failure to adequately address the issue could result in, among other
things, the temporary inability to manufacture products, process transactions,
send invoices and/or engage in normal business activities. Reynolds does not
believe the products it sells require remediation to address the Year 2000
issue since they contain no embedded microchips or similar electronic
components that are date-sensitive.
Reynolds has a formal program to address and resolve potential exposure
associated with information and non-information technology systems arising from
the Year 2000 issue. Reynolds' goal is that none of its critical business
operations or computer processes shared with suppliers and customers will be
substantially impaired by the advent of the year 2000.
Reynolds' program is led by its Year 2000 Program Management Office, which
recommends processes and tools for year 2000 remediation to Reynolds business
units and monitors progress. The Program Management Office consolidates
progress information into monthly status reports for review by management,
Reynolds' internal auditors and the Reynolds Board. The Audit Committee of the
Reynolds Board is also given periodic briefings on progress and plans from the
Program Management Office.
Reynolds has completed preparation of its critical, date-sensitive computer
systems, processes and interfacing software for the Year 2000. This preparation
included five phases: (1) inventory, (2) planning, (3) conversion, (4) pre-
installation testing and (5) installation. Reynolds continues to monitor its
computer and software vendors' readiness statements to assure that readiness
changes in their products do not negatively affect its systems.
Reynolds has also validated its remediation efforts with additional post-
installation testing of certain critical computer systems and has tested the
exchange of data with certain suppliers, customers and government agencies.
Most computer software package providers continue to monitor test results from
their customers as part of their quality assurance programs. Reynolds
anticipates that software package providers will continue to send updates
through the fourth quarter and into 2000 if needed. Reynolds will perform
quality assurance testing on these updates.
A key aspect of Reynolds' contingency planning for the year 2000 focuses on
assessment of the business impact on Reynolds resulting from the possible
failure of its suppliers to provide needed products and services. Reynolds has
surveyed those suppliers who are deemed to be critical to each of its operating
locations, even though the products or services they provide may not be
material to Reynolds' business as a whole, to assess
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their year 2000 readiness. Reynolds is currently monitoring approximately 1,500
suppliers and has completed the process of rating them low, medium or high risk
in their progress toward being ready for the year 2000. Critical suppliers
rated as high risk received primary attention for contingency planning or other
measures such as identifying additional sources of supply for critical
materials. In addition, Reynolds has identified additional sources of supply or
developed other contingency plans with respect to those critical suppliers who
are not ranked as low risk. Reynolds will continue monitoring these suppliers
into the year 2000. Reynolds has also completed year 2000 readiness evaluations
of its largest customers, none of which is material to Reynolds' operations as
a whole. In addition, Reynolds is continuing to respond to customer inquiries
regarding its Year 2000 program and its progress in addressing the issue.
Reynolds currently has in place operating procedures and business continuity
plans at its operating locations for responding to unusual, disruptive
situations such as power shortages, failures by major suppliers and natural
disasters. These existing procedures and plans provide a solid foundation for
addressing many Year 2000 issues. As unique risks are identified and deemed
sufficiently likely to occur, Reynolds is making necessary adaptations or
additions to its existing procedures and plans.
Contingency planning and monitoring to determine realistic Year 2000 issues
beyond those already addressed will continue into the first quarter of 2000.
Several reasonably likely worst case scenarios involve shortages or
unanticipated outages of energy requirements. Reynolds' operations,
particularly in the base materials business, require significant quantities of
energy. Curtailments or disruptions of energy supplies would result in full or
partial shutdowns of these operations until energy availability could be
restored. In addition, an unanticipated loss of energy supply could result in
damage to production equipment. Reynolds will continue to assess these and
other business disruption risks.
The total cost of Reynolds' Year 2000 remediation project is expected to be
approximately $22 million. As of September 30, 1999, Reynolds had incurred
approximately $21 million, which includes labor, equipment and license costs.
Reynolds has not determined the potential costs of business disruptions from
supplier or customer non-performance.
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
In this document (and in documents that are incorporated by reference),
Reynolds and Alcoa have made forward-looking statements. These statements are
based on their estimates and assumptions and are subject to a number of risks
and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of Alcoa and
Reynolds (see the following captions: "Summary," "The Merger--Reasons for the
Merger and Recommendations of the Reynolds Board," and "The Merger--Opinions of
Reynolds' Financial Advisors"). Forward-looking statements also include those
containing such words as "anticipates," "believes," "estimates," "expects,"
"hopes," "targets," "should," "will," "will likely result," "forecast,"
"outlook," "projects" or similar expressions. For each of these statements, we
claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The future results of Alcoa and Reynolds could be affected by subsequent
events and could differ materially from those expressed in the forward-looking
statements. If further events and actual performance differ from their
assumptions, their actual results could vary significantly from the performance
projected in the forward-looking statements.
You should understand that the following important factors, along with those
discussed elsewhere in this proxy statement and prospectus and in the documents
which we incorporate by reference, could affect the future results of Alcoa and
Reynolds, and could cause those results to differ materially from those
expressed in the forward-looking statements:
. materially adverse changes in economic or industry conditions generally
or in the markets served by Alcoa and Reynolds;
. political and economic risk associated with foreign activities,
including political instability in relevant areas of the world and
fluctuations in foreign currencies;
. changes in the supply and demand for and the price of aluminum, aluminum
products, and other products;
. material changes in available technology;
. operating factors such as supply disruptions, the failure of equipment
or processes to meet specifications, changes in operating conditions,
substantial increases in power costs, and weather;
. failure to complete capital projects as scheduled and within budget or
failure to successfully launch new growth or strategic business
programs;
. labor relations;
. environmental risks and liability under federal, state and foreign
environmental laws and regulations;
. changes in laws and regulations, both U.S. and foreign, or their
interpretation and application, including changes in tax laws and
interpretation and application of tax laws;
. unanticipated legal proceedings or investigations or the disposition of
current proceedings other than as anticipated by the companies'
managements;
. relationships with and financial and operating conditions of customers
or suppliers;
. the actions of competitors;
. the timing, process of, and conditions imposed in connection with
receipt of governmental permits and approvals relating to the merger;
. the ability to integrate the businesses of Alcoa and Reynolds and to
realize expected synergies and strategic benefits successfully after the
merger;
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. the challenges inherent in diverting management's focus and resources
from other strategic opportunities and from operational matters during
the integration process;
. opportunities that may be presented to and pursued by the combined
company after the merger; and
. the success and expense of remediation efforts of Alcoa, Reynolds and
other entities with which Alcoa and Reynolds do business in achieving
Year 2000 compliance.
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THE REYNOLDS SPECIAL MEETING
This proxy statement and prospectus is being furnished in connection with
the solicitation of proxies from the holders of Reynolds common stock by the
Reynolds Board relating to the merger proposal and other matters to be voted
upon at the special meeting and at any adjournment or postponement of the
meeting. This proxy statement and prospectus is also a prospectus for the
shares of Alcoa common stock to be issued in the merger. Reynolds mailed this
proxy statement and prospectus to stockholders beginning January 7, 2000. You
should read this proxy statement and prospectus carefully before voting your
shares.
When and Where the Special Meeting Will be Held
The special meeting will be held at the offices of Reynolds Metals Company,
6601 West Broad Street, Richmond, Virginia, on February 11, 2000, starting at
3:00 p.m., local time.
What Will be Voted Upon
At the special meeting, you will be asked to consider and vote upon the
following items:
. the approval and adoption of the merger agreement and the approval of
the merger and the other transactions described in the merger agreement;
and
. such other matters as may properly come before the special meeting.
Only Reynolds Common Stockholders of Record as of December 29, 1999 Are
Entitled to Vote
Reynolds common stockholders who hold their shares of record as of the close
of business on December 29, 1999, are entitled to notice of and to vote at the
Reynolds special meeting. On the record date, there were approximately 63.5
million shares of Reynolds common stock outstanding and entitled to vote at the
special meeting. Beneficial holders as of that date who are not holders of
record will only be allowed to vote in person at the special meeting if they
present a letter signed by the record holder indicating the number of shares
such beneficial holder is entitled to vote.
A Majority of Outstanding Shares Must be Represented For a Vote to be Taken
In order to have a quorum, stockholders entitled to cast a majority of the
votes all stockholders are entitled to cast at the special meeting must be
represented in person or by proxy. If a quorum is not present, the chairman of
the meeting may adjourn or postpone the meeting.
Vote Required for Approval
The merger proposal must be approved by the affirmative vote of the holders
of at least a majority of all shares of Reynolds common stock that are
outstanding and entitled to vote at the special meeting. Each share of Reynolds
common stock is entitled to cast one vote. As of the record date, the directors
and executive officers of Reynolds owned and were entitled to vote 660,134
shares (or 1.0%) of Reynolds common stock.
Voting Your Shares and Changing Your Vote
Voting Your Shares
The Reynolds Board is soliciting proxies from the Reynolds stockholders.
When you deliver a valid proxy, the shares represented by that proxy will be
voted in accordance with your instructions. If you do not either vote by proxy
or attend the special meeting and vote in person, it will have the same effect
as voting against the merger proposal.
To grant your proxy by mail, please complete your proxy card, sign, date and
return it in the enclosed envelope. To be valid, a returned proxy card must be
signed and dated. If you attend the special meeting in person, you may vote
your shares by completing a ballot at the meeting.
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Changing Your Vote by Revoking Your Proxy
You may revoke your proxy at any time before the polls close at the special
meeting. You may revoke your proxy by delivering notice in writing to the
Secretary of Reynolds, by granting a later-dated proxy or by appearing in
person and voting at the special meeting. You will not revoke your proxy by
attending the special meeting unless you complete a ballot.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the Reynolds Board. A valid proxy also gives the
individuals named as proxies authority to vote in their discretion when voting
the shares on any other matters that are properly presented for action at the
special meeting. A properly executed proxy marked "ABSTAIN" will not be voted.
However, it will be counted to determine whether there is a quorum present at
the special meeting. Accordingly, since the affirmative vote of a majority of
the shares outstanding and entitled to vote at the special meeting is required
to approve the merger proposal, a proxy marked "ABSTAIN" will have the effect
of a vote against this proposal. Broker non-votes (i.e., shares held by brokers
or nominees which are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal) will be
counted for purposes of determining whether there is a quorum at the special
meeting. The New York Stock Exchange rules do not permit brokers and nominees
to vote the shares that they hold beneficially either for or against the
proposal without specific instructions from the person who beneficially owns
those shares. Therefore, if your shares are held by a broker or other nominee
and you do not give them instructions on how to vote your shares, this will
have the same effect as voting against the merger proposal.
Cost of Solicitation
Reynolds will pay the cost of soliciting Reynolds proxies. In addition to
solicitation by mail, telephone or other means, Reynolds will make arrangements
with brokerage houses and other custodians, nominees and fiduciaries to send
proxy material to beneficial owners. Reynolds will, upon request, reimburse
these institutions for their reasonable expenses. Reynolds has retained Morrow
& Co., Inc. to aid in the solicitation of proxies and to verify certain records
related to the solicitation. Morrow will receive reasonable and customary
compensation (estimated at $12,500) for its services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection with its services.
Reynolds stockholders should not send in their stock certificates with the
proxy cards. Soon after the merger is completed, you will receive written
instructions on how to exchange your Reynolds stock certificates for shares of
Alcoa.
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THE MERGER
The Companies
Alcoa Inc.
Alcoa Inc., a Pennsylvania corporation, is the world's leading producer of
primary aluminum, fabricated aluminum and alumina, and a major participant in
all segments of the industry: mining, refining, smelting, fabricating and
recycling. Alcoa serves customers worldwide primarily in the packaging,
transportation (including aerospace, automotive, rail and shipping), building
and industrial markets with a great variety of fabricated and finished
products. Alcoa is organized into 24 business units and has over 215 operating
locations in 31 countries.
Alcoa has its principal executive offices at 201 Isabella Street,
Pittsburgh, Pennsylvania 15212 (telephone number (412) 553-4545).
Reynolds Metals Company
Reynolds Metals Company, a Delaware corporation, is the world's third-
largest aluminum producer and the world's leading aluminum foil producer.
Reynolds serves customers in growing world markets including the alumina and
primary aluminum, packaging and consumer, commercial construction,
distribution, and automotive markets, with a wide variety of aluminum, plastic
and other products. Reynolds employs approximately 18,000 people. Reynolds has
operations or interests in operations at more than 100 locations in 24
countries. Reynolds' operations are organized into four market-based, global
business units: Base Materials; Packaging and Consumer; Construction and
Distribution; and Transportation.
Reynolds has its principal executive offices at 6601 West Broad Street,
Richmond, Virginia 23230 (telephone number (804) 281-2000).
Background of the Merger
Reynolds began a restructuring process in 1996 to improve the focus and
profitability of the company and thereby increase shareholder value. The first
three phases of that process were substantially completed by December 31, 1998.
As part of that process, Reynolds raised $1.7 billion in proceeds from asset
sales, achieved its $900 million debt reduction goal in the third quarter of
1998, reduced interest expense $80 million annualized, executed a stock
repurchase plan (up to 18 million shares authorized through 2000, and
11.3 million shares repurchased through September 30, 1999), reduced corporate
expenses by $44 million annually, reorganized into market-focused global
business units and initiated enhanced segment reporting. At the end of 1998,
the effects of this restructuring were beginning to be realized. Earnings per
share from operations improved 144% comparing 1998 results with 1996 results.
In 1999, Reynolds began the first phase of an aggressive growth plan designed
to increase long term profitable growth. However, in late 1998 and early 1999
Reynolds' business was adversely affected by a downturn in the aluminum market
resulting in a sharp fall in the price of Reynolds shares.
On February 16, 1999, Highfields Capital Management LP notified Reynolds
that it recently had acquired shares in Reynolds and intended to present at the
Reynolds 1999 Annual Meeting a proposal that the stockholders ask the Reynolds
Board to retain an investment banking firm to explore strategic alternatives
for maximizing stockholder value including a sale of the company or a break-up
of the company. On March 17, 1999, Highfields publicly filed a Schedule 13D
announcing that it beneficially owned 3,550,700 Reynolds shares, that
Highfields intended to present its proposal at the Reynolds 1999 Annual Meeting
and that Highfields might consider the feasibility and advisability of various
alternative courses of action with respect to its investment in Reynolds.
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In response to a request made on Friday, March 19, 1999 by Mr. Paul H.
O'Neill, currently the Chairman of the Board of Alcoa, to meet with Mr.
Jeremiah J. Sheehan, Chairman of the Board and Chief Executive Officer of
Reynolds, on Monday, March 22, 1999 Mr. O'Neill, Mr. Alain J.P. Belda,
currently the President and Chief Executive Officer of Alcoa, and Mr. Richard
B. Kelson, Chief Financial Officer of Alcoa, met with Mr. Sheehan, Mr. D.
Michael Jones, Senior Vice President and General Counsel of Reynolds, and Mr.
Edmund H. Polonitza, Vice President, Development and Strategic Planning of
Reynolds, at Reynolds' headquarters in Richmond, Virginia. The Alcoa executives
initially proposed that Alcoa acquire Reynolds in a transaction in which
Reynolds' stockholders would receive $56.00 per share in value, half in cash
and half in Alcoa shares. During the meeting, the offer was increased to $60.00
per share. The Alcoa executives expressed a willingness to provide more of the
value in Alcoa shares if desired by Reynolds, but stated that $60.00 per share
was the maximum Alcoa would be willing to offer.
Later that same day, Mr. O'Neill sent the following letter to Mr. Sheehan:
"March 22, 1999
"Mr. Jeremiah J. Sheehan
Chairman of the Board and
Chief Executive Officer
Reynolds Metals Company
6601 West Broad Street
Richmond, VA 23261
"Dear Jerry:
"Thank you again for taking the time to meet with Alain, Rick and
me this morning. We appreciate your attention to our proposal to
combine Reynolds and Alcoa, which we understand that you will be
presenting to your Board of Directors this week. After reflecting on
our meeting, there are one or two points I would like to re-emphasize,
apart from what is conveyed in the "Discussion Points and Proposed
Transaction Terms" we left with you.
"First, although we proposed a transaction in which the
consideration would be half cash and half Alcoa shares ($60 in cash
and 1.42 Alcoa shares for each Reynolds share), we are prepared to use
as much Alcoa stock as you and the Reynolds stockholders would like.
This affords Reynolds stockholders the chance to retain an equity
investment in the combined enterprise, without the need to pay tax on
the exchange and with a premium built into the exchange ratio. Hence,
your stockholders receiving Alcoa stock will continue to participate
in the benefits of all synergies of the combination and any future
improvements in metals prices and will enjoy the superior returns on
capital Alcoa is achieving.
"Second, as I explained on the subject of "premium" this morning--
$60 per share is, in fact, a 50% premium to the prices at which
Reynolds shares were trading prior to the Highfields Schedule 13D
public filing and the takeover speculation it generated. We think our
$60 proposal (or 1.42 Alcoa shares) represents a full and fair price
for the Reynolds stockholders, especially when we consider the impact
on our ability to maintain attractive returns on equity for your
shareholders who elect to take Alcoa shares.
"There is one other point we made this morning which deserves
emphasis--that is the importance of maintaining stability among
employees during the transition period of a business combination. It
would be our desire to integrate your employees harmoniously into the
Alcoa family. We have significant experience and have achieved
excellent success integrating acquired companies into our group, and
we have done so on a basis which new employees have found to be an
attractive and secure opportunity. We would expect to do the same for
the Reynolds employees.
"Our transaction team (including outside advisors) is fully
informed and prepared to execute this transaction on a very short
timetable. We would be happy to work with you to achieve a joint
announcement as promptly as possible.
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"We hope that you and your Board of Directors will view this
proposal as the Alcoa Board of Directors and I do--a unique
opportunity for the Reynolds stockholders to realize full value for
their shares while maintaining an enhanced investment in a stronger
combined company with superior growth potential. If you or any of your
directors have any questions about our proposal, please feel free to
give me a call.
"I look forward to hearing from you by the end of the week.
Sincerely,
/s/ Paul H. O'Neill"
On Friday, March 26, 1999, Mr. Sheehan telephoned Mr. O'Neill to advise him
that he had discussed Alcoa's proposal with members of the Reynolds Board and
Reynolds' financial advisors, that the proposal was not acceptable and that
Reynolds was not for sale at the $60.00 price offered. Neither Alcoa nor
Reynolds pursued further negotiations with each other until the August 11 offer
described below.
On April 16, 1999, at a special meeting of the Reynolds Board, the Reynolds
Board reviewed with management and legal and financial advisors various
strategic alternatives. Mr. Sheehan advised the Board of preliminary
discussions with certain other large metals and packaging companies concerning
a strategic transaction. The Reynolds Board decided to pursue stockholder value
through a combination of organic growth and merger-of-equals and/or acquisition
transactions should such transactions be available with appropriate parties on
reasonable terms. Thereafter, Mr. Sheehan renewed discussions with certain
other large metals producers and metals and packaging companies concerning the
possibility of a transaction. At the same time, Reynolds initiated an intensive
growth planning effort and retained nationally recognized advisors to assist
with that process.
On May 20, 1999, at the annual meeting of Reynolds stockholders, Highfields
Capital Management LP's proposal was defeated by a substantial margin.
On Tuesday, August 10, 1999, Alcan, Algroup and Pechiney publicly announced
that they were engaged in advanced discussions regarding a potential business
combination. On Wednesday, August 11, 1999, the three companies announced that
they had reached agreement on the principal terms of a proposed three-way
merger to create the world's largest aluminum company. Reynolds management
concluded from this announcement that its options for achieving a merger-of-
equals or major acquisition transaction were substantially reduced.
On the morning of Wednesday, August 11, 1999, Mr. Belda and Mr. Kelson
called Mr. Sheehan to advise him that Mr. Belda was faxing a letter to him and
releasing it to the press. The letter was as follows:
"August 11, 1999
"Mr. Jeremiah J. Sheehan
Chairman of the Board and
Chief Executive Officer
Reynolds Metals Company
6601 West Broad Street
Richmond, VA 23261
"Dear Jerry:
"Late in March our senior management met with you and two of your
colleagues to propose a merger of Reynolds and Alcoa. We confirmed the
key terms of our proposal in a follow-up letter sent the same day --
March 22. As we explained, we thought the strategic logic of our
proposal was compelling for Reynolds and its stockholders. We still
do--indeed, we think it is even more so.
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"Our proposal today remains quite simple. We are prepared to
acquire all outstanding shares of Reynolds in a transaction in which
approximately half of the shares would be exchanged for $65 in cash
and the remaining half of the shares would be exchanged for the
equivalent value in Alcoa shares (or 0.9784 of a share of Alcoa). As
we previously indicated, we are willing to permit all Reynolds
stockholders to exchange all of their Reynolds shares for Alcoa
shares. Stated differently, we would do the entire transaction for
Alcoa shares if your Board or your stockholders find that desirable.
"Since our meeting on March 22, both Reynolds and Alcoa announced
two quarters of earnings--in the first half Alcoa earned $461.1
million or $1.25 per share and Reynolds earned $25 million or $0.40
per share--and both companies have enjoyed a substantial rise in the
stock market, although Alcoa's has been more robust (approximately 60%
versus approximately 20%). In that same period the ratio of Reynolds'
stock price to Alcoa's has gone from 1.124 to 0.841.
"At the beginning of June you stated publicly Reynolds' intention
to "look at significant growth that can be achieved through merger and
acquisition activity.' You further indicated your belief that our
industry "is moving toward global consolidation' in which Reynolds
plans to participate. We think those views are entirely congruent with
our prior proposal and with our continued desire to negotiate a
combination of our two companies using Alcoa common shares as the
principal currency of exchange.
"Indeed, we believe one of the most compelling features of our
proposal is our continued willingness for your stockholders to take
Alcoa shares in exchange for their Reynolds shares. According to
published figures, Alcoa's five- and ten-year total shareholder
returns (with 1999 annualized based on its performance through August
10) are 269.7% and 357.6%. These compare extremely favorably with all
of the following comparable figures: Reynolds--25.2% and 28.6%; S&P
Industrials--191.7% and 292.7%; and S&P 500--178.4% and 267.9%. Since
1992 Alcoa's total market capitalization has grown from $6 billion to
$24.4 billion. In comparison the other U.S. market traded industry
participants achieved the following increases in total market
capitalization in that same period: Reynolds--$3.4 billion to $3.6
billion; Kaiser--$.56 billion to $.65 billion; and Alcan--$4.3 billion
to $7.3 billion. I have enclosed a separate sheet of bullet points
further supporting the proposition that every Reynolds stockholder
should want to own Alcoa shares in a combined Alcoa/Reynolds
enterprise.
"Let me reiterate Alcoa's desire for a negotiated, mutually
satisfactory business combination. We have offered Reynolds
stockholders the opportunity to keep their equity investment in the
combined enterprise, without the need to pay tax on the exchange, at a
share exchange ratio which secures the very substantial run-up in the
market recently enjoyed by Reynolds shares and which includes a
premium to that already substantial market price. Hence, your
stockholders can participate in the benefits of all synergies of the
combination and any future improvements in metals prices. Moreover,
they will have the chance to enjoy the superior growth and returns on
capital Alcoa is achieving.
"We cannot overemphasize the importance of maintaining stability
among employees during the transition period of a business
combination, nor can we overstate the attention and effort we will
devote to this issue in this transaction. We will integrate your
employees harmoniously into the Alcoa family. We have significant
experience and have achieved excellent success integrating acquired
companies into our group. Most important, we have consistently done so
on a basis which new employees have found to be an attractive and
secure opportunity. You may expect no less for the Reynolds employees.
"Our objective is a transaction that is enthusiastically supported
by you and your Board, as well as Reynolds employees, stockholders and
your many loyal customers, communities and industry partners. In that
spirit, I hope that if you or any of your directors has any questions
about our offer, you and they will feel free to give me a call. I must
tell you, however, that we feel
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strongly this is a transaction we must pursue. Accordingly, we have
concluded that both our own stockholders and yours should be informed
of this proposal, and we have been advised that this is the best legal
course of action. Consequently, we will release the text of this
letter to the business wires.
"We also believe this to be a strategic opportunity for both
Reynolds and Alcoa that should be pursued expeditiously, especially
when we see the rapidly changing profile of our worldwide industry. We
therefore feel it appropriate to ask you to respond definitively to
this proposal by the close of business on Monday, August 16, after
which time we will pursue all other avenues available to achieve a
combination of our two companies.
Sincerely,
/s/ Alain Belda"
"Enclosure
"ADDITIONAL FACTORS TO CONSIDER
. Two-step merger transaction
. Approximately 1/2 the outstanding Reynolds shares exchanged
for $65 in cash
. Remaining shares exchanged for $65 worth of Alcoa stock (or
0.9784 of a share of Alcoa stock)
Attractive premium
$65--16.33% over yesterday's closing price
Historical trading ratios--Reynolds/Alcoa/1/
3 years--1.58
2 years--1.47
1 year--1.24
6 months--1.03
Alcoa's higher, more consistent margins (Operating Income/Revenues)
<TABLE>
<CAPTION>
Alcoa Reynolds
----- --------
<S> <C> <C>
1998 11.6% 7.8%
1997 12.2% 6.8%
1996 10.8% 5.0%
</TABLE>
Alcoa's premium price-to-earnings trading multiple
<TABLE>
<S> <C>
18.7 times vs. 14.1 times estimated 2000 net income/2/
15.8 times vs. 13.0 times estimated 2001 net income/2/
</TABLE>
Alcoa's greater trading liquidity
<TABLE>
<S> <C>
Approximately 3.5 times the average daily dollar volume of
Reynolds
</TABLE>
Alcoa's superior balance sheet strength
<TABLE>
<S> <C>
Reynolds--Baal/BBB
Alcoa--A1/A+
</TABLE>
--------
1 Average over period.
2 Based on First Call EPS Consensus Estimates."
26
<PAGE>
On the afternoon of August 11, 1999, Mr. Sheehan telephoned Mr. Belda to
advise him that Reynolds was calling a special board meeting and would not have
a response to Alcoa's proposal before that board meeting. Also that afternoon,
Reynolds announced that it had scheduled a special meeting of its Board for
Sunday, August 15, to consider Alcoa's proposal.
On Friday, August 13, 1999, Michigan Avenue Partners announced that it would
make a higher bid for Reynolds but did not specify a price, the timing of the
transaction or the means by which it would finance such a bid. Also on August
13, 1999, a published interview with the Chairman of Viag AG reported that he
had stated that Viag would not bid for Reynolds.
On Friday, August 13, 1999, Alcoa delivered a form of merger agreement to
Reynolds providing for a two-step transaction involving a tender offer for up
to a majority of the Reynolds shares at $65.00 in cash to be followed by a
back-end merger in which the remaining Reynolds shares would be converted into
Alcoa shares valued at $65.00 based on the trading value of the Alcoa shares
prior to the date of the Reynolds stockholder vote on the merger. The form of
agreement contained no "fiduciary out" provision and provided that Alcoa would
only be required to use "reasonable efforts" to satisfy any potential
regulatory objections to the merger.
On Sunday, August 15, 1999, the Reynolds Board held a special meeting with
its legal and financial advisors to review the Alcoa proposal. Reynolds legal
advisors described the terms of Alcoa's form of merger agreement and the issues
it presented and discussed with the Reynolds Board alternatives available and
the legal standards applicable to the Board's consideration of the Alcoa
proposal. Merrill Lynch discussed various financial aspects of the Alcoa
proposal and delivered its oral opinion to the Reynolds Board that the Alcoa
offer was inadequate to Reynolds stockholders from a financial point of view.
The Reynolds Board unanimously determined to reject the Alcoa offer as
inadequate for Reynolds stockholders and to publicly announce that Reynolds
would explore all alternatives to maximize stockholder value, including a sale
of the company. The Reynolds Board instructed management and its advisors to
determine if Alcoa's proposal could be improved upon and to pursue rapidly all
likely interested third parties. Mr. Sheehan called Mr. Belda that afternoon to
report the Reynolds Board's determination and to request a meeting with Mr.
Belda in Pittsburgh the following morning.
Late in the afternoon on Sunday, August 15, 1999 Reynolds issued the
following press release:
"RICHMOND, Va., August 15--Reynolds Metals Company (NYSE:RLM)
announced that its Board of Directors, at a special meeting held today
to consider Alcoa's offer of August 11, 1999 to acquire Reynolds,
unanimously determined that the consideration offered by Alcoa is
inadequate for our shareholders. In reaching its determination, the
Board considered, among other things, the opinion of Reynolds'
financial advisor, Merrill Lynch & Co.
"Reynolds also announced that its Board unanimously determined that
Reynolds, with the assistance of Merrill Lynch, should explore all
alternatives to maximize shareholder value, including the sale of the
company."
Early Monday morning on August 16, 1999, Alcoa issued the following press
release:
"PITTSBURGH, PA, August 16, 1999 -- Alcoa Inc. (NYSE:AA) said today
that while it prefers to negotiate a mutually agreeable merger with
Reynolds management it will commence a cash tender offer this week for
all outstanding shares of Reynolds Metals Company (NYSE:RLM) at a
price of $65 per share. Alcoa said that it will file definitive tender
offer materials with the U.S. Securities and Exchange Commission and
will mail the materials to Reynolds shareholders promptly.
"Alcoa also said that it will file with the SEC this week
preliminary consent solicitation materials that will be used to
solicit written consents from holders of Reynolds common shares. The
consent solicitation would seek, among other things, removal of the
current Board of Directors of Reynolds and election of an independent
slate of directors that would redeem Reynolds' "poison pill" rights
plan and take certain other steps to facilitate a sale of the company.
27
<PAGE>
"Alcoa further stated that it expects to file its pre-merger
notification under the Hart-Scott-Rodino Antitrust Improvements Act
later this week and would make every appropriate resource available to
assist the reviewing agency with its task of scrutinizing the
transaction. As stated previously, Alcoa believes that because of the
global nature of the metals marketplace, the consolidation of the
metal industry now occurring throughout the world, and the
complementary nature of the businesses of both companies, the proposed
Alcoa-Reynolds combination is not anti-competitive. Alcoa said that it
would also be making the requisite notification filing with the
European Commission under applicable EU merger regulations within the
next few days.
"Alcoa is the world's leading producer of primary aluminum,
fabricated aluminum and alumina. It is active in all major segments of
the industry: mining, refining, smelting, fabricating and recycling.
Alcoa has 215 operating locations in 31 countries. Revenues for 1998
were $15.3 billion with record shipments of 3.95 million metric tons
of aluminum."
On Monday, August 16, 1999, Mr. Sheehan met with Messrs. Belda and Kelson to
discuss a number of issues relating to the Alcoa proposal, including the
inadequacy of Alcoa's $65.00 per share offer and that (1) Reynolds would be
more interested in a transaction delivering greater value to Reynolds
stockholders and in which Reynolds stockholders would have the opportunity to
receive exclusively Alcoa shares, (2) Reynolds would require assurances that
Alcoa was committed to resolving regulatory issues with respect to a
transaction, and (3) Reynolds would require appropriate "fiduciary out"
provisions in any contract which would permit the Reynolds Board to accept a
superior proposal. Alcoa executives informed Mr. Sheehan that, subject to Alcoa
board approval and subject to satisfactory resolution of all contractual and
other issues before the Alcoa board meeting, Alcoa would consider an all stock
merger with the fixed exchange ratio being calculated at the end of the trading
day on August 16 to achieve a value of $70.00 per Reynolds share. Mr. Sheehan
replied that Alcoa's proposal was low and that, while Reynolds management would
present the proposal to the Reynolds Board, Reynolds management could not
recommend the proposal to the Reynolds Board.
During the same day, Reynolds engaged Goldman, Sachs & Co. as a second
financial advisor, and contacted potentially interested parties regarding the
possibility of an alternative transaction. Also during the same day, Reynolds
legal advisors began discussing with Alcoa's legal advisors the issues raised
by Alcoa's form of merger agreement.
In the morning of Tuesday, August 17, 1999, the Reynolds Board held a
special meeting with its legal and financial advisors to review and discuss
developments regarding Alcoa and other potentially interested parties. At this
meeting, Reynolds legal advisors reviewed with the Reynolds Board the
discussions with Alcoa's legal advisors concerning contractual issues and the
terms of Alcoa's form of merger agreement as they stood at such time. The
Reynolds Board instructed management and its advisors to determine if Alcoa's
$70.00 proposal could be improved upon, and to continue to pursue rapidly
likely interested third parties. Afterwards, Mr. Sheehan telephoned Mr. Belda
to report that the Reynolds Board had met that morning. Mr. Sheehan reiterated
that an all stock transaction valued at $70.00 per share was low and would not
be recommended by Reynolds management, and invited representatives of Alcoa and
Credit Suisse First Boston Corporation, Alcoa's financial advisor, to meet with
representatives of Reynolds and its financial advisors, Merrill Lynch and
Goldman Sachs, in Richmond, to discuss valuation issues.
The meeting took place during the afternoon of August 17. Reynolds
representatives informed the Alcoa representatives that Reynolds expected to
exceed the then current public analysts' consensus estimates of 1999 and 2000
earnings by approximately 20% and 50% respectively, assuming a 73.3 cent per
pound Metals Week U.S. transaction average metals price for the year 2000.
Reynolds representatives also noted that Reynolds earnings typically are
greater in the second half of the year than in the first half of the year,
primarily due to seasonal factors in the packaging and consumer businesses. The
Reynolds representatives reviewed Reynolds' long term strategic plans with the
Alcoa representatives and pointed out opportunities for growth for 1999, 2000
and beyond.
28
<PAGE>
Also on Tuesday, August 17, Reynolds continued to make contacts with
potentially interested parties regarding the possibility of an alternative
transaction and Reynolds legal advisors continued discussions with Alcoa's
legal advisors regarding Alcoa's form of merger agreement.
Later on that day, Alcan publicly announced that it would not pursue a
transaction for Reynolds as a whole, and Pechiney and Algroup confirmed that
they would not either.
In the morning of Wednesday, August 18, 1999, Messrs. Belda, Kelson and
Sheehan had discussions by telephone during which Mr. Sheehan reiterated that
Alcoa's proposal was low and would not be recommended by Reynolds management,
and urged that Alcoa improve its offer both with respect to the financial terms
and Reynolds ability to continue to solicit an alternative transaction. The
Reynolds Board held a special meeting with its legal and financial advisors
during the day to review and discuss developments regarding Alcoa and other
potentially interested parties. During this meeting, Reynolds financial
advisors discussed the financial implications of a transaction involving a
separation of Reynolds' two major business units. This analysis indicated a
break-up of the company would not likely result in a superior transaction for
Reynolds stockholders. During the special board meeting, Mr. Belda telephoned
Mr. Sheehan to report that Alcoa was willing to offer an all stock transaction
in which (1) Reynolds stockholders would receive 1.06 Alcoa shares for each
Reynolds share (which, at that time, was between $70.50 and $71.00 per share),
(2) Reynolds would be permitted to continue to solicit an alternative
transaction for 30 days and (3) Reynolds would be able to terminate the merger
agreement for a superior proposal with a $100 million (less than $2 per share)
breakup fee. Mr. Sheehan informed the Reynolds Board of this offer. Reynolds
legal advisors reviewed the terms of the merger agreement and advised the
Reynolds Board that the most significant contractual issues presented by
Alcoa's form of agreement had been resolved, including receipt of an
appropriate commitment regarding regulatory issues. They further advised the
board with respect to the legal standards applicable to consideration of the
proposed transaction. Each of Merrill Lynch and Goldman Sachs delivered its
oral opinion to the effect that the proposed exchange ratio was fair to
Reynolds stockholders from a financial point of view. Following discussion, the
Reynolds Board, by the vote of all members present, determined that the merger
and the merger agreement are advisable, fair to and in the best interests of
Reynolds and its stockholders and approved the merger agreement and the merger.
Also on the afternoon of August 18, 1999, the board of Alcoa approved the
merger agreement. Thereafter the definitive merger agreement was executed and
publicly announced.
Reasons for the Merger and Recommendations of the Reynolds Board
The Reynolds Board believes that the terms of the merger are advisable, fair
to and in the best interests of Reynolds and its stockholders, has approved the
merger agreement and recommends that stockholders vote FOR adoption of the
merger agreement.
In reaching its decision, the Reynolds Board consulted with its financial
and legal advisors, and considered a variety of factors, including the
following:
Alternatives. The Reynolds Board reviewed possible alternatives to a
negotiated merger with Alcoa, including the possibility of a restructuring, an
alternative transaction with a third party with respect to all or part of
Reynolds' businesses, and the prospects of continuing to operate Reynolds as an
independent company. In this regard, the Reynolds Board took into account
Alcoa's announcement of its intention to commence a tender offer at $65.00 per
share in cash and a consent solicitation to replace the Reynolds Board, as well
as the public announcements of other large metals producers as to their
unwillingness to make a competing proposal. Reynolds, with its financial
advisors, contacted other parties with regard to possible alternative
transactions, but no superior proposal was made. The Reynolds Board considered
the value to stockholders of the available alternatives and the timing and
likelihood of achieving additional value from these alternatives, including
continuing to operate Reynolds as an independent company. The Reynolds Board
also considered the apparent change in ownership profile of the company in
recent months, and particularly since the Alcoa offer was made public, and the
probability that such stockholders would prefer an immediate favorable
transaction rather than
29
<PAGE>
have Reynolds implement a long term strategic plan for profitable growth. After
considering the above matters and the advice of its financial advisors, the
Reynolds Board concluded that the merger with Alcoa was superior to any
available alternatives.
Improvements in Alcoa Proposal. The Reynolds Board reviewed the terms of the
merger agreement and considered the improvements which had been made in the
Alcoa proposal versus the initial $65.00 per share offer and the initial form
of merger agreement, including with respect to price, an appropriate commitment
to resolve regulatory issues, the ability to continue to solicit a superior
transaction for 30 days and the ability to terminate the merger agreement for a
superior proposal. See "The Merger Agreement."
Trend of Consolidation. The Reynolds Board considered the recent trend of
consolidation in the aluminum and packaging industries, including the
likelihood of continuing consolidation in the aluminum and packaging
industries, and the corresponding decrease in the number of available strategic
partners for Reynolds. The Reynolds Board determined that participation in the
industry-wide consolidation was important to Reynolds' future prospects. The
Reynolds Board concluded that the combined company, with larger aluminum
production, strong packaging assets and greater financial strength, would
likely be better able to compete in this environment.
