SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
INDUSTRIAL ACOUSTICS COMPANY, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock, par value $.10
2) Aggregate number of securities to which transaction applies: 627,307
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $11.00
4) Proposed maximum aggregate value of transaction: $6,900,377
5) Total fee paid: $1,380
[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Preliminary Proxy Statement
dated August , 1998
INDUSTRIAL ACOUSTICS COMPANY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of INDUSTRIAL
ACOUSTICS COMPANY, INC. will be held at the offices of the Company, 1160
Commerce Avenue, Bronx, New York on , 1998 at 10:00 a.m., New York time, for the
following purposes:
(1) to consider and vote upon a proposal to adopt an Agreement and Plan of
Merger pursuant to which (a) IAC Holdings Corp. ("Holdings"), a
Delaware corporation, will be merged with and into Industrial
Acoustics Company, Inc. (the "Company"), a New York corporation, and
(b) each outstanding share of common stock of the Company ("Common
Stock") owned by Holdings will be cancelled and each outstanding share
of Common Stock owned by shareholders other than Holdings will be
converted into the right to receive $11.00 per share in cash and the
outstanding Shares of Holdings will be converted into new shares of
the Common Stock; and
(2) to transact such other business as may properly come before the
meeting and at any postponements or adjournments thereof.
Pursuant to the By-Laws of the Company, the Board of Directors has fixed the
close of business on , 1998 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting and at any
postponements or adjournments thereof.
If you cannot be present in person please complete, date, sign, and return the
accompanying Proxy without delay. A business reply envelope which does not
require any postage, if mailed in the United States, is enclosed for your
convenience.
Dated: , 1998
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By order of the Board of Directors
INDUSTRIAL ACOUSTICS COMPANY, INC.
Robert N. Bertrand
Secretary
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Preliminary Proxy Statement
dated August , 1998
INDUSTRIAL ACOUSTICS COMPANY, INC.
1160 COMMERCE AVENUE
BRONX, NEW YORK 10462
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
, 1998
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Introduction and Summary
Place; Record Date; Quorum; Solicitation. This Proxy Statement is furnished
in connection with the solicitation by Industrial Acoustics Company, Inc., a New
York corporation (the "Company" or "IAC") for use at a special meeting (the
"Meeting") of the Company's shareholders (the "Shareholders") to be held on
__________, 1998 at 10:00 a.m. at the Company's principal executive offices
located at 1160 Commerce Avenue, Bronx, New York, 10462, and at any
postponements or adjournments thereof. The approximate date on which a
definitive Proxy Statement and the accompanying proxy will first be mailed to
shareholders is __________, 1998.
Only Shareholders of record at the close of business on , 1998 (the "Record
Date"), will be entitled to vote at the Meeting. On that date, there were
2,981,211 shares of the Common Stock of the Company, par value $.10 (the "Common
Stock") outstanding and entitled to vote at the Meeting held by approximately
600 shareholders of rec-
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ord. Based on a statement filed by IAC Holdings Corp. ("Holdings") (a holding
company whose principal assets consist of Common Stock of the Company and whose
principal executive offices are located at 100 First Stamford Place, Stamford,
Connecticut 06902), on Schedule 13D, the Company believes that Holdings owns
2,353,904 shares of Common Stock, representing approximately 79% of the
outstanding shares of Common Stock. The sole shareholder of Holdings is
International Mezzanine Investment, N.V. ("IMI"), a Netherlands Antilles
corporation whose principal executive offices are located at John B. Gorsiraweg
14 Curacao, Netherlands Antilles. The presence at the Meeting, in person or by
proxy, of a majority of the outstanding shares of Common Stock entitled to vote
shall constitute a quorum for the meeting.
Common Stock represented by properly executed proxies, unless previously
revoked, will be voted at the Meeting in accordance with the instructions
thereon. Each proxy granted may be revoked by a Shareholder giving such proxy at
any time before it is exercised by filing with the Secretary of the Company a
revoking instrument or a duly executed proxy bearing a later date. The powers of
any proxy holder will be suspended if the person who executed the proxy held by
such proxy holder attends the Meeting in person and so requests. Attendance at
the Meeting will not in itself constitute revocation of the proxy.