Opinions of Financial Advisors. The Reynolds Board considered the respective
opinions of Merrill Lynch and Goldman Sachs, Reynolds' financial advisors,
that, as of the date of such opinions, and based upon and subject to the
factors and assumptions set forth in the opinions, the exchange ratio was fair
from a financial point of view to the stockholders of Reynolds, as described
below under "--Opinions of Reynolds' Financial Advisors."
Premium. The Reynolds Board considered the fact that the merger
consideration represented a premium over the price of Reynolds shares as of the
last trading day before the Reynolds Board approval of the merger agreement and
the last trading day before Alcoa's $65.00 per share offer. The Reynolds Board
took into account the expressions of preference on the part of certain Reynolds
stockholders for a transaction that generated an immediate financial benefit to
them.
Opportunity to Participate in the Combined Company. The Reynolds Board
considered the fact that a stock-for-stock transaction would allow Reynolds
stockholders to participate in the growth and opportunities of the combined
company, and to continue to have an investment in the metals industry through a
larger and more diversified enterprise.
Tax Consequences. The Reynolds Board considered the fact that the merger was
expected to be tax-free to Reynolds' stockholders for U.S. federal income tax
purposes.
The Reynolds Board also considered certain countervailing factors in its
deliberations concerning the merger, including:
Interim Operations and Consummation Risks. The Reynolds Board reviewed the
limitations upon the interim business of Reynolds imposed by the merger
agreement and considered the risks to Reynolds' continuing business if the
merger were not consummated.
Limitations on Solicitation; Termination Fee. The Reynolds Board reviewed
the provisions of the merger agreement that limit Reynolds' ability to solicit
other offers for the company or negotiate or exchange information with
potential bidders after September 17, 1999 and the requirement that Reynolds
pay Alcoa a termination fee of $100 million if the merger agreement were
terminated for a superior proposal. While the Reynolds Board thought that these
provisions would somewhat reduce the flexibility of Reynolds in connection with
proposals for alternative transactions, it concluded, together with its
advisors, that collectively these provisions were reasonable under the
circumstances and were unlikely to deter a credible superior proposal.
30
<PAGE>
Timing of Sale. The Reynolds Board considered that, given time to execute
Reynolds' long range business and growth plans, and taking into consideration
management's belief that industry fundamentals were improving and would
continue to improve over the near term, additional shareholder value could be
created by continuing to operate Reynolds as an independent company. The
Reynolds Board also considered the stated desire of several major stockholders
for an immediate sale or break-up of Reynolds and the opportunity for
stockholders to participate in the benefits of Reynolds' long range business
and growth opportunities after the merger by continuing to hold shares in
Alcoa.
The foregoing discussion of the information and factors discussed by the
Reynolds Board is not exhaustive but does include all material factors
considered by the Reynolds Board. The Reynolds Board did not quantify or attach
any particular relative or specific weight to the various factors that it
considered in reaching its determination that the merger agreement and the
merger are fair to and in the best interests of Reynolds and its stockholders.
Rather, the Reynolds Board viewed its position and recommendation as being
based on the totality of the information presented to and considered by it. In
addition, individual members of the Reynolds Board may have given different
weights to different factors.
The Reynolds Board recommends that Reynolds stockholders vote FOR the
approval and adoption of the merger agreement.
Opinions of Reynolds' Financial Advisors
Opinion of Merrill Lynch
Merrill Lynch has delivered its written opinion, dated August 18, 1999, to
the Reynolds Board to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the exchange ratio was fair from a financial point of view to the
holders of Reynolds common stock. Merrill Lynch's opinion is attached hereto as
Annex B.
The Merrill Lynch opinion attached as Annex B sets forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by Merrill Lynch. Each holder of Reynolds common stock is urged to
read the Merrill Lynch opinion attached as Annex B in its entirety. The Merrill
Lynch opinion was intended for the use and benefit of the Reynolds Board, was
directed only to the fairness of the exchange ratio from a financial point of
view to the holders of Reynolds common stock, did not address the merits of the
underlying decision by Reynolds to engage in the merger and does not constitute
a recommendation to any stockholder as to how that stockholder should vote on
the proposed merger or any related matter. The merger consideration was
determined on the basis of negotiations between Reynolds and Alcoa and was
approved by the Reynolds Board. The summary of the Merrill Lynch opinion, dated
August 18, 1999, is qualified in its entirety by reference to the full text of
the opinion attached as Annex B.
In arriving at its opinion, Merrill Lynch, among other things:
1. Reviewed certain publicly available business and financial information
relating to Reynolds and Alcoa that Merrill Lynch deemed to be relevant;
2. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Reynolds, as well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the merger furnished to Merrill
Lynch by Reynolds;
3. Conducted discussions with members of senior management and
representatives of Reynolds concerning the matters described in clauses 1 and 2
above, as well as its business and prospects before and after giving effect to
the merger and the amount and timing of the cost savings and related expenses
and synergies expected to result from the merger, and conducted discussions
with members of senior management and representatives of Alcoa concerning the
matters described in clause 1 above relating to Alcoa, as well as its
31
<PAGE>
business and prospects before and after giving effect to the merger (in the
case of the future prospects of Alcoa, Merrill Lynch was informed by Alcoa that
it could rely on public analysts' consensus estimates of Alcoa's future
earnings as the most reasonable estimates for purposes of its opinion);
4. Reviewed the market prices and valuation multiples for the Reynolds
common stock and the Alcoa common stock and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be relevant;
5. Reviewed the results of operations of Reynolds and Alcoa and compared
them with those of certain publicly traded companies that Merrill Lynch deemed
to be relevant;
6. Compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be relevant;
7. Participated in certain discussions and negotiations among
representatives of Reynolds and Alcoa and their financial and legal advisors;
8. Reviewed the potential pro forma impact of the merger;
9. Reviewed the merger agreement; and
10. Reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying such information or for undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Reynolds or Alcoa and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of the properties
or facilities of Reynolds or Alcoa. As the Reynolds Board was aware, Alcoa did
not make available to Merrill Lynch its projections of expected future
performance. With respect to the financial forecast information and the amount
and timing of the cost savings and related expenses and synergies expected to
result from the merger furnished to or discussed with Merrill Lynch by
Reynolds, Merrill Lynch assumed that they were reasonably prepared and
reflected the best currently available estimates and judgment of Reynolds
management as to the expected future financial performance of Reynolds and the
amount and timing of the cost savings and related expenses and synergies
expected to result from the merger. Merrill Lynch further assumed that the
merger would qualify as a tax-free reorganization for U.S. federal income tax
purposes.
Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on
the contemplated benefits of the merger.
Merrill Lynch expressed no opinion as to the prices at which shares of
Reynolds common stock or Alcoa common stock would trade following the
announcement or consummation of the merger, as the case may be.
The following is a summary of the material portions of the financial and
comparative analyses performed by Merrill Lynch in connection with the opinion,
dated August 18, 1999, delivered to the Reynolds Board.
Stock Trading History. Merrill Lynch reviewed the 52-week trading history of
Reynolds common stock for the period ending August 10, 1999. The high closing
price per share of Reynolds common stock during this period was $65.75 and the
low closing price per share of Reynolds common stock during this period was
$40.50.
32
<PAGE>
Historical Implied Exchange Ratio Analysis. Merrill Lynch reviewed the per
share daily closing market price movements of Reynolds common stock and Alcoa
common stock for the period beginning January 3, 1994 and ending August 11,
1999, and calculated the historical implied exchange ratios during this period
by dividing the daily closing prices per share of Reynolds common stock by
those of Alcoa common stock and the average of those historical trading ratios
for the 30-day, 60-day, 90-day, 6-month, 1-year, 2-year and 3-year periods
ending August 11, 1999. This analysis resulted in the following average implied
trading ratios for the periods indicated:
Average Historical Implied Exchange Ratios
<TABLE>
<CAPTION>
Period Average
------ -------
<S> <C>
Last 30 Days......................... 0.952x
Last 60 Days......................... 0.947x
Last 90 Days......................... 0.956x
Last 6 Months........................ 1.025x
Last 1 Year.......................... 1.235x
Last 2 Years......................... 1.468x
Last 3 Years......................... 1.584x
</TABLE>
Merrill Lynch also calculated the historical implied exchange ratio on
August 11, 1999 and the high and low historical implied exchange ratios for the
six-month period ending August 11, 1999 using the same methodology. This
analysis resulted in the following implied trading ratios:
Historical Implied Exchange Ratios on August 11, 1999
and for the Six-Month Period
Ending August 11, 1999
<TABLE>
<CAPTION>
<S> <C>
August 11, 1999....................... 0.941x
High.................................. 1.228x
Low................................... 0.841x
</TABLE>
Comparable Public Company Analysis. Using publicly available information,
Merrill Lynch compared selected historical and projected stock, financial and
operating data and ratios for Reynolds with corresponding data and ratios of
similar publicly-traded aluminum companies, which are referred to below as the
Large Capitalization Comparable Companies. Merrill Lynch also compared selected
historical and projected stock, financial and operation data and ratios of
similar publicly-traded diversified companies that own aluminum businesses,
which are referred to below as the Diversified Comparable Companies. These
companies were selected by Merrill Lynch based upon Merrill Lynch's views as to
the comparability of the financial and operating characteristics of these
companies to Reynolds.
The Large Capitalization Comparable Companies were:
1. Alcoa,
2. Billiton plc,
3. Alusuisse Lonza Group Ltd.,
4. Alcan Aluminum Limited,
5. Pechiney S.A.,
6. Comalco Limited, and
7. Kaiser Aluminum Corporation.
33
<PAGE>
The Diversified Comparable Companies were:
1. Rio Tinto plc,
2. Anglo American plc,
3. Viag AG,
4. Norsk Hydro ASA, and
5. Noranda Mines Ltd.
Merrill Lynch compared the market value as a multiple of estimated year 2000
EPS and the market capitalization as a multiple of estimated year 2000 EBITDA
of each of these companies to corresponding multiples of Reynolds. EPS means
earnings per share and EBITDA means earnings before interest, taxes,
depreciation and amortization. The EPS estimates were obtained from First Call,
a data service that monitors and publishes a compilation of earnings estimates
produced by selected research analysts on companies of interest to investors,
as of August 9, 1999. The EBITDA estimates were derived from selected research
reports. The results of these analyses were as follows:
Large Capitalization Comparable Companies
<TABLE>
<CAPTION>
Market value as a multiple of: Low High Mean Median Reynolds
- ------------------------------ ----- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Estimated 2000 EPS........................... 11.1x 18.6x 15.9x 16.4x 14.4x
Market capitalization as a multiple of:
Estimated 2000 EBITDA........................ 6.2x 9.7x 7.5x 7.0x 8.2x
Diversified Comparable Companies
<CAPTION>
Market value as a multiple of: Low High Mean Median Reynolds
- ------------------------------ ----- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Estimated 2000 EPS........................... 15.1x 23.1x 19.2x 19.5x 14.4x
Market capitalization as a multiple of:
Estimated 2000 EBITDA........................ 4.3x 10.4x 7.1x 7.5x 8.2x
</TABLE>
Using these analyses, Merrill Lynch derived reference ranges to apply to
estimated 2000 EPS and EBITDA of Reynolds based upon the following three cases:
1. research analyst consensus estimates, which is referred to below as the
Street Case;
2. Reynolds management projections assuming a trading price for aluminum of
$1,400 per metric ton on the London Metal Exchange, which is referred to below
as the 1400 LME Case; and
3. Reynolds management projections assuming a trading price for aluminum of
$1,500 per metric ton on the London Metal Exchange, which is referred to below
as the 1500 LME Case.
Based upon total debt of approximately $1.52 billion, cash of approximately
$39 million and approximately 62.8 million shares of Reynolds common stock
outstanding as of June 30, 1999, these analyses resulted in the following
ranges of estimated equity value per share of Reynolds common stock:
34
<PAGE>
Estimated Equity Value
Per Share of Reynolds Common Stock
<TABLE>
<CAPTION>
Reference
Range Low High
-------------- ------ ------
<S> <C> <C> <C>
2000 EPS of $4.03 per share of
Reynolds common stock based on
Street Case...................................... 14.0x to 16.0x $56.50 $64.50
2000 EPS of $5.22 per share of
Reynolds common stock based on
1400 LME Case.................................... 12.0x to 14.0x $62.75 $73.00
2000 EPS of $6.44 per share of
Reynolds common stock based on
1500 LME Case.................................... 10.0x to 12.0x $64.50 $77.50
2000 EBITDA of $626 million based
on Street Case................................... 8.0x to 9.0x $56.25 $66.25
2000 EBITDA of $789 million based
on 1400 LME Case................................. 7.0x to 8.0x $64.50 $77.00
2000 EBITDA of $897 million based
on 1500 LME Case................................. 6.0x to 7.0x $62.25 $76.50
</TABLE>
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis for Reynolds' major operations using projections provided by the
Reynolds management based on the 1400 LME Case and the 1500 LME Case. Reynolds'
major operations include Base Materials; Packaging and Consumer; Distribution;
and Wheels.
The discounted cash flow was calculated assuming discount rates ranging from
9.0% to 11.0% and comprised the sum of the present values of
1. the projected cash flows for the second half of 1999 and the years 2000
through 2003; and
2. a 2003 terminal value based upon a range of multiples of 7.0x to 8.0x
estimated 2003 EBITDA.
Using various valuation methodologies, including a comparable company
analysis and book value approach, Merrill Lynch also derived an estimated
after-tax value per share of Reynolds common stock for Reynolds' other
businesses and assets, including investment properties, other investments, non-
current receivables and restricted cash, assuming a 50% tax basis and a 35% tax
rate on gain from the sale of assets.
Assuming approximately 62.8 million shares of Reynolds common stock
outstanding as of June 30, 1999, the discounted cash flow analyses for
Reynolds' major operations resulted in the following ranges of estimated equity
value per share of Reynolds common stock:
Estimated Equity Value
Per Share of Reynolds Common Stock
(Major Operations)
<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
1400 LME Case................. $51.00 $65.75
1500 LME Case................. $60.75 $77.50
</TABLE>
35
<PAGE>
Taking into account Reynolds' other businesses and assets, these analyses
resulted in the following ranges of estimated equity value per share of
Reynolds common stock:
Estimated Equity Value
Per Share of Reynolds Common Stock
(Major Operations and Other Businesses and Assets)
<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
1400 LME Case................. $58.25 $75.25
1500 LME Case................. $68.00 $87.00
</TABLE>
Trading Segment Analysis. Using publicly available information and
information provided by Reynolds' management, Merrill Lynch compared selected
historical and projected financial and operating data and ratios for each of
Reynolds' major operations with corresponding data and ratios of publicly
traded companies. The companies were selected by Merrill Lynch based upon
Merrill Lynch's views as to the comparability of the financial and operating
characteristics of these companies to each of Reynolds' major operations. Using
reference ranges deemed to be relevant for each of the major operations, these
analyses resulted in a range of estimated aggregate values of Reynolds' major
operations.
Merrill Lynch then derived a range of estimated values of other assets,
including cash, other businesses, other assets and pension assets, using
Reynolds management estimates and various valuation methodologies, including a
comparable company analysis approach, and estimated the amount of liabilities,
including total debt, after-tax post-retirement benefits, after-tax
environmental obligations, and capitalized corporate overhead.
Based on approximately 62.8 million shares of Reynolds common stock
outstanding as of June 30, 1999, these analyses resulted in a range of implied
equity value per share of Reynolds common stock of $59.50 to $71.50.
The summary of analyses performed by Merrill Lynch set forth above does not
purport to be a complete description of the analyses performed by Merrill Lynch
in arriving at its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
Merrill Lynch, without considering all analyses and factors, could create an
incomplete view of the processes underlying the Merrill Lynch opinion. Merrill
Lynch did not assign relative weights to any of its analyses in preparing its
opinion. The matters considered by Merrill Lynch in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Reynolds' and Merrill Lynch's control and
involve the application of complex methodologies and educated judgment. Any
estimates contained in Merrill Lynch analyses are not necessarily indicative of
actual past or future results or values, which may be significantly more or
less favorable than the estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future, and the estimates are inherently subject
to uncertainty.
No company utilized as a comparison in the analyses described above is
identical to Reynolds. In addition, various analyses performed by Merrill Lynch
incorporate projections prepared by research analysts using only publicly
available information. These estimates may or may not prove to be accurate. An
analysis of publicly traded comparable companies is not mathematical; rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
to which they are being compared.
The Reynolds Board selected Merrill Lynch to act as its financial advisor
because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the merger and because Merrill Lynch is familiar with Reynolds and its
business. As part of Merrill
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<PAGE>
Lynch's investment banking business, Merrill Lynch is continually engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to the terms of a letter agreement between Reynolds and Merrill
Lynch dated August 13, 1999, Reynolds has agreed to pay Merrill Lynch a fee of
$150,000 on the date of the letter agreement, a fee of $500,000 upon the
delivery of the Merrill Lynch opinion and a fee of $500,000 upon the signing of
the merger agreement.
In addition, Reynolds has agreed to pay Merrill Lynch an additional fee,
payable in cash upon the closing of the merger, equal to 0.30% of the sum of:
1. the aggregate fair market value of the Alcoa common shares issued to the
holders of Reynolds common stock as consideration in the merger; and
2. the amount of all indebtedness of Reynolds and its consolidated
subsidiaries outstanding at June 30, 1999.
For purposes of the letter agreement, the fair market value of the Alcoa common
shares will be the value determined by the five-day average of the closing
prices of Alcoa common shares immediately prior to the closing of the merger.
Any fees previously paid to Merrill Lynch pursuant to the preceding paragraph
will be deducted from the fee Merrill Lynch is entitled to receive pursuant to
this paragraph. In addition, in the event that the exchange ratio in the merger
agreement is amended, or if Reynolds enters into a new agreement with any other
person or group which results in the acquisition by any other person or group
of 50% or more of the common stock or assets of Reynolds, Merrill Lynch will
receive from Reynolds an additional cash fee equal to 0.50% of the difference
between (i) the value of the aggregate consideration payable under the terms of
the original merger agreement, calculated as of August 18, 1999 and (ii) the
value of the aggregate consideration payable under the amended merger agreement
or the new agreement, as the case may be, calculated as of the date of
consummation of the transaction. Reynolds has also agreed to reimburse Merrill
Lynch for its reasonable out-of-pocket expenses incurred in connection with its
engagement (including the reasonable fees and disbursements of legal counsel)
and to indemnify Merrill Lynch and certain related parties from and against
certain liabilities, including liabilities under the federal securities laws,
arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Reynolds and Alcoa and may continue to do so and has received, and
may receive, fees for the rendering of those services. In addition, in the
ordinary course of Merrill Lynch's business, Merrill Lynch and its affiliates
may actively trade shares of Reynolds common stock and other securities of
Reynolds, as well as shares of Alcoa common stock and other securities of
Alcoa, for their own accounts and for the accounts of customers. Accordingly,
Merrill Lynch and its affiliates may at any time hold a long or short position
in such securities.
Opinion of Goldman Sachs
On August 18, 1999, Goldman Sachs delivered its oral opinion to Reynolds'
Board of Directors, which was subsequently confirmed by the written opinion of
Goldman Sachs dated August 18, 1999, that, as of that date, and based upon and
subject to the various qualifications and assumptions described in its opinion,
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders of shares of Reynolds common stock.
The full text of the written opinion of Goldman Sachs dated August 18, 1999,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex C to this document and is incorporated herein by reference.
Holders of Reynolds common stock should read the opinion carefully and in its
entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(1) the merger agreement;
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<PAGE>
(2) Annual Reports to Stockholders and Annual Reports on Form 10-K of
Reynolds for the five years ended December 31, 1998;
(3) Annual Reports to Shareholders and Annual Reports on Form 10-K of Alcoa
for the five years ended December 31, 1998;
(4) Quarterly Reports on Form 10-Q of Reynolds;
(5) certain interim reports to shareholders and Quarterly Reports on Form
10-Q of Alcoa;
(6) certain other communications from Reynolds to its stockholders and
Alcoa to its shareholders;
(7) certain internal financial analyses and forecasts for Reynolds prepared
by its management; and
(8) certain cost savings and operating synergies projected by the
managements of Reynolds and Alcoa to result from the transaction
contemplated by the merger agreement.
Goldman Sachs also held discussions with members of the senior management of
Reynolds and Alcoa regarding the strategic rationale for, and the potential
benefits of, the transaction contemplated by the merger agreement and the past
and current business operations, financial condition and future prospects of
their respective companies. In addition, Goldman Sachs reviewed the reported
price and trading activity for shares of the common stock of Reynolds and
Alcoa, compared certain financial and stock market information for Reynolds and
Alcoa with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the aluminum and packaging industries specifically and
in other industries generally and performed such other studies and analyses as
it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed the accuracy and
completeness of the financial and other information for purposes of rendering
its opinion. As Reynolds was aware, Alcoa did not make available to Goldman
Sachs Alcoa's projections of expected future performance. Accordingly, Goldman
Sachs' review of such information for purposes of rendering its opinion was
limited to discussions with management of Alcoa of certain research analysts'
estimates of Alcoa. In addition, Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Reynolds or Alcoa or
any of their subsidiaries and was not furnished with any such evaluation or
appraisal. Prior to the date of its opinion, Goldman Sachs was not requested to
solicit, and did not solicit, interest from other parties with respect to an
acquisition of or other business combination with Reynolds. Goldman Sachs
assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the transaction contemplated by the
merger agreement will be obtained without any adverse effect on Reynolds or
Alcoa or on the contemplated benefits of the transaction contemplated by the
merger agreement. The opinion of Goldman Sachs was provided for the information
and assistance of the Reynolds Board in connection with its consideration of
the transaction contemplated by the merger agreement and such opinion does not
constitute a recommendation as to how any holder of shares of Reynolds common
stock should vote with respect to such transaction.
The following is a summary of the material financial analyses performed by
Goldman Sachs in connection with providing its opinion. It does not purport to
be a complete description of the analyses performed by Goldman Sachs. The order
of analyses described, and the results of those analyses, do not represent
relative importance or weight given to those analyses by Goldman Sachs. Some of
the summaries of the financial analyses include information presented in
tabular form. The tables must be read together with the text accompanying each
summary.
Historical Exchange Ratio Analysis. Goldman Sachs reviewed the historical
ratio of the Reynolds common stock daily closing prices to the Alcoa common
stock daily closing prices, and compared the results to
38
<PAGE>
the 1.06 exchange ratio provided for in the proposed merger. The following
table lists the low, average and high of the ratios for the periods shown:
Historical Ratio of Reynolds Common Stock Price
To Alcoa Common Stock Price
<TABLE>
<CAPTION>
Period Ending August 10, 1999: Low Average High
------------------------------ ---- ------- ----
<S> <C> <C> <C>
Three Years................................................ 0.84 1.59 1.98
One Year................................................... 0.84 1.24 1.75
Six Months................................................. 0.84 1.03 1.23
One Month.................................................. 0.84 0.95 1.02
Ten Days................................................... 0.84 0.92 0.96
One Week................................................... 0.84 0.89 0.92
</TABLE>
Selected Companies Analysis. Goldman Sachs reviewed financial information,
ratios and public market multiples relating to Reynolds and Alcoa and compared
them to corresponding financial information, ratios and public market multiples
for the following publicly traded companies:
Selected Aluminum Companies:
Alcan Aluminum Limited
Alusuisse-Lonza Group Ltd.
Comalco Ltd.
Kaiser Aluminum Corporation
Pechiney SA
Selected Packaging Companies:
AptarGroup, Inc.
Bemis Company, Inc.
Sealed Air Corporation
Sonoco Product Company
In its analysis, Goldman Sachs used closing market prices on August 17, 1999
and other publicly available information. Goldman Sachs calculated the price-
to-earnings per share multiples of Reynolds, Alcoa and the selected companies
for calendar years 1999 and 2000 using estimates of 1999 and 2000 earnings per
share based on the medians of the latest estimates provided by I/B/E/S
International Inc., a data service which monitors and publishes a compilation
of earnings estimates produced by selected research analysts on publicly traded
companies. None of the selected companies is directly comparable to either of
Reynolds or Alcoa. As used herein, "enterprise value" means equity market value
plus debt less cash, "P/E" means the ratio of price to earnings per share,
"EBITDA" means earnings before interest, taxes, depreciation and amortization;
"LTM" means latest twelve months, and "EPS" means earnings per share.
In its analysis, Goldman Sachs calculated and compared (i) the enterprise
value as a multiple of LTM EBITDA and (ii) the estimated 1999 and 2000 P/E
multiples, of:
. the selected aluminum companies as a group (including Alcoa and excluding
Reynolds), based on the closing stock prices of such companies on August
17, 1999;
. the selected packaging companies as a group, based on the closing stock
prices of such companies on August 17, 1999;
. Reynolds, based on a stock price of $70.89 (the implied price per share
of Reynolds common stock based on the terms of the proposed transaction
and Alcoa's closing stock price on August 18, 1999);
39
<PAGE>
. Alcoa, based on its closing stock price on August 17, 1999; and
. the selected aluminum companies as a group (including Reynolds and
excluding Alcoa), based on the closing stock prices of such companies
(other than Reynolds) on August 17, 1999 and on the closing stock price
of Reynolds on August 10, 1999 (the last trading day prior to the
announcement of Alcoa's proposal dated August 11, 1999).
The results of this analysis were as follows:
<TABLE>
<CAPTION>
Aluminum Companies Aluminum Companies
(Including Alcoa (Including
and Excluding Packaging Reynolds Alcoa Reynolds and
Reynolds) Companies ($70.89) (8/17/99) Excluding Alcoa)
------------------ ----------- -------- --------- ------------------
Selected
Selected Range Range Selected Range
------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a
Multiple of LTM
EBITDA................. 9.0x-12.0x 7.5x-8.5x 11.9x 11.4x 9.0x-12.0x
Estimated 1999 P/E
Multiples.............. 18.0x-25.0x 16.0x-18.0x 32.8x 24.9x 18.0x-25.0x
Estimated 2000 P/E
Multiples.............. 16.0x-19.0x 14.0x-16.0x 16.7x 18.8x 16.0x-19.0x
</TABLE>
Goldman Sachs also calculated and compared the LTM EBITDA margins of (i) the
selected aluminum companies as a group (including Alcoa and excluding
Reynolds), (ii) Reynolds, (iii) Alcoa, and (iv) the selected aluminum companies
as a group (including Reynolds and excluding Alcoa).
The results of this analysis were as follows:
<TABLE>
<CAPTION>
Aluminum Companies Aluminum Companies
(Including Alcoa (Including
and Excluding Reynolds and
Reynolds) Reynolds Alcoa Excluding Alcoa)
------------------ -------- ----- ------------------
Mean Mean
------------------ ------------------
<S> <C> <C> <C> <C>
LTM EBITDA Margin.......... 13.7% 10.0% 15.6% 12.8%
</TABLE>
Selected Transactions Analysis. Goldman Sachs analyzed information relating
to selected transactions in the aluminum industry, including the following:
Alcan/Algroup/Pechiney
Alumax/Alcoa
CasTech Aluminum/Commonwealth Aluminum; and
Cressona Aluminum/Alumax.
Goldman Sachs also analyzed information relating to thirty transactions in
the packaging industry for the period from 1990 to 1998.
In its analysis, Goldman Sachs calculated the aggregate consideration in
each of the aluminum industry and packaging industry transactions as a multiple
of LTM EBITDA, and compared the results of these calculations with the
aggregate consideration implied in the proposed merger as a multiple of
Reynolds' LTM EBITDA.
40
<PAGE>
The results of this analysis were as follows:
<TABLE>
<CAPTION>
Aluminum Industry Packaging Industry Proposed
Transactions Transactions Merger
----------------- ------------------ --------
Selected Range Selected Range
----------------- ------------------
<S> <C> <C> <C>
Aggregate Consideration as a
Multiple of LTM EBITDA........... 8.0x-10.5x 6.5x-10.5x 12.1x
</TABLE>
Pro Forma Merger Analysis. Goldman Sachs performed an analysis of the pro
forma impact of the proposed merger on Alcoa's fiscal year 1999, 2000 and 2001
earnings and cash flow (i.e., net income plus depreciation and amortization)
per share, based on (a) the medians of estimates provided by I/B/E/S
International for each of Reynolds and Alcoa and (b) estimates for Reynolds
provided by the management of Reynolds. For each of the years 1999, 2000 and
2001, Goldman Sachs compared the estimated earnings per share and estimated
cash flow per share of Alcoa common stock, on a stand-alone basis, to the
estimated earnings per share and estimated cash flow per share of the common
stock of the combined company on a pro forma basis. Goldman Sachs performed
this analysis based on the closing price of Alcoa common stock on August 18,
1999. Based on this analysis and taking into account estimates of synergies
provided by the managements of Reynolds and Alcoa, the proposed transaction
would be (i) dilutive to Alcoa's earnings per share in 1999 and accretive to
Alcoa's earnings per share in 2000 and 2001 based on both I/B/E/S International
and Reynolds' management's estimates, and (ii) accretive to Alcoa's cash flow
per share in 1999, 2000 and 2001 based on both I/B/E/S International and
Reynolds' management's estimates.
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash
flow analysis of Reynolds utilizing Reynolds' management's projections for the
years 1999 through 2003. Goldman Sachs calculated the net present value of free
cash flows for the years 1999 through 2003 using discount rates ranging from
10% to 14%. Goldman Sachs calculated the implied value of equity per share of
Reynolds in the year 2003 based on multiples ranging from 6.5x projected 2003
EBITDA to 8.5x projected 2003 EBITDA and then discounted these implied values
using discount rates ranging from 10% to 14%. This analysis indicated that the
implied value per share of Reynolds common stock ranged from a low of $58 to a
high of $90.
Contribution Analysis. Goldman Sachs reviewed the equity market value for
Reynolds, Alcoa and the pro forma combined company resulting from the proposed
transaction. This analysis indicated that, on a fully diluted basis and
assuming an Alcoa stock price of $66.88 (the closing price on August 18, 1999)
and an implied Reynolds stock price of $70.89 (the implied price per share of
Reynolds common stock based on the terms of the proposed transaction and
Alcoa's closing stock price on August 18, 1999), holders of Reynolds common
stock would own an aggregate of approximately 15% of the equity of the pro
forma combined company.
Goldman Sachs also reviewed the estimated future net income of Reynolds and
Alcoa for (i) estimated years 1999 and 2000 based on the medians of earnings
estimates provided by I/B/E/S International for each of Reynolds and Alcoa and
(ii) estimated 1999 based on earnings estimates of Reynolds provided by
management of Reynolds. The results of this analysis indicated that, excluding
synergies, (i) for 1999 based on the earnings estimates provided by I/B/E/S
International, Reynolds would contribute 12% of the net income of the pro forma
combined company, (ii) for 2000 based on the earnings estimates provided by
I/B/E/S International, Reynolds would contribute 17% of the net income of the
pro form combined entity, and (iii) for 1999 based on the earnings estimates of
Reynolds provided by the management of Reynolds, Reynolds would contribute 14%
of the net income of the pro forma combined entity.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its opinion, Goldman Sachs
considered the results of all its analyses and did not attribute any particular
weight to any factor or analysis considered by it; rather, Goldman Sachs made
its
41
<PAGE>
determination as to fairness on the basis of its experience and professional
judgment after considering the results of all its analyses. No company used in
the above analyses as a comparison is directly comparable to Reynolds or Alcoa
and no transaction used is directly comparable to the proposed merger. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to Reynolds' board of directors as to the fairness of the exchange
ratio to the holders of shares of Reynolds common stock from a financial point
of view and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold. Analyses based upon
forecasts or future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
the analyses. Because analyses based on forecasts or future results are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Reynolds, Alcoa, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecasted. As described
above, Goldman Sachs' opinion to Reynolds' board of directors was one of many
factors taken into consideration by the Reynolds Board in making its
determination to approve the merger agreement and the merger. The foregoing
summary does not purport to be a complete description of the analyses performed
by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The Reynolds Board
selected Goldman Sachs to act as its financial advisor in connection with the
proposed merger because Goldman Sachs is an internationally recognized
investment banking firm with substantial experience in the aluminum and
packaging industries. Goldman Sachs is familiar with Reynolds, having provided
certain investment banking services to Reynolds from time to time and having
acted as its financial advisor in connection with, and having participated in
certain of the negotiations leading to, the merger agreement. Goldman Sachs is
also familiar with Alcoa, having provided certain investment banking services
to Alcoa from time to time, including having acted as co-managing underwriter
of the public offering in January 1998 of $300 million principal amount of
Alcoa's 6.75% Bonds due 2028, and Goldman Sachs may provide investment banking
services to Alcoa in the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Reynolds and Alcoa for its own account and for the accounts of customers.
Pursuant to a letter agreement dated August 17, 1999, Reynolds engaged
Goldman Sachs as its financial advisor in connection with the possible sale of
all or a portion of the stock or assets of Reynolds. Pursuant to the terms of
the Goldman Sachs engagement letter, if the proposed merger is completed, or if
any other person or group acquires 50% or more of the stock or assets of
Reynolds in one or a series of transactions, Goldman Sachs will receive from
Reynolds a cash fee equal to 0.20% of the aggregate consideration payable in
such transactions. In addition, in the event that the exchange ratio in the
merger agreement is amended, or if Reynolds enters into a new agreement with
any other person or group relating to the acquisition by such other person or
group of 50% or more of the common stock or assets of Reynolds, Goldman Sachs
will receive from Reynolds an additional cash fee equal to 0.30% of the
difference between (i) the value of the aggregate consideration payable under
the terms of the original merger agreement, calculated as of August 18, 1999,
and (ii) the value of the aggregate consideration payable under the amended
merger agreement or the new agreement, as the case may be, calculated as of the
date of consummation of the transaction. In addition, under the terms of
Goldman Sachs' engagement, a cash fee equal to $250,000 (which amount is to be
credited against the cash fee payable upon completion of the proposed merger)
became payable by Reynolds to Goldman Sachs upon the execution of the
engagement letter, and a cash fee of $2 million became payable by Reynolds to
Goldman Sachs upon the public announcement of the execution of the merger
agreement. Reynolds has also agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Goldman Sachs against liabilities it incurs, including liabilities under the
federal securities laws.
42
<PAGE>
Management and Operations of Reynolds After the Merger
Alcoa expects that, initially following the merger, the businesses and
operations of Reynolds will, except as set forth herein, be continued
substantially as they are currently being conducted. Alcoa will continue to
evaluate the business and operations of Reynolds while the merger is pending
and after the merger is completed, and will take such actions as it deems
appropriate under the circumstances which then exist. Alcoa intends to
undertake a comprehensive review of Reynolds' business, operations,
capitalization and management with a view to optimizing development of
Reynolds' potential in conjunction with Alcoa's business.
Accounting Treatment
The merger will be accounted for using the purchase method of accounting for
financial accounting purposes in accordance with U.S. generally accepted
accounting principles. Purchase accounting requires that the purchase price and
costs of the acquisition be allocated to all of the assets acquired and
liabilities assumed, based on their relative fair values. This allocation will
be made based upon valuations and other studies that have not yet been
finalized. Accordingly, the purchase accounting adjustments made in connection
with the development of the pro forma financial information appearing elsewhere
in this proxy statement and prospectus are preliminary and have been made
solely for purposes of developing such pro forma combined financial
information. Earnings or losses of the purchased company are included in the
buyer's financial statements from the consummation date of the acquisition. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
United States Federal Income Tax Consequences of the Merger
The following general discussion summarizes the anticipated material United
States federal income tax consequences of the merger to holders of Reynolds
common stock who exchange such stock for Alcoa common stock in the merger. This
discussion addresses only such stockholders who hold their Reynolds common
stock as a capital asset, and does not address all of the United States federal
income tax consequences that may be relevant to particular stockholders in
light of their individual circumstances or to stockholders who are subject to
special rules, such as:
. financial institutions,
. mutual funds
. tax-exempt organizations,
. insurance companies,
. dealers in securities or foreign currencies,
. traders in securities who elect to apply a mark-to-market method of
accounting,
. foreign holders,
. persons who hold such shares as a hedge against currency risk or as part
of a straddle, constructive sale or conversion transaction, or
. holders who acquired their shares upon the exercise of employee stock
options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue Service. It
is based upon the Internal Revenue Code, laws, regulations, rulings and
decisions in effect as of the date of this proxy statement and prospectus, all
of which are subject to change, possibly with retroactive effect. Tax
consequences under state, local and foreign laws and federal laws other than
federal income tax laws, are not addressed.
Holders of Reynolds common stock are strongly urged to consult their tax
advisors as to the specific tax consequences to them of the merger, including
the applicability and effect of federal, state, local and foreign income and
other tax laws in their particular circumstances.
43
<PAGE>
It is a condition to the consummation of the merger that (i) Reynolds
receive an opinion from Wachtell, Lipton, Rosen & Katz, special counsel to
Reynolds, dated as of the effective date of the merger, to the effect that the
merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code and (ii) Alcoa receive an opinion from Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to Alcoa, dated as of the effective
date of the merger, to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The conditions relating to the tax opinions may not be waived by Reynolds
or Alcoa after receipt of the Reynolds stockholder approval unless further
stockholder approval is obtained with appropriate disclosure. The opinions will
be based on customary assumptions and customary representations made by, among
others, Reynolds, Alcoa and RLM Acquisition Corp. An opinion of counsel
represents counsel's best legal judgment and is not binding on the Internal
Revenue Service or any court. No ruling has been, or will be, sought from the
Internal Revenue Service as to the United States federal income tax
consequences of the merger.
Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, holders of Reynolds common stock
who exchange their Reynolds common stock solely for Alcoa common stock in the
merger will not recognize gain or loss for United States federal income tax
purposes, except with respect to cash, if any, they receive in lieu of a
fractional share of Alcoa common stock. Each holder's aggregate tax basis in
the Alcoa common stock received in the merger will be the same as his or her
aggregate tax basis in the Reynolds common stock surrendered in the merger,
decreased by the amount of any tax basis allocable to any fractional share
interest for which cash is received. The holding period of the Alcoa common
stock received in the merger by a holder of Reynolds common stock will include
the holding period of Reynolds common stock that he or she surrendered in the
merger.