The Company will bear the cost of soliciting proxies in the form enclosed.
In addition to solicitation by mail, proxies may be solicited personally, or by
telephone, or by employees of the Company, without additional compensation for
such services. The Company may reimburse brokers holding Common Stock in their
names or in the names of their nominees for their expenses in sending proxy
material to the beneficial owners of such Common Stock.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Purpose; Merger Agreement. At the Meeting, Shareholders will consider and
vote upon a proposal to adopt an Agreement and Plan of Merger dated as of May
20, 1998 (the "Merger Agreement") between the Company and Holdings. The Merger
Agreement provides, subject to the approval of Shareholders at the Meeting, for
the merger of Holdings with and into the Company, with the Company being the
surviving corporation (the "Merger"). Approval of the Merger Agreement requires
the affirmative vote of the holders of two-thirds of the outstanding shares of
Common Stock. Since Holdings owns approximately 79% of the Common Stock,
adoption of the Merger Agreement is assured if Holdings votes in its favor.
Holdings has indicated its intention to vote in favor of the
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Merger. Pursuant to the Merger Agreement, each outstanding share of Common Stock
(other than Common Stock held by the Company as treasury stock and Common Stock
held by Holdings), will be converted into the right to receive $11.00 per share
in cash (the "Merger Consideration"). Outstanding shares of common stock of
Holdings will be converted into the right to receive newly issued shares of
common stock of the Company. See "The Merger Agreement." A copy of the Merger
Agreement is attached to this Proxy Statement as Exhibit 1.
Since the Common Stock is designated as a national market system security
on the Nasdaq National Market, pursuant to Section 910 of the New York Business
Corporation Law (the "BCL"), appraisal rights will not be available to
shareholders of the Company. Accordingly, although a Shareholder who objects to
the Merger may vote against its adoption, since Holdings has indicated that it
will vote in favor of the Merger, the approval by Shareholders is assured and an
objecting Shareholder's available alternative may be limited to selling the
Shareholder's Common Stock before the Merger takes place.
The Merger Agreement provides that as a condition to consummation of the
Merger, Holdings obtain the funds necessary to enable the Company to pay the
Merger Consideration. The Company has been informed by Holdings that Holdings
will amend its existing loan agreement with International Mezzanine Capital,
B.V. ("IMC"), an affiliate of Holdings dated as of March 19, 1998 to permit
Holdings to borrow funds sufficient to pay all or a portion of the Merger
Consideration and that the balance of the Merger Consideration (if any) will be
made available to Holdings by way of a capital contribution by Holdings' sole
shareholder, IMI. The aggregate amount of the Merger Consideration to be paid to
the Company's Shareholders is expected to be $6,900,377.
Recent Stock Prices. On July 31, 1998, the high and low bid prices for the
Common Stock as reported on the Nasdaq National Market were $10 1/2 and $10 1/8,
respectively, and the last reported sale price was $10 1/8 per share. The last
reported trade of the Common Stock prior to the announcement of the Merger took
place on May 13, 1998 at a price of $9 1/4. The closing bid price of the
Company's Common Stock on May 19, 1998, the day before the Merger was announced
to the public was $9 1/4. See "Stock Prices and Suspension of Dividends."
Recommendation of the Board of Directors. The Board of Directors of the
Company has determined that the Merger Agreement is fair to, and in the best
interests of, the Company and its Shareholders and has unanimously approved and
adopted the Merger Agreement. Certain members of the Board of Directors have
conflicts of interest. See "Interests of Certain Persons in the Merger;
Conflicts of Interest." See "Special Factors -- Acquisition; Purpose of the
Merger; Fairness Factors."
Subsequent to its initial determination, the Board of Directors received
the opinion of Laidlaw & Co. as to the fairness of the Merger Consideration
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and thereafter the Board unanimously confirmed its conclusion that the Merger
Agreement is fair to, and in the best interests of the Company and its
Shareholders. See "Special Factors--Laidlaw Review."