A holder of Reynolds common stock who receives cash in lieu of a fractional
share of Alcoa common stock will recognize gain or loss equal to the difference
between the amount of cash received and his or her tax basis in the Alcoa
common stock that is allocable to the fractional share. That gain or loss
generally will constitute capital gain or loss. In the case of an individual
stockholder, any such capital gain generally will be subject to a maximum
United States federal income tax rate of 20% if the individual has held his or
her Reynolds common stock for more than 12 months on the date of the merger.
The deductibility of capital losses is subject to limitations for both
individuals and corporations.
Antitrust
Domestic Antitrust Compliance
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the related rules, the merger may not be completed until certain
information has been furnished to the Antitrust Division of the Department of
Justice and the FTC and certain waiting period requirements have been
satisfied.
On August 24, 1999, Alcoa filed a Premerger Notification and Report Form in
connection with the proposed merger, and on August 30, 1999, Reynolds filed a
Premerger Notification and Report Form in connection with the proposed merger.
On September 29, 1999, the Antitrust Division issued a request for additional
information and documentary material (a "second request"). Under the applicable
provisions of the Hart-Scott-Rodino Act, Alcoa and Reynolds may not consummate
the merger until the expiration of the statutory waiting period, which expires
20 days after both Alcoa and Reynolds substantially comply with the second
request, unless the waiting period is terminated earlier by the Antitrust
Division. In practice, complying with a request for additional information or
material can take a significant amount of time. In addition, if the Antitrust
Division raises substantive issues in connection with a proposed transaction,
the parties frequently negotiate with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. The
expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Act is a condition to the completion of the merger.
The Antitrust Division frequently scrutinizes the legality under the
antitrust laws of transactions such as the proposed merger. At any time before
or after consummation of the merger, the FTC or the Antitrust
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Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest. Such action could include seeking to
enjoin the merger or seeking the divestiture of substantial assets of Alcoa,
Reynolds or their respective subsidiaries. Private parties and state attorneys
general may also bring legal action under federal or state antitrust laws under
certain circumstances. We can give no assurance that a challenge to the merger
on antitrust grounds will not be made or, if such a challenge is made, that it
would be unsuccessful.
Foreign Antitrust Compliance
Canadian National Merger Requirements
Investment Canada Act. Reynolds conducts certain operations in Canada. The
Investment Canada Act, or ICA, requires that notice of the acquisition of
"control" by "non-Canadians" of any "Canadian business" be furnished to
Industry Canada, a Canadian governmental entity, up to 30 days after closing of
the transaction.
The proposed merger may constitute an indirect acquisition of a "Canadian
business" within the meaning of the ICA. Alcoa intends to file any notice
required under the ICA, though it appears that the transaction will not be
subject to review under the ICA.
Canadian Premerger Notification Requirements. Certain provisions of Canada's
Competition Act require prenotification to the Commissioner of Competition of
significant transactions, such as the acquisition of a large percentage of the
stock of a public company that has Canadian operations. Prenotification is
generally required if:
. the parties to a transaction and their affiliates have assets in Canada,
or annual gross revenues from sales in, from or into Canada, in excess of
Cdn. $400 million, and
. the transaction involves the direct or indirect acquisition of an
operating business in Canada, the value of the assets of which, or the
annual gross revenues from sales in or from Canada generated from these
assets, exceed Cdn. $35 million.
Short-form prenotification materials were filed with the Commissioner on
behalf of Alcoa on November 23, 1999 and on behalf of Reynolds on November 24,
1999, along with a request for an advance ruling certificate to the effect that
the Commissioner is satisfied that the transaction would not prevent or lessen,
or be likely to prevent or lessen, competition substantially. The seven-day
waiting period expired on December 1, 1999.
On December 1, 1999, the Commissioner informed the parties that his
assessment of the transaction had not been completed. Accordingly, the
transaction may be completed unless the Commissioner either (i) obtains an
injunction to delay closing for up to 30 days (extendable to a maximum of 60
days) to permit him time to complete his review of the transaction, or (ii)
applies to the Competition Tribunal to oppose the transaction (as described
further below) and has obtained an interim injunction to delay closing in
connection therewith. The Commissioner may apply to the Tribunal before closing
or at any time within three years after substantial completion of the merger.
As noted above, if the Commissioner determines that the proposed transaction
prevents or lessens, or is likely to prevent or lessen, competition
substantially in a relevant market, the Commissioner may apply to the
Competition Tribunal, a special purpose Canadian tribunal, to, among other
things, require the disposition of all or part of the assets involved in the
transaction. If the transaction closes within one year after the issuance of an
advance ruling certificate, the Commissioner is precluded from applying to the
Competition Tribunal on the basis of information that is the same or
substantially the same as the information on the basis of which the certificate
was issued. If an advance ruling certificate is not issued, the Commissioner
retains the ability to apply to the Tribunal at any time within three years of
substantial completion of the merger.
EEA and European National Merger Regulation
Alcoa and Reynolds each conduct substantial operations in the European
Economic Area. Council Regulation (EEC) 4064/89 as amended and Article 57 of
the European Economic Area Agreement require that
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concentrations with a "Community or EFTA dimension" be notified in prescribed
form to the Commission of the European Communities for review and approval. In
these cases, the European Commission, as opposed to the individual countries
within the European Economic Area, will, with certain exceptions, have
exclusive jurisdiction to review the concentration.
Alcoa determined that the merger has a "community dimension," and thus, on
November 18, 1999, filed a notification in the prescribed form with the
European Commission in accordance with Council Regulation (EEC) 4064/89.
This triggered an initial one-month review period in which the European
Commission was required to determine whether the proposed merger is compatible
with the European common market or that there are sufficiently "serious doubts"
about the proposed merger's compatibility with the common market to require a
more complete review of the proposed merger. The initial one-month period
expired on December 20, 1999, whereupon the European Commission issued a
determination that there are sufficiently serious doubts about the proposed
merger's compatibility with the European common market to require a more
complete review. In view of this decision, the European Commission must
complete its investigation and make a final determination with respect to the
proposed merger no later than four months after December 20, 1999. Because EU
holidays, which have not yet been determined for the upcoming year,
automatically extend timetables under Council Regulation (EEC) 4064/89, a final
determination regarding the proposed merger must be made no later than the
first half of May 2000. If the European Commission does not make a decision
within that period, the proposed merger will automatically be deemed compatible
with the European common market.
Transactions subject to the filing requirements of Council Regulation (EEC)
4064/89 are suspended automatically until such time as they have been approved.
The European Commission may prevent the consummation of the merger, order a
divestiture if the merger has already been consummated or impose conditions or
other obligations to its approval.
We can give no assurance that a challenge to the merger will not be made
pursuant to Council Regulation (EEC) 4064/89 or by legal action brought by
private parties or, if a challenge is made, that it would be unsuccessful.
Other Foreign Laws
Reynolds and certain of its subsidiaries conduct business in other foreign
countries where regulatory filings or approvals may be required or desirable in
connection with the consummation of the merger. Certain of these filings or
approvals may not be made or obtained before completion of the merger.
Notifications have been made in Australia, Brazil and Argentina. Alcoa and
Reynolds anticipate making a filing in Mexico. Alcoa and Reynolds are
continuing to seek further information regarding the applicability of any laws
and currently intend to take such action as may be required or desirable.
Other Regulatory Matters
Alcoa and Reynolds conduct operations in a number of jurisdictions where
other regulatory filings or approvals may be required or advisable in
connection with the completion of the merger. Alcoa and Reynolds are currently
in the process of reviewing whether other filings or approvals may be required
or desirable in these other jurisdictions. Some of these filings may not be
completed before the completion of the merger, and some of these approvals,
which are not as a matter of practice required to be obtained before the
effectiveness of the merger, may not be obtained before the closing.
No Appraisal Rights
Holders of Reynolds common stock are not entitled to appraisal rights under
Delaware law. See "Comparison of Stockholders Rights--Appraisal Rights."
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Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
All shares of Alcoa common stock received by Reynolds stockholders in the
merger will be freely transferable, except that shares of Alcoa common stock
received by persons who are deemed to be "affiliates" of Reynolds under the
Securities Act of 1933 at the time of the special meeting may be resold by them
only in transactions permitted by Rule 145 under the Securities Act of 1933 or
as otherwise permitted under the Securities Act of 1933. Persons who may be
deemed to be affiliates of Reynolds for such purposes generally include
individuals or entities that control, are controlled by or are under common
control with Reynolds and include directors and executive officers of Reynolds.
The merger agreement requires Reynolds to use its reasonable best efforts to
cause each of such affiliates to execute a written agreement to the effect that
such persons will not offer, sell or otherwise dispose of any of the shares of
Alcoa common stock issued to them in the merger in violation of the Securities
Act of 1933 or the related Securities and Exchange Commission rules.
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COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION
We are providing you with the high and low sale prices of Reynolds common
stock and Alcoa common stock as reported on the New York Stock Exchange
Composite Tape for each calendar quarter during the past three years and the
dividends declared per share during those periods.
Reynolds common stock and Alcoa common stock are listed on the New York
Stock Exchange. The Reynolds ticker symbol on the New York Stock Exchange is
"RLM." The Alcoa ticker symbol on the New York Stock Exchange is "AA."
<TABLE>
<CAPTION>
Reynolds Common Alcoa Common
Stock Stock/1/
---------------------------- -----------------------------
Market Market
Price Cash Price Cash
-------------- Dividends -------------- Dividends
High Low Declared High Low Declared
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter......... $65 7/8 $56 3/4 $.35 $38 1/16 $32 1/8 $ .1125
Second Quarter........ 73 7/8 61 3/8 .35 39 5/8 32 5/8 .1250
Third Quarter......... 79 3/4 67 1/16 .35 44 13/16 37 9/16 .1250
Fourth Quarter........ 72 7/16 56 3/16 .35 42 33 .1250
1998
First Quarter......... $ 66 $54 3/8 $.35 $39 1/16 $32 9/16 $ .1875
Second Quarter........ 68 1/8 52 1/4 .35 39 1/16 31 3/8 .1875
Third Quarter......... 56 15/16 46 7/8 .35 37 29 .1875
Fourth Quarter........ 60 15/16 49 5/16 .35 40 5/8 33 5/8 .1875
1999
First Quarter......... $57 5/8 $38 3/4 $.35 $45 3/32 35 15/16 $.20125
Second Quarter........ 68 48 3/16 .35 67 15/16 40 1/4 .20125
Third Quarter......... 71 55 .35 70 7/8 58 1/2 .20125
Fourth Quarter
(through
December 29, 1999)... 77 3/8 57 1/2 .35 82 1/2 57 1/4 .20125
</TABLE>
- --------
1 On January 8, 1999, the Board of Directors of Alcoa declared a two-for-one
common stock split, distributed on February 25, 1999, to shareholders of
record at the close of business on February 8, 1999. In this table, the
figures for the periods before such date have been restated to reflect the
stock split.
The following table sets forth the closing price of the common stock of
Reynolds and Alcoa as reported on the New York Stock Exchange Composite Tape
and the equivalent price per share of Reynolds common stock (which is the
closing sale price of Alcoa common stock multiplied by the exchange ratio of
1.06) as of (i) August 10, 1999, the last full trading day before the
announcement by Alcoa of its $65.00 per share 50/50 cash and stock proposal;
(ii) August 13, 1999, the last full trading day before the announcement by
Alcoa of its intention to commence an all cash tender offer for all of the
outstanding Reynolds common stock at $65.00 per share; (iii) August 18, 1999,
the last full trading day before the public announcement of the merger; and
(iv) December 29, 1999, the latest practicable date before the effective date
of the registration statement of which this proxy statement and prospectus is a
part.
<TABLE>
<CAPTION>
Equivalent Price Per Share
Reynolds Alcoa of Reynolds Common Stock
Common Stock Common Stock at the Exchange Ratio
------------ ------------ --------------------------
<S> <C> <C> <C>
August 10, 1999............ $55.8750 $66.4375 $70.42
August 13, 1999............ 69.3750 66.5000 70.49
August 18, 1999............ 68.2500 66.8750 70.89
December 29, 1999.......... 76.5625 81.7500 86.66
</TABLE>
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We urge you to obtain current market quotations before voting your shares.
Because the exchange ratio is fixed in the merger agreement, the market value
of the shares of Alcoa common stock that holders of Reynolds common stock will
have the right to acquire when the merger becomes effective may vary
significantly from the market value of the shares of Alcoa common stock that
holders of Reynolds common stock would receive if the merger was consummated on
the date of this proxy statement and prospectus.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based on and should be read in conjunction with the historical
consolidated financial statements of Alcoa and Reynolds, including the notes
thereto, which are incorporated by reference in this proxy statement and
prospectus. These financial statements have been adjusted to give effect to (1)
Alcoa's merger with Alumax Inc., which was completed in July 1998, (2)
Reynolds' sale of its North American aluminum beverage can operations in August
1998 and (3) the proposed merger with Reynolds. The Unaudited Pro Forma
Condensed Consolidated Earnings Statement does not (a) purport to represent
what the results of operations actually would have been if the above
transactions had occurred as of the date indicated or what such results will be
for any future periods or (b) give effect to certain nonrecurring charges
expected to result from the Reynolds acquisition.
The Unaudited Pro Forma Condensed Consolidated Earnings Statements for the
nine month period ended September 30, 1999 and for the year ended December 31,
1998 give effect to the Reynolds merger and related transactions as if such
transactions had occurred on January 1, 1998. The Unaudited Pro Forma Condensed
Consolidated Earnings Statement for Alcoa for the year ended December 31, 1998
also gives effect to the Alumax merger as if such merger had occurred on
January 1, 1998. The Unaudited Pro Forma Earnings Statement for Reynolds for
the year ended December 31, 1998, presents the consolidated results of
operations of the company assuming that the disposition of the company's North
American Can Operations had occurred as of January 1, 1998. The operations
consisted of 14 can plants, two end plants and a headquarters building. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1999 gives effect to the Reynolds merger and related transactions as if such
transactions had occurred on that date.
The pro forma adjustments are based upon available information and include
certain assumptions and adjustments that the managements of Alcoa and Reynolds
believe to be reasonable. These adjustments are directly attributable to the
transactions referenced above and are expected to have a continuing impact on
Alcoa's business, results of operations and financial position. Alcoa and
Reynolds are currently awaiting approval for the merger transaction from
various government authorities. Therefore, at the present time, the amount of
information that the two companies can share is limited. Reynolds has certain
severance plans, agreements and policies applicable to its executive management
and salaried employees. It is probable that some covered persons will become
entitled to severance benefits under these arrangements following the
completion of the merger. The maximum amount payable under such arrangements is
in the range of $200 to $225 million. The actual amount to be paid cannot be
determined at present because Alcoa has not yet identified the employees who
might be affected. In addition, Alcoa has initiated an assessment of
restructuring costs and potential benefits from synergies; however, for the
reasons noted above, these studies cannot be completed. Based on these facts,
an estimate of the potential benefit from synergies or the amount of
restructuring costs is not yet available. However, it is possible that the
amounts involved related to the effects of restructuring could have a material
impact on the purchase price allocation.
The purchase of Reynolds will be accounted for using the purchase method of
accounting, so the total purchase costs of the acquisition will be allocated to
the tangible and intangible assets and liabilities acquired based upon their
estimated fair values. The purchase price allocation is preliminary, based on
facts currently known to the companies. Alcoa and Reynolds are not aware of any
significant unrecorded obligations or contingencies, other than the severance
arrangements referred to above, and, except as noted above, do not believe that
the final purchase price allocation will materially differ from that included
in the pro forma financial information contained herein. The final allocation
of the purchase price will be made based upon valuations and other studies that
have not been completed.
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<PAGE>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 1999
(dollars in millions)
<TABLE>
<CAPTION>
Historical
Historical Reynolds Pro Forma
Alcoa (B) Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash, cash equivalents and
short-term investments....... $ 297 $ 62 $ (35)(E) $ 324
Receivables from customers,
less allowances.............. 2,406 666 -- 3,072
Inventories................... 1,584 530 259 (E) 2,373
Prepaid expenses and other
current assets............... 468 110 -- 578
-------- ------- ------- --------
Total current assets........ 4,755 1,368 224 6,347
Properties, plant and equipment
at cost........................ 18,136 4,305 2,319 (E) 24,760
Less: accumulated depreciation,
depletion and amortization..... (9,158) (2,293) -- (11,451)
-------- ------- ------- --------
Net properties, plant and
equipment...................... 8,978 2,012 2,319 13,309
Goodwill........................ 1,333 -- 858 (E) 2,191
Other assets.................... 1,799 2,588 -- 4,387
-------- ------- ------- --------
Total Assets................ $ 16,865 $ 5,968 $ 3,401 $ 26,234
======== ======= ======= ========
LIABILITIES
Short-term borrowings........... $ 612 $ 311 $ (286)(D) $ 637
Accounts payable and accrued
liabilities.................... 2,515 809 (25)(D) 3,299
Long-term debt due within one
year........................... 48 138 -- 186
-------- ------- ------- --------
Total current liabilities... 3,175 1,258 (311) 4,122
Long-term debt.................. 2,669 1,009 -- 3,678
Accrued postretirement
benefits....................... 1,750 1,014 -- 2,764
Other noncurrent liabilities and
deferred credits............... 1,906 593 127 (E)
-- -- 858 (E) 3,484
-------- ------- --------
Total liabilities........... 9,500 3,874 674 14,048
Minority interests.......... 1,409 -- -- 1,409
Shareholders' Equity
Preferred Stock............... 56 -- -- 56
Common Stock.................. 395 1,560 (1,560)(E)
72 (F) 467
Additional Capital............ 1,712 -- 4,749 (F) 6,461
Retained earnings............. 5,728 1,216 286 (D)
25 (D)
(1,527)(E) 5,728
Treasury stock, at cost......... (1,310) (626) 626 (E) (1,310)
Accumulated other comprehensive
income......................... (625) (56) 56 (E) (625)
-------- ------- ------- --------
Total shareholders' equity.. 5,956 2,094 2,727 10,777
-------- ------- ------- --------
Total Liabilities and
Equity..................... $ 16,865 $ 5,968 $ 3,401 $ 26,234
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
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<PAGE>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Nine-month Period Ended
September 30, 1999
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro
Alcoa Reynolds (B) Adjustments Forma
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Revenues
Sales......................... $12,070 $3,434 $ (101) (G) $15,403
Other income.................. 78 4 -- 82
------- ------ ------ -------
12,148 3,438 (101) 15,485
Cost and Expenses
Cost of goods sold............ 9,388 2,856 (101) (G) 12,143
Selling, general
administrative and other
expenses..................... 597 236 (10) (H) 823
Research and development
expenses..................... 91 18 -- 109
Provision for depreciation,
depletion and amortization... 663 179 86 (I) 928
Interest expense.............. 153 57 (13) (J) 197
Merger-related expenses....... -- 12 (12) (K) --
------- ------ ------ -------
10,892 3,358 (50) 14,200
Earnings
Income before taxes on
income....................... 1,256 80 (51) 1,285
Provision for taxes on
income....................... 402 19 (12) (L) 409
------- ------ ------ -------
Income from operations...... 854 61 (39) 876
Minority Interests............ (134) -- -- (134)
------- ------ ------ -------
Net income...................... $ 720 $ 61 $ (39) $ 742
======= ====== ====== =======
Earnings per share
Basic......................... $ 1.96 $ 0.95 -- $ 1.69
Diluted....................... $ 1.91 $ 0.95 -- $ 1.65
Weighted average shares
outstanding:
(in millions)
Basic......................... 367 64 (64) (M)
72 (M) 439
Diluted....................... 376 64 (64) (M)
72 (M) 448
</TABLE>
The accompanying notes are in an integral part of the pro forma condensed
consolidated financial statements.
52
<PAGE>
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Year Ended December 31, 1998
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Alcoa Reynolds Pro Forma
Pro Forma (A) Pro Forma (C) Adjustments Pro Forma
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Sales.................... $ 16,766 $ 5,067 $ (173)(G) $ 21,660
Other income............. 152 20 -- 172
-------- ------- ------ --------
16,918 5,087 (173) 21,832
Costs and Expenses
Cost of goods sold....... 12,977 4,097 (173)(G) 16,901
Selling, general
administrative and other
expenses................ 917 336 (14)(H) 1,239
Research and development
expenses................ 131 31 -- 162
Provision for
depreciation, depletion
and amortization........ 940 252 114 (I) 1,306
Interest expense......... 262 72 (17)(J) 317
Special items............ -- 480 -- 480
-------- ------- ------ --------
15,227 5,268 (90) 20,405
Earnings
Income before taxes on
income, extraordinary
loss and the cumulative
effect of accounting
change.................. 1,691 (181) (83) 1,427
Provision for taxes on
income.................. 577 (99) (22)(L) 456
-------- ------- ------ --------
Income from operations... 1,114 (82) (61) 971
Minority Interests....... (238) -- -- (238)
-------- ------- ------ --------
Income before
extraordinary loss and
the cumulative effect of
accounting change........ $ 876 $ (82) $ (61) $ 733
======== ======= ====== ========
Earnings per share--before
extraordinary loss and
the cumulative effect of
accounting change
Basic.................... $ 2.36 $ (1.24) -- $ 1.65
Diluted.................. $ 2.35 $ (1.24) -- $ 1.65
Weighted average shares
outstanding:
(in millions)
Basic.................... 370 66 (66)(M)
72 (M) 442
Diluted.................. 372 66 (66)(M)
72 (M) 444
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
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<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(dollars in millions, except per-share amounts)
(A) In July 1998, Alcoa acquired Alumax Inc. for approximately $2.8 billion
consisting of cash of approximately $1.5 billion and stock of approximately
$1.3 billion. The transaction was accounted for using the purchase method.
The following Unaudited Pro Forma Condensed Consolidated Earnings Statement
for the year ended December 31, 1998 gives effect to this transaction as if
such transaction had occurred on January 1, 1998. Accordingly, the results
of Alumax for the first six months of 1998 have been included with the
historical 1998 results of Alcoa. Pro forma adjustments have been included
as appropriate.
Alcoa Inc.
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Year Ended December 31, 1998
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical Alcoa Pro
Alcoa Alumax Forma
December 31, June 30, Pro Forma December 31,
1998 1998 Adjustments 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Sales....................... $15,340 $1,555 $(129)(1) $16,766
Other income................ 150 2 -- 152
------- ------ ----- -------
15,490 1,557 (129) 16,918
Costs and Expenses
Cost of goods sold.......... 11,934 1,172 (129)(1) 12,977
Selling, general
administrative and other
expenses................... 783 170 (36)(2) 917
Research and development
expenses................... 128 3 -- 131
Provision for depreciation,
depletion and
amortization............... 842 79 22 (3)
(3)(4) 940
Interest expense............ 198 35 34 (5)
(5)(6) 262
------- ------ ----- -------
13,885 1,459 (117) 15,227
Earnings
Income before taxes on
income..................... 1,605 98 (12) 1,691
Provision for taxes on
income..................... 514 51 12 (7) 577
------- ------ ----- -------
Income from operations...... 1,091 47 (24) 1,114
Minority Interests.......... (238) -- -- (238)
------- ------ ----- -------
Net Income................... $ 853 $ 47 $ (24) $ 876
======= ====== ===== =======
Earnings per share
Basic....................... $ 2.44 $ 0.87 -- $ 2.36
Diluted..................... $ 2.42 $ 0.85 -- $ 2.35
Weighted average shares
outstanding:
(in millions)
Basic....................... 333 55 (55)(8)
37 (8) 370
Diluted..................... 335 56 (56)(8)
37 (8) 372
</TABLE>
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<PAGE>
- --------
(1) Represents the elimination of inter-company sales and purchases between
Alcoa and Alumax.
(2) Represents an adjustment to stock option costs expensed by Alumax but
included as part of the purchase price by Alcoa.
(3) Pro forma adjustments have been included to adjust depreciation expense
based on property, plant and equipment fair values and the amortization
of goodwill. An average useful life of 25 years was assumed for fixed
assets and a 40-year amortization period was assumed for goodwill.
(4) Represents an adjustment to eliminate the amortization of Alumax pre-
operating costs.
(5) Represents interest expense related to long-term debt issued to finance
the acquisition.
(6) Represents an adjustment to record interest expense based on the fair
value of the Alumax financial instruments.
(7) Represents income taxes related to pro forma adjustments at the
statutory rate, and the impact of certain non-deductible costs.
(8) Represents the conversion of Alumax common stock and the issuance of 37
million shares of Alcoa common stock in connection with the Alumax
merger.
(B) Certain reclassifications have been made to the Reynolds historical
financial statements to conform to the presentation to be used by Alcoa
upon completion of the merger.
(C) On August 10, 1998, Reynolds completed the sale of its North American
aluminum beverage can operations to Ball Corporation for $746 million in
cash. The Unaudited Pro Forma Condensed Consolidated Earnings Statement for
the year ended December 31, 1998, presents the consolidated results of
operations of Reynolds assuming that the disposition of the North American
Can Operations had occurred as of January 1, 1998. Notes (1) through (5) to
the following Reynolds Unaudited Pro Forma Condensed Consolidated Earnings
Statement for the year ended December 31, 1998 describe the adjustments
made for that presentation.
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Reynolds Metals Company
Unaudited Pro Forma Condensed Consolidated Earnings Statement
For the Year Ended December 31, 1998
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Less:
Historical North American Pro Forma Reynolds
Reynolds Can Operations(1) Adjustments Pro Forma
---------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Sales..................... $5,839 $ 772 $ -- $5,067
Other income.............. 20 -- -- 20
------ ----- ----- ------
5,859 772 -- 5,087
Costs and Expenses
Cost of products sold..... 4,774 (677) -- 4,097
Selling, general
administrative and other
expenses................. 347 (11) -- 336
Research and development
expenses................. 31 -- -- 31
Provision for
depreciation, depletion
and amortization......... 252 -- -- 252
Interest expense.......... 114 -- (42)(2) 72
Special items............. 144 -- 336 (3) 480
------ ----- ----- ------
5,662 (688) 294 5,268
Earnings
Income before taxes on
income, extraordinary
loss and cumulative
effect of accounting
change................... 197 (84) (294) (181)
Provision for taxes on
income (credit).......... 45 (32) (112)(4) (99)
------ ----- ----- ------
Income Before Extraordinary
Loss and Cumulative Effect
of Accounting Change...... $ 152 $ (52) $(182) $ (82)
====== ===== ===== ======
Earnings per share before
extraordinary loss and
cumulative effect of
accounting change
Basic:.................... $ 2.18 -- -- $(1.24)
Diluted:.................. $ 2.18 -- -- $(1.24)
Weighted average shares
outstanding
(in millions)
Basic:.................... 70 -- (4)(5) 66
Diluted:.................. 70 -- (4)(5) 66
</TABLE>
The accompanying notes to unaudited pro forma financial information are an
integral part of these statements.
56
<PAGE>
- --------
(1) The amounts included in the North American Can Operations column on the
income statement reflects the direct activity of the operations from
January 1, 1998 through August 10, 1998, the date of their disposition.
Depreciation expense was not included in the operations' expenses for
the year 1998. In 1998, the operations were accounted for as an asset
held for sale and, as required by current accounting rules,
depreciation was stopped. Pretax income has been tax effected at
Reynolds' statutory rate (38%).
(2) This pro forma adjustment represents the estimated reduction in
interest expense as a result of long-term debt being reduced by $470
million. Interest expense was calculated using the weighted average
interest rate (approximately 9%) on the long-term debt expected to be
extinguished.
(3) This pro forma adjustment eliminates the gain realized on the
disposition.
(4) Pretax income has been tax effected at Reynolds' statutory rate (38%).
(5) The shares used for pro forma earnings per share reflect $208 million
of proceeds being used to repurchase approximately 3,690,000 shares of
Reynolds common stock.
(D) It has been assumed that all Reynolds employee stock options were exercised
for Reynolds shares before the merger. The cash received from the exercise
was assumed to be utilized to reduce short-term debt. In addition, the
appropriate tax benefit has been recorded as a credit to equity. The
following details the exercise of the Reynolds employee stock options:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Stock options outstanding............................... 5,067,925
Weighted average exercise price per share............... $56.49
Cash received upon exercise of stock options at the
weighted average exercise price........................ 286 million
Tax benefit related to stock option exercise............ 25 million
</TABLE>
Total Reynolds shares outstanding after the exercise of stock options is as
follows:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Number of Reynolds shares issued and outstanding (including
deferred awards).......................................... 63,224,978
Number of Reynolds shares issued upon exercise of
outstanding Reynolds stock options........................ 5,067,925
----------
68,292,903
==========
</TABLE>
(E) The Reynolds acquisition is to be accounted for as a purchase business
combination. The Unaudited Pro Forma Condensed Consolidated Financial
Statements do not include any adjustments related to Reynolds severance
arrangements, restructuring costs or recurring benefits from synergies.
Alcoa and Reynolds are currently awaiting approval for the merger
transaction from various government authorities. Therefore, at the present
time, the amount of information that the two companies can share is
limited. Reynolds has certain severance plans, agreements and policies
applicable to its executive management and salaried employees. It is
probable that some covered persons will become entitled to severance
benefits under these arrangements following the completion of the merger.
The maximum amount payable under such arrangements is in the range of $200
to $225 million. The actual amount to be paid cannot be determined at
present because Alcoa has not yet identified the employees who might be
affected. In addition, Alcoa has initiated an assessment of restructuring
costs and potential benefits from synergies; however, for the reasons noted
above, these studies cannot be completed. Based on these facts, an estimate
of the potential benefit from synergies or the amount of restructuring
costs is not yet available. However, it is possible that the amounts
involved related to the effects of restructuring could have a material
impact on the purchase price allocation. The purchase price includes an
adjustment for deferred income taxes representing the difference between
the assigned values and the tax basis of the assets and liabilities
acquired. The purchase price, including acquisition costs, has been
allocated as follows:
57
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
--------------------
<S> <C> <C>
Purchase price:
Acquisition of outstanding shares of common stock (see
note E)................................................ $ 4,821
Acquisition expenses incurred by Alcoa.................. 35
Less: Cash received from the exercise of outstanding
Reynolds stock options................................. $ (286)
Tax benefit from the exercise of outstanding Reynolds
stock options.................................. (25)
Book value of net assets acquired.................... (2,094) (2,405)
--------- ---------
Increase in basis....................................... $ 2,451
=========
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair
value.................................................. $ 259
Increase in the fair value of property, plant and
equipment.............................................. 2,319
Adjust pension and postretirement accruals.............. (127)
Increase in goodwill.................................... 858
Increase in deferred tax liabilities--long-term......... (858)
---------
$ 2,451
=========
</TABLE>
The purchase price allocation is preliminary and further refinements may be
made based on the completion of final valuation studies.
(F) Represents the issuance of Alcoa common stock for all of the common stock
of Reynolds at an exchange ratio of 1.06 shares of Alcoa common stock per
share of Reynolds common stock. In accordance with generally accepted
accounting principles, the value of Alcoa stock to be issued was determined
based on the market price of such Alcoa common stock over a reasonable
period of time before and after August 18, 1999, the date the merger
agreement was executed. This resulted in a value of $66.60 per share of
Alcoa stock. Based on these facts, a value of $70.60 was ascribed to each
share of Reynolds common stock. Therefore, the acquisition of 68,292,903
shares of Reynolds common stock at a value of $70.60 totaled $4.821
billion.
The following details the issuance of common stock in connection with the
merger agreement.
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Total stock acquisition price paid in shares of
Alcoa common stock................................. $4,821
Par value of Alcoa common stock issued at $66.60.... (72)
------
Additional capital.................................. $4,749
======
</TABLE>
(G) Represents the elimination of inter-company sales and purchases between
Alcoa and Reynolds.
(H) Represents lower pension and OPEB expenses as a result of recording a pro
forma adjustment to record unrecognized actuarial losses and unrecognized
prior service costs. See note D.
(I) Pro forma adjustments have been included to adjust depreciation expense
based on property, plant and equipment fair values and the amortization of
goodwill. An average useful life of 25 years was assumed for fixed assets
and a 40-year amortization period was assumed for goodwill.
(J) Cash received from the exercise of Reynolds employee stock options was
assumed to be used to reduce short-term debt. This adjustment reflects the
lower interest expense that would be recognized as a result of this
reduction in debt.
(K) Represents the elimination of merger-related costs from the pro forma
statement of income.
(L) Represents income taxes related to pro forma adjustments at the statutory
rate and the impact of certain non-deductible costs.
(M) Represents the conversion of Reynolds common stock and the issuance of 72
million shares of Alcoa common stock in connection with the merger.
58
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Severance Agreements
Reynolds has entered into severance agreements with certain key executives,
including each of its executive officers. If, within three years of a change in
control of Reynolds, Reynolds terminates the executive's employment without
cause or the executive terminates his own employment for good reason, the
executive will be entitled to the following:
. the product of (1) the executive's annual base salary at the time of
termination or, if higher, at the time of the change in control plus the
highest cash target bonus opportunity established for the executive for
1998 or any future year, times (2) the lesser of 3 and the number of
years pro-rated for the number of full months until the executive's 65th
birthday;
. a cash payment equal to the excess of the pension the executive would
have received if he were fully vested and had three additional years of
service over the pension the executive is entitled to at the date of
termination; and
. waiver of any premium required for retiree health benefits.
The executive will also be entitled to continued medical, life and
disability benefits for three years following termination, and the executive
will be transferred ownership of the executive's company car effective as of
the date of termination. In addition, the executive will be entitled to a
reimbursement for any applicable excise tax liability for excess parachute
payments to the executive. The executive will also be entitled to a
reimbursement for all costs and expenses incurred as a result of any claim or
proceeding relating to the severance agreement.
The severance agreements also require the executive to make himself
available for consultation for no more than five days or 30 hours per month for
three years following termination.
The proposed merger would constitute a change in control of Reynolds for
purposes of the severance agreements. Accordingly, the cash amounts Messrs.
J.J. Sheehan, R.N. Reynolds, T.P. Christino, W.E. Leahey and P. Ratki and the
remaining 15 executive officers as a group would receive if their employment
were terminated by Reynolds without cause or by the executive for good reason
immediately following the proposed merger, including the estimated payment for
excise taxes, are $8,841,962, $3,817,369, $2,897,325, $2,862,047, $2,710,009,
and $27,924,739, respectively, based on a price of Reynolds common stock of
$70.89 per share and assuming the merger occurred on January 1, 2000 and all
executive officers were terminated without cause as of such date.
Reynolds Nonqualified Stock Option Plans
Reynolds Nonqualified Stock Option Plans provide for the granting of stock
options to assist Reynolds in attracting and retaining key employees by
providing them with additional incentive to contribute to Reynolds' growth and
success and to align key employees' interests with those of stockholders.
Options normally become exercisable one year after they are granted and may be
forfeited upon termination of employment except for reasons of death,
disability or retirement. Upon a change in control of Reynolds, all options
already granted under the Nonqualified Stock Option Plans would become
immediately exercisable. Options would also remain exercisable in accordance
with their terms for any option holder whose employment was actually or
constructively terminated by Reynolds other than for cause within three years
after the change in control or, in the case of parties to executive severance
agreements, upon the executive's decision to terminate his or her employment
for good reason. The proposed merger would constitute a change in control of
Reynolds for these purposes.
Messrs. Sheehan, Reynolds, Christino, Leahey and Ratki hold 80,000, 30,000,
19,000, 19,000 and 19,000 options, respectively, that will become immediately
exercisable as a result of the merger. All other executive officers as group
hold 127,200 options that will become immediately exercisable as a result of
the merger.
59
<PAGE>
As more fully described below in "The Merger Agreement--Stock Options," each
outstanding option will become an economically equivalent option to purchase
Alcoa common stock upon completion of the merger.
Reynolds Restricted Stock Plan for Outside Directors
Under the Restricted Stock Plan for Outside Directors, Reynolds makes one-
time grants of 1,000 shares of restricted common stock to each non-employee
director sixty days after such director is initially elected to the Reynolds
Board. The restrictions on these shares expire as to 200 shares on the April 1
immediately following the date of grant (or, if later, the six-month
anniversary of the date they were granted). The restrictions expire as to an
additional 200 shares on each successive April 1. By the fifth April 1
following the date of grant, restrictions on all 1,000 shares will have
expired, assuming continued service by the non-employee director throughout the
period. Upon a change in control of Reynolds, restrictions on 200 shares will
lapse immediately. The proposed merger would constitute a change in control of
Reynolds for these purposes. As a result, if the merger is completed before
April 1, 2000, 200 shares of restricted stock that otherwise would not have
vested unless they remained as directors until April 1, 2000 will vest for each
of Mr. W.H. Joyce, Ms. M.B. Mangum, Mr. D.L. Moore and Mr. S.C. Scott and any
remaining shares that had not vested would be forfeited.
Reynolds Long-Term Performance Share Plan
Under the Long-Term Performance Share Plan, executive officers and other key
employees are granted performance share units for a designated cycle, which
will be earned if the performance goals established for that cycle have been
met. Half of the award will be payable in cash; the other half will be in the
form of phantom stock, which will not be paid out until the year following
termination of employment. The phantom stock accounts are credited with
dividend equivalents based on the dividends that would have been paid if the
phantom stock had actually been issued and outstanding. Participants may
voluntarily defer receipt of up to 85% of the cash portion payable with respect
to a performance cycle. The plan also contains mandatory deferral provisions
applicable to those participants who are reasonably likely to be subject to the
Section 162(m) deductibility limitations. Upon a change in control, awards for
the current performance periods will be paid in cash, as if the change in
control date were the end of the performance cycle, except that pro rata awards
will be paid if the performance cycle has been in effect for less than one
year, and all deferred awards will also be paid immediately following the
change in control. Plan participants will also be made whole on an after-tax
basis for any excise tax liability that results from change in control payments
under this plan. Pursuant to these provisions, the following executives would
receive the following lump sum cash payments (including the estimated amount
for excise taxes): Mr. Sheehan, $3,845,459, Mr. Reynolds, $1,160,215, Mr.
Leahey, $1,009,553, Mr. Christino, $1,005,953 and Mr. Ratki, $1,002,748 and the
remaining 15 executive officers as a group would receive lump-sum cash payments
of approximately $6,066,747, assuming a change in control occurs on January 1,
2000 and a price of Reynolds common stock of $70.89 per share.
Reynolds Deferral Plans
All deferred amounts under the Salary Deferral Plan for Executives, New
Management Incentive Deferral Plan, Management Incentive Deferral Plan, Benefit
Restoration Plan for Savings and Investment Plan, Stock Plan for Outside
Directors and Deferred Compensation Plan for Outside Directors will
automatically be paid to participants following a change in control.
Reynolds Grantor Trust
The Reynolds Metals Company Grantor Trust Agreement requires Reynolds,
within 30 days after a change in control or a potential change in control, to
contribute to the trust assets to fund the benefits payable under the Benefit
Restoration Plan for New Retirement Program, the Supplemental Death Benefit
Plan for Officers, and the individual supplemental retirement benefit
agreements with W. O. Bourke and W.S. Leonhardt, each a former director and
executive officer of Reynolds. These amounts would be returned to Reynolds if a
change in
60
<PAGE>
control did not occur within one year of a potential change in control. The
term "potential change in control" generally means the good faith determination
by the Chief Executive Officer and the Chief Financial Officer that a change in
control is reasonably likely to occur in the next thirty days. The proposed
merger would constitute a change in control of Reynolds and it is expected that
the trust would be funded before completion of the merger.
Indemnification and Insurance
The merger agreement requires Alcoa to continue to provide officers and
directors of Reynolds with liability insurance arrangements that are at least
comparable to those in effect at the time the merger agreement was signed.
Alcoa will not be required to expend in any one year more than the annual
premiums currently paid by Reynolds. If the annual premiums of such insurance
coverage exceed this limit, Alcoa only will be obligated to obtain a policy
with the greatest coverage available for a cost not exceeding the limit. Alcoa
is entitled to meet these obligations by covering the relevant persons under
its own insurance policies. The merger agreement also requires Alcoa to
indemnify officers and directors of Reynolds to the fullest extent permitted by
applicable law, and to the same extent that they were indemnified while working
on behalf of Reynolds, for a period of six years following the merger. See "The
Merger Agreement--Indemnification; Directors' and Officers' Insurance."
61
<PAGE>
THE MERGER AGREEMENT
We believe this summary describes the material terms of the merger
agreement. However, we recommend that you read carefully the complete agreement
for the precise legal terms of the merger agreement and other information that
may be important to you. The merger agreement is included in this proxy
statement and prospectus as Annex A.
Form of Merger
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, RLM Acquisition Corp., a wholly owned subsidiary of
Alcoa, will merge with and into Reynolds, and Reynolds will become a wholly
owned subsidiary of Alcoa. The merger will become effective when the
certificate of merger is filed with the Delaware Secretary of State. If Alcoa
so desires and Reynolds consents, the surviving corporation may be merged with
and into Alcoa after the effective time of the merger instead of remaining
wholly-owned by Alcoa.
Consideration to be Received in the Merger
At the time the merger becomes effective, each share of Reynolds common
stock will be converted into 1.06 shares of Alcoa common stock. However, no
fractional shares of Alcoa common stock will be issued. For treatment of
fractional share interests see "--Exchange Agent; Procedures for Exchange of
Certificates--Fractional Shares," below.
Exchange Agent; Procedures for Exchange of Certificates
Exchange Agent. Alcoa has appointed ChaseMellon Shareholder Services, L.L.C.
to be the exchange agent under the merger agreement. The exchange agent will
accept certificates representing shares of Reynolds common stock and arrange
for creation of a book entry account with First Chicago Trust Company of New
York, Alcoa's transfer agent, reflecting your holdings of Alcoa common stock.
You will also be able to elect to obtain a physical certificate evidencing your
shares of Alcoa common stock at no extra charge. When the merger becomes
effective, Alcoa will deposit with the exchange agent the number of whole
shares of Alcoa common stock issuable pursuant to the merger agreement in
exchange for outstanding shares of Reynolds common stock. Soon after the
completion of the merger, the exchange agent will send a letter to each person
who was a Reynolds stockholder at the time the merger became effective. The
letter will contain instructions on how to surrender Reynolds stock
certificates to the exchange agent and receive shares of Alcoa common stock.
Dividends. Holders of Reynolds common stock will not be entitled to receive
any dividends or other distributions payable by Alcoa until they exchange their
Reynolds stock certificates for shares of Alcoa common stock. After they
deliver their Reynolds stock certificates to the exchange agent, those
stockholders will receive, subject to applicable laws, accumulated dividends
and distributions, without interest.
Fractional Shares. No fractional shares of Alcoa common stock will be issued
upon the surrender of certificates representing shares of Reynolds common
stock. No dividend or other distribution of Alcoa will relate to any such
fractional shares and no such fractional shares will entitle the owner thereof
to any voting or other rights of a stockholder of Alcoa.
Holders of Reynolds common stock otherwise entitled to fractional shares of
Alcoa common stock will receive a cash payment instead of such fractional
shares. Following the effective time of the merger, the exchange agent will
determine the excess of the number of whole shares of Alcoa common stock
delivered to the exchange agent by Alcoa for distribution to Reynolds
stockholders over the aggregate number of whole shares of Alcoa common stock to
be distributed to Reynolds stockholders. The exchange agent will then, on
behalf of the former stockholders of Reynolds, sell the excess shares at then
prevailing prices on the New York
62
<PAGE>
Stock Exchange, in the manner provided in the merger agreement, and make the
proceeds available to holders of Reynolds common stock otherwise entitled to
fractional shares in accordance with the terms of the merger agreement.
Antidilution Adjustments. If, before the merger becomes effective, Alcoa
makes certain changes to the number of outstanding shares of Alcoa common stock
or to the number of outstanding securities which are convertible into or
exercisable for shares of Alcoa common stock, Alcoa will adjust the merger
consideration accordingly. An adjustment will be made if Alcoa makes such a
change as a result of a reclassification, stock split (including a reverse
split), stock dividend or distribution, recapitalization, merger, subdivision,
issuer tender or exchange offer, stock repurchase other than in the ordinary
course of business, or other similar transaction, or if Alcoa declares or pays
any dividend or distribution other than any regular quarterly cash dividends.
Representations and Warranties in the Merger Agreement
In the merger agreement Reynolds and Alcoa make representations and
warranties to each other about their respective companies with respect to,
among other things:
. their organization, existence, good standing, corporate power,
subsidiaries and similar corporate matters;
. their capitalization;
. their authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters;
. the absence of defaults or violations under their certificates of
incorporation and bylaws and certain other agreements and laws as a
result of the contemplated transactions;
. filings with the Securities and Exchange Commission and the accuracy and
completeness of the information contained in such filings;
. the absence of undisclosed material liabilities required to be disclosed
under generally accepted accounting principles;
. the absence of undisclosed material violations of laws or government
orders;
. environmental matters;
. the absence of certain material changes in their respective businesses
since the date of each company's last quarterly report on Form 10-Q;
. this proxy statement and prospectus and the registration statement to be
filed in connection with the issuance of Alcoa common stock in the
merger, and the accuracy of the information contained herein and therein;
. tax matters; and
. the receipt of fairness opinions from each company's financial advisors.
In addition, Reynolds makes representations and warranties in the merger
agreement with respect to:
. employee benefit matters;
. required stockholder approval with respect to the merger; and
. amendment of its shareholder rights plan so that the shareholder rights
plan will not apply to the merger.
63
<PAGE>
Alcoa also makes additional representations and warranties in the merger
agreement with respect to:
. its ownership of Reynolds shares, and
. no vote of Alcoa stockholders being required for the merger.
All representations and warranties of Reynolds and Alcoa expire at the time
the merger becomes effective.
Covenants in the Merger Agreement
Conduct of Business by Reynolds.
Reynolds has agreed that, until the merger has been completed or the merger
agreement has been terminated, it will not, subject to certain exceptions,
take certain actions without the consent of Alcoa, unless such actions are
expressly permitted by the merger agreement or are contemplated in either the
capital budget or the operating budget of Reynolds, and except for certain
pending transactions. Subject to certain exceptions, Reynolds has agreed to
the following with respect to itself and, where applicable, its subsidiaries:
. Conduct of Operations. To conduct its operations according to their
ordinary and usual course of business.
. Preserve Organizations. To use its reasonable best efforts to preserve
intact its business organizations and goodwill, keep available the
services of its current officers and other key employees, and preserve
its business relationships.
. Notice of Certain Events. To notify Alcoa of any emergency in its
business or the operation of its properties which would have a material
adverse effect on Reynolds and its subsidiaries taken as a whole.
. Dividends and Distributions. Not to authorize or pay any dividends on or
make any distribution with respect to its outstanding shares of capital
stock other than regular quarterly cash dividends.
. Amendments to Plans. Not to enter into or amend any severance arrangement
or employee benefit plan or increase the compensation or benefits of its
officers or employees, except as contemplated by existing contracts,
plans or policies or in the ordinary course of business. Changes in the
ordinary course of business are permitted only with respect to Reynolds
employees who are not officers, except for changes relating to annual
bonuses and other incentive awards.
. Business Combinations; Assets. Not to enter into any business
combinations or acquisitions or dispositions of material amounts of
assets or securities, except with respect to Reynolds' continuing
restructuring plan and certain other specified transactions and except
for a transaction described under "--Solicitation of Alternative Takeover
Proposals," below.
. Governing Documents. Not to propose or adopt any amendments to corporate
charters or bylaws.
. Issuance of Capital Stock. Not to issue or authorize the issuance of any
shares of capital stock of any class, except upon the exercise of stock
options which were outstanding on the date of the merger agreement or
which were granted under existing stock plans in the ordinary course of
business consistent with past practice or pursuant to formula awards.
. Changes to Capital Stock. Not to reclassify, combine, split, purchase or
redeem any shares of capital stock or purchase or redeem any rights,
warrants or options to acquire any such shares.
. Indebtedness. Not to incur, assume or prepay any indebtedness or other
material liabilities or issue any debt securities, other than as may be
needed in connection with Reynolds' capital or operating budget or to
manage cash flow, not to become liable for the obligations of any other
person or entity except for its subsidiaries, and not to forgive any
loans or make any investments outside the ordinary course of business or
pursuant to existing obligations.
64
<PAGE>
. Properties and Assets. Not to sell, lease, license or otherwise subject
to any lien or otherwise dispose of any properties or assets (including
securitizations) other than in the ordinary course of business or under
certain other circumstances, not to modify or terminate any material
contracts or waive any material rights outside the ordinary course of
business, and not to alter its insurance coverage outside the ordinary
course of business.
. Accounting Methods. Not to change accounting methods unless required by
generally accepted accounting principles.
. Agree to Take Actions. Not to take or agree to take any of the foregoing
actions or take any action which would make any of its representations or
warranties in the merger agreement untrue or incorrect, or result in any
of the conditions to the merger set forth in the merger agreement not
being satisfied.
Alcoa's Interim Operations.
Alcoa has agreed that, until the merger has been completed or the merger
agreement has been terminated, it will not take certain actions without the
consent of Reynolds. Alcoa will (and will cause its subsidiaries to) conduct
its business in all material respects in the ordinary course consistent with
past practice. Alcoa will preserve intact its current business organization,
keep the services of key officers and employees available, maintain all
material licenses and authorizations in effect, and preserve its material
business relationships. Alcoa has also agreed to the following with respect to
itself and, where applicable, its subsidiaries:
. Governing Documents. Not to amend Alcoa's articles of incorporation or
bylaws.
. Changes to Common Stock. Not to amend any material terms of Alcoa's
common stock, or split, combine, subdivide or reclassify any shares of
Alcoa's common stock.
. Dividends and Distributions. Not to declare or pay any dividend or other
distribution with respect to Alcoa's common stock except for regular
quarterly cash dividends, regular dividends on any preferred stock, and
dividends paid by subsidiaries to Alcoa or to other subsidiaries.
. Merger. Not to take any action that might prevent or delay the proposed
merger.
. Accounting Methods. Not to change its accounting methods unless required
by generally accepted accounting principles, and not to change its fiscal
year.
. New Lines of Business. Not to enter into any material new line of
business that is not strategically related to its current business or
operations.
. Indebtedness. Not to incur indebtedness outside the ordinary course of
business or for acquisitions unless Alcoa reasonably believes such
incurrence is not likely to result in Alcoa's debt being downgraded to
below investment grade.
. Business Combinations; Assets. Not to enter into any business combination
unless the former shareholders of Alcoa will hold a majority interest in
the surviving corporation, and not to dispose of more than 25% of the
voting securities of Alcoa or any significant subsidiary or of more than
15% of the assets of Alcoa and its subsidiaries, taken as a whole.
. Agree to Take Actions. Not to agree or commit to any of the foregoing or
take any action which would make any of its representations or warranties
in the merger agreement inaccurate in any material respect.
Investigation. Reynolds has agreed, subject to legal and contractual
restrictions, until the merger becomes effective or the merger agreement is
terminated, to afford Alcoa's representatives reasonable access to its
properties, offices, employees, contracts, commitments, books and records and
any documents filed or received by Reynolds pursuant to applicable securities
laws, and to furnish to Alcoa any additional information about its businesses
and properties as Alcoa may reasonably request. However, Reynolds will not be
required to disclose competitively sensitive information. Alcoa will only use
information it obtains for purposes related
65
<PAGE>
to the proposed merger, and will keep such information confidential, unless
Reynolds agrees otherwise or unless the information was already known to Alcoa
or was acquired elsewhere.
Alcoa will afford Reynolds' representatives reasonable access to its
officers and accountants to the extent reasonably necessary in connection with
preparing this proxy statement.
Stockholder Approvals and Other Cooperation.
Reynolds has agreed to call the special meeting of its stockholders as soon
as possible, to prepare and file with the Securities and Exchange Commission,
as promptly as practicable, this document, and, subject to fiduciary duties, to
include in the proxy statement the recommendation of the Reynolds Board to
stockholders that they approve the merger and the merger agreement. If the
merger agreement is not terminated in accordance with its terms, Reynolds is
required to hold the special meeting of its stockholders even if the Reynolds
Board changes its recommendation with respect to the proposed merger with
Alcoa.
Alcoa has agreed to prepare and file the registration statement and use its
reasonable best efforts to have the registration statement declared effective
by the Securities and Exchange Commission as promptly as practicable, to cause
this proxy statement and prospectus to be mailed to the Reynolds stockholders
as promptly as practicable after the registration statement is declared
effective, to take all actions required under state blue sky or securities laws
in connection with the issuance of shares of Alcoa common stock in the merger,
and to use its best efforts to cause the shares of Alcoa common stock to be
issued in the merger to be approved for listing on the NYSE, subject only to
official notice of issuance.
Both parties have agreed to cooperate with one another in order to lift any
injunctions or remove any other impediment to the consummation of the
contemplated transactions and to grant such approvals and take such actions as
are reasonably necessary to eliminate or minimize the effects of any anti-
takeover statutes or regulations which may become applicable to the merger.
In addition, the merger agreement contains general covenants requiring Alcoa
and Reynolds to cooperate with each other and to take all actions necessary,
proper or advisable to consummate the contemplated transaction. Such actions
would include defending through litigation any antitrust, trade regulation or
competition claim brought by any U.S. or foreign governmental entity that would
prevent or delay the merger and divesting themselves of plants, assets, or
businesses, if necessary. However, Alcoa will not be required to make any such
divestitures with respect to any plants, assets or businesses that constitute
more than 2 1/2% of the combined sales of Alcoa and Reynolds in fiscal year
1998. Any such action by Reynolds will be conditioned on completion of the
merger.
Tax Matters. Both parties will use all reasonable efforts to cause the
merger to qualify as a reorganization under the Internal Revenue Code.
Public Announcements. Alcoa and Reynolds agree not to make any public
announcements with respect to the merger agreement and the transactions
contemplated thereby without first getting each other's approval.
Solicitation of Alternative Takeover Proposals
For a period of 30 days from the date of the merger agreement, the merger
agreement permitted Reynolds to solicit a transaction with a third party. Since
this 30-day period has expired, neither Reynolds, its subsidiaries, nor any of
their respective directors, officers, employees or representatives may,
directly or indirectly:
. initiate, solicit or encourage (whether by furnishing information or
otherwise) any inquiries or the making of any proposal which constitutes
an acquisition proposal (as defined below), or
. participate in any discussions or negotiations or provide any
confidential information regarding any acquisition proposal.
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<PAGE>
However, the above provisions will not prevent Reynolds from:
. complying with Rule 14e-2 under the Exchange Act (which requires a
company to disclose to its stockholders its position in response to a
tender offer by a third party);
. engaging in discussions or negotiations or providing information to a
third party who makes an unsolicited bona fide written acquisition
proposal, so long as the Reynolds Board concludes in good faith, after
consulting with its outside legal counsel and its financial advisor, that
the acquisition proposal is reasonably capable of being completed and
would result in a transaction more favorable to Reynolds' stockholders
than the proposed merger between Alcoa and Reynolds; or
. recommending such an unsolicited bona fide written acquisition proposal
to its stockholders.
None of the foregoing provisions, however, will relieve the Reynolds Board
of its obligation to submit the merger agreement to the vote of Reynolds'
stockholders at the special meeting.
An acquisition proposal means any proposal or offer with respect to any
merger, reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Reynolds or any of its subsidiaries or any purchase or sale of 20% or more of
the consolidated assets of Reynolds or any of its subsidiaries, taken as a
whole, or any purchase or sale of, or tender or exchange offer for, 20% or more
of its equity securities.
After the 30-day solicitation period expired, Reynolds terminated activities
relating to solicitation of third party acquisition proposals. Reynolds is
required to notify Alcoa within 24 hours of any inquiry, proposal, offer,
request for information, discussion or negotiation relating to a competing
acquisition proposal. Reynolds must inform Alcoa of the identity of the party
making such an inquiry, proposal, offer or request and of the substance and
status thereof.
Stock Options
At the time the merger becomes effective, each outstanding option to
purchase Reynolds common stock under employee incentive or benefit plans will
be converted into an option to acquire the number of shares of Alcoa common
stock equal to the number of shares of Reynolds common stock which could have
been obtained upon the exercise of the option immediately before the time the
merger becomes effective multiplied by 1.06. The exercise price will be
adjusted to equal the exercise price for such option immediately before the
time the merger becomes effective divided by 1.06. Alcoa will assume the
obligations of Reynolds under the Reynolds option plans and the other terms of
such options will continue to apply in accordance with the terms of the plans
under which they were issued, including any provisions for acceleration.
Alcoa will reserve for issuance and delivery a sufficient number of shares
of Alcoa common stock for delivery upon the exercise of any Reynolds stock
options and if necessary will file and keep effective a registration statement
with respect to such Alcoa common stock.
Alcoa and Reynolds have agreed that they will take all necessary actions to
ensure that any disposition of Reynolds securities or acquisition of Alcoa
securities by Reynolds officers and directors in connection with the merger
will be exempt from short-swing profit liability under the federal securities
laws.
Benefits Matters
Until at least December 31, 2001, Alcoa will maintain employee benefit
plans, programs and arrangements for Reynolds' employees and retirees that are
no less favorable than those in effect immediately before the merger.
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Specifically, Alcoa has agreed that it will
. waive any limitations regarding pre-existing conditions and eligibility
waiting periods under any welfare benefit plan Reynolds employees may be
eligible for after completion of the merger, except for limitations and
waiting periods which were in effect for such employees under welfare
benefit plans of Reynolds;
. provide Reynolds employees with credit for any co-payments and
deductibles paid before completion of the merger; and
. generally, give Reynolds' employees credit for service with Reynolds
prior to the completion of the merger under such benefit plans, programs
and arrangements and severance plans.
Indemnification; Directors' and Officers' Insurance
Alcoa has agreed to continue to indemnify present or former directors or
officers of Reynolds and its subsidiaries to the same extent as they were
indemnified under the charter, bylaws or other organizational documents,
agreements or policies of Reynolds or such subsidiary on the date of the merger
agreement.
Alcoa has also agreed that, for six years from the time the merger becomes
effective, it will maintain in effect Reynolds' current directors' and
officers' liability insurance policies for those persons who are currently
covered by the policies. However, Alcoa will not be required to expend in any
one year more than the annual premiums currently paid by Reynolds for such
insurance. If the annual premiums of such insurance coverage exceed this
amount, Alcoa only will be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding the limit. Alcoa may meet its
obligations under this paragraph by covering the relevant persons under its own
insurance policies.
Conditions Precedent to the Merger
The merger agreement contains certain conditions to the parties' obligations
to complete the merger. The parties will not be obligated to complete the
merger unless at or before the time the merger becomes effective:
. Stockholder Approval. The approval of the Reynolds stockholders has been
obtained.
. Legality. No law or government order prohibits the consummation of the
merger substantially on the terms contemplated by the merger agreement.
. Hart-Scott-Rodino Act. Any waiting period under the Hart-Scott-Rodino Act
has expired or been terminated.
. New York Stock Exchange Listing. The shares of Alcoa common stock
issuable in the merger have been approved for listing on the New York
Stock Exchange, subject only to official notice of issuance.
. Registration Statement. The registration statement relating to this proxy
statement and prospectus is effective, and no stop order suspending
effectiveness is in effect.
Alcoa will not be obligated to complete the merger unless:
. Tax Opinion. Alcoa has received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. This condition may not be waived after the Reynolds
stockholders approve the merger proposal unless further stockholder
approval is obtained with appropriate disclosure.
. Representations and Warranties. The representations and warranties of
Reynolds contained in the merger agreement are true and correct as of the
time the merger becomes effective (other than those which speak as of a
different date, which must be true and correct as of that date), except
where the failure of the representations and warranties to be true and
correct would not have a material adverse effect on Reynolds and its
subsidiaries, taken as a whole.
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. Agreements and Covenants. Reynolds has performed and complied in all
material respects with all agreements, obligations and conditions
required by the merger agreement before the time the merger becomes
effective.
. Certificate. Reynolds has delivered to Alcoa a certificate of an officer
evidencing compliance with the two preceding clauses.
Reynolds will not be obligated to complete the merger unless:
. Tax Opinion. Reynolds has received an opinion of Wachtell, Lipton, Rosen
& Katz to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. This
condition may not be waived after the Reynolds stockholders approve the
merger proposal unless further stockholder approval is obtained with
appropriate disclosure.
. Representations and Warranties. The representations and warranties of
Alcoa contained in the merger agreement are true and correct as of the
time the merger becomes effective (other than those which speak as of a
different date, which must be true and correct as of that date), except
where the failure of the representations and warranties to be true and
correct would not have a material adverse effect on Alcoa and its
subsidiaries, taken as a whole.
. Agreements and Covenants. Alcoa has performed and complied in all
material respects with all agreements, obligations and conditions
required by the merger agreement before the time the merger becomes
effective.
. Certificate. Alcoa and RLM Acquisition Corp. have delivered to Reynolds
certificates of their respective officers evidencing compliance with the
two preceding clauses.
Termination
The merger agreement may be terminated at any time before the time the
merger becomes effective, in any of the following circumstances:
. By mutual written consent of Reynolds and Alcoa.
. By either Alcoa or Reynolds if the merger has not become effective by
August 30, 2000. If on August 30, 2000 the waiting period under the Hart-
Scott-Rodino Act has not expired or been terminated or any injunction or
other order prohibits consummation of the merger, then such date will be
extended to February 28, 2001. A party cannot terminate under this clause
if such party's failure to fulfill its obligations under the merger
agreement is responsible for the failure to complete the merger on or
before the deadline date.
. By either Alcoa or Reynolds if a statute, rule, regulation or executive
order has been enacted, entered, promulgated or enforced prohibiting the
consummation of the merger substantially on the terms contemplated by the
merger agreement.
. By either Alcoa or Reynolds if a final and non-appealable order, decree,
ruling or injunction has been entered permanently prohibiting the
consummation of the merger substantially on the terms contemplated by the
merger agreement, if the terminating party has used its reasonable best
efforts to remove such order, decree, ruling or injunction, including by
defending the merger through litigation or making divestitures, provided,
however, that Alcoa is only required to agree to hold separate or divest
any businesses, product lines or assets that together accounted for not
more than 2 1/2% of the combined sales of Reynolds and Alcoa in fiscal
year 1998. Any such action by Reynolds will be conditioned on completion
of the merger.
. By either Alcoa or Reynolds if Reynolds holds the special meeting and the
Reynolds stockholders vote against approval of the merger agreement and
the merger.
. By Reynolds in order to accept what its Board of Directors has concluded
in good faith, after consulting with its advisors, is a superior
acquisition proposal, so long as Reynolds complies with the covenants
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described under "--Solicitation of Alternative Takeover Proposals" above
and, among other things, provides Alcoa with notice of such superior
proposal, and Alcoa does not make a more favorable offer within three days
of receiving such notice.
Termination Fees
Reynolds will pay Alcoa a termination fee of $100 million if:
. Reynolds terminates the merger agreement to accept a superior acquisition
proposal, as described under "--Termination" above, or
. a third party publicly announces an acquisition proposal and after such
announcement the merger agreement is terminated because Reynolds'
stockholders vote against approval of the merger agreement and the
merger, and, within twelve months of termination, Reynolds consummates
such acquisition proposal.
The merger agreement also provides that if Reynolds fails to pay any
termination fee which a court determines to be due, Reynolds must pay the costs
and expenses of any action Alcoa takes to collect payment, together with
interest on the termination fee.
Costs and Expenses
Reynolds and Alcoa will pay their own costs and expenses in connection with
the merger agreement and the contemplated transactions.
Amendment
At any time before the time the merger becomes effective, the parties may
amend or supplement any of the terms of the merger agreement in writing, except
that following approval by the Reynolds stockholders, the parties may not
change the consideration Reynolds stockholders will receive or make any other
change requiring stockholder approval without obtaining such approval.
Waiver
At any time before the merger becomes effective, any party may, in writing:
. extend the time for the performance of any of the obligations or other
acts of any other party;
. waive any inaccuracies in the representations and warranties of any other
party; or
. subject to obtaining stockholder approval if necessary as discussed under
"--Amendment" above, waive compliance with any of the agreements or
conditions of any other party contained in the merger agreement.
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OWNERSHIP OF REYNOLDS COMMON STOCK
Beneficial Ownership of Directors and Management of Reynolds
The following table sets forth the beneficial ownership of Reynolds common
stock as of December 27, 1999, by (a) each current director, (b) the five most
highly compensated executive officers of Reynolds in 1998 (the "Named Executive
Officers"), and (c) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership (Number of Shares)
--------------------------------------------------------------
Sole Voting Shared Voting
and/or and/or Additional
Investment Investment Percent of Common Stock
Power (1) Power (2) Total (3) Class (4) Equivalents (5)
----------- ------------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Directors:
(* also a Named
Executive Officer)
Patricia C. Barron.... 1,536 -- 1,536 -- 1,400
John R. Hall.......... 4,200 -- 4,200 -- 10,036
Robert L. Hintz....... 1,500 -- 1,500 -- 4,349
William H. Joyce...... 3,514 -- 3,514 -- 6,068
Mylle Bell Mangum..... 1,579 -- 1,579 -- 1,143
D. Larry Moore........ 1,608 -- 1,608 -- 1,938
Randolph N.
Reynolds*............ 254,435 51,779 306,214 0.5% 1,107
James M. Ringler...... 1,120 -- 1,120 -- 5,564
Sam Scott............. 2,000 -- 2,000 -- 1,026
Jeremiah J. Sheehan*.. 288,661 1,229 289,890 0.5% 20,974
Joe B. Wyatt.......... 1,500 -- 1,500 -- 2,624
Named Executive
Officers:
Thomas P. Christino... 54,971 5,170 60,141 0.1% 3,637
William E. Leahey,
Jr................... 55,200 2,643 57,843 0.1% 6,457
Paul Ratki............ 59,481 2,665 62,146 0.1% 3,550
All Directors and
Executive Officers as a
group (29 persons):.... 1,421,331 532,253 1,953,584 3.0% 78,825
</TABLE>
- --------
(1) Reported in this column are shares of Reynolds common stock held of record
individually or held in the name of a bank, broker or nominee for the
person's account and other shares with respect to which directors and
executive officers (or their spouses, minor children or other relatives who
share their home) have sole voting and/or investment power, including
shares held as sole trustee or custodian for the benefit of others.
Also included in this column are the following shares of Reynolds common
stock which may be acquired within 60 days after December 27, 1999 under
Reynolds' 1987, 1992 and 1996 Nonqualified Stock Option Plans: J.J. Sheehan,
280,500 shares; R.N. Reynolds, 192,000 shares; T. P. Christino, 54,600
shares; W.E. Leahey, Jr., 55,200 shares; P. Ratki, 57,750 shares; and all
current directors and executive officers as a group, 1,293,450 shares. Such
shares may not be voted at the special meeting.
(2) Reported in this column are shares with respect to which directors and
executive officers (or their spouses or minor children) share voting and/or
investment power, including shares held jointly with others or as co-
trustee for the benefit of others and shares credited as of December 27,
1999 to the accounts of participants under Reynolds' Savings and Investment
Plan for Salaried Employees.
(3) Each director and executive officer disclaims beneficial ownership of all
securities which are not held for his or her benefit. Each of J.R. Hall,
R.N. Reynolds and J.J. Sheehan also disclaims beneficial ownership of the
following shares of Reynolds common stock held by his wife: Mrs. J.R. Hall,
200 shares; Mrs. R.N. Reynolds, 2,022 shares; and Mrs. J.J. Sheehan, 8,161
shares. An executive officer not named in the table disclaims beneficial
ownership of 164 shares held by his wife. All disclaimed shares are
included in the table.
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(4) Unless otherwise indicated, beneficial ownership of any named individual
does not exceed 0.1% of the outstanding shares. Shares of Reynolds common
stock which can be acquired within 60 days after December 27, 1999 through
the exercise of stock options by a director or executive officer named in
the table are deemed outstanding for the purpose of computing the
percentage of outstanding common stock owned by such director or executive
officer, but are not deemed outstanding for the purpose of computing the
percentage of common stock owned by any other director or executive
officer. Such shares may not be voted at the special meeting; accordingly,
directors and executive officers as a group own 660,134 shares which may be
voted at the special meeting, or 1.0 % of the total number of shares that
may be voted at the special meeting.
(5) Reported in this column are equivalent shares of common stock credited as
of December 27, 1999 to the accounts of (i) non-employee directors under a
deferred compensation plan and a stock plan; and (ii) executive officers
under variable compensation and salary deferral plans and an excess benefit
plan. Such common stock equivalents may not be voted at the special
meeting.
Beneficial Ownership of Certain Stockholders
The following table sets forth the name of each person who, based on
publicly available information, beneficially owned more than 5% of the shares
of Reynolds common stock outstanding at the dates indicated below, the number
of shares of Reynolds common stock owned by each such person and the percentage
of the outstanding shares of Reynolds common stock represented thereby. The
information below with respect to beneficial ownership is based upon
information filed with the Commission pursuant to Sections 13(d) or 13(g) of
the Securities Exchange Act of 1934, and furnished to Reynolds by the
respective stockholders.
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Owner of Beneficial Ownership Class
- ------------------------------------ ----------------------- ----------
<S> <C> <C>
Vanguard/Windsor Funds, Inc.................. 4,704,048(1) 7.4%
P.O. Box 2600
Valley Forge, Pennsylvania 19482
Highfields Capital Management LP............. 4,339,900(2) 6.8%
Highfields GP LLC
Jonathon S. Jacobson
Richard L. Grubman
200 Clarendon Street, 51st Floor
Boston, Massachusetts 02117
Citigroup Inc. .............................. 3,235,826(3) 5.1%
153 East 53rd Street
New York, New York 10043
</TABLE>
- --------
(1) As reported in an Amendment No. 6, dated February 10, 1999 to a Schedule
13G dated February 10, 1993. The stockholder, an investment company,
reported that at December 31, 1998 it had (a) sole voting and shared
dispositive power with respect to all of the shares, and (b) shared voting
and sole dispositive power with respect to none of the shares.
(2) As reported in an Amendment No. 3, dated August 20, 1999 to a joint filing
of a Schedule 13D dated March 17, 1999. According to the filing, (1)
Highfields Capital Management LP is principally engaged in the business of
providing investment management services to the following investment funds:
(a) Highfields Capital I LP; (b) Highfields Capital II LP; Highfields
Capital Ltd. (the "Funds"); (2) Highfields GP's principal business is
serving as general partner of Highfields Capital Management LP and in such
capacity each acts as a portfolio manager of the Funds. The filing stated
that each of the reporting persons has (a) sole voting and dispositive
power with respect to all of the shares and (b) shared voting and
dispositive power with respect to none of the shares.
(3) As reported in a Schedule 13G dated February 9, 1999. The stockholder, a
parent holding company, reported that the shares are held by subsidiaries,
and that at December 31, 1998 it had (a) sole voting and dispositive power
with respect to none of the shares and (b) shared voting and dispositive
power with respect to all of the shares.
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<PAGE>
DESCRIPTION OF ALCOA CAPITAL STOCK
The following description of certain terms of the capital stock of Alcoa is
not meant to be complete and is qualified by reference to the articles of
incorporation of Alcoa, the bylaws of Alcoa, and the Pennsylvania Business
Corporation Law. Copies of the articles of incorporation and bylaws of Alcoa
are incorporated by reference herein.
Authorized Capital Stock
The articles of incorporation of Alcoa authorize Alcoa to issue up to
600,000,000 shares of common stock, 660,000 shares of $3.75 Cumulative
Preferred Stock, par value $100.00 per share (which will be referred to in this
document as the Class A Serial Preferred Stock), and 10,000,000 shares of Class
B Serial Preferred Stock, par value $1.00 per share. As of December 28, 1999,
Alcoa had approximately 367.7 million shares of common stock and 557,649 shares
of Class A Serial Preferred Stock issued and outstanding. As of that date,
there were no shares of Class B Serial Preferred Stock issued or outstanding.
In addition, as of December 28, 1999, there were approximately 27.0 million
shares of Alcoa common stock issued and held in Alcoa's treasury, and
approximately 38.7 million shares of Alcoa common stock reserved for issuance
under various incentive plans.
Alcoa Common Stock
Dividend rights
Holders of Alcoa common stock are entitled to receive dividends as declared
by the Alcoa board of directors. However, no dividend will be declared or paid
on Alcoa's common stock until Alcoa has paid (or declared and set aside funds
for payment of) all dividends which have accrued on all classes of Alcoa's
preferred stock, as well as the current quarter yearly dividend on the Alcoa
Class A Serial Preferred Stock.
Voting Rights
Holders of Alcoa common stock are entitled to one vote per share.
Liquidation rights
In the event of any liquidation, dissolution or winding up of Alcoa, after
payments to holders of Alcoa preferred stock of amounts determined by the board
of directors plus any accrued dividends, Alcoa's remaining assets will be
divided among holders of Alcoa common stock. Under Alcoa's articles of
incorporation, neither the consolidation or merger of Alcoa with one or more
corporations nor any share exchange or division involving Alcoa will be deemed
a liquidation, dissolution or winding up of Alcoa.
Preemptive or other subscription rights
Holders of Alcoa common stock will not have any preemptive right to
subscribe for any securities of Alcoa.
Conversion and other rights
No conversion, redemption or sinking fund provisions apply to the Alcoa
common stock, and the Alcoa common stock is not liable to further call or
assessment by Alcoa. All issued and outstanding shares of Alcoa common stock
are fully paid and non-assessable.
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Alcoa Preferred Stock
General
The articles of incorporation of Alcoa authorize the issuance of two classes
of Alcoa preferred stock, Class A Serial Preferred Stock and Class B Serial
Preferred Stock. As of December 29, 1999, Alcoa had 557,649 shares of Class A
Serial Preferred Stock issued and outstanding. No additional shares of Class A
Serial Preferred Stock may be issued, and in 1989 Alcoa initiated an ongoing
program to purchase and retire shares of this class. Alcoa is also authorized
to issue 10,000,000 shares of Class B Serial Preferred Stock. As of the date of
this proxy statement and prospectus, Alcoa has not issued any shares of this
class.
The board of directors of Alcoa may issue shares of Class B Serial Preferred
Stock in one or more series and may fix the specific number of shares and,
subject to the provisions of its articles of incorporation, the relative rights
and preferences of any such series. However, all shares of Alcoa preferred
stock must be identical except with respect to the dividend rate, redemption
terms, the amounts payable on shares in the event of liquidation, any sinking
fund provisions and any conversion terms. Each share of any series of Class B
Serial Preferred Stock must be identical to all other shares of the same
series, except as to the date from which dividends will be cumulative.
Dividends
Holders of Class A Serial Preferred Stock will be entitled to receive, from
funds legally available for the payment thereof, cumulative cash dividends when
and as declared by Alcoa's board of directors at an annual rate of $3.75 per
share, payable quarterly on the first day of January, April, July, and October
of each year.
Holders of Class B Serial Preferred Stock of each series will be entitled to
receive, from funds legally available for the payment thereof, cumulative cash
or other dividends when and as declared by Alcoa's board of directors at such
rates and on such dates as the board determines. The dividend rate may be fixed
or variable or both. The board may not declare dividends on any Class B Serial
Preferred Stock unless all accrued dividends and the current quarter yearly
dividend on the Class A Serial Preferred Stock has been paid in full or the
board contemporaneously declares and sets apart such Class A Serial Preferred
Stock dividends. If Alcoa has not declared and paid or set apart the full
cumulative dividends on shares of a series of Class B Serial Preferred Stock,
dividends thereon shall be declared and paid pro rata to the holders of such
series entitled thereto. Alcoa will not pay interest on any preferred stock
dividend payment which is in arrears.
If Alcoa has not declared and paid or set apart when due full cumulative
dividends on any class or series of preferred stock (including the quarter
yearly dividend for shares of Class A Serial Preferred Stock), Alcoa may not
declare or pay any dividends on, or make any other distribution on or make
payment on account of the purchase, redemption or other retirement of Alcoa
common stock. No restriction applies to Alcoa's repurchase or redemption of
preferred stock while there is any arrearage in the payment of dividends or any
applicable sinking fund installments on such stock.
Redemption
Alcoa may redeem all or part of the Class A Serial Preferred Stock at any
time at the option of its board of directors. Such redemption shall be at par,
plus accrued dividends, and Alcoa must publish notice of such redemption in
daily newspapers of general circulation in New York City and in Pittsburgh,
Pennsylvania, as well as by mail to each record holder. Alcoa must give such
notice at least 30 but not more than 60 days before the date of redemption. If
Alcoa redeems only part of the Class A Serial Preferred Stock, Alcoa will
select the shares to be redeemed pro rata or by lot, as the board of directors
determines.
If notice of redemption has been given, no dividends will accrue after the
redemption date on the shares of Class A Serial Preferred Stock called for
redemption, unless Alcoa fails to provide funds for payment of the redemption
price. In addition, such shares will no longer be deemed to be outstanding, and
holders will have no
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<PAGE>
further rights as stockholders of Alcoa, except for the right to receive the
redemption price. Holders will receive the redemption price for the Class A
Serial Preferred Stock when they surrender the certificates representing such
shares in accordance with the notice. If Alcoa redeems fewer than all of the
shares represented by any certificate, Alcoa will issue a new certificate,
representing the unredeemed shares, at no cost to the certificate holder. All
shares of Class A Serial Preferred Stock which Alcoa redeems will be cancelled
and not reissued.
Before Alcoa issues any Class B Serial Preferred Stock, its board of
directors will establish the terms and conditions under which any such stock
may be redeemed. Unless the board determines otherwise, all shares of Class B
Serial Preferred Stock which Alcoa redeems or otherwise acquires will return to
the status of authorized but unissued shares.
Liquidation Preference
In the event of liquidation, dissolution or winding up of Alcoa, each holder
of Class A Serial Preferred Stock will be entitled to receive, out of the
assets of Alcoa which are available for distribution to shareholders, $100 per
share plus accrued dividends, before any distribution is made to or set apart
for holders of Class B Serial Preferred Stock or common stock. Holders of
shares of each series of Class B Serial Preferred Stock will be entitled to
receive, out of such assets, an amount fixed by the board of directors plus any
accrued and unpaid dividends, before any distribution is made to or set apart
for holders of common stock. If Alcoa's assets are insufficient to pay the full
amount payable on shares of each series of Class B Serial Preferred Stock, the
holders of shares of such series will share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled. Once holders of Class B Serial Preferred Stock are paid the full
amounts to which they are entitled, they will not be entitled to participate
any further in any distribution of assets by Alcoa, unless the board of
directors provides otherwise. A consolidation or merger of Alcoa with one or
more corporations will not be deemed a liquidation, dissolution or winding up
of Alcoa.
Conversion and Exchange Rights
Alcoa's articles of incorporation provide that any series of Class B Serial
Preferred Stock may be convertible or exchangeable for common stock. Such
conversion or exchange may be mandatory, at the option of the holder or at the
option of Alcoa.
Voting Rights
Except as indicated below or as the board determines in resolutions relating
to a particular series of preferred stock, or except as expressly required by
applicable law, the holders of Alcoa preferred stock will not be entitled to
vote.
Pennsylvania law requires that holders of outstanding shares of a particular
class or series of stock be entitled to vote as a class on an amendment to the
articles of incorporation that would do any of the following:
. authorize Alcoa's board to fix and determine the relative rights and
preferences as between any series of any preferred stock or special class
of stock;
. change the preferences, limitations or other special rights of the shares
of a class or series in a manner which is adverse to that class or
series;
. authorize a new class or series of shares which has a preference as to
dividends or assets which is senior to that of shares of a particular
class or series; or
. increase the number of authorized shares of any particular class or
series which has a preference as to dividends or assets which is senior
in any respect to the shares of such class or series.
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<PAGE>
The board of directors, pursuant to the articles of incorporation, may limit
or eliminate the voting rights applicable to any series of Class B Serial
Preferred Stock prior to the issuance of such series, except as otherwise
required by law. Any series of the Class B Serial Preferred Stock may be issued
with additional voting rights, which will be exercisable only during extended
periods of dividend arrearages, as the board of directors may determine in
order to qualify such series for listing on a recognized stock exchange.
However, such rights may only be granted if there are no shares of Class A
Serial Preferred Stock outstanding.
Each full share of any series of Class B Serial Preferred Stock is entitled
to one vote on matters on which holders of such series, together with holders
of any other series of Class B Serial Preferred Stock, are entitled to vote as
a single class. Therefore, the voting power of such series will depend on the
number of shares in the series, and not on the liquidation preference or
initial offering price of such shares.
Alcoa must obtain consent of the holders of at least a majority of the
outstanding preferred stock, if any, voting as a class, in order to authorize
any additional class of stock or increase the authorized number of shares of
preferred stock or any class of stock which ranks on a parity with the
preferred stock as to dividends or assets. Alcoa must also obtain such consent
in order to merge or consolidate with any other corporation if the corporation
surviving such a transaction would have any authorized class of stock ranking
senior to or on a parity with the preferred stock, except the same number of
shares of stock with the same rights and preferences as the authorized stock of
the corporation immediately before such transaction took place.
Alcoa must obtain consent of the holders of at least two-thirds of the
outstanding preferred stock, if any, in order to make any adverse change in the
rights and preferences of the preferred stock. If such a change would affect
any particular series of preferred stock adversely as compared to the effect on
other series, Alcoa must also obtain the consent of two-third of the
outstanding shares of such series. In addition, Alcoa must obtain consent of
the holders of two-thirds of the outstanding preferred stock in order to
authorize any additional class or stock or to increase the authorized number of
shares of any class of stock which ranks senior to the preferred stock as to
dividends or assets, and in order to sell or otherwise part with control of all
or substantially all of its property or business or voluntarily liquidate,
dissolve or wind up its affairs.
Transfer Agent and Registrar
The principal transfer agent and registrar for Alcoa common stock is First
Chicago Trust Company.
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COMPARISON OF STOCKHOLDER RIGHTS
Reynolds is incorporated under the laws of the State of Delaware. The rights
of Reynolds stockholders are currently governed by the Delaware General
Corporation Law and the certificate of incorporation and bylaws of Reynolds.
Alcoa is incorporated under the laws of the Commonwealth of Pennsylvania. As a
result of the merger, current stockholders of Reynolds will become shareholders
of Alcoa and their rights will be governed by the Pennsylvania Business
Corporation Law and the articles of incorporation and bylaws of Alcoa. The
following is a summary of the principal differences between the current rights
of Reynolds stockholders and the rights of Alcoa shareholders. This summary is
not intended to be complete and is qualified in its entirety by reference to
the relevant provisions of the articles of incorporation and bylaws of Alcoa,
the certificate of incorporation and bylaws of Reynolds, and Delaware and
Pennsylvania law.
<TABLE>
<CAPTION>
Reynolds Alcoa
Board of Directors
<C> <S> <C>
Size of Board Currently fixed by the Currently has eleven
bylaws at eleven. directors, but the bylaws
Certificate of incorporation authorize the board to
requires that the number be change this number to not
not less than three. less than seven or more than
fifteen.
Classification Not classified Divided into three classes
as nearly equal as possible,
with each class serving a
staggered three year term.
Removal of Directors Delaware law provides that Alcoa's articles of
directors may be removed incorporation provide that
with or without cause by shareholders voting 80% of
holders of a majority of the the votes which would be
shares which would be entitled to be cast at an
entitled to vote at an annual election of directors
election of directors, may remove directors, with
unless the board is or without cause.
classified.
Vacancies Bylaws provide that any Alcoa's articles of
vacancies on the Reynolds incorporation provide that
Board may be filled by the vacancies are to be filled
remaining directors or by only by a majority vote of
the stockholders at a the remaining directors,
special meeting. unless a vacancy resulted
because of a vote of the
shareholders, in which case
the shareholders may fill
the vacancy.
Limitation of Director Delaware law permits a Pennsylvania law permits a
Liability corporation to limit a corporation to limit a
director's personal director's personal
liability, with certain liability, with certain
specified exceptions. The specified exceptions. The
corporation's certificate of corporation's bylaws must
incorporation must set forth set forth any such
any such limitation. limitation.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
The articles of
The certificate of incorporation and bylaws of
incorporation of Reynolds Alcoa eliminate a director's
specifically eliminates a liability to the fullest
director's personal extent permitted by
liability for monetary Pennsylvania law. Under
damages unless the director Pennsylvania law, this means
has breached his or her duty that a director will not be
of loyalty to the liable for any action taken
corporation or its or omitted unless the
stockholders, or has taken director breaches or fails
actions which were not in to perform his or her duties
good faith or which and the breach or failure to
constituted intentional perform constitutes self-
misconduct or a knowing dealing, willful misconduct
violation of the law. In or recklessness. Under
addition, the limitation of Pennsylvania law, a director
liability will not apply to also remains personally
a declaration of an improper liable where the
dividend, to an improper responsibility or liability
redemption of stock or to is under any criminal
any transaction from which statute or is for the non-
the director derived an payment of taxes under
improper personal benefit. federal, state or local law.
Indemnification of
Directors and Officers
General Delaware law permits a corporation The relevant provisions of
to indemnify any person Pennsylvania law are
involved in a third party essentially the same as
action because of such those of Delaware law.
person's service as an
officer, director or
employee of the corporation,
against expenses incurred
and amounts paid in such an
action (and against expenses
incurred in any derivative
action), if such person
acted in good faith and
reasonably believed that his
actions were in, or not
opposed to, the best
interests of the
corporation. In a criminal
proceeding, such person is
also required not to have
had reasonable cause to
believe that his conduct was
unlawful. A corporation may
advance expenses incurred in
defending any action so long
as the person agrees to
repay the amount advanced if
it is ultimately determined
that such person is not
entitled to indemnification.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
Expenses in Derivative In general, Delaware law The relevant provisions of
Actions does not permit a Pennsylvania law are
corporation to indemnify a essentially the same as
person for expenses in a those of Delaware law.
derivative action if the
person has been adjudged
liable to the corporation,
unless a court finds such
person entitled to such
indemnification. If,
however, the person has
successfully defended a
third party or derivative
action, the corporation is
required to provide
indemnification for expenses
incurred.
Exclusion of Other The statutory provisions for The relevant provisions of
Rights indemnification do not Pennsylvania law are
exclude any other rights a essentially the same as
person seeking those of Delaware law.
indemnification may have
under any bylaw, agreement,
vote of stockholders, vote
of disinterested directors
or otherwise.
Charter and Bylaw The certificate of The articles of
Provisions incorporation of Reynolds incorporation and bylaws of
contains specific Alcoa provide for
indemnification provisions indemnification of its
that generally track the directors and officers to
provisions of Delaware law, the fullest extent permitted
except that it also provides by Pennsylvania law.
that, if an officer,
director or employee
initiates a proceeding, the
corporation will indemnify
such person only if the
board had authorized the
proceeding.
Amendments to Charter Delaware law provides that Unless a corporation's
the holders of a majority of articles of incorporation
the outstanding shares of require a greater
each class of stock entitled percentage, Pennsylvania law
to vote must approve any only requires the
charter amendment. affirmative vote of a
majority of the votes of
each class of shares
actually cast on a proposed
amendment at a meeting at
which a quorum is present.
Pennsylvania law also does
not require shareholder
approval of certain non-
material amendments to the
articles of incorporation.
However, the articles of
incorporation of Alcoa
require the approval of 80%
of the votes entitled to be
cast in order to amend the
provisions in the Alcoa
articles relating to the
classification
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
of the board of directors,
nomination of directors,
removal of directors and
certain other matters.
Mergers and Other Delaware law provides that Pennsylvania law requires
Fundamental the holders of a majority of the approval of a majority
Transactions the shares entitled to vote of the votes actually cast
must approve any fundamental by the shareholders at a
corporate transactions such meeting at which a quorum is
as mergers, sales of all or present.
substantially all of the
corporation's assets,
dissolutions, etc.
A corporation may increase A corporation may increase
the minimum percentage vote the minimum percentage vote
required, but the required, but the articles
certificate of incorporation of incorporation of Alcoa do
of Reynolds does not contain not contain any super-
any super-majority vote majority vote requirements
requirements to approve any to approve any fundamental
fundamental transaction. transaction.
Authorized The Reynolds certificate of The Alcoa articles of
Capital Stock incorporation authorizes the incorporation authorize the
issuance of up to issuance of up to
200,000,000 shares of common 600,000,000 shares of common
stock, without par value, stock, par value $1.00 per
20,000,000 shares of share, up to 660,000 shares
preferred stock, without par of Class A Serial Preferred
value, and 1,000,000 shares Stock, par value $100.00 per
of second preferred stock, share, and up to 10,000,000
par value $100.00 per share. shares of Class B Serial
As of December 27, 1999, Preferred Stock, par value
63,457,507 shares of common $1.00 per share. As of
stock and no shares of December 28, 1999,
preferred stock or second approximately 367.7 million
preferred stock were issued shares of common stock,
and outstanding. 557,649 shares of Class A
Serial Preferred Stock and
no shares of Class B Serial
Preferred Stock were issued
and outstanding.
Dividends Delaware law permits a Pennsylvania law permits a
corporation to pay dividends corporation to pay dividends
out of surplus, which is the unless doing so would make
excess of net assets of the the corporation unable to
corporation over capital, pay its debts as they become
or, if the corporation does due in the ordinary course
not have adequate surplus, of business, or unless, as a
out of net profits for the result of paying such
current or immediately dividends, the corporation's
preceding fiscal year, total assets would be less
unless the net assets are than its total liabilities
less than the capital of any plus the amount that would
outstanding preferred stock. be needed to pay the holders
of shares having a
liquidation preference if
the corporation were
dissolved.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
See "Description of Alcoa
Capital Stock."
Stock Repurchases Under Delaware law, a Pennsylvania law permits a
corporation may not purchase corporation to redeem any
or redeem its own shares if and all classes of its
its capital is impaired or shares and treats such
if the purchase or redemption or repurchase
redemption would cause its like a dividend, subject to
capital to be impaired. the same limitations
However, a Delaware described under
corporation may purchase or "--Dividends" above.
redeem preferred shares out However, the articles of
of capital if the shares incorporation of Alcoa
will then be retired, provide that, unless a stock
reducing the capital of the repurchase is made in either
corporation. a tender offer or exchange
offer for a class of capital
stock which is made
available to all holders of
the class on the same basis,
or in an open market
purchase program approved by
Alcoa's board of directors,
Alcoa may not repurchase
stock from a shareholder who
owns 5% or more of Alcoa's
voting stock at prices
greater than the current
fair market value without
the affirmative vote of a
majority of shares held by
persons other than such 5%
shareholder.
Election of Directors Delaware law permits Pennsylvania law
stockholders to cumulate automatically gives
their votes and either cast shareholders cumulative
them for one candidate or voting rights unless a
distribute them among two or corporation's articles of
more candidates in the incorporation provide
election of directors only otherwise. The Alcoa
if expressly authorized in a articles of incorporation
corporation's charter. The expressly prohibit
Reynolds certificate of cumulative voting.
incorporation does not
expressly authorize
cumulative voting.
Appraisal or Delaware law does not afford Pennsylvania law with
Dissenters' Rights appraisal rights to holders respect to dissenters'
of shares that are either rights is similar to
listed on a national Delaware law with respect to
securities exchange, quoted appraisal rights, except
on Nasdaq or held of record that Pennsylvania law
by more than 2,000 currently does not deny
stockholders, provided that dissenters' rights to
such shares will be holders of shares which are
converted solely into cash quoted on Nasdaq.
in lieu of fractional
shares, or into stock of the
surviving corporation or
another corporation, which
corporation in either case
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
must also be listed on a The definition of "fair
national securities value" in payment for shares
exchange, quoted on Nasdaq upon exercise of appraisal
or held of record by more or dissenters' rights is
than 2,000 stockholders. In substantially similar under
addition, Delaware law both states' laws. Any
denies appraisal rights to valuation methods that are
stockholders of the generally acceptable in the
surviving corporation in a financial community may be
merger if the surviving used.
corporation's stockholders
weren't required to approve
the merger.
Amendments to Bylaws If the certificate of Pennsylvania law limits the
incorporation of a Delaware board's power to adopt or
company gives the board of amend bylaw provisions on
directors the power to amend specified subjects absent a
the bylaws, which the contrary provision in the
Reynolds certificate does, articles. There is no such
Delaware law does not limit contrary provision in the
the board's power to make articles of incorporation of
changes in the bylaws. Alcoa, so the Reynolds Board
has broader authority to
amend the Reynolds bylaws
than the board of directors
of Alcoa has to amend
Alcoa's bylaws.
Under Delaware law, Under Pennsylvania law, a
stockholders may amend a copy or summary of any
corporation's bylaws at any proposed amendment must be
meeting, without the consent included with the notice of
of the board of directors. the meeting.
However, Article XI of
Reynolds' bylaws provides
that stockholders may only
amend Reynolds' bylaws at
any meeting if the notice of
that meeting contains a
statement with respect to
the proposed amendment.
Action by Written Delaware law permits a Under Pennsylvania law,
Consent majority of stockholders to shareholders of a registered
act by written consent, corporation such as Alcoa
without a meeting, unless a may act without a meeting by
corporation's charter less than unanimous consent
provides otherwise. only if permitted by the
Reynolds' charter does not corporation's articles of
prohibit the stockholders incorporation. Alcoa's
from acting by written articles currently do not
consent. permit such action.
Stockholder Meetings
Annual Meeting of Held on the date fixed by Held on the Friday following
Stockholders the board of directors. the first Monday in May of
each year.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<C> <S> <C>
If an annual meeting for the Under Pennsylvania law, if
election of directors is not the annual meeting for the
held on a designated date, election of directors is not
Delaware law requires the called and held within six
directors to cause the months after the designated
meeting to be held as soon time, any shareholder may
thereafter as convenient. If call such meeting at any
they fail to do so for a time thereafter without
period of 30 days after the application to any court.
designated date, or if no
date has been designated for
a period of 13 months after
the organization of the
corporation or after its
last annual meeting, then,
upon application of any
stockholder or director, the
Court of Chancery may order
a meeting to be held.
Special Meeting of Delaware law permits the Pennsylvania law permits the
Stockholders board of directors or any board of directors or any
other person authorized by a other person authorized by a
corporation's charter or corporation's articles or
bylaws to call a special bylaws to call a special
meeting of stockholders. The meeting of stockholders.
Reynolds bylaws permit its Pennsylvania law, however,
chairman of the board of explicitly states that
directors, the chief shareholders of a registered
executive officer and the corporation, such as Alcoa,
board of directors to call a do not have a statutory
special meeting of right to call special
stockholders. The Reynolds meetings, except that an
bylaws also require its interested shareholder may
board of directors to call a call a meeting in order to
special meeting of seek approval of a business
stockholders upon the combination between the
written request of corporation and such
stockholders entitled to interested shareholder.
cast a majority of the votes
which all stockholders are
entitled to cast.
Advance Notice A stockholder wishing to A shareholder wishing to
Requirements for nominate directors or bring nominate directors at an
Stockholder other business before an annual meeting of Alcoa
Nominations and annual meeting of Reynolds shareholders must provide
Other Business stockholders must give written notice at least 90
notice at least 30 days days before the anniversary
before the first anniversary date of the prior year's
of the day written notice of meeting.
the previous year's meeting
was given. If Reynolds
increases the size of its
board but does not, at least
100 days before such first
anniversary date, publicly
announce all its nominees
for the new board positions
or specify the size of the
board, a stockholder's
notice with respect to
nominating candidates for
such new board positions
will be timely
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
Reynolds Alcoa
<S> <C> <C>
as long as it is brought
within 10 days of the date
Reynolds makes such a public
announcement. A stockholder
wishing to nominate
directors at a special
meeting of Reynolds
stockholders must deliver
notice within 10 days after
Reynolds publicly announces
the special meeting.
Rights of Inspection Under Delaware law, a Under Pennsylvania law, a
stockholder may inspect a shareholder may inspect a
corporation's books and corporation's books and
records during normal records during normal
business hours as long as business hours as long as
such inspection is for a such inspection is for a
proper purpose, and as long proper purpose, and as long
as the stockholder has made as the shareholder has made
proper written demand proper written demand
stating the purpose of the stating the purpose of the
inspection. A proper purpose inspection. A proper purpose
is any purpose reasonably is any purpose reasonably
related to the interests of related to the interests of
the inspecting person as a the inspecting person as a
stockholder. shareholder.
Case Law There is a substantial body Pennsylvania does not have a
of case law in Delaware comparable body of judicial
interpreting the corporation interpretation.
laws of that state.
Court Systems Delaware has established a Pennsylvania has not
system of Chancery Courts to established an equivalent
adjudicate matters arising court system and matters
under the Delaware General arising under the
Corporation Law. Pennsylvania Business
Corporation Law are
adjudicated by general state
courts.
</TABLE>
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Fiduciary Duties of Directors
General
Both Delaware and Pennsylvania law provide that the board of directors has
the ultimate responsibility for managing the business and affairs of a
corporation. In discharging this function, directors of Pennsylvania and
Delaware corporations owe fiduciary duties of care and loyalty to the
corporations they serve. Directors of Delaware corporations also owe fiduciary
duties of care and loyalty to stockholders.
The fiduciary duty provisions included in the Pennsylvania law, which apply
to Alcoa, may provide significantly broader discretion, and increased
protection from liability, to directors in exercising their fiduciary duties,
particularly in the context of a change in control.
The following summarizes certain aspects of Delaware and Pennsylvania law as
they relate to fiduciary duties of directors:
Standard of Care
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in performing their duties.
An informed business judgment means that the directors have informed themselves
of all material information reasonably available to them. Delaware courts have
also imposed a heightened standard of conduct on directors in matters involving
a contest for control of the corporation.
A director of a Pennsylvania business corporation stands in a fiduciary
relationship to the corporation (unlike in Delaware, where a director also
stands in a fiduciary relationship to stockholders) and must perform his or her
duties as a director in good faith, in a manner he or she reasonably believes
to be in the best interests of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence would
use under similar circumstances.
Justifiable Reliance
A director of a Delaware corporation, in performing his or her duties, is
fully protected in relying, in good faith, upon the records of the corporation
and upon such information, opinions, reports or statements presented to the
corporation by any of the corporation's officers or employees, or by committees
of the board of directors, or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence. Such person must also have been selected with reasonable care by or
on behalf of the corporation.
In performing his or her duties, a director of a Pennsylvania business
corporation is entitled to rely, in good faith, on information, opinions,
reports or statements (including financial statements and other financial data)
prepared or presented by any of the following:
. officers or employees of the corporation, so long as the director
reasonably believes them to be reliable and competent in the matters
presented;
. counsel, public accountants, investment bankers or other persons as to
matters which the director reasonably believes to be within the
professional or expert competence of such persons; and
. a duly designated committee of the board which the director reasonably
believes merits confidence and upon which the director does not serve,
but only as to matters within the committee's designated authority.
However, a director will not be considered to be acting in good faith if he or
she has knowledge concerning the matter in question which would cause such
reliance to be unwarranted.
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Consideration of Factors
Delaware law does not contain any statutory provision permitting the board
of directors, committees of the board and individual directors, when
discharging their duties, to consider the interests of any constituencies other
than the corporation or its stockholders.
Pennsylvania law, on the other hand, provides that in discharging their
duties, the board of directors, committees of the board and individual
directors may, in considering what is in the best interests of the corporation,
consider, to the extent they deem appropriate, all pertinent factors, including
the following:
. the effects of any action upon any groups affected by such action,
including shareholders, employees, suppliers, customers and creditors of
the corporation, and on communities served by the corporation;
. the corporation's short-term and long-term interests, including benefits
which may accrue to the corporation from its long-term plans and the
possibility that these interests may be best served by the corporation's
continued independence; and
. the resources, intent and conduct (past, stated and potential) of any
person seeking to acquire control of the corporation.
Under current Delaware law it is unclear whether the board of directors,
committees of the board and individual directors of a Delaware corporation may,
in considering what is in the corporation's best interests or what the effects
of any action on the corporation may be, take into account the interests of any
constituency other than the corporation's stockholders. In contrast to Delaware
law, Pennsylvania law provides that a director owes a duty only to the
corporation (and not to the shareholders), and in considering what is in the
best interests of the corporation, may choose to subordinate the interests of
shareholders to the interests of employees, suppliers, customers or creditors
of the corporation or to the interests of the communities served by the
corporation.
In addition, the duty of the board of directors, committees of the board and
individual directors of a Delaware corporation may be enforced directly by the
corporation, or may be enforced by a stockholder, as such, by an action in the
right of the corporation, or may be enforced directly by a stockholder or by
any other person or group. In contrast, the duty of the board of a Pennsylvania
corporation may not be enforced directly by a shareholder.
Specific Applications
Delaware courts have imposed a heightened standard of conduct upon directors
of a Delaware corporation who take any action designed to defeat a threatened
change in control of the corporation. The heightened standard has two elements.
First, the board must demonstrate some basis for concluding that a proper
corporate purpose is served by implementation of any defensive measure, and,
second, that measure must be reasonable in relation to the perceived threat
posed by the change in control.
The fiduciary duty of directors of a Pennsylvania corporation does not
require them to act solely because of the effect such action might have on an
acquisition or potential or proposed acquisition of control of the corporation
or on the consideration which might be offered or paid to shareholders in such
an acquisition. In particular, directors of a Pennsylvania corporation are not
required to redeem rights under any shareholder rights plan, and under existing
case law, have the statutory authority under Pennsylvania law simply to reject
a potential or proposed acquisition of the corporation's shares.
In addition, under Delaware law, unlike under Pennsylvania law, when the
board of directors approves the sale of a corporation, the board of directors
may have a duty to obtain the highest value reasonably available to the
stockholders.
Presumption
Under Delaware law, it is presumed that the directors of a Delaware
corporation acted on an informed basis, in good faith and in the honest belief
that their actions were in the best interest of the corporation. This
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presumption may be overcome, however, if a preponderance of the evidence shows
that the directors' decision involved a breach of fiduciary duty such as fraud,
overreaching, lack of good faith, failure of the board to inform itself
properly or actions by the board to entrench itself in office.
Under Pennsylvania law, unless there is a breach of fiduciary duty, a lack
of good faith or self-dealing (in other words, entering into a contract or
transaction with a director or an entity in which a director has a financial or
other interest), any act of the board of directors, any committee of the board
or any individual director is presumed to be in the corporation's best
interest. No higher burden of proof or greater obligation to justify applies to
any act relating to or affecting an acquisition or a potential or proposed
acquisition of control of the corporation than to any other action.
Under Pennsylvania law, any board action relating to an acquisition or
potential or proposed acquisition of control which a majority of the
corporation's "disinterested directors" approve is presumed to satisfy the
statutory duty of care under Pennsylvania law, unless there is clear and
convincing evidence that the disinterested directors did not assent to such act
in good faith, after reasonable investigation. Disinterested directors are
those who are not affiliated with the person seeking control and are not
officers or employees of the corporation.
Anti-Takeover Laws
Section 203 of the Delaware General Corporation Law contains certain "anti-
takeover" provisions that apply to a Delaware corporation, unless the
corporation elects not to be governed by such provisions in its certificate of
incorporation or bylaws. Neither the certificate of incorporation nor the
bylaws of Reynolds contain such an election. Thus, Reynolds is governed by
Section 203, which precludes a corporation from engaging in any "business
combination" with any person that owns 15% or more of its outstanding voting
stock for a period of three years following the time that such stockholder
obtained ownership of more than 15% of the outstanding voting stock of the
corporation. A business combination includes any merger, consolidation, or sale
of substantially all a corporation's assets.
The three-year waiting period does not apply, however, if any of the
following conditions are met:
. the board of directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder owning
more than 15% of such stock before the stockholder obtained ownership of
more than 15% of the corporation's stock;
. once the transaction which resulted in the stockholder owning more than
15% of the outstanding voting stock of the corporation is completed, such
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time that the transaction commenced; or
. at or after the time the stockholder obtains more than 15% of the
outstanding voting stock of the corporation, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders (and not by written consent) by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the acquiring stockholder.
In addition, Section 203 does not apply to any person who became the owner
of more than 15% of a corporation's stock if it was as a result of action taken
solely by the corporation. Section 203 also does not apply to the corporation
itself or to any of the corporation's majority-owned subsidiaries.
In the context of the proposed merger with Alcoa, the three-year waiting
period described above will not apply because the Reynolds Board has approved
the proposed merger for the express purpose of exempting it from the operation
of Section 203.
Chapter 25 of the Pennsylvania Business Corporation Law contains several
anti-takeover provisions that apply to registered corporations such as Alcoa.
Section 2538 of the Pennsylvania Business Corporation Law, which is similar to
Section 203 of the Delaware General Corporation Law, requires shareholder
approval for
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certain transactions between a registered corporation and an interested
shareholder (generally, a shareholder who owns 20% of the stock entitled to
vote in an election of directors). Section 2538 applies if an interested
shareholder (together with anyone acting jointly with such shareholder and any
affiliates of such shareholder):
. is to be a party to a merger or consolidation, a share exchange or
certain sales of assets involving the corporation or one of its
subsidiaries;
. is to receive a disproportionate amount of any of the securities of any
corporation which survives or results from a division of the corporation;
. is to be treated differently from others holding shares of the same class
in a voluntary dissolution of such corporation; or
. is to have his or her percentage of voting or economic share interest in
such corporation materially increased relative to substantially all other
shareholders in a reclassification.
In such a case, the proposed transaction must be approved by the affirmative
vote of the holders of shares representing at least a majority of the votes
that all shareholders are entitled to cast with respect to such transaction.
Shares held by the interested shareholder are not included in calculating the
number of shares entitled to be cast, and the interested shareholder is not
entitled to vote on the transaction. This special voting requirement does not
apply if the proposed transaction has been approved in a prescribed manner by
the corporation's board of directors or if certain other conditions (including
conditions relating to the amount of consideration to be paid to certain
shareholders) are satisfied.
Section 2555 of the Pennsylvania Business Corporation Law may also apply to
a transaction between a registered corporation and an interested shareholder,
even if Section 2538 also applies. Section 2555 prohibits a corporation from
engaging in a business combination with an interested shareholder unless one of
the following conditions is met:
. the board of directors has previously approved either the proposed
transaction or the interested shareholder's acquisition of shares;
. the interested shareholder owns at least 80% of the stock entitled to
vote in an election of directors and, no earlier than three months after
the interested shareholder reaches the 80% level, the majority of the
remaining shareholders approve the proposed transaction, the shareholders
receive a minimum "fair price" for their shares in the transaction and
the other conditions of Section 2556 of the Pennsylvania Business
Corporation Law are met;
. holders of all outstanding common stock approve the transaction;
. no earlier than 5 years after the interested shareholder became an
interested shareholder, a majority of the remaining shares entitled to
vote in an election of directors approve the transaction; or
. no earlier than 5 years after the interested shareholder became an
interested shareholder, a majority of all the shares approve the
transaction, all shareholders receive a minimum fair price for their
shares, and certain other conditions are met.
The articles of incorporation of Alcoa also provide that Alcoa may not
repurchase any stock from an interested shareholder at prices greater than the
current fair market value. See "--Stock Repurchases" above.
Pennsylvania law deems a person (or group of persons acting in concert) that
holds 20% of the shares of a registered corporation entitled to vote in the
election of directors to be a control group. A shareholder who objects to the
transaction that makes the control group a control group can, under procedures
set forth in the statute, require the control group to purchase his or her
shares at "fair value," as defined under Pennsylvania law.
Pennsylvania law also contains certain provisions that apply to a registered
corporation such as Alcoa which, under certain circumstances, permit a
corporation to redeem "control shares," as defined under
88
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Pennsylvania law, remove the voting rights of control shares and require the
disgorgement of profits by a "controlling person," as defined under
Pennsylvania law.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION
OF REYNOLDS COMMON STOCK
It is a condition to the merger that the shares of Alcoa common stock to be
issued in the merger be approved for listing on the New York Stock Exchange,
subject to official notice of issuance. If the merger is completed, the
Reynolds common stock will no longer be listed on the New York Stock Exchange
or any other exchange.
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements included in the Reynolds Annual Report on Form 10-K, as
amended, for the year ended December 31, 1998, as set forth in their report,
which is incorporated by reference in this proxy statement and prospectus. The
Reynolds consolidated financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The consolidated financial statements of Alcoa as of December 31, 1998 and
1997, and for each of the three years ended December 31, 1998, 1997 and 1996,
incorporated in this proxy statement and prospectus by reference to the Alcoa
Annual Report on Form 10-K for the year ended December 31, 1998, have been so
incorporated in reliance on the audit report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
With respect to the unaudited consolidated financial information of Alcoa
for the three-month, six-month and nine-month periods ended March 31, 1999 and
1998, June 30, 1999 and 1998 and September 30, 1999 and 1998, respectively,
incorporated by reference in this proxy statement and prospectus,
PricewaterhouseCoopers LLP reported that they have applied limited procedures
in accordance with professional standards for the review of such information.
However, their separate reports dated April 7, 1999, July 7, 1999 and October
6, 1999 incorporated by reference in this proxy statement and prospectus, state
that they did not audit and they do not express an opinion on that unaudited
consolidated financial information. Accordingly, the degree of reliance on
their report on such information should be restricted in light of the limited
nature of the review procedures applied. PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited consolidated financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11
of the Securities Act.
LEGAL MATTERS
The validity of the Alcoa common stock to be issued in connection with the
merger will be passed upon by Denis A. Demblowski, Esq., Secretary and Senior
Counsel of Alcoa. Mr. Demblowski is a participant in Alcoa's stock option plan
and various other employee benefit plans offered to employees of Alcoa.
89
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WHERE YOU CAN FIND MORE INFORMATION
Alcoa and Reynolds file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any such reports, statements or other information filed
by either company at the Securities and Exchange Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC filings of Alcoa and
Reynolds are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
Alcoa has filed a Registration Statement on Form S-4 to register with the
SEC the Alcoa common stock to be issued to Reynolds stockholders in the merger.
This proxy statement and prospectus is a part of that registration statement
and constitutes a prospectus of Alcoa in addition to being a proxy statement of
Reynolds for Reynolds' special meeting. As allowed by SEC rules, this document
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this proxy
statement and prospectus. This means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement and prospectus, except for any information superseded by information
in this proxy statement and prospectus. This proxy statement and prospectus
incorporate by reference the documents set forth below that have previously
been filed with the SEC. These documents contain important information about
Alcoa, Reynolds and their operations.
<TABLE>
<CAPTION>
Alcoa SEC Filing (File No. 1-
3610) Period
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
Current Reports on Form 8-K Filed on January 4, 1999, January 11, 1999,
August 27, 1999 and November 12, 1999
<CAPTION>
Reynolds SEC Filing (File No.
1-1430) Period
<S> <C>
Annual Report on Form 10-K as
amended
by Amendment No. 1 on Form
10-K/A Year ended December 31, 1998
Quarterly Report on Form 10-Q
as amended
by Amendment No. 1 on Form
10-Q/A Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
Current Reports on Form 8-K Filed on March 3, 1999, March 8, 1999, April 1,
1999, May 28, 1999, June 1, 1999, July 20, 1999,
August 19, 1999 and October 20, 1999
</TABLE>
We are also incorporating by reference additional documents that Alcoa and
Reynolds file with the SEC between the date of this proxy statement and
prospectus and the date of the special meeting.
Alcoa has supplied all information contained or incorporated by reference in
this document relating to Alcoa, and Reynolds has supplied all information
contained or incorporated by reference in this document relating to Reynolds.
Alcoa and Reynolds will send you the documents incorporated by reference
without charge, excluding exhibits to the information that is incorporated by
reference, unless the exhibits have been specifically incorporated by reference
in this document.
90
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Stockholders may obtain documents incorporated by reference in this document
without charge by requesting them in writing or by telephone from the
appropriate party at the following addresses:
Alcoa Inc. Reynolds Metals Company
201 Isabella Street 6601 West Broad Street
Pittsburgh, Pennsylvania 15212 Richmond, Virginia 23230
(412) 553-4545 Attn: Secretary
(804) 281-2812
If you would like to request documents, including any documents we may
subsequently file with the Securities and Exchange Commission before the
special meeting, please do so by February 4, 2000 so that you will receive them
before the special meeting.
You should rely only on the information contained or incorporated by reference
in this proxy statement and prospectus to vote on the merger. We have not
authorized anyone to provide you with information that is different from what
is contained in this proxy statement and prospectus. This proxy statement and
prospectus is dated December 30, 1999. You should not assume that the
information contained in this proxy statement and prospectus is accurate as of
any date other than such date, and neither the mailing of the proxy statement
and prospectus to stockholders nor the issuance of Alcoa common stock in the
merger shall create any implication to the contrary.
By order of the Board of Directors,
Reynolds Metals Company
Donna C. Dabney
Secretary
91
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ANNEX A
AGREEMENT AND PLAN OF MERGER
among
ALCOA INC.,
RLM ACQUISITION CORP.
and
REYNOLDS METALS COMPANY
Dated as of August 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
The Merger
<C> <S> <C>
Section 1.1 The Merger................................................ A-1
Section 1.2 Closing................................................... A-1
Section 1.3 Effective Time............................................ A-1
Section 1.4 Effects of the Merger..................................... A-2
Section 1.5 Certificate of Incorporation; By-laws..................... A-2
Section 1.6 Directors; Officers of Surviving Corporation.............. A-2
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1 Conversion of Securities.................................. A-2
Section 2.2 Exchange of Certificates.................................. A-3
Section 2.3 Adjustments to Prevent Dilution........................... A-5
Section 2.4 Section 16b-3............................................. A-5
ARTICLE III
Representations and Warranties of The Company
Section 3.1 Organization, Qualification, Etc.......................... A-5
Section 3.2 Capital Stock............................................. A-6
Corporate Authority Relative to this Agreement; No
Section 3.3 Violation................................................. A-7
Section 3.4 Reports and Financial Statements.......................... A-7
Section 3.5 No Undisclosed Liabilities................................ A-8
Section 3.6 No Violation of Law....................................... A-8
Section 3.7 Environmental Matters..................................... A-8
Section 3.8 Employee Benefit Plans; ERISA............................. A-9
Section 3.9 Absence of Certain Changes or Events...................... A-10
Section 3.10 Proxy Statement/Prospectus; Registration Statement........ A-10
Section 3.11 Tax Matters............................................... A-11
Section 3.12 Opinion of Financial Advisors............................. A-12
Section 3.13 Required Vote of the Company Stockholders................. A-12
Section 3.14 Rights Plan............................................... A-12
ARTICLE IV
Representations and Warranties of Alcoa and Merger Sub
Section 4.1 Organization, Qualification, Etc.......................... A-12
Section 4.2 Capital Stock............................................. A-13
Corporate Authority Relative to this Agreement; No
Section 4.3 Violation................................................. A-13
Section 4.4 Reports and Financial Statements.......................... A-14
Section 4.5 No Undisclosed Liabilities................................ A-14
Section 4.6 No Violation of Law....................................... A-14
Section 4.7 Environmental Matters..................................... A-15
</TABLE>
i
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<TABLE>
<CAPTION>
Page
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<C> <S> <C>
Section 4.8 Absence of Certain Changes or Events...................... A-15
Section 4.9 Proxy Statement/Prospectus; Registration Statement........ A-15
Section 4.10 Tax Matters............................................... A-16
Section 4.11 Opinion of Financial Advisor.............................. A-17
Section 4.12 Ownership of Shares; Stockholder Vote..................... A-17
ARTICLE V
Covenants and Agreements
Section 5.1 Conduct of Business by the Company........................ A-17
Section 5.2 Alcoa Interim Operations.................................. A-18
Section 5.3 Access; Confidentiality................................... A-19
Section 5.4 Special Meeting; Proxy Statement; Registration Statement.. A-20
Section 5.5 Further Action; Reasonable Best Efforts................... A-21
Section 5.6 Employee Stock Options and Other Employee Benefits........ A-22
Section 5.7 Takeover Statute.......................................... A-23
Section 5.8 Solicitation by the Company............................... A-23
Section 5.9 Public Announcements...................................... A-24
Section 5.10 Indemnification; Insurance................................ A-24
Section 5.11 Additional Reports and Information........................ A-25
Section 5.12 Affiliates................................................ A-25
Section 5.13 NYSE Listing.............................................. A-25
Section 5.14 Tax-Free Reorganization................................... A-25
ARTICLE VI
Conditions to the Merger
Conditions to Each Party's Obligation to Effect the
Section 6.1 Merger.................................................... A-26
Conditions to Obligation of Alcoa and Merger Sub to Effect
Section 6.2 the Merger................................................ A-26
Conditions to Obligation of the Company to Effect the
Section 6.3 Merger.................................................... A-26
ARTICLE VII
Termination
Section 7.1 Termination............................................... A-27
Section 7.2 Effect of Termination..................................... A-28
Section 7.3 Termination Fee........................................... A-28
ARTICLE VIII
Miscellaneous
Section 8.1 No Survival of Representations and Warranties............. A-28
Section 8.2 Expenses.................................................. A-28
Section 8.3 Counterparts; Effectiveness............................... A-28
Section 8.4 Governing Law............................................. A-28
Section 8.5 Notices................................................... A-29
Section 8.6 Assignment; Binding Effect................................ A-29
Section 8.7 Severability.............................................. A-29
Section 8.8 Enforcement of Agreement.................................. A-29
Section 8.9 Entire Agreement; No Third-Party Beneficiaries............ A-30
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 8.10 Headings.................................................... A-30
Section 8.11 Definitions................................................. A-30
Section 8.12 Finders or Brokers.......................................... A-30
Section 8.13 Amendment or Supplement..................................... A-30
Section 8.14 Extension of Time, Waiver, Etc.............................. A-30
</TABLE>
iii
<PAGE>
Index of Defined Terms
<TABLE>
<CAPTION>
Defined Term Section
- ------------ ------------------------
<S> <C>
Acquisition Proposal................................... 5.8(a)
affiliates............................................. 5.12, 8.11
Agreement.............................................. Introduction
Alcoa.................................................. Introduction
Alcoa Affiliated Group................................. 4.9(a)
Alcoa and Merger Sub Agreements........................ 4.3(b)
Alcoa Certificates..................................... 2.2(a)
Alcoa Class B Serial Preferred Stock................... 4.2(a)
Alcoa Common Stock..................................... Recitals
Alcoa Disclosure Schedule.............................. Article IV Introduction
Alcoa Incentive Plans.................................. 4.2(a)
Alcoa Required Approvals............................... 4.3(b)
Alcoa SEC Reports...................................... 4.4(e)
Alcoa Serial Preferred Stock........................... 4.2(a)
CERCLA................................................. 3.7(d)
Certificate of Merger.................................. 1.3
Certificates........................................... 2.2(b)
Closing................................................ 1.2
Closing Date........................................... 1.2
Code................................................... Recitals
Common Shares Trust.................................... 2.2(g)(ii)
Company................................................ Introduction
Company Affiliated Group............................... 3.11(a)
Company Agreements..................................... 3.3(b)
Company Common Stock................................... Recitals
Company Disclosure Schedule............................ Article III Introduction
Company Employee....................................... 5.6(b)
Company Plans.......................................... 3.8(a)
Company Policy......................................... 5.10(b)
Company Preferred Stock................................ 3.2(a)
Company Representatives................................ 5.7
Company Required Approvals............................. 3.3(b)
Company Second Preferred Stock......................... 3.2(a)
Company SEC Reports.................................... 3.4(e)
Company Stock Options.................................. 5.6(a)
Company Stockholder Approval........................... 3.13
control................................................ 8.11
control share acquisition.............................. 5.7
controlled by.......................................... 8.11
Costs.................................................. 5.10(a)
Current Company Group.................................. 3.9(a)
Current Alcoa Group.................................... 4.13(a)
DGCL................................................... Recitals
determination.......................................... 5.14
Disclosure Schedule.................................... Article IV Introduction
disqualified individual................................ 3.11(c)
Effective Time......................................... 1.3
Environmental Claim.................................... 3.7(f)(i)
Environmental Law...................................... 3.7(f)(ii)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ ------------
<S> <C>
Environmental Permits.............................................. 3.7(a)
Equity Plan........................................................ 5.1(viii)
ERISA.............................................................. 3.8(a)
ERISA Affiliate.................................................... 3.8(a)
excess parachute payment........................................... 3.11(c)
Excess Shares...................................................... 2.2(g)(ii)
Exchange Act....................................................... 3.3(b)
Exchange Agent..................................................... 2.2(a)
Exchange Fund...................................................... 2.2(a)
Exchange Ratio..................................................... 2.1(b)
extremely hazardous wastes......................................... 3.7(f)(iii)
fair price......................................................... 5.7
GAAP............................................................... 3.4(e)
Governmental Consents.............................................. 5.5(a)
Governmental Entity................................................ 3.3(b)
hazardous materials................................................ 3.7(f)(iii)
hazardous substances............................................... 3.7(f)(iii)
hazardous wastes................................................... 3.7(f)(iii)
Hazardous Materials................................................ 3.7(f)(iii)
HSR Act............................................................ 3.3(b)
incentive stock option............................................. 5.6(a)
Indemnified Parties................................................ 5.10(a)
Intellectual Property.............................................. 3.12(d)
interested stockholder............................................. 3.3(a)
IRS................................................................ 3.8(b)
Lien............................................................... 3.1(b)
material........................................................... 3.1(a)
Material Adverse Effect............................................ 3.1(a)
Merger............................................................. Recitals
Merger Consideration............................................... 2.1(b)
Merger Sub......................................................... Introduction
moratorium......................................................... 5.7
NYSE............................................................... 2.2(g)(ii)
Past Company Group................................................. 3.13(a)
Past Alcoa Group................................................... 4.9(a)
Patents............................................................ 3.12(d)
Person............................................................. 8.11
Preferred Stock.................................................... 3.2(a)
Proxy Statement.................................................... 5.4(b)(i)
Registration Statement............................................. 4.8
restricted hazardous wastes........................................ 3.7(f)(iii)
Rights Agreement................................................... Recitals
SEC................................................................ 3.4(a)
Second Preferred Stock............................................. 3.2(a)
Securities Act..................................................... 3.3(b)
Shares............................................................. Recitals
Significant Subsidiaries........................................... 8.11
single employer.................................................... 3.8(a)
Special Meeting.................................................... 5.4(a)
Subsidiaries....................................................... 8.11
Superior Proposal.................................................. 5.8(a)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -----------
<S> <C>
Surviving Corporation............................................... 1.1
Surviving Corporation Common Stock.................................. 2.1(a)
Tax Return.......................................................... 3.11(d)
Taxes............................................................... 3.11(d)
Termination Date.................................................... 5.1
Termination Fee..................................................... 7.3
toxic pollutants.................................................... 3.7(f)(iii)
toxic substances.................................................... 3.7(f)(iii)
under common control with........................................... 8.11
Upstream Merger..................................................... 5.14
U.S. Company Plan................................................... 3.8(a)
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 18, 1999 (the "Agreement"),
among ALCOA INC., a Pennsylvania corporation ("Alcoa"), RLM ACQUISITION CORP.,
a Delaware corporation ("Merger Sub"), and REYNOLDS METALS COMPANY, a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Alcoa, Merger Sub and the Company deem
advisable and in the best interests of their respective stockholders the merger
of Merger Sub with and into the Company (the "Merger") upon the terms and
subject to the conditions provided for in this Agreement, whereby each
outstanding share of common stock, no par value per share, of the Company
(together with the rights associated with such shares issued pursuant to the
Amended and Restated Rights Agreement, dated as of March 8, 1999 (the "Rights
Agreement"), the "Company Common Stock" or the "Shares") will be converted into
the right to receive shares of common stock, par value $1.00 per share, of
Alcoa (the "Alcoa Common Stock"), upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has unanimously by all
members present approved the Merger and resolved and agreed to recommend that
holders of Shares approve and adopt this Agreement and the Merger all in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL");
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger contemplated hereby qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that this Agreement shall be, and is hereby, adopted as a plan of
reorganization for purposes of Section 368 of the Code; and
WHEREAS, the Boards of Directors of Alcoa (on its own behalf and as the sole
stockholder of Merger Sub), Merger Sub and the Company have each approved this
Agreement and the Merger in accordance with the Pennsylvania Business
Corporation Law, in the case of Alcoa, and in accordance with the DGCL, in the
case of each of Merger Sub and the Company, and upon the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, Alcoa, Merger Sub and the Company agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Merger Sub shall
merge with and into the Company, and the separate corporate existence of Merger
Sub shall thereupon cease, and the Company shall be the surviving corporation
in the Merger (the "Surviving Corporation"). The Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well
as of a private nature and shall be subject to all of the restrictions,
disabilities, duties, debts and obligations of the Company and Merger Sub, all
as provided in the DGCL.
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI, unless another time or
date, or both, are agreed to in writing by the parties hereto. The Closing will
be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York, unless another place is agreed to by the parties
hereto.
Section 1.3 Effective Time. Subject to the provisions of this Agreement, on
the Closing Date the parties shall file with the Secretary of State of the
State of Delaware a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL in order to effect the
Merger. The Merger shall become effective upon the filing of the Certificate of
Merger or at such other time as is agreed by the parties hereto and specified
in the
A-1
<PAGE>
Certificate of Merger (the time at which the Merger becomes fully effective
being hereinafter referred to as the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 1.5 Certificate of Incorporation; By-laws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation; provided,
however, that Article FIRST of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read in its entirety as follows:
"FIRST: The name of the corporation is Reynolds Metals Company" and, as so
amended shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by the DGCL and such
Certificate of Incorporation.
(b) At the Effective Time, the By-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such By-laws.
Section 1.6 Directors; Officers of Surviving Corporation.
(a) The directors of Merger Sub at the Effective Time shall be the
directors of the Surviving Corporation until their respective successors
are duly elected and qualified or their earlier death, resignation or
removal in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(b) The officers of the Company at the Effective Time shall be the
officers of the Surviving Corporation until their respective successors are
duly elected and qualified or their earlier death, resignation or removal
in accordance with the Certificate of Incorporation and By-laws of the
Surviving Corporation.
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any securities
of Alcoa, Merger Sub or the Company:
(a) Each Share that is owned by Alcoa shall be converted into one
validly issued, fully paid and nonassessable share of common stock, par
value $.01 per share, of the Surviving Corporation ("Surviving Corporation
Common Stock"). Each share that is owned by the Company shall be cancelled
and retired.
(b) Each issued and outstanding Share, other than Shares converted into
Surviving Corporation Common Stock or cancelled and retired in accordance
with Section 2.1(a), shall be converted into 1.06 (the "Exchange Ratio")
shares of Alcoa Common Stock (such number of shares of Alcoa Common Stock
being herein referred to as the "Merger Consideration"). All such Shares,
when so converted, shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and the certificates
representing such Shares shall thereafter represent only the whole number
of shares of Alcoa Common Stock equal to the Exchange Ratio multiplied by
the number of Shares represented thereby, together with the right to
receive cash in lieu of fractional shares of Alcoa Common Stock in
accordance with Section 2.2(g), without interest.
(c) Each issued and outstanding share of common stock, par value $.01
per share, of Merger Sub shall be converted into one validly issued, fully
paid and nonassessable share of Surviving Corporation Common Stock.
A-2
<PAGE>
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. Alcoa shall designate a bank or trust company
reasonably acceptable to the Company to act as agent for the holders of the
Shares (other than Shares held by Alcoa and its Subsidiaries and the
Company and its Subsidiaries) in connection with the Merger (the "Exchange
Agent") to receive in trust from Alcoa as of the Effective Time for the
benefit of such holders certificates ("Alcoa Certificates") representing
the number of whole shares of Alcoa Common Stock deliverable pursuant to
Section 2.1(b) in exchange for outstanding Shares (such shares of Alcoa
Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time and any cash payable in
lieu of any fractional shares of Alcoa Common Stock being hereinafter
referred to as the "Exchange Fund"). Alcoa shall make available to the
Exchange Agent Alcoa Certificates for these purposes.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record, as
of the Effective Time, of a certificate or certificates, which immediately
prior to the Effective Time represented outstanding Shares (the
"Certificates"), whose Shares were converted pursuant to Section 2.1(b)
into the Merger Consideration, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions
as Alcoa may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
Alcoa, together with such letter of transmittal, properly completed and
duly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor an Alcoa
Certificate representing that number of whole shares of Alcoa Common Stock
which such holder has the right to receive pursuant to Section 2.1(b),
certain dividends or other distributions in accordance with Section 2.2(f),
and cash in lieu of any fractional share in accordance with Section 2.2(g),
for each Share formerly represented by such Certificate, and the
Certificate so surrendered shall forthwith be cancelled. No interest will
be paid or accrued on any cash payable upon the surrender of the
Certificates. If the issuance of the Merger Consideration is to be made to
a Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form
for transfer and that the Person requesting such exchange shall have paid
all transfer and other Taxes required by reason of the issuance to a Person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of the Surviving Corporation that such
Tax either has been paid or is not applicable.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed,
and thereafter there shall be no further registration of transfers of the
Shares on the records of the Company. From and after the Effective Time,
the holders of Certificates evidencing ownership of the Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided for herein or by
applicable law.
(d) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to
require the Exchange Agent to deliver to it any remaining portion of the
Exchange Fund (including any interest received with respect thereto), and
holders shall be entitled to look only to Alcoa and the Surviving
Corporation (subject to abandoned property, escheat or other similar laws)
with respect to the Merger Consideration, any cash in lieu of fractional
shares of Alcoa Common Stock and any dividends or other distributions with
respect to Alcoa Common Stock payable upon due surrender of their
Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Exchange Agent shall be liable to
any holder of a Certificate for Merger Consideration (or dividends or
distributions with respect thereto) or cash from the Exchange Fund
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in each case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificates for Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such
Certificate(s) to be lost, stolen or destroyed and, if required by Alcoa,
the posting by such Person of a bond in such sum as Alcoa may reasonably
direct as indemnity against any claim that may be made against it or the
Surviving Corporation with respect to such Certificate(s), the Exchange
Agent will issue the Merger Consideration pursuant to Section 2.2(b)
deliverable in respect of the Shares represented by such lost, stolen or
destroyed Certificates.
(f) Dividends; Distributions. No dividends or other distributions with
respect to Alcoa Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Alcoa Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(g), and all such dividends, other distributions and
cash in lieu of fractional shares of Alcoa Common Stock shall be paid by
Alcoa to the Exchange Agent and shall be included in the Exchange Fund, in
each case until the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the
holder of an Alcoa Certificate representing whole shares of Alcoa Common
Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Alcoa Common Stock and the amount of any cash payable in
lieu of a fractional share of Alcoa Common Stock to which such holder is
entitled pursuant to Section 2.2(g), and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares
of Alcoa Common Stock. Alcoa shall make available to the Exchange Agent
cash for these purposes.
(g) No Fractional Shares. (i) No Alcoa Certificates or scrip
representing fractional shares of Alcoa Common Stock shall be issued upon
the surrender for exchange of Certificates; no dividend or distribution by
Alcoa shall relate to such fractional share interests; and such fractional
share interests will not entitle the owner thereof to vote or to any rights
of a stockholder of Alcoa.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole
shares of Alcoa Common Stock delivered to the Exchange Agent by Alcoa
pursuant to Section 2.2(a) over (B) the aggregate number of whole
shares of Alcoa Common Stock to be distributed to holders of Shares
pursuant to Section 2.2(b) (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent will, on
behalf of former stockholders of the Company, sell the Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc. (the
"NYSE"), all in the manner provided in Section 2.2(g)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and
will be executed in round lots to the extent practicable. The Exchange
Agent will use reasonable efforts to complete the sale of the Excess
Shares as promptly following the Effective Time as, in the Exchange
Agent's sole judgment, is practicable consistent with obtaining the
best execution of such sales in light of prevailing market conditions.
Until the net proceeds of such sale or sales have been distributed to
the holders of Shares, the Exchange Agent will hold such proceeds in
trust for the holders of Shares (the "Common Shares Trust"). The
Surviving Corporation will pay all commissions, transfer Taxes and
other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such
sale of the Excess Shares. The Exchange Agent will determine the
portion of the Common Shares Trust to which each holder of Shares is
entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Common Shares Trust by a fraction, the
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numerator of which is the amount of the fractional share interest to
which such holder of Shares is entitled (after taking into account all
Shares held at the Effective Time by such holder) and the denominator
of which is the aggregate amount of fractional share interests to which
all holders of Shares are entitled.
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares with respect to any
fractional share interests, the Exchange Agent will make available such
amounts to such holders of Shares subject to and in accordance with the
terms of Section 2.2(b).
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Alcoa. Any interest and
other income resulting from such investments shall be paid to Alcoa.
Section 2.3 Adjustments to Prevent Dilution. In the event that Alcoa changes
the number of outstanding shares of Alcoa Common Stock or the number of
outstanding securities convertible or exchangeable into or exercisable for
shares of Alcoa Common Stock prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, repurchase (other than in the ordinary course of business), or other
similar transaction, or declares or pays any dividend or distribution
(including of rights) other than any regular quarterly cash dividends, the
Merger Consideration shall be equitably adjusted.
Section 2.4 Section 16b-3. Alcoa, Merger Sub and the Company shall take all
such steps as may be required to cause the transactions contemplated by this
Article II and Section 5.5 and any other dispositions of equity securities of
the Company (including derivative securities) or acquisitions of Alcoa equity
securities (including derivative securities) in connection with the Agreement
by each individual who (a) is a director or officer of the Company or (b) at
the Effective Time, will become a director or officer of Alcoa, to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
ARTICLE III
Representations and Warranties of the Company
Except as set forth on the schedule delivered by the Company to Alcoa prior
to the execution and delivery of this Agreement (the "Company Disclosure
Schedule"), and except as otherwise disclosed in Company SEC Reports, the
Company represents and warrants to Alcoa and Merger Sub as set forth below:
Section 3.1 Organization, Qualification, Etc.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has the corporate
power and authority and all governmental approvals required for it to own
its properties and assets and to carry on its business as it is now being
conducted or presently proposed to be conducted. The Company is duly
qualified to do business and is in good standing in each jurisdiction in
which the ownership of its properties or the conduct of its business
requires such qualification, except for jurisdictions in which the failure
to be so qualified or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or substantially
delay consummation of the transactions contemplated by this Agreement or
otherwise prevent the Company from performing its obligations hereunder. As
used in this Agreement, any reference to any state of facts, event, change
or effect having a "Material Adverse Effect" on or with respect to the
Company or Alcoa, as the case may be, means a material adverse effect on
the financial condition, assets or results of operations of the Company and
its Subsidiaries, taken as a whole, or Alcoa and its Subsidiaries, taken as
a whole, as the case may be, excluding any such effect resulting from or
arising in connection with (A) this Agreement, the transactions
contemplated hereby or the announcement thereof, (B) changes or conditions
generally affecting the industries in which the Company or Alcoa, as the
case may be, operate (including
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metals or aluminum pricing) or (C) changes in general economic, regulatory
or political conditions (and "material" and all other correlative terms
shall have correlative meanings). The Company has delivered or made
available to Alcoa copies of the certificate of incorporation and by-laws
or other similar organizational documents for the Company. Such certificate
of incorporation and by-laws are complete and correct and in full force and
effect, and neither the Company nor any of its Significant Subsidiaries is
in violation of any of the provisions of their respective certificates of
incorporation, by-laws or similar organizational documents.
(b) Each of the Company's Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of the Company's
Significant Subsidiaries has the corporate power and authority and all
governmental approvals required for it to own its properties and assets and
to carry on its business as it is now being conducted or presently proposed
to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its properties or
the conduct of its business requires such qualification, except for
jurisdictions in which the failure to be so qualified or in good standing
or to have such governmental approvals would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on the
Company. All the outstanding shares of capital stock of, or other ownership
interests in, the Company's Significant Subsidiaries are duly authorized,
validly issued, fully paid and non-assessable and are owned by the Company,
directly or indirectly, free and clear of all liens, claims, mortgages,
encumbrances, pledges, security interests of any kind except as would not
have a Material Adverse Effect (each, a "Lien"). Exhibit 21 to the
Company's Annual Report on a Form 10-K for 1998 lists all the Company's
Significant Subsidiaries as of the date hereof.
Section 3.2 Capital Stock.
(a) The authorized capital stock of the Company consists of 200,000,000
shares of Company Common Stock, 20,000,000 shares of preferred stock,
without par value, designated as "Preferred Stock" (the "Company Preferred
Stock"), and 1,000,000 shares of preferred stock, par value $100.00 per
share, designated as "Second Preferred Stock" (the "Company Second
Preferred Stock"). As of July 30, 1999, (i) 62,887,628 shares of Company
Common Stock are issued and outstanding; (ii) not more than 6,000,000
shares of Company Common Stock are subject to outstanding options issued
under the Company's 1996 Nonqualified Stock Option Plan; (iii) 9,409,082
shares of Company Common Stock have been reserved for issuance under the
Company's Equity Plans; (v) 11,341,216 shares of Company Common Stock are
issued and held in the treasury of the Company; (vi) no shares of Company
Preferred Stock are issued, outstanding or reserved for issuance, except
for 2,000,000 shares of the Company Preferred Stock which have been
designated as Series A Junior Participating Preferred Stock and reserved
for issuance in connection with the Rights Agreement, between the Company
and ChaseMellon Shareholder Services, L.L.C., as rights agent; and (vii) no
shares of Company Second Preferred Stock are issued, outstanding or
reserved for issuance.
(b) All the outstanding Shares are duly authorized, validly issued,
fully paid and non-assessable. Except as set forth in paragraph (a) above,
except for the Company's obligations under the Rights Agreement, and except
for the transactions contemplated by this Agreement, (1) there are no
shares of capital stock of the Company authorized, or as of the date of
this Agreement issued or outstanding, (2) as of the date of this Agreement
there are no authorized or outstanding options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital
stock of the Company or any of its Subsidiaries, obligating the Company or
any of its Subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or other equity interest in
the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company
or any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment, and (3) there are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any Shares or other capital
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stock of the Company or any Subsidiary or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in
any Subsidiary or other entity.
Section 3.3 Corporate Authority Relative to this Agreement; No Violation.
(a) The Company has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company and, except for obtaining the Company Stockholder
Approval and the filing of the Certificate of Merger, no other corporate
proceedings on the part of the Company are necessary to authorize the
consummation of the transactions contemplated hereby. The Board of
Directors of the Company has taken all appropriate action so that neither
Alcoa nor Merger Sub will be an "interested stockholder" within the meaning
of Section 203 of the DGCL by virtue of Alcoa, Merger Sub and the Company
entering into this Agreement and consummating the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
the Company and, assuming this Agreement constitutes a valid and binding
agreement of Alcoa and Merger Sub, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) Except for the filings, permits, authorizations, consents and
approvals set forth in Section 3.3(b) of the Company Disclosure Schedule or
as may be required under, and other applicable requirements of, the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
state securities or blue sky laws and the DGCL (the "Company Required
Approvals"), none of the execution, delivery or performance of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or compliance by the Company with any of
the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation, by-laws or similar
organizational documents of the Company or any of its Subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of,
any federal, regional, state or local court, arbitrator, tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency, whether U.S. or foreign (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound (the
"Company Agreements"), or (iv) violate any order, writ, injunction, decree,
judgment, permit, license, ordinance, law, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their
properties or assets, excluding from the foregoing clauses (ii), (iii) and
(iv) such violations, breaches or defaults which are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on
the Company or prevent or substantially delay the consummation of the
transactions contemplated hereby.
Section 3.4 Reports and Financial Statements. The Company has previously
furnished or otherwise made available to Alcoa true and complete copies of:
(a) the Company's Annual Reports on Form 10-K filed with the Securities
and Exchange Commission (the "SEC") for each of the years ended December
31, 1997 and 1998;
(b) the Company's Quarterly Reports on Form 10-Q filed with the SEC for
the quarters ended March 31, 1999 and June 30, 1999;
(c) each definitive proxy statement filed by the Company with the SEC
since December 31, 1997;
(d) each final prospectus filed by the Company with the SEC since
December 31, 1997, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by the Company with the SEC
since January 1, 1998.
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As of their respective dates or as amended or superceded thereafter, such
reports, proxy statements and prospectuses (collectively with any amendments,
supplements and exhibits thereto, the "Company SEC Reports") (i) complied as to
form in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder, and (ii) did not contain any 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 the light of the circumstances under which they
were made, not misleading. None of the Company's Subsidiaries is required to
file any forms, reports or other documents with the SEC. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the Company SEC Reports (including any related notes and
schedules) fairly present in all material respects the financial position of
the Company and its consolidated Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods or as of the dates then
ended (subject, in the case of the unaudited interim financial statements, to
normal recurring year-end adjustments), in each case in accordance with past
practice and generally accepted accounting principles in the United States
("GAAP") consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto). Since January 1, 1998, the Company has timely
filed all reports, registration statements and other filings required to be
filed by it with the SEC under the rules and regulations of the SEC.
Section 3.5 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature required to be
set forth on a balance sheet of the Company under GAAP, whether or not accrued,
contingent or otherwise, and there is no existing condition, situation or set
of circumstances which could be expected to result in such a liability or
obligation, except (a) liabilities or obligations reflected in the Company SEC
Reports filed prior to the date hereof and (b) liabilities or obligations
incurred in the ordinary course of business since the date of the Company's
latest financial statements included in the Company SEC Reports, and (c)
liabilities and obligations which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
Section 3.6 No Violation of Law. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any order, writ,
injunction, decree, judgment, permit, license, ordinance, law, statute, rule or
regulation of any Governmental Entity (provided that no representation or
warranty is made in this Section 3.6 with respect to Environmental Laws),
except (a) as described in the Company SEC Reports filed prior to the date
hereof, and (b) for violations or possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
Section 3.7 Environmental Matters.
(a) Except as set forth on Section 3.7 of the Company Disclosure
Schedule, each of the Company and its Subsidiaries has obtained all
licenses, permits, authorizations, approvals and consents from Governmental
Entities which are required under any applicable Environmental Law in
respect of its business or operations ("Environmental Permits"), except for
such failures to have Environmental Permits which, individually or in the
aggregate, are not reasonably expected to have a Material Adverse Effect on
the Company. Each of such Environmental Permits is in full force and
effect, and each of the Company and its Subsidiaries is in compliance with
the terms and conditions of all such Environmental Permits and with all
applicable Environmental Laws, except for such failures to be in compliance
which, individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect on the Company.
(b) Except as set forth on Section 3.7 of the Company Disclosure
Schedule, there are no Environmental Claims pending, or to the knowledge of
the Company threatened, against the Company or any of its Subsidiaries, or,
to the knowledge of the Company, any Person whose liability for any such
Environmental Claim the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law for which
adequate reserves have not been established, that, individually or in the
aggregate, would have a Material Adverse Effect on the Company.
(c) Except as set forth in Section 3.7(c) of the Company Disclosure
Schedule and for matters as to which adequate reserves have been
established therefor, to the knowledge of the Company, there are no
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past or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, threatened release
or presence of any Hazardous Material, that could form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to
the knowledge of the Company against any Person whose liability for any
Environmental Claim the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law, except for
such liabilities which would not have a Material Adverse Effect on the
Company.
(d) Except as set forth in Section 3.7(d) of the Company Disclosure
Schedule, to the knowledge of the Company, no site or facility now or
previously owned, operated or leased by the Company or any of its
Subsidiaries is listed or proposed for listing on the National Priorities
List promulgated pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations thereunder ("CERCLA").
(e) No Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by the Company or any of its
Subsidiaries, except for such Liens which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, and no action of
any Governmental Entity has been taken or, to the knowledge of the Company,
is in process which could subject any of such properties to such Liens,
except for any such action which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(f) As used in this Agreement:
(i) "Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging
potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs,
natural resources, damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (a) the presence,
or release or threatened release, of any Hazardous Materials at any
location, whether or not owned or operated by the Company or any of its
Subsidiaries, or (b) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law.
(ii) "Environmental Law" means any law or order of any Governmental
Entity relating to the regulation or protection of human health or
safety as it relates to Hazardous Materials or the environment or to
emissions, discharges, releases or threatened releases of Hazardous
Material, pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, flammable materials, radioactive materials, friable asbestos,
urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid containing regulated levels of
polychlorinated biphenyls; (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in
the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or words of
similar import under any Environmental Law; and (C) any other chemical
or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated by any Governmental Entity under any
Environmental Law.
Section 3.8 Employee Benefit Plans; ERISA.
(a) The term "Company Plan" means a deferred compensation, incentive
compensation or equity compensation plan; a "welfare" plan, fund or program
(within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); or a "pension" plan, fund or
program (within the meaning of section 3(2) of ERISA), in each case, that
is sponsored, maintained or contributed to or required to be contributed to
by the Company or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company would be deemed a
"single employer" within the meaning of section 4001(b) of ERISA, for the
benefit of any employee or former employee of the Company or any Subsidiary
(the "Company Plans"). The term "U.S. Company Plan"
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means a Company Plan that is not maintained outside the United States
primarily for the benefit of persons substantially all of whom are
nonresident aliens with respect to the United States.
(b) No U.S. Company Plan has been adopted since December 31, 1998, and
no amendments have been made to any U.S. Company Plan since December 31,
1998.
(c) Except as would not have a Material Adverse Effect, no liability
under Title IV or section 302 of ERISA has been incurred by the Company or
any ERISA Affiliate that has not been satisfied in full, and no condition
exists that presents a material risk to the Company or any ERISA Affiliate
of incurring any such liability, other than liability for premiums due the
Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) Except as would not have a Material Adverse Effect, each Company
Plan has been operated and administered in all material respects in
accordance with its terms and applicable law, including but not limited to
ERISA and the Code, and each U.S. Company Plan intended to be "qualified"
within the meaning of section 401(a) of the Code is so qualified and the
trusts maintained thereunder are exempt from taxation under section 501(a)
of the Code.
(e) The consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (A) entitle
any current or former employee or officer of the Company or any ERISA
Affiliate to severance pay or any other payment, except as expressly
provided in this Agreement, or (B) accelerate the time of payment or
vesting, or increase the amount of, compensation due any such employee or
officer.
(f) Except as would not have a Material Adverse Effect, there are no
pending, threatened or anticipated claims by or on behalf of any U.S.
Company Plan, by any employee or beneficiary covered under any such U.S.
Company Plan, or otherwise involving any such U.S. Company Plan (other than
routine claims for benefits).
(g) No amounts payable under the Company Plans will be "excess parachute
payments" within the meaning of Section 280G of the Code and the proposed
Treasury regulations thereunder.
Section 3.9 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports, since the date of the last filed 10-Q (a) the businesses
of the Company and its Subsidiaries have been conducted in the ordinary course
and (b) there has not been any event, occurrence, development or state of
circumstances or facts that has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Section 3.10 Proxy Statement/Prospectus; Registration Statement. The Proxy
Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, 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 made
therein, in the light of the circumstances under which they are made, not
misleading or, at the time of the Special Meeting or at the Effective Time,
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Special Meeting which shall have become false or misleading in any material
respect. None of the information supplied by the Company for inclusion or
incorporation by reference in the Registration Statement will, at the date it
becomes effective and 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. The Proxy
Statement will, when filed by the Company with the SEC, comply as to form in
all material respects with the applicable provisions of the Exchange Act and
the rules and regulations thereunder. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to the statements made
in any of the foregoing documents based on and in conformity with information
supplied by or on behalf of Alcoa or Merger Sub for inclusion therein.
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Section 3.11 Tax Matters.
(a) All federal, state, local and foreign Tax Returns required to be
filed by or on behalf of the Company, each of its Subsidiaries and each
affiliated, combined, consolidated or unitary group of which the Company or
any of its Subsidiaries is a member (a "Company Affiliated Group") have
been timely filed or requests for extensions have been timely filed and any
such extension has been granted and has not expired, and all such filed Tax
Returns are complete and accurate except to the extent any failure to file
or any inaccuracies in filed Tax Returns would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. All Taxes due and
owing by the Company, any Subsidiary of the Company or any Company
Affiliated Group have been paid, or adequately reserved for, except to the
extent any failure to pay or reserve for would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. No issue has been
raised on any audit or examination and there is no deficiency, refund
litigation, proposed adjustment or matter in controversy with respect to
any Taxes due and owing by the Company, any Subsidiary of the Company or
any Company Affiliated Group which if determined adversely would,
individually or in the aggregate, have a Material Adverse Effect on the
Company. All assessments for Taxes due and owing by the Company, any
Subsidiary of the Company or any Company Affiliated Group with respect to
completed and settled examinations or concluded litigation have been paid
except to the extent that any failures to pay would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The federal
income Tax Returns of the Company Affiliated Group have been examined, and
such examinations have been resolved, or the statute of limitations has
expired, for all taxable years through 1991. Neither the Company nor any of
its Subsidiaries has any liability under Treasury Regulation Section
1.1502-6 for U.S. federal income Taxes of any Person other than the Company
and its Subsidiaries except to the extent of any liabilities that would
not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company and each of its Subsidiaries have complied in all
material respects with all rules and regulations relating to the
withholding of Taxes, except to the extent any such failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
(b) Neither the Company nor any Subsidiary of the Company has (i)
entered into a closing agreement or other similar agreement with a taxing
authority relating to Taxes of the Company or any Subsidiary of the Company
with respect to a taxable period for which the statute of limitations is
still open, or (ii) with respect to U.S. federal income Taxes, granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any income Tax, in either case, that is still
outstanding, except for any such agreements, waivers or extensions that
would not, individually or in the aggregate, have a Material Adverse Effect
on the Company. There are no Liens relating to Taxes upon the assets of the
Company or any Subsidiary of the Company other than Liens relating to Taxes
not yet due and Liens that would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. Neither the Company nor any
Subsidiary of the Company is a party to or is bound by any Tax sharing
agreement, Tax indemnity obligation or similar agreement in respect of
Taxes (other than with respect to agreements solely between or among
members of the consolidated group of which the Company is the common parent
and agreements and obligations that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company). No consent under
Section 341(f) of the Code has been filed with respect to the Company or
any Subsidiary of the Company, other than consents which, individually or
in the aggregate, would not have a Material Adverse Effect on the Company.
(c) For purposes of this Agreement: (i) "Taxes" means any and all
federal, state, local, foreign or other taxes of any kind (together with
any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth, and taxes or other
charges in the nature of excise, withholding, ad valorem or value added,
and (ii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any
Tax, including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
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Section 3.12 Opinion of Financial Advisors. The Board of Directors of the
Company has received the opinions of Merrill Lynch & Co. and Goldman Sachs &
Co., dated the date of this Agreement, substantially to the effect that, as of
such date, the Exchange Ratio to be offered by Alcoa in the Merger is fair to
such holders from a financial point of view.
Section 3.13 Required Vote of the Company Stockholders. The affirmative vote
of the holders of a majority of the outstanding shares of Company Common Stock
(the "Company Stockholder Approval") is the only vote of the holders of any
class or series of the Company's capital stock which is necessary to approve
and adopt this Agreement and the transactions contemplated hereby.
Section 3.14 Rights Plan. The Company has duly amended the Rights Agreement
so that the Rights Agreement will not be applicable to Alcoa, Merger Sub, this
Agreement, the Merger or any other transaction contemplated by this Agreement,
in each case to the extent provided for and made consistent with the terms of
this Agreement.
ARTICLE IV
Representations and Warranties of Alcoa and Merger Sub
Except as set forth on the schedule delivered by Alcoa to the Company prior
to the execution of this Agreement (the "Alcoa Disclosure Schedule," and
together with the Company Disclosure Schedule, the "Disclosure Schedule"), and
except as otherwise disclosed on the Alcoa SEC Reports, Alcoa and Merger Sub
represent and warrant to the Company as set forth below:
Section 4.1 Organization, Qualification, Etc.
(a) Each of Alcoa and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority and all
governmental approvals required for it to own its properties and assets and
to carry on its business as it is now being conducted or presently proposed
to be conducted. Each of Alcoa and Merger Sub is duly qualified to do
business and is in good standing in each jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so
qualified and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on Alcoa or delay consummation of the
transactions contemplated by this Agreement or otherwise prevent Alcoa or
Merger Sub from performing its obligations hereunder. Alcoa has delivered
or made available to the Company copies of the articles of incorporation
and by-laws for Alcoa and each of its Significant Subsidiaries and the
certificate of incorporation and by-laws for Merger Sub. Such
organizational documents are complete and correct and in full force and
effect, and neither Alcoa nor any of its Significant Subsidiaries nor
Merger Sub is in violation of any of the provisions of their respective
articles or certificate of incorporation, or by-laws or similar
organizational documents. Merger Sub is a wholly owned Subsidiary of Alcoa.
(b) Each of Alcoa's Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of Alcoa's Significant
Subsidiaries has the corporate power and authority and all governmental
approvals required for it to own its properties and assets and to carry on
its business as it is now being conducted or presently proposed to be
conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its properties or the conduct
of its business requires such qualification, except for jurisdictions in
which the failure to be so qualified or in good standing or to have such
governmental approvals is not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on Alcoa.
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Section 4.2 Capital Stock.
(a) The authorized capital stock of Alcoa consists of 600,000,000 shares
of Alcoa Common Stock, 660,000 shares of $3.75 Cumulative Preferred Stock,
par value $100.00 per share ("Alcoa Serial Preferred Stock") and 10,000,000
shares of Class B Serial Preferred stock, par value $1.00 per share ("Alcoa
Class B Serial Preferred Stock"). As of July 31, 1999, (i) 366,753,484
shares of Alcoa Common Stock were issued and outstanding; (ii) 28,453,649
shares of Alcoa Common Stock were subject to outstanding options issued
pursuant to Alcoa's existing stock incentive plans (the "Alcoa Incentive
Plans"), and 47,409,056 shares of Alcoa Common Stock were reserved for
issuance under the Alcoa Incentive Plans; (iii) no shares of Alcoa Common
Stock were reserved for issuance under Alcoa's employees savings plans;
(iv) no shares of Alcoa Common Stock were reserved for issuance under
Alcoa's incentive compensation plan; (v) 27,942,442 shares of Alcoa Common
Stock were issued and held in the treasury of Alcoa; (vi) 557,649 shares of
Alcoa Serial Preferred Stock were issued and outstanding; and (vii) no
shares of Alcoa Class B Serial Preferred Stock are issued and outstanding.
(b) All the outstanding shares of Alcoa Common Stock and Alcoa Serial
Preferred Stock are, and all shares to be issued as part of the Merger
Consideration will be, when issued in accordance with the terms hereof,
duly authorized, validly issued, fully paid and non-assessable. Except as
set forth in paragraph (a) above, and except for the transactions
contemplated by this Agreement, (1) there are no shares of capital stock of
Alcoa authorized, issued or outstanding, (2) there are no authorized or
outstanding options, warrants, calls, preemptive rights, subscriptions or
other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Alcoa, obligating Alcoa
to issue, transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or other equity interest in Alcoa or securities
convertible into or exchangeable for such shares or equity interests, or
obligating Alcoa to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment,
and (3) there are no outstanding contractual obligations of Alcoa to
repurchase, redeem or otherwise acquire any capital stock of Alcoa.
Section 4.3 Corporate Authority Relative to this Agreement; No Violation.
(a) Each of Alcoa and Merger Sub has the corporate power and authority
to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Boards of Directors of Alcoa and Merger Sub and by Alcoa as the sole
stockholder of Merger Sub, and other than the filing of the Certificate of
Merger no other corporate proceedings on the part of Alcoa or Merger Sub
(including their respective stockholders) are necessary to authorize the
consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Alcoa and Merger Sub and,
assuming this Agreement constitutes a valid and binding agreement of the
Company, constitutes a valid and binding agreement of each of Alcoa and
Merger Sub, enforceable against each of Alcoa and Merger Sub in accordance
with its terms.
(b) Except for the filings, permits, authorizations, consents and
approvals set forth in Section 4.3(b) of the Alcoa Disclosure Schedule or
as may be required under, and other applicable requirements of the
Securities Act, the Exchange Act, the HSR Act, state securities or blue sky
laws and the filing of the merger certificate under the DGCL (the "Alcoa
Required Approvals"), none of the execution, delivery or performance of
this Agreement by Alcoa or Merger Sub, the consummation by Alcoa or Merger
Sub of the transactions contemplated hereby or compliance by Alcoa or
Merger Sub with any of the provisions hereof or thereof will (i) conflict
with or result in any breach of any provision of the articles of
incorporation or by-laws of Alcoa or the certificate of incorporation, by-
laws or similar organizational documents of any of its Subsidiaries,
including Merger Sub , (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation
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to which Alcoa, any of its Subsidiaries or Merger Sub is a party or by
which any of them or any of their respective properties or assets may be
bound (the "Alcoa and Merger Sub Agreements"), or (iv) violate any order,
writ, injunction, decree, judgment, permit, license, ordinance, law,
statute, rule or regulation applicable to Alcoa, any of its Subsidiaries or
any of their respective properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches or defaults which
are not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on Alcoa or prevent or substantially delay the
consummation of the transactions contemplated hereby. Section 4.3(b) of the
Alcoa Disclosure Schedule sets forth a list of all third party consents and
approvals required to be obtained under Alcoa and Merger Sub Agreements
prior to the consummation of the transactions contemplated by this
Agreement.
Section 4.4 Reports and Financial Statements. Alcoa has previously furnished
or otherwise made available to the Company true and complete copies of:
(a) Alcoa's Annual Reports on Form 10-K filed with the SEC for each of
the years ended December 31, 1997 and 1998;
(b) Alcoa's Quarterly Reports on Form 10-Q filed with the SEC for the
quarters ended March 31, 1999 and June 30, 1999;
(c) each definitive proxy statement filed by Alcoa with the SEC since
December 31, 1997;
(d) each final prospectus filed by Alcoa with the SEC since December 31,
1997, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by Alcoa with the SEC since
January 1, 1998.
As of their respective dates, such reports, proxy statements and prospectuses
(collectively with any amendments, supplements and exhibits thereto, the "Alcoa
SEC Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder, and (ii) did not contain any 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 the light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any Alcoa SEC Report was amended or was
superseded by a later filed Alcoa SEC Report, none of the Alcoa SEC Reports
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Alcoa's Subsidiaries is required to file any forms, reports
or other documents with the SEC. The audited consolidated financial statements
and unaudited consolidated interim financial statements included in the Alcoa
SEC Reports (including any related notes and schedules) fairly present the
financial position of Alcoa and its consolidated Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods or as of
the dates then ended (subject, in the case of the unaudited interim financial
statements, to normal recurring year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto). Since January 1,
1997, Alcoa has timely filed all reports, registration statements and other
filings required to be filed by it with the SEC under the rules and regulations
of the SEC.
Section 4.5 No Undisclosed Liabilities. Neither Alcoa nor any of its
Subsidiaries has any liabilities or obligations of any nature required to be
set forth in a balance sheet of Alcoa under GAAP, whether or not accrued,
contingent or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability or obligation, except (a) liabilities or obligations reflected in the
Alcoa SEC Reports filed prior to the date hereof, and (b) liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since the date of Alcoa's latest financial statements included in the
Alcoa SEC Reports, which are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on Alcoa.
Section 4.6 No Violation of Law. The businesses of Alcoa and its
Subsidiaries are not being conducted in violation of any order, writ,
injunction, decree, judgment, permit, license, ordinance, law, statute, rule or
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regulation of any Governmental Entity (provided that no representation or
warranty is made in this Section 4.6 with respect to Environmental Laws),
except (a) as described in the Alcoa SEC Reports filed prior to the date hereof
and (b) for violations or possible violations which are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on Alcoa.
Section 4.7 Environmental Matters.
(a) Each of Alcoa and its Subsidiaries has obtained all Environmental
Permits, except for such failures to have Environmental Permits which,
individually or in the aggregate, are not reasonably expected to have a
Material Adverse Effect on Alcoa. Each of such Environmental Permits is in
full force and effect, and each of Alcoa and its Subsidiaries is in
compliance with the terms and conditions of all such Environmental Permits
and with all applicable Environmental Laws, except for such failures to be
in compliance which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect on Alcoa.
(b) There are no Environmental Claims pending, or to the knowledge of
Alcoa threatened, against Alcoa or any of its Subsidiaries, or, to the
knowledge of Alcoa, any Person whose liability for any such Environmental
Claim Alcoa or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law, that, individually or in the
aggregate, would have a Material Adverse Effect on Alcoa.
(c) Except as set forth in Section 4.7(c) of the Alcoa Disclosure
Schedule, to the knowledge of Alcoa, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, threatened release or presence of any
Hazardous Material, that could form the basis of any Environmental Claim
against Alcoa or any of its Subsidiaries, or to the knowledge of Alcoa
against any Person whose liability for any Environmental Claim Alcoa or any
of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law, except for such liabilities which,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on Alcoa.
(d) To the knowledge of Alcoa, no site or facility now or previously
owned, operated or leased by Alcoa or any of its Subsidiaries is listed or
proposed for listing on the National Priorities List promulgated pursuant
to CERCLA.
(e) No Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by Alcoa or any of its
Subsidiaries, except for such Liens which would not, individually or in the
aggregate, have a Material Adverse Effect on Alcoa, and no action of any
Governmental Entity has been taken or, to the knowledge of the Company, is
in process which could subject any of such properties to such Liens, except
for any such action which would not, individually or in the aggregate, have
a Material Adverse Effect on Alcoa.
Section 4.8 Absence of Certain Changes or Events. Except as disclosed in the
Alcoa SEC Reports, since the date of the last filed 10-Q (a) the businesses of
Alcoa and its Subsidiaries have been conducted in the ordinary course and (b)
there has not been any event, occurrence, development or state of circumstances
or facts that has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Alcoa.
Section 4.9 Proxy Statement/Prospectus; Registration Statement. The
Registration Statement on Form S-4 to be filed with the SEC by Alcoa in
connection with the issuance of the Alcoa Common Stock pursuant to the Merger,
as amended or supplemented from time to time (as so amended and supplemented,
the "Registration Statement"), and any other documents to be filed by Alcoa
with the SEC or any other Government Entity in connection with the Merger and
the other transactions contemplated hereby will (in the case of the
Registration Statement and any such other documents filed with the SEC under
the Securities Act or the Exchange Act) comply as to form in all material
respects with the requirements of the Exchange Act and the Securities Act,
respectively, and will not, on the date of filing with the SEC or, in the case
of the
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Registration Statement, at the time it becomes effective under the Securities
Act, and on the date the Proxy Statement is first mailed to stockholders of the
Company and 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 made therein, in the light
of the circumstances under which they are made, not misleading or, at the time
of the Special Meeting or at the Effective Time, omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the Special Meeting which shall have
become false or misleading in any material respect. Notwithstanding the
foregoing, neither Alcoa nor Merger Sub makes any representation or warranty
with respect to the statements made in any of the foregoing documents based on
and in conformity with information supplied by or on behalf of the Company
specifically for inclusion therein.
Section 4.10 Tax Matters.
(a) All federal, state, local and foreign Tax Returns required to be
filed by or on behalf of Alcoa, each of its Subsidiaries and each
affiliated, combined, consolidated or unitary group of which Alcoa or any
of its Subsidiaries is a member (an "Alcoa Affiliated Group") have been
timely filed or requests for extensions have been timely filed and any such
extension has been granted and has not expired, and all such filed Tax
Returns are complete and accurate except to the extent any failure to file
or any inaccuracies in filed Tax Returns would not, individually or in the
aggregate, have a Material Adverse Effect on Alcoa. All Taxes due and owing
by Alcoa, any Subsidiary of Alcoa or any Alcoa Affiliated Group have been
paid, or adequately reserved for, except to the extent any failure to pay
or reserve for would not, individually or in the aggregate, have a Material
Adverse Effect on Alcoa. No issue has been raised on any audit or
examination and there is no deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes due and owing
by Alcoa, any Subsidiary of Alcoa or any Alcoa Affiliated Group which if
determined adversely would, individually or in the aggregate, have a
Material Adverse Effect on Alcoa. All assessments for Taxes due and owing
by Alcoa, any Subsidiary of Alcoa or any Alcoa Affiliated Group with
respect to completed and settled examinations or concluded litigation have
been paid except to the extent that any failures to pay would not,
individually or in the aggregate, have a Material Adverse Effect on Alcoa.
The federal income Tax Returns of the Alcoa Affiliated Group have been
examined, and such examinations have been resolved, or the statute of
limitations has expired, for all taxable years through 1992. Neither Alcoa
nor any of its Subsidiaries has any liability under Treasury Regulation
Section 1.1502-6 for U.S. federal income Taxes of any Person other than
Alcoa and its Subsidiaries except to the extent of any liabilities that
would not, individually or in the aggregate, have a Material Adverse Effect
on Alcoa. Alcoa and each of its Subsidiaries have complied in all material
respects with all rules and regulations relating to the withholding of
Taxes, except to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on Alcoa.
(b) Neither Alcoa nor any Subsidiary of Alcoa has (i) entered into a
closing agreement or other similar agreement with a taxing authority
relating to Taxes of Alcoa or any Subsidiary of Alcoa with respect to a
taxable period for which the statute of limitations is still open, or (ii)
with respect to U.S. federal income Taxes, granted any waiver of any
statute of limitations with respect to, or any extension of a period for
the assessment of, any income Tax, in either case, that is still
outstanding, except for any such agreements, waivers or extensions that
would not, individually or in the aggregate, have a Material Adverse Effect
on Alcoa. There are no Liens relating to Taxes upon the assets of Alcoa or
any Subsidiary of Alcoa other than Liens relating to Taxes not yet due and
Liens that would not, individually or in the aggregate, have a Material
Adverse Effect on Alcoa. Neither Alcoa nor any Subsidiary of Alcoa is a
party to or is bound by any Tax sharing agreement, Tax indemnity obligation
or similar agreement in respect of Taxes (other than with respect to
agreements solely between or among members of the consolidated group of
which Alcoa is the common parent and agreements and obligations that would
not, individually or in the aggregate, have a Material Adverse Effect on
Alcoa). No consent under Section 341(f) of the Code has been filed with
respect to Alcoa or any Subsidiary of Alcoa, other than consents which,
individually or in the aggregate, would not have a Material Adverse Effect
on Alcoa.
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Section 4.11 Opinion of Financial Advisor. The Board of Directors of Alcoa
has received the opinion of Credit Suisse First Boston Corporation, dated the
date of this Agreement, substantially to the effect that, as of such date, the
Exchange Ratio to be offered by Alcoa in the Merger is fair to Alcoa from a
financial point of view.
Section 4.12 Ownership of Shares; Stockholder Vote. As of the date hereof,
neither Alcoa nor Merger Sub is an "interested stockholder" of the Company, as
such term is defined in Section 203 of the DGCL and neither of them owns any
securities of the Company (except up to 100 Shares). No meeting or vote of any
holders of any class or series of Alcoa capital stock is necessary for the
approval, adoption or consummation by Alcoa of this Agreement or the
transactions contemplated by this Agreement.
ARTICLE V
Covenants and Agreements
Section 5.1 Conduct of Business by the Company. The Company agrees that,
from and after the date hereof and prior to the Effective Time or the date, if
any, on which this Agreement is earlier terminated pursuant to Section 7.1 (the
"Termination Date"), and except as may be agreed in writing by the other
parties hereto, as may be expressly permitted pursuant to this Agreement, as
may be contemplated by the Company's capital budget or operating budget or as
set forth in Section 5.1 of the Company Disclosure Schedule, the Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business;
(ii) shall use its reasonable best efforts, and cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact its
business organization and goodwill, keep available the services of its
current officers and other key employees and preserve its relationships
with those Persons having business dealings with the Company and its
Subsidiaries;
(iii) shall notify Alcoa of any emergency in the course of its or its
Subsidiaries' respective businesses or in the operation of its or its
Subsidiaries' respective properties if such emergency would have a Material
Adverse Effect on the Company;
(iv) shall not authorize or pay any dividends on or make any
distribution with respect to its outstanding shares of capital stock (other
than regularly quarterly cash dividends by the Company in an amount not to
exceed $0.35 per Share per quarter declared and paid substantially in
accordance with past practice, including establishment of record and
payment dates);
(v) shall not, and shall not permit any of its Subsidiaries to
establish, enter into or amend any severance plan, agreement or arrangement
or any Company Plan or increase the compensation payable or to become
payable or the benefits provided to its officers or employees, other than
as contemplated by any existing contract, employee benefit or welfare plan
or policy, or in the ordinary course of business (1) with respect to
employees who are not officers of the Company, and (2) with respect to
annual bonuses and other incentive awards of employees including officers;
(vi) except with respect to the Company's continuing restructuring plan,
shall not, and shall not permit any of its Subsidiaries to, authorize,
propose or announce an intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or business
combination (other than the Merger), any acquisition of a material amount
of assets or securities, any disposition of a material amount of securities
except as contemplated by Section 5.8;
(vii) shall not propose or adopt any amendments to its certificate of
incorporation or by-laws (or other similar organizational documents);
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(viii) shall not, and shall not permit any of its Subsidiaries to, issue
or authorize the issuance of, or agree to issue or sell any shares of
capital stock of any class (whether through the issuance or granting of
options, warrants, commitments, convertible securities, subscriptions,
rights to purchase or otherwise), except for the issuance of Company Common
Stock pursuant to options and grants outstanding as of the date hereof
under any of the Company's 1999 Nonqualified Stock Option Plan, 1996
Nonqualified Stock Option Plan, 1992 Nonqualified Stock Option Plan, 1987
Nonqualified Stock Option Plan, Long Term Performance Share Plan, Stock
Plan for Outside Directors and Restricted Stock Plan for Outside Directors
and pursuant to the terms of the Company's Savings and Investment Plan for
Salaried Employees, Hourly Savings Plan, Employee Savings Plan and
Incentive Compensation Plan (each such plan, an "Equity Plan") or (2)
options and other equity awards granted in the ordinary course of business
consistent with past practice or pursuant to formula awards, in either case
under an Equity Plan;
(ix) shall not reclassify, combine, split, purchase or redeem any shares
of its capital stock or purchase or redeem any rights, warrants or options
to acquire any such shares;
(x) other than in the ordinary course of business, shall not, and shall
not permit any of its Subsidiaries to, (a) incur, assume or prepay any
indebtedness or any other material liabilities for borrowed money or issue
any debt securities other than as may be necessary or advisable in
connection with the Company's capital and operating budget or to
effectively manage cash flow, or (b) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person (other than
Subsidiaries);
(xi) shall not, and shall not permit any of its Subsidiaries to (or
consent to any proposal by any Person in which the Company has an
investment to), make or forgive any loans, advances or capital
contributions to, or investments in, any other Person (including any
intercompany loans, advances or capital contributions to, or investments
in, any affiliate) other than in the ordinary course of business or as may
be required by existing obligations;
(xii) shall not, and shall not permit any of its Subsidiaries to, (a)
sell, lease, license or otherwise subject to any Lien or otherwise dispose
of any of its properties or assets (including securitizations), other than
in the ordinary course of business and other than in connection with
transactions permitted by subsection (x) above or in connection with the
receivables securitization previously approved by the Company's Board; (b)
modify, amend or terminate any of its material contracts or waive, release
or assign any material rights (except in the ordinary course of business);
or (c) permit any insurance policy naming it as a beneficiary or a loss
payable payee to lapse, be cancelled or expire unless a new policy with
substantially identical coverage is in effect as of the date of lapse,
cancellation or expiration except in the ordinary course of business;
(xiii) shall not, and shall not permit any of its Subsidiaries to change
any of the financial accounting methods used by it unless required by GAAP;
and
(xiv) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions or take any
action which would (y) make any representation or warranty in Article III
hereof untrue or incorrect, or (z) result in any of the conditions to the
Merger set forth in Article VI hereof not being satisfied.
Section 5.2 Alcoa Interim Operations. Except as set forth in Section 5.2 of
the Alcoa Disclosure Schedule, or as otherwise expressly contemplated hereby,
without the prior consent of the Company, from the date hereof until the
Effective Time, Alcoa shall, and shall cause each of its Subsidiaries to,
conduct their business in all material respects in the ordinary course
consistent with past practice and use all reasonable efforts to (i) preserve
intact its present business organization, (ii) keep available the services of
its key officers and key employees, (iii) maintain in effect all material
foreign, federal, state and local licenses, approvals and authorizations,
including, without limitation, all material licenses and permits that are
required for Alcoa or any of its Subsidiaries to carry on its business and (iv)
preserve existing relationships with its material partners, lenders, suppliers
and others having material business relationships with it so that the business
of Alcoa and its
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Subsidiaries shall not be impaired in any material respect at the Effective
Time. Without limiting the generality of the foregoing, except as set forth in
the above-mentioned written disclosure or as otherwise expressly contemplated
by this Agreement, from the date hereof until the Effective Time, without the
prior written consent of the Company, Alcoa shall not, nor shall it permit any
Subsidiary to:
(a) amend Alcoa's articles of incorporation or by-laws;
(b) amend any material terms of the shares of Alcoa Common Stock;
(c) split, combine, subdivide or reclassify any shares of Alcoa Common
Stock or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of Alcoa Common Stock, except for (i) regular quarterly cash dividends,
(ii) regular dividends on any future series of preferred stock pursuant to
the terms of such securities, or (iii) dividends paid by any Subsidiary to
Alcoa or any Subsidiary that is, directly or indirectly, wholly owned by
Alcoa;
(d) take any action that would or would reasonably be expected to
prevent, impair or materially delay the ability of the Company or Alcoa to
consummate the transactions contemplated by this Agreement;
(e) change (i) its methods of accounting or accounting practices in any
material respect except as required by concurrent changes in GAAP or by law
or (ii) its fiscal year;
(f) enter into or acquire any new line of business that (i) is material
to Alcoa and its Subsidiaries, taken as a whole, and (ii) is not
strategically related to the current business or operations of Alcoa and
its Subsidiaries;
(g) incur indebtedness outside of the ordinary course or for
acquisitions unless, in the reasonable judgment of Alcoa, such incurrence
is not reasonably likely to result in the rating accorded Alcoa's senior
debt by Moody's Investor's Service and Standard & Poor's Rating Services to
be non-investment grade;
(h) engage in any (i) merger, consolidation, share exchange, business
combination, reorganization, recapitalization or other similar transaction
unless the shareholders of Alcoa prior to such transaction own, directly or
indirectly, a majority of the equity interests in the surviving or
resulting corporation, (ii) transaction as a result of which any third
party acquires, directly or indirectly, an equity interest representing
greater than 25% of the voting securities of Alcoa or any of its
Significant Subsidiaries or (iii) disposition, directly or indirectly, of
assets, securities or ownership interests representing 15% or more of the
total assets of Alcoa and its Subsidiaries taken as a whole;
(i) take any action that would make any representation or warranty of
Alcoa hereunder inaccurate in any material respect at the Effective Time;
or
(j) agree or commit to do any of the foregoing.
Section 5.3 Access; Confidentiality.
(a) Except for competitively sensitive information and subject to legal
and contractual restrictions, the Company shall (and shall cause each of
its Subsidiaries to) afford to the officers, employees, accountants,
counsel and other authorized representatives of Alcoa reasonable access
during normal business hours upon reasonable notice, throughout the period
prior to the earlier of the Effective Time or the Termination Date, to its
properties, offices, employees, contracts, commitments, books and records
(including but not limited to Tax Returns) and any report, schedule or
other document filed or received by it pursuant to the requirements of
federal or state securities laws and shall (and shall cause each of its
Subsidiaries to) furnish to Alcoa such additional financial and operating
data and other information as to its and its Subsidiaries' respective
businesses and properties as Alcoa may from time to time reasonably
request. Alcoa and Merger Sub will make all reasonable best efforts to
minimize any disruption to the businesses of the Company and its
Subsidiaries which may result from the requests for data and information
hereunder. Alcoa shall afford to the officers, employees, accountants,
counsel and other authorized representatives of the Company reasonable
access during normal business hours upon reasonable notice, to its officers
and accountants to the extent reasonably necessary in connection with the
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preparation of the Proxy Statement. No investigation pursuant to this
Section 5.3(a) shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the
parties hereto. All requests for access and information shall be
coordinated through senior executives of the parties to be designated.
(b) Alcoa will not, and will cause its officers, employees, accountants,
counsel and representatives not to, use any information obtained pursuant
to this Section 5.3 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Pending consummation of the
transactions herein contemplated, Alcoa will keep confidential, and will
cause its officers, employees, accountants, counsel and representatives to
keep confidential, all information and documents obtained pursuant to this
Section 5.3 unless such information (i) was already known to it, (ii)
becomes available to it from other sources not known by it to be bound by a
confidentiality obligation, (iii) is independently acquired by it as a
result of work carried out by any of its employees or representatives to
whom no disclosure of such information has been made, or (iv) is disclosed
with the prior written approval of the other party. Upon any termination of
this Agreement, Alcoa will, upon request, collect and deliver to the
Company all documents obtained by it or any of its officers, employees,
accountants, counsel and representatives then in their possession and any
copies thereof. Alcoa and its representatives shall not contact any
distributors, suppliers, employees or customers of the Company in
connection with or in discussion of the transactions contemplated hereby
without the Company's prior consent.
Section 5.4 Special Meeting; Proxy Statement; Registration Statement.
(a) As promptly as practicable following the date of this Agreement, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Special Meeting") for the purposes of
considering and taking action upon the approval of the Merger and the
approval and adoption of this Agreement;
(b) As promptly as practicable following the date of this Agreement, the
Company shall:
(i) prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and this Agreement and (x) obtain and
furnish the information required to be included by the SEC in the Proxy
Statement and, after consultation with Alcoa, respond promptly to any
comments made by the SEC with respect to the preliminary proxy or
information statement and cause a definitive proxy or information
statement, including any amendments or supplements thereto (the "Proxy
Statement") to be mailed to its stockholders at the earliest
practicable date after the Registration Statement is declared effective
by the SEC, provided that no amendments or supplements to the Proxy
Statement will be made by the Company without consultation with Alcoa
and its counsel, and (y) use its reasonable best efforts to obtain the
necessary approvals of the Merger and this Agreement by its
stockholders; and
(ii) unless this Agreement has been terminated in accordance with
Article VII and subject to fiduciary duties and Section 5.8(a), include
in the Proxy Statement the recommendation of the Board that
stockholders of the Company vote in favor of the approval of the Merger
and the approval and adoption of this Agreement.
Alcoa will cooperate with respect to the Company' efforts respecting the
foregoing and provide all appropriate information promptly.
(c) As promptly as practicable following the date of this Agreement,
Alcoa shall prepare and file with the SEC the Registration Statement, in
which the Proxy Statement shall be included as a prospectus, and shall use
its reasonable best efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable. Alcoa shall obtain and
furnish the information required to be included by the SEC in the
Registration Statement and, after consultation with the Company, respond
promptly to any comments made by the SEC with respect to the Registration
Statement and cause the prospectus included therein, including any
amendments or supplements thereto, to be mailed to the Company's
stockholders at
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the earliest practicable date after the Registration Statement is declared
effective by the SEC, provided that no amendments or supplements to the
Registration Statement will be made by Alcoa without consultation with the
Company and its counsel. Alcoa shall also take any action required to be
taken under state blue sky or other securities laws in connection with the
issuance of Alcoa Common Stock in the Merger. Alcoa shall take all action
necessary to cause the representations in Section 4.4 to be true and
correct at all applicable times with respect to the Registration Statement.
Section 5.5 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its best efforts to take, or cause to be taken,
all appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement as soon as practicable, including, but not limited to, (i)
cooperating in the preparation and filing of the Proxy Statement, the
Registration Statement, any required filings under the HSR Act or under any
foreign antitrust, competition or trade regulation law, regulation or
statute, and any amendments to any thereof, (ii) promptly making all
required regulatory filings and applications including, without limitation,
responding promptly to requests for further information, to obtain all
licenses, permits, consents, clearances, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with the Company and its subsidiaries as are necessary for the
consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Merger ("Governmental Consents"), (iii)
defending through litigation on the merits any antitrust, trade regulation
or competition claim asserted in any court by any Governmental Entity,
including, but not limited to, defending against any request for, or
seeking to have vacated or terminated, any decree, order or judgment that
would restrain, prevent or delay consummation of the Merger, and (iv)
divesting such plants, assets or businesses of Alcoa or the Company or any
of their respective Subsidiaries (including entering into customary
ancillary agreements on commercially reasonable terms relating to any such
divestiture of such assets or businesses) as may be required in order to
avoid the filing of a lawsuit by any Governmental Entity seeking to enjoin
the Merger, or the entry of, or to effect the dissolution of, any
injunction, temporary restraining order, or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying
the consummation of the Merger; provided, however, that Alcoa shall not be
required to take any actions in connection with, or agree to, any hold
separate order, sale, divestiture, or disposition of plants, assets and
businesses of Alcoa and its Subsidiaries or the Company and its
Subsidiaries that accounted in the aggregate for more than 2 % of the
combined sales of Alcoa and the Company in fiscal year 1998. At the request
of Alcoa, the Company shall agree to divest, hold separate or otherwise
take or commit to take any action that limits its freedom of action with
respect to, or its ability to retain, any of the businesses, product lines
or assets of the Company or any of its Subsidiaries, provided that any such
action shall be conditioned upon the consummation of the Merger.
(b) The Company and Alcoa shall keep the other apprised of the status of
matters relating to the completion of the transactions contemplated hereby
and work cooperatively in connection with obtaining Governmental Consents,
including, without limitation: (i) promptly notifying the other of, and if
in writing, furnishing the other with copies of (or, in the case of
material oral communications, advise the other orally of) any
communications from or with any Governmental Entity with respect to the
Merger or any of the other transactions contemplated by this Agreement,
(ii) permitting the other party to review and discuss in advance, and
considering in good faith the views of one another in connection with, any
proposed written (or any material proposed oral) communication with any
Governmental Entity, (iii) not participating in any meeting with any
Governmental Entity unless it consults with the other party in advance and
to the extent permitted by such Governmental Entity gives the other party
the opportunity to attend and participate thereat, (iv) furnishing the
other party with copies of all correspondence, filings and communications
(and memoranda setting forth the substance thereof) between it and any
Governmental Entity with respect to this Agreement and the Merger, and (v)
furnishing the other party with such necessary information and reasonable
assistance as such other party may reasonably request in connection with
its preparation of necessary filings or submissions of information to any
Governmental Entity. The
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Company and Alcoa may, as each deems advisable and necessary, reasonably
designate any competitively sensitive material provided to the other under
this Section as "outside counsel only." Such materials and the information
contained therein shall be given only to the outside legal counsel of the
recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient unless express permission is
obtained in advance from the source of the materials (the Company or Alcoa
as the case may be) or its legal counsel.
Section 5.6 Employee Stock Options and Other Employee Benefits.
(a) Simultaneously with the Merger, (i) each outstanding option (the
"Company Stock Options") to purchase or acquire a share of Company Common
Stock under employee incentive or benefit plans, programs or arrangements
and non-employee director plans presently maintained by the Company (the
"Company Option Plans") shall be converted into an option to purchase the
number of shares of Alcoa Common Stock equal to the product of (x) the
Exchange Ratio multiplied by (y) the number of shares of Company Common
Stock which could have been issued prior to the Effective Time upon the
exercise of such option, at an exercise price per share (rounded upward to
the nearest cent) equal to the exercise price for each share of Company
Common Stock subject to such option divided by the Exchange Ratio, and all
references in each such option to the Company shall be deemed to refer to
Alcoa, where appropriate, provided, however, that with respect to any
Option which is an "incentive stock option", within the meaning of Section
422 of the Code, the adjustments provided in this Section 5.6 shall, if
applicable, be modified in a manner so that the adjustments are consistent
with requirements of Section 424(a) of the Code, and (ii) Alcoa shall
assume the obligations of the Company under the Company Option Plans. The
other terms of each such option, and the plans under which they were
issued, shall continue to apply in accordance with their terms, including
any provisions providing for acceleration. At or prior to the Effective
Time, Alcoa shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Alcoa Common Stock for delivery
upon exercise of Company Stock Options assumed by it in accordance with
this Section 5.6. As soon as practicable after the Effective Time, if
necessary, Alcoa shall file a registration statement on Form S-8 (or any
successor or other appropriate forms), or another appropriate form with
respect to the Alcoa Common Stock subject to such Company Stock Options,
and shall use its best efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as the Company Stock Options
remain outstanding.
(b) For the period through and including December 31, 2001, Alcoa shall,
or shall cause the Surviving Corporation and its subsidiaries to, maintain
employee benefit plans, programs and arrangements for each individual who
was an employee or retiree of the Company or any Subsidiary immediately
prior to the Effective Time and is after the Effective Time an employee or
retiree of Alcoa, the Surviving Corporation, any Subsidiary or any other
affiliate of Alcoa, which are, in the aggregate, no less favorable than
those provided by the Company and its Subsidiaries as of immediately before
the Effective Time. Each person who is an employee or former employee of
the Company or its Subsidiaries immediately prior to the Effective Time (a
"Company Employee") shall be given credit for all service with the Company
(and service credited by the Company) prior to the Effective Time, using
the same methodology utilized by the Company as of immediately before the
Effective Time for crediting service and determining levels of benefits,
under (i) all employee benefit plans, programs and arrangements maintained
by or contributed to by Alcoa and its Subsidiaries (including, without
limitation, the Surviving Corporation) in which such Company Employees
become participants for purposes of eligibility to participate, vesting and
determination of level of benefits (excluding, however, benefit accrual
under any defined benefit plans), and (ii) severance plans for purposes of
calculating the amount of each Company Employee's severance benefits. Alcoa
and the Surviving Company shall (x) waive all limitations as to preexisting
conditions exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Company Employees under any welfare
benefit plans that such Company Employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that
are already in effect with respect to such employees and that have not been
satisfied as of the
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Effective Time under any welfare benefit plan maintained for the Company
Employees immediately prior to the Effective Time, and (y) provide each
Company Employee with credit for any co-payments and deductibles paid prior
to the Effective Time in satisfying any applicable deductible or out-of-
pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time. Without limiting the
generality of the foregoing: (i) Alcoa shall, and shall cause the Surviving
Corporation and its subsidiaries to, assume and honor the Company's
Severance Plan for Salaried Employees, all other Company Plans, all
employment, consulting, termination and severance agreements and all other
employee benefit plans, funds, programs, agreements and arrangements, in
each case in accordance with their terms; (ii) for the period through and
including December 31, 2001, Alcoa shall, or shall cause the Surviving
Corporation and its Subsidiaries to, maintain retiree medical benefits for
employees and former employees of the Company and its Subsidiaries that are
no less favorable than those provided immediately before the Effective
Time.
Section 5.7 Takeover Statute. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to the transactions contemplated hereby, each of the Company,
Alcoa and Merger Sub and the members of their respective Boards of Directors
shall grant such approvals and take such actions as are reasonably necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
Section 5.8 Solicitation by the Company.
(a) From and after the 30th day following the date of this Agreement,
neither the Company nor any of its Subsidiaries nor any of the officers and
directors of any of them shall, and the Company shall direct and use its
reasonable best efforts to cause its and its Subsidiaries' employees,
agents and representatives, including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries (the Company, its
Subsidiaries and their respective officers, directors, employees, agents
and representatives being the "Company Representatives") not to, directly
or indirectly, initiate, solicit or encourage any inquiries (by way of
furnishing information or otherwise) or the making of any proposal or offer
with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving it, or any purchase or sale of the consolidated
assets (including without limitation stock of Subsidiaries) of it or any of
its Subsidiaries, taken as a whole, having an aggregate value equal to 20%
or more of its market capitalization, or any purchase or sale of, or tender
or exchange offer for, 20% or more of its equity securities (any such
proposal or offer being referred to as an "Acquisition Proposal"). Neither
the Company nor any of its Subsidiaries nor any of their respective
officers and directors shall, and the Company shall direct and use its
reasonable best efforts to cause the Company Representatives not to,
directly or indirectly, have any discussion with or provide any
confidential information or data to any Person relating to or in
contemplation of an Acquisition Proposal or engage in any negotiations
concerning an Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent either the Company or its Board
of Directors from (A) taking any action, or causing the Company
Representatives to take any action, within the 30 days immediately
following the date of this Agreement with respect to any actual or
potential Acquisition Proposal, including directly or indirectly
initiating, soliciting, encouraging or facilitating (including by
furnishing information or otherwise) any Acquisition Proposal or entering
into discussions or negotiations with any Person with respect to any
Acquisition Proposal; (B) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal or changing its
recommendation; (C) engaging in any discussions or negotiations with or
providing any information to, any Person in response to an unsolicited bona
fide written Acquisition Proposal by any such Person; or (D) recommending
such an unsolicited bona fide written Acquisition Proposal to the
shareholders of the Company; provided further that the actions referred to
in clause (C) shall be permissible only if and to the extent that the Board
of Directors of the Company concludes in good faith (after consultation
with its outside legal counsel and its financial advisor) that such
Acquisition Proposal is reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the proposal,
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including the Person making the proposal, and would, if consummated, result
in a transaction more favorable to the Company's shareholders than the
transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal").
(b) Following the 30th day after the date of this Agreement, the Company
shall immediately cease and terminate any existing activities, discussions
or negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. The Company shall take the necessary steps promptly
to inform each Company Representative of the obligations undertaken in
Section 5.7(a). Following the 30th day after the date of this Agreement,
the Company shall notify Alcoa promptly (in any event, within 24 hours) if
any such inquiries, proposals or offers are received by, any such
information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, any Company Representative
indicating, in connection with such notice, the name of such Person making
such inquiry, proposal, offer or request and the substance of any such
inquiries, proposals or offers. The Company thereafter shall keep Alcoa
informed, on a reasonably current basis, of the status and terms of any
such inquiries, proposals or offers and the status of any such inquiries,
proposals or offers and the status of any such discussions or negotiations.
On the 30th day after the date of this Agreement, the Company will promptly
request each Person that has theretofore executed a confidentiality
agreement in connection with its consideration of any Acquisition Proposal
to return or destroy all confidential information theretofore furnished to
such Person by or on behalf of the Company or any of its Subsidiaries.
(c) At the meeting of the Company's Board of Directors at which this
Agreement was considered, authorized and approved, held August 18, 1999,
the Board of Directors of the Company unanimously by all members present
declared it advisable that the Company's stockholders approve this
Agreement. Notwithstanding any subsequent determination by the Board of
Directors of the Company to change such recommendation, unless it has been
terminated in accordance with Section 7.1, this Agreement shall be
submitted to the stockholders of the Company at the Special Meeting for the
purpose of obtaining the Company Stockholder Approval and nothing herein
shall be deemed to relieve the Company of such obligation.
Section 5.9 Public Announcements. Alcoa and the Company agree that neither
one of them will issue any press release or otherwise make any public statement
or respond to any press inquiry with respect to this Agreement or the
transactions contemplated hereby without the prior approval of the other party
(which approval will not be unreasonably withheld), except as may be required
by applicable law or the rules of the NYSE.
Section 5.10 Indemnification; Insurance. (a) From and after the Effective
Time, Alcoa will indemnify and hold harmless each present and former
director and officer of the Company and its Subsidiaries (the "Indemnified
Parties"), against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior
to the Effective Time, to the same extent that such Indemnified Party is
currently indemnified by the Company or such Subsidiary under the
certificate or articles of incorporation or by-laws or other organizational
documents, agreements or policies of the Company or such Subsidiary in
effect on the date hereof.
(b) For six years from the Effective Time, Alcoa shall maintain in
effect the Company's current directors' and officers' liability insurance
policy (the "Company Policy") covering those persons who are currently
covered by the Company Policy; provided, however, that in no event shall
Alcoa be required to expend in any one year an amount in excess of the
annual premiums currently paid by the Company for such insurance, and,
provided, further, that if the annual premiums of such insurance coverage
exceeds such amount, Alcoa shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount; and
provided, further, that Alcoa may meet its obligations under this paragraph
by covering the above persons under Alcoa's insurance policy or policies on
the terms described above.
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Section 5.11 Additional Reports and Information.
(a) The Company shall furnish to Alcoa copies of all reports of the type
referred to in Section 3.4 which it files with the SEC on or after the date
hereof, and the Company represents and warrants that as of the respective
dates thereof, such reports will not contain any 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. The audited
consolidated financial statements and the unaudited consolidated interim
financial statements included in such reports (including any related notes
and schedules) will fairly present the financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the results
of operations and cash flows or other information included therein for the
periods or as of the date then ended (subject, in the case of the interim
financial statements, to normal, recurring year-end adjustments), in each
case in accordance with GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
(b) Alcoa shall furnish to the Company copies of all reports of the type
referred to in Section 4.4 which it files with the SEC on or after the date
hereof, and Alcoa represents and warrants that as of the respective dates
thereof, such reports will not contain any 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. The audited consolidated
financial statements and the unaudited consolidated interim financial
statements included in such reports (including any related notes and
schedules) will fairly present the financial position of Alcoa and its
consolidated Subsidiaries as of the dates thereof and the results of
operations and cash flows or other information included therein for the
periods or as of the date then ended (subject, in the case of the interim
financial statements, to normal, recurring year-end adjustments), in each
case in accordance with past practice and GAAP consistently applied during
the periods involved (except as otherwise disclosed in the notes thereto).
Section 5.12 Affiliates. At the time the Proxy Statement is mailed to
stockholders of the Company, the Company shall deliver to Alcoa a list
identifying, to the best of the Company's knowledge, all persons who will be,
at the time of the Company Stockholder Approval, deemed to be "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company
shall advise Alcoa of any additions or deletions to or from such list from time
to time thereafter. The Company shall use its reasonable best efforts to cause
each such person to deliver to Alcoa at least 30 days prior to the Closing Date
a written "affiliates" agreement in customary form and substance.
Section 5.13 NYSE Listing. Alcoa shall use its best efforts to cause the
shares of Alcoa Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
Section 5.14 Tax-Free Reorganization. Alcoa and the Company intend that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code. Alcoa and the Company shall each use all reasonable efforts to cause
the Merger to so qualify. The parties agree and acknowledge that if (i) Alcoa
has, not later than three days prior to the Effective Time, provided written
notice to the Company of its intention to merge the Surviving Corporation with
and into Alcoa with Alcoa surviving the merger (the "Upstream Merger") and (ii)
the Company consents to the Upstream Merger, which consent shall not be
unreasonably withheld, then the Upstream Merger shall occur immediately
following the Effective Time. Neither Alcoa nor the Company shall knowingly
take any action, or knowingly fail to take any action, that would cause the
Merger or the Upstream Merger (if the Upstream Merger occurs) not to qualify as
a reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required pursuant to a "determination" within the meaning of Section
1313(a) of the Code. No representation or warranty is made as to any filings,
notices or consents which may be necessary in connection with the Upstream
Merger, and the failure to obtain any such consents shall not affect the
conditions to the Closing or constitute a basis for delay with respect to the
Closing.
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ARTICLE VI
Conditions to the Merger
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The Company Stockholder Approval shall have been obtained.
(b) No statute, rule, regulation, executive order, decree, ruling or
permanent injunction shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits the consummation of the
Merger substantially on the terms contemplated hereby; provided that the
party seeking to rely upon this condition has fully complied with and
performed its obligations pursuant to Section 5.3.
(c) The applicable waiting period under the HSR Act shall have expired
or been terminated.
(d) The shares of Alcoa Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
(e) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and no stop order suspending such
effectiveness shall have been issued and remain in effect.
Section 6.2 Conditions to Obligation of Alcoa and Merger Sub to Effect the
Merger. The obligation of Alcoa and Merger Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by Alcoa:
(a) Alcoa shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, tax counsel to Alcoa, dated as of the Effective Time,
to the effect that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code. The issuance of such opinion shall
be conditioned upon the receipt by such tax counsel of customary
representation letters from each of Alcoa, Merger Sub and the Company, in
each case, in form and substance reasonably satisfactory to such tax
counsel. Each such representation letter shall be dated on or before the
date of such opinion and shall not have been withdrawn or modified in any
material respect. The opinion condition referred to in this Section 6.2(a)
shall not be waivable after receipt of the Company Stockholder Approval
referred to in Section 6.1(a), unless further stockholder approval is
obtained with appropriate disclosure.
(b) The representations and warranties of the Company set forth in this
Agreement shall be true and correct, ignoring for this purpose any
qualification as to materiality or Material Adverse Effect, as if such
representations or warranties were made as of the Effective Time (other
than those that speak as of a specific date or as of the date hereof, which
shall be true and correct as of such specific date or as of the date
hereof, respectively), except for such inaccuracies as, individually or in
the aggregate, would not have a Material Adverse Effect on the Company.
(c) The Company shall have performed and complied in all material
respects with all agreements, obligations and conditions required by this
Agreement to be performed and complied with by it on or prior to the
Closing Date.
(d) The Company shall have furnished a certificate of an officer to
evidence compliance with the conditions set forth in Section 6.2(b) and (c)
of this Agreement.
Section 6.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Company:
(a) The Company shall have received an opinion of Wachtell, Lipton,
Rosen & Katz, tax counsel to the Company, dated as of the Effective Time,
to the effect that the Merger will qualify as a reorganization
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within the meaning of Section 368(a) of the Code. The issuance of such
opinion shall be conditioned upon the receipt by such tax counsel of
customary representation letters from each of Alcoa, Merger Sub and the
Company, in each case, in form and substance reasonably satisfactory to
such tax counsel. Each such representation letter shall be dated on or
before the date of such opinion and shall not have been withdrawn or
modified in any material respect. The opinion condition referred to in this
Section 6.3(a) shall not be waivable after receipt of the Company
Stockholder Approval referred to in Section 6.1(a), unless further
stockholder approval is obtained with appropriate disclosure.
(b) The representations and warranties of Alcoa and Merger Sub set forth
in this Agreement shall be true and correct, ignoring for this purpose any
qualification as to materiality or Material Adverse Effect, as if such
representations or warranties were made as of the Effective Time (other
than those that speak as of a specific date or as of the date hereof, which
shall be true and correct as of such specific date or as of the date
hereof, respectively), except for such inaccuracies as, individually or in
the aggregate, would not have a Material Adverse Effect on Alcoa.
(c) Alcoa and Merger Sub shall have performed and complied in all
material respects with all agreements, obligations and conditions required
by this Agreement to be performed and complied with by them on or prior to
the Closing Date.
(d) Alcoa and Merger Sub shall have furnished a certificate of their
respective officers to evidence compliance with the conditions set forth in
Section 6.3(b) and (c) of this Agreement.
ARTICLE VII
Termination
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after obtaining the Company
Stockholder Approval:
(a) by the mutual written consent of the Company and Alcoa;
(b) by either Alcoa or the Company, if the Merger has not been
consummated by August 30, 2000, provided that such date shall automatically
be extended until February 28, 2001 if, on August 30, 2000, the waiting
period under the HSR Act has not expired or been terminated or any
injunction, order or decree shall prohibit or restrain consummation of the
Merger and provided further that the right to terminate this Agreement
under this clause (b) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of
or resulted in the failure to consummate the Merger by such date;
(c) by either Alcoa or the Company if (i) a statute, rule, regulation or
executive order shall have been enacted, entered, promulgated or enforced
by any Governmental Entity prohibiting the consummation of the Merger
substantially on the terms contemplated hereby; or (ii) an order, decree,
ruling or injunction shall have been entered permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger
substantially on the terms contemplated hereby and such order, decree,
ruling or injunction shall have become final and non-appealable; provided,
that the party seeking to terminate this Agreement pursuant to this Section
7.1(c)(ii) shall have used its reasonable best efforts to remove such
order, decree, ruling or injunction and shall not be in violation of
Section 5.5;
(d) by the Company, if the Board of Directors of the Company has
provided written notice to Alcoa that the Company intends to enter into a
binding written agreement for a Superior Proposal; provided, however, that:
(i) the Company shall have complied with Section 5.8 hereof in all material
respects; (ii) the Board of Directors of the Company shall have reasonably
concluded in good faith, prior to giving effect to any offer which may be
made to the Company by Alcoa pursuant to clause (iv) below, in
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consultation with its financial advisors and outside counsel, that such
proposal is a Superior Proposal; (iii) the Company shall have (A) notified
Alcoa in writing of its receipt of such Superior Proposal, (B) further
notified Alcoa in such writing that the Company intends to enter into a
binding agreement with respect to such Superior Proposal subject to clause
(iv) below and (C) attached the most current written version of such
Superior Proposal (or a summary containing all material terms and
conditions of such Superior Proposal) to such notice; and (iv) Alcoa does
not make, within three calendar days after receipt of the Company's written
notice pursuant to clause (iii) above, an offer that the Board of Directors
of the Company shall have reasonably concluded in good faith in
consultation with its financial advisors and outside counsel is more
favorable to the shareholders of the Company than the Superior Proposal; or
(e) by Alcoa or the Company, if after the Company convenes and holds the
Special Meeting and certifies the vote with respect to the Merger the
Company's stockholders have voted against granting the Company Stockholder
Approval.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall terminate and be of no
further force and effect (except for the provisions of Sections 5.3, 7.3 and
8.2), and there shall be no other liability on the part of Alcoa, Merger Sub or
the Company except liability arising out of a willful breach of this Agreement.
Section 7.3 Termination Fee. In the event that (i) this Agreement shall have
been terminated pursuant to Section 7.1(d) or (ii) an Acquisition Proposal for
the Company shall have been publicly announced and, following such
announcement, this agreement is terminated pursuant to Section 7.1(e) and,
within 12 months of such termination, such Acquisition Proposal is consummated,
then the Company shall promptly, but in no event later than two days after the
date of such termination, pay to Alcoa a fee equal to $100 million (the
"Termination Fee"), payable by wire transfer of same day funds. The Company
acknowledges that the agreements contained in this Section 7.3 are an integral
part of the transactions contemplated by this Agreement, and that, without
these agreements, Alcoa and Merger Sub would not enter into this Agreement;
accordingly, if the Company fails promptly to pay the amount due pursuant to
this Section 7.3, and, in order to obtain such payment, Alcoa commences a suit
which results in a judgment against the Company for the fee set forth in this
Section 7.3, the Company shall pay to Alcoa its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
ARTICLE VIII
Miscellaneous
Section 8.1 No Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
Section 8.2 Expenses. Except as otherwise expressly contemplated by this
Agreement, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
Section 8.3 Counterparts; Effectiveness. This Agreement may be executed in
two or more separate counterparts, each of which shall be deemed to be an
original but all of which shall constitute one and the same agreement. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by each of the other parties hereto.
Section 8.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
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Section 8.5 Notices. All notices and other communications hereunder shall be
in writing (including telecopy or similar writing) and shall be effective (a)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 8.5 and the appropriate telecopy confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section 8.5:
To Alcoa or Merger Sub:
Alcoa Inc.
201 Isabella Street
Pittsburgh, Pennsylvania 15212-5858
Attention: Lawrence R. Purtell, Esq.
Telecopy: (412) 553-3200
copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Margaret L. Wolff, Esq.
Telecopy: (212) 735-2000
To the Company:
Reynolds Metals Company
6601 West Broad Street
P.O. Box 27003
Richmond, Virginia 23261-7003
Attention: Corporate Secretary
Telecopy: (804) 281-3740
copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Telecopy: (212) 403-2000
Section 8.6 Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Merger Sub may assign, in its
sole discretion, all or any of its rights and interests hereunder to Alcoa or
to any direct or indirect wholly owned Subsidiary of Alcoa. Alcoa hereby
unconditionally guarantees all obligations hereunder of Merger Sub or any of
its permitted assignees. Subject to the first sentence of this Section 8.6,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Any
assignment not permitted under this Section 8.6 shall be null and void.
Section 8.7 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
Section 8.8 Enforcement of Agreement. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this
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Agreement by them and that in addition to all other remedies available to them,
each of them shall be entitled to the fullest extent permitted by law to an
injunction restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including, without
limitation, specific performance, without bond or other security being
required.
Section 8.9 Entire Agreement; No Third-Party Beneficiaries. This Agreement
together with the Disclosure Schedule and exhibits hereto constitute the entire
agreement, and supersede 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 thereof and except for the provisions of Section 5.9
hereof, is not intended to and shall not confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 8.10 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 8.11 Definitions. References in this Agreement to (a) "Subsidiaries"
of the Company or Alcoa shall mean any corporation or other form of legal
entity of which more than 50% of the outstanding voting securities are on the
date hereof directly or indirectly owned by the Company or Alcoa or in which
the Company or Alcoa has the right to elect a majority of the members of the
board of directors or other similar governing body; (b) "Significant
Subsidiaries" shall mean Subsidiaries which constitute "significant
subsidiaries" under Rule 405 promulgated by the SEC under the Securities Act;
(c) "affiliates" shall mean, as to any Person, any other Person which, directly
or indirectly, controls, or is controlled by, or is under common control with,
such Person; and (d) "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or organization,
including, without limitation, a Governmental Entity. As used in the definition
of "affiliates," "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a Person, whether through the ownership of securities
or partnership or other ownership interests, by contract or otherwise.
"Including," as used herein, shall mean "including, without limitation."
Section 8.12 Finders or Brokers. Except for Merrill Lynch & Co. and Goldman,
Sachs & Co. with respect to the Company, and Credit Suisse First Boston
Corporation with respect to Alcoa, neither the Company nor Alcoa nor any of
their respective Subsidiaries has employed any investment banker, broker,
finder or intermediary in connection with the transactions contemplated hereby
who might be entitled to any fee or any commission in connection with or upon
consummation of the Merger.
Section 8.13 Amendment or Supplement. At any time prior to the Effective
Time, this Agreement may be amended or supplemented in any and all respects,
whether before or after the Company Stockholder Approval, by written agreement
of the parties hereto, by action taken by their respective Boards of Directors,
with respect to any of the terms contained in this Agreement; provided, however
that following the Company Stockholder Approval there shall be no amendment or
change to the provisions hereof which would reduce the amount or change the
type of consideration into which each Share shall be converted upon
consummation of the Merger or other change requiring stockholder approval
without further approval by the stockholders of the Company.
Section 8.14 Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, any party may (a) extend the time for the performance of any of
the obligations or acts of any other party hereto; (b) waive any inaccuracies
in the representations and warranties of any other party hereto contained
herein or in any document delivered pursuant hereto; or (c) subject to the
proviso of Section 8.13 waive compliance with any of the agreements or
conditions of any other party hereto contained herein. Notwithstanding the
foregoing no failure or delay by the Company, Alcoa or Merger Sub in exercising
any right hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right hereunder. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
ALCOA INC.
/s/ Alain J.P. Belda
By: _________________________________
Name: Alain J.P. Belda
Title:President and
Chief Executive Officer
RLM ACQUISITION CORP.
/s/ Richard B. Kelson
By: _________________________________
Name: Richard B. Kelson
Title:Executive Vice President
and Treasurer
REYNOLDS METALS COMPANY
/s/ Jeremiah J. Sheehan
By: _________________________________
Name: Jeremiah J. Sheehan
Title:Chairman of the Board
and Chief Executive Officer
A-31
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Annex B
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
August 18, 1999
Board of Directors
Reynolds Metals Company
6601 West Broad Street.
Richmond, Virginia 23261-7003
Members of the Board of Directors:
Reynolds Metals Company (the "Company"), Alcoa Inc. (the "Acquiror") and RLM
Acquisition Corp., a wholly owned subsidiary of the Acquiror (the "Acquisition
Sub"), have entered into an Agreement and Plan of Merger, dated as of August
18, 1999 (the "Agreement"), pursuant to which the Acquisition Sub will be
merged with the Company in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, no par value (the "Company
Shares"), will be converted into the right to receive 1.06 shares (the
"Exchange Ratio") of the common stock of the Acquiror, par value $1.00 per
share (the "Acquiror Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view to the holders of the Company Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company, as well as the amount and timing of the cost savings
and related expenses and synergies expected to result from the Merger
furnished to us by the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in
clauses 1 and 2 above, as well as its business and prospects before and
after giving effect to the Merger and the amount and timing of the cost
savings and related expenses and synergies expected to result from the
Merger, and conducted discussions with members of senior management and
representatives of the Acquiror concerning the matters described in
clause 1 above relating to the Acquiror, as well as its business and
prospects before and after giving effect to the Merger (in the case of
the future prospects of the Acquiror, we were informed by the Acquiror
that we could rely on public analysts consensus estimates of the
Acquirors future earnings as the most reasonable estimates for purposes
of this opinion);
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
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<PAGE>
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. As you are aware, the Acquiror did not make available to us
its projections of expected future performance. With respect to the financial
forecast information and the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger furnished to or
discussed with us 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 and the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger. We have
further assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. We have, in the past, provided financial
advisory and financing services to the Company and financing services to the
Acquiror and may continue to do so and have received, and may receive, fees for
the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the Company Shares and other securities of the
Company, as well as the Acquiror Shares and other securities of the Acquiror,
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger
or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Company Shares or the Acquiror Shares will trade following the announcement or
consummation of the Merger, as the case may be.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated
B-2
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Annex C
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
PERSONAL AND CONFIDENTIAL
August 18, 1999
Board of Directors
Reynolds Metals Company
6601 W. Broad St.
Richmond, VA 23261
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, no par value
(the "Shares"), of Reynolds Metals Company (the "Company") of the exchange
ratio of 1.06 shares of Common Stock, par value $1.00 per share ("Buyer Common
Stock"), of Alcoa Inc. ("Buyer") to be received for each Share (the "Exchange
Ratio") pursuant to the Agreement and Plan of Merger, dated as of August 18,
1999, among Buyer, RLM Acquisition Corp. and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. We also have provided certain investment banking services to
Buyer from time to time, including having acted as a co-managing underwriter of
the public offering in January 1998 of $300 million principal amount of Buyers
6.75% Bonds due 2028, and may provide investment banking services to Buyer in
the future. Goldman, Sachs & Co. provides a full range of financial advisory
and securities services and, in the course of its normal trading activities,
may from time to time effect transactions and hold securities, including
derivative securities, of the Company or Buyer for its own account and for the
accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1998; Annual Reports to
Shareholders and Annual Reports on Form 10-K of Buyer for the five years ended
December 31, 1998; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company; certain interim reports to shareholders
and Quarterly Reports on Form 10-Q of Buyer; certain other communications from
the Company to its stockholders and Buyer to its shareholders; certain internal
financial analyses and forecasts for the Company prepared by its management;
and certain cost savings and operating synergies projected by the managements
of the Company and Buyer to result from the transaction contemplated by the
Agreement. We also have held discussions with members of the senior management
of the Company and Buyer regarding the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Shares and the Buyer Common Stock, compared
certain financial and stock market information for the Company and Buyer with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the aluminum and packaging industries specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
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We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. As you are aware, Buyer
did not make available to us its projections of expected future performance.
Accordingly, our review of such information for purposes of rendering our
opinion was limited to discussions with management of Buyer of certain research
analysts estimates of Buyer. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or Buyer
or any of their subsidiaries and we have not been furnished with any such
evaluation or appraisal. We were not requested to solicit, and did not solicit,
interest from other parties with respect to an acquisition of or other business
combination with the Company. We have assumed that all material governmental,
regulatory or other consents and approvals necessary for the consummation of
the transaction contemplated by the Agreement will be obtained without any
adverse effect on the Company or Buyer or on the contemplated benefits of the
transaction contemplated by the Agreement. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute
a recommendation as to how any holder of Shares should vote with respect to
such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Shares.
Very truly yours,
C-2
<PAGE>
PART II -- Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Article V of the Bylaws of Alcoa provides that Alcoa shall indemnify, under
specified circumstances, persons who were or are directors, officers or
employees of Alcoa or who served or serve other business entities at the
request of Alcoa. Under these Bylaw provisions, a person who is wholly
successful in defending a claim will be indemnified for any reasonable
expenses. To the extent a person is not successful in defending a claim,
reasonable expenses of the defense and any liability incurred are to be
indemnified under these provisions only where independent legal counsel or
other disinterested person selected by the Board of Directors determined that
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 Alcoa, and in addition with
respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct of such person was unlawful. Any expense incurred with
respect to any claim may be advanced by Alcoa if the recipient agrees to repay
such amount if it is ultimately determined that such recipient is not to be
indemnified pursuant to Article V.
The foregoing Bylaw provisions generally parallel Section 1741 and 1745 of
the Pennsylvania Business Corporation Law ("PBCL"). Section 1746 and the Bylaws
both also provide that the indemnification provided for shall not be deemed
exclusive of any other rights to which those seeking indemnification may
otherwise be entitled.
Section 1746 of the PBCL and the Bylaws provide for increased
indemnification protections for directors, officers and others. Indemnification
may be provided by Pennsylvania corporations in any case except where the act
or failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness.
Section 1713 of the PBCL also sets forth a framework whereby Pennsylvania
corporations, with the approval of the shareholders, may limit the personal
liability of directors for monetary damages except where the director has
breached or failed to perform his or her duties and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. The
section does not apply to a director's responsibility or liability under a
criminal or tax statute and may not apply to liability under Federal statutes,
such as the Federal securities laws.
Alcoa's Articles and Bylaws were amended by the shareholders to implement
the increased protections made available under the PBCL as described in the
preceding paragraph. Article VIII of the Bylaws provides that, except as
prohibited by law, every director of Alcoa shall be entitled as of right to be
indemnified by Alcoa for expenses and any and all liability paid or incurred by
such person by reason of such person being or having been a director of Alcoa.
Expenses incurred with respect to any claim may be advanced by Alcoa, subject
to certain exceptions. The shareholders have also approved a form of indemnity
agreement. Alcoa has entered into such an indemnity agreement with each of its
current directors.
Alcoa has purchased a three-year insurance policy with an aggregate limit of
$100 million, with certain specified deductible amounts. The policy provides
coverage for various executive and corporate risks, including liability of
directors and officers. The policy has an expiration date of October 1, 2000
and provides liability insurance and reimbursement coverage for Alcoa, and its
directors and officers, which is permitted by Section 1747 of the PBCL.
The Alcoa Articles provide that except as prohibited by law, Alcoa may
indemnify any person who is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, any employee
benefit plan) and may take such steps as may be deemed appropriate by the Board
of Directors, including purchasing and maintaining insurance, entering into
contracts (including, without limitation, contracts of indemnification between
the corporation and its directors and officers), creating a trust fund,
granting security interests or using other means (including, without
II-1
<PAGE>
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect such indemnification. Alcoa's Bylaws provide for
indemnification of such persons to the fullest extent permitted by law.
The Alcoa Articles also provide that to the fullest extent that the laws of
the Commonwealth of Pennsylvania permit elimination or limitation of the
liability of directors, no director of the corporation shall be personally
liable for monetary damages for any action taken, or any failure to take any
action.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
See Exhibit Index.
(b) Financial Statement Schedules.
None.
(c) Item 4(b) Information.
The opinions of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Goldman, Sachs & Co. are attached as Annexes B and C, respectively, to the
proxy statement and prospectus.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder, through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act of
II-2
<PAGE>
1933, the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to the paragraph immediately preceding, 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.
(d) 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 foregoing provisions, 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes 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 Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
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.
(g) The undersigned registrant hereby undertakes 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth
of Pennsylvania, on December 30, 1999.
ALCOA INC.
By: /s/ Richard B. Kelson
___________________________________
Name: Richard B. Kelson
Title: Executive Vice President
and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 30, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Alain J.P. Belda President and Chief Executive
_____________________________________________ Officer
Alain J.P. Belda (Principal Executive Officer
and Director)
/s/ Richard B. Kelson Executive Vice President and
_____________________________________________ Chief Financial Officer
Richard B. Kelson (Principal Financial Officer)
/s/ Timothy S. Mock Vice President and Controller
_____________________________________________ (Principal Accounting Officer)
Timothy S. Mock
</TABLE>
Kenneth W. Dam, Joseph T. Gorman, Judith M. Gueron, Sir Ronald Hampel, Hugh
M. Morgan, John P. Mulroney, Paul H. O'Neill, Henry B. Schacht, Franklin A.
Thomas and Marina v.N. Whitman, each as a director, on December 30, 1999, by
Denis A. Demblowski, their attorney-in-fact*
*By: /s/ Denis A. Demblowski
___________________________________
Denis A. Demblowski
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 18, 1999, among
Alcoa Inc., RLM Acquisition Corp. and Reynolds Metals Company,
included as Annex A to the Proxy Statement and Prospectus which is
part of this Registration Statement.
4.1 The Articles of Incorporation of Alcoa (Incorporated by reference
to Exhibit 3(a) to Alcoa's Annual Report on Form 10-K for the year
ended December 31, 1998).
4.2 The Bylaws of Alcoa (Incorporated by reference to Exhibit 3(b) to
Alcoa's Annual Report on Form 10-K for the year ended December 31,
1998).
Opinion of Denis A. Demblowski, Esq., as to the legality of the
5.1 securities being registered.
Consent of Denis A. Demblowski, Esq. (included in Exhibit 5.1
23.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Awareness letter of PricewaterhouseCoopers LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.6 Consent of Goldman, Sachs & Co.
24.1 Powers of Attorney of certain officers and directors of Alcoa.
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ALCOA INC.]
December 30, 1999
Board of Directors
Alcoa Inc.
201 Isabella Street
Pittsburgh, PA 15212
Re: Alcoa Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I am Secretary and Senior Counsel of Alcoa Inc., a Pennsylvania corporation
(the "Company"), and have acted as such in connection with the proposed
transactions described in the prospectus/proxy statement (the "Proxy
Statement/Prospectus") forming a part of the Company's Registration Statement
on Form S-4, including the exhibits thereto (the "Registration Statement"),
filed with the Securities and Exchange Commission (the "Commission") on
December 30, 1999 under the Securities Act of 1933, as amended (the "Act"),
relating to the issuance of shares of common stock, par value $1.00 per share,
of the Company (the "Common Stock") in connection with the proposed merger of
Reynolds Metals Company, a Delaware corporation ("Reynolds"), with and into RLM
Acquisition Corp. ("RLM"), a Delaware corporation and a wholly-owned subsidiary
of the Company, upon the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of August 18, 1999, among the Company,
RLM and Reynolds (the "Merger Agreement").
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K promulgated under the Act.
In connection with this opinion, I have examined (i) the Registration
Statement, (ii) the Merger Agreement, (iii) the Articles of Incorporation and
the By-Laws of the Company, in each case as amended to the date hereof, (iv)
certain resolutions of the Board of Directors of the Company relating to, among
other things, the approval of the transactions contemplated by the Merger
Agreement, and (v) such other documents as I deemed necessary or appropriate as
a basis for the opinion set forth below.
In my examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than the Company, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof on such
parties.
I am admitted to the bar of the Commonwealth of Pennsylvania and I express
no opinion as to the laws of any other jurisdiction.
Based upon the foregoing and subject to the foregoing I am of the opinion
that the Common Stock, when issued in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid and nonassessable.
<PAGE>
In rendering the foregoing opinion, I have assumed that (i) the Merger and
the other transactions contemplated by the Merger Agreement will be consummated
in accordance with the terms of the Merger Agreement, including being approved
and adopted by the requisite vote of the Reynolds stockholders, (ii) the Common
Stock will conform in all material respects to the descriptions thereof set
forth in the Proxy Statement/Prospectus and (iii) the certificates representing
the Common Stock will be duly executed and delivered.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name in the Registration Statement
under the caption "Legal Matters." In giving such consent, I do not hereby
admit that I come into the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ Denis A. Demblowski
Denis A. Demblowski
Secretary and Senior Counsel
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus forming part of the Registration Statement on Form S-4, of
Alcoa Inc. under the Securities Act of 1933, of our reports dated January 8,
1999, on our audits of the consolidated financial statements and financial
statement schedule of Alcoa Inc. and consolidated subsidiaries as of December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, which reports are incorporated by reference or included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. We also consent to the reference to our firm under the caption
"Independent Accountants."
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
December 30, 1999
<PAGE>
Exhibit 23.3
December 30, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Alcoa Inc.
We are aware that our reports dated April 7, July 7, and October 8, 1999,
accompanying interim financial information of Alcoa Inc.and subsidiaries for
the three-month, six-month and nine-month periods ended March 31 1999 and 1998,
June 30, 1999 and 1998 and September 30, 1999 and 1998, respectively, and
included in Alcoa's Quarterly Reports on Form 10-Q for the quarters then ended,
are incorporated by reference in this registration statement dated December 30,
1999. Pursuant to Rule 436(c) under the Securities Act of 1933, these reports
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.
Very truly yours,
PricewaterhouseCoopers LLP
<PAGE>
Exhibit 23.4
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Independent
Accountants" in the related proxy statement and prospectus forming part of the
Registration Statement (Form S-4) of Alcoa, Inc., and to the incorporation by
reference therein of our report dated February 19, 1999, with respect to the
consolidated financial statements and schedule of Reynolds Metals Company
included in its Annual Report (Form 10-K as amended) for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Richmond, Virginia
December 29, 1999
<PAGE>
EX23.5
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated August 18, 1999 to
the Board of Directors of Reynolds Metals Company included as Annex B to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 of Alcoa Inc. relating to the proposed merger of Reynolds Metal
Company with a wholly-owned subsidiary of Alcoa Inc., and to the references to
such opinion in such Proxy Statement/Prospectus under the caption "THE MERGER".
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:/s/ Stephan C. Month
Name: Stephan C. Month
Title: Managing Director, Investment
Banking
New York, New York
December 30, 1999
<PAGE>
EX23.6
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
PERSONAL AND CONFIDENTIAL
December 30, 1999
Board of Directors
Reynolds Metals Company
6601 W. Broad Street
Richmond, VA 23261
Re: Initially filed Registration Statement on Form S-4 of
Alcoa Inc. relating to the below-referenced Agreement and Plan of Merger
Ladies and Gentlemen:
Reference is made to our opinion letter dated August 18, 1999 with respect
to the fairness from a financial point of view to the holders of the
outstanding shares of Common Stock, no par value (the "Shares"), of Reynolds
Metals Company (the "Company") of the exchange ratio of 1.06 shares of Common
Stock, par value $1.00 per share, of Alcoa Inc. ("Buyer") to be received for
each Share pursuant to the Agreement and Plan of Merger, dated as of August 18,
1999, among Buyer, RLM Acquisition Corp. and the Company.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration
of the transaction contemplated therein and is not to be used, circulated,
quoted or otherwise referred to for any other purpose, nor is it to be filed
with, included in or referred to in whole or in part in any registration
statement, proxy statement or any other document, except in accordance with our
prior written consent. We understand that the Company has determined to include
our opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "SUMMARY--Opinions of Financial Advisors," "THE MERGER
- -- Background of the Merger," "THE MERGER -- Reasons for the Merger and
Recommendations of the Reynolds Board--Opinions of Financial Advisors," and
"THE MERGER -- Opinion of Reynolds' Financial Advisors -- Opinion of Goldman
Sachs" and to the inclusion of the foregoing opinion in the Proxy Statement and
Prospectus included in the above-mentioned Registration Statement.
Notwithstanding the foregoing, it is understood that our consent is being
delivered solely in connection with the filing of the above-mentioned version
of the Registration Statement and that our opinion is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it to
be filed with, included in or referred to in whole or in part in any
registration statement (including any subsequent amendments to the above-
mentioned Registration Statement), proxy statement or any other document,
except in accordance with our prior written consent. In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
(Goldman, Sachs & Co.)
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned Executive Vice
President and Chief Financial Officer of Alcoa Inc. (the "Company") hereby
constitutes and appoints TIMOTHY S. MOCK and DENIS A. DEMBLOWSKI, or any of
them, his true and lawful attorneys and agents to do any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or any of them, may deem necessary or advisable or may be required to enable
the Company to comply with the Securities Act of 1933, as amended, and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the registration under said Act of shares
of common stock, par value $1.00 per share, of the Company to be issued upon
conversion of the outstanding shares of the common stock, no par value per
share, of Reynolds Metals Company, and including specifically, but without
limiting the generality of the foregoing, power and authority to sign the name
of the undersigned in the capacity of Principal Financial Officer of the
Company to any registration statement to be filed with the Securities and
Exchange Commission in respect of said securities, to any and all pre-effective
amendments, post-effective amendments and supplements to any such registration
statement, and to any instruments or documents filed as part of or in
connection with any such registration statement or pre-effective amendments or
post-effective amendments or supplements thereto; and the undersigned hereby
ratifies and confirms all that said attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on the
date set opposite the name below.
/s/ Richard B. Kelson October 1, 1999
_____________________________
Richard B. Kelson
Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned Vice President and
Controller of Alcoa Inc. (the "Company") hereby constitutes and appoints
RICHARD B. KELSON and DENIS A. DEMBLOWSKI, or any of them, his true and lawful
attorneys and agents to do any and all acts and things and to execute any and
all instruments which said attorneys and agents, or any of them, may deem
necessary or advisable or may be required to enable the Company to comply with
the Securities Act of 1933, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Act of shares of common stock, par
value $1.00 per share, of the Company to be issued upon conversion of the
outstanding shares of the common stock, no par value per share, of Reynolds
Metals Company, and including specifically, but without limiting the generality
of the foregoing, power and authority to sign the name of the undersigned in
the capacity of Principal Accounting Officer of the Company to any registration
statement to be filed with the Securities and Exchange Commission in respect of
said securities, to any and all pre-effective amendments, post-effective
amendments and supplements to any such registration statement, and to any
instruments or documents filed as part of or in connection with any such
registration statement or pre-effective amendments or post-effective amendments
or supplements thereto; and the undersigned hereby ratifies and confirms all
that said attorneys and agents, or any of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on the
date set opposite the name below.
/s/ Timothy S. Mock October 1, 1999
_____________________________
Timothy S. Mock
Vice President and Controller
<PAGE>
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned Director,
President and Chief Executive Officer of Alcoa Inc. (the "Company") hereby
constitutes and appoints RICHARD B. KELSON, TIMOTHY S. MOCK and DENIS A.
DEMBLOWSKI, or any of them, his true and lawful attorneys and agents to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, or any of them, may deem necessary or advisable or may be
required to enable the Company to comply with the Securities Act of 1933, as
amended, and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the registration
under said Act of shares of common stock, par value $1.00 per share, of the
Company to be issued upon conversion of the outstanding shares of the common
stock, no par value per share, of Reynolds Metals Company, and including
specifically, but without limiting the generality of the foregoing, power and
authority to sign the name of the undersigned in the capacity of Principal
Executive Officer of the Company to any registration statement to be filed with
the Securities and Exchange Commission in respect of said securities, to any
and all pre-effective amendments, post-effective amendments and supplements to
any such registration statement, and to any instruments or documents filed as
part of or in connection with any such registration statement or pre-effective
amendments or post-effective amendments or supplements thereto; and the
undersigned hereby ratifies and confirms all that said attorneys and agents, or
any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on the
date set opposite the name below.
/s/ Alain J. P. Belda October 1, 1999
_____________________________
Alain J. P. Belda
Director, President and
Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each of the undersigned Directors
of Alcoa Inc. (the "Company") hereby constitute and appoint RICHARD B. KELSON,
TIMOTHY S. MOCK and DENIS A. DEMBLOWSKI, or any of them, his or her true and
lawful attorneys and agents to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or any of them, may
deem necessary or advisable or may be required to enable the Company to comply
with the Securities Act of 1933, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Act of shares of common stock, par
value $1.00 per share, of the Company to be issued upon conversion of the
outstanding shares of the common stock, no par value per share, of Reynolds
Metals Company, and including specifically, but without limiting the generality
of the foregoing, power and authority to sign the name of each of the
undersigned in the capacity of Director of the Company to any registration
statement to be filed with the Securities and Exchange Commission in respect of
said securities, to any and all pre-effective amendments, post-effective
amendments and supplements to any such registration statement, and to any
instruments or documents filed as part of or in connection with any such
registration statement or pre-effective amendments or post-effective amendments
or supplements thereto; and the undersigned hereby ratifies and confirms all
that said attorneys and agents, or any of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents on the
date set opposite the names below.
<TABLE>
<S> <C>
/s/ Kenneth W. Dam October 7, 1999
_________________________________
Kenneth W. Dam
/s/ Joseph T. Gorman September 29, 1999
_________________________________
Joseph T. Gorman
/s/ Judith M. Gueron September 29, 1999
_________________________________
Judith M. Gueron
/s/ Sir Ronald Hampel September 29, 1999
_________________________________
Sir Ronald Hampel
/s/ Hugh M. Morgan September 30, 1999
_________________________________
Hugh M. Morgan
/s/ John P. Mulroney September 30, 1999
_________________________________
John P. Mulroney
/s/ Paul H. O'Neill September 30, 1999
_________________________________
Paul H. O'Neill
/s/ Henry B. Schacht October 1, 1999
_________________________________
Henry B. Schacht
/s/ Franklin A. Thomas October 1, 1999
_________________________________
Franklin A. Thomas
/s/ Marina v.N. Whitman October 5, 1999
_________________________________
Marina v.N. Whitman
</TABLE>