Certain Results of the Merger. As a result of the Merger, Shareholders of
the Company will no longer have any continuing interest in the Company, the
Company's Common Stock will no longer be traded on the Nasdaq National Market
and the registration of the Company's Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the Company's reporting
obligations thereunder will be terminated. After giving effect to the Merger,
IMI, the sole shareholder of Holdings, will be the sole shareholder of the
Company.
Interests of Certain Persons in the Merger. Messrs. Maarten D. Hemsley,
Robert M. Davies and Robert N. Haidinger (Directors of the Company) are
directors of Holdings. Messrs. James A. Read and Martin P. Dineen (Directors of
the Company) are officers and directors of Holdings. Mr. Haidinger is the
president of a company in which IMI, the sole shareholder of Holdings, has a
substantial interest. Menai Group, LLC and Bryanston Management Ltd (companies
which are wholly owned by Messrs. Davies and Hemsley, respectively) are partners
in IAC Acquisition Partners ("IAC Partners"), a partnership which provides
advisory and consulting services to Holdings. See "Interests of Certain Persons
in the Merger; Conflicts of Interest."
Exchange of Certificates. If the Merger is consummated, the Company will
send instructions to Shareholders regarding the surrender of stock certificates.
SHAREHOLDERS SHOULD NOT SUBMIT ANY STOCK CERTIFICATES AT THE PRESENT TIME.
Effective Time of the Merger. The Merger will become effective upon the
filing of a certificate of merger with the Secretary of State of New York (the
"Effective Time"). The filing will occur after all conditions to the Merger
contained in the Merger Agreement have been satisfied or waived. The Company and
Holdings anticipate that the Merger will be consummated as promptly as
practicable following the Meeting.
Conditions to Consummation of the Merger. The respective obligations of the
Company and Holdings to consummate the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions, among
others: (i) adoption of the Merger Agreement by the holders of the Company's
Common Stock; (ii) the absence of any statute, rule, injunction or order that
would prevent consummation of the Merger; (iii) the receipt of all required
authorizations, consents and approvals; (iv) Holdings having obtained funds or
arranged financing sufficient to enable the Company to pay the Merger
Consideration and (v) the performance of and compliance with all agreements and
obligations of the parties under the Merger Agreement.
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Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time by the Board of
Directors of the Company or by Holdings. See "The Merger Agreement --
Termination."
Special Factors
Acquisition; Purpose of the Merger; Fairness Factors. On March 19, 1998,
Holdings became the owner of 2,353,904 shares of the Common Stock, or
approximately 79% of the issued and outstanding shares of the Common Stock of
the Company. Holdings acquired 1,914,429 of such shares from Martin Hirschorn,
the Company's founder and, until May 1998, its Chief Executive Officer, and
439,475 of such shares from certain other management and institutional
shareholders, in each case for $11.00 per share. On March 19, 1998, Messrs. John
M. Handley, Michael W. Hirschorn, Arnold W. Kanarek and Jorgen Svendsen resigned
from the Board of Directors of the Company and on March 20, 1998 the remaining
Directors appointed Messrs. Robert M. Davies, Martin P. Dineen, Robert N.
Haidinger, Maarten D. Hemsley and James A. Read as Directors of the Company. See
"--Background of Change of Control."
The Board of Directors, after Holdings' acquisition of 79% of the Common
Stock, considered the position, prospects and future of the Company generally
and as a company with public shareholders specifically and discussed such
matters with representatives of Holdings. For the reasons discussed below, the
Board of Directors determined in May of 1998 that it was not in the best
interests of the Company or its Shareholders for IAC to remain a company with
public shareholders and therefore the Board considered the proposed merger of
Holdings with and into the Company, and concluded that such Merger would be both
fair and in the best interests of the Company, its employees and both its
affiliated and unaffiliated Shareholders. Certain members of the Board of
Directors have conflicts of interests. See "Interests of Certain Persons in the
Merger; Conflicts of Interest." The same conclusion was reached by Holdings, and
by those members of the Board of Directors affiliated with Holdings, IMI, IMC
and IAC Partners. However, none of IMI, IMC or IAC Partners or their respective
executive officers, directors or partners made any recommendation in support of
or opposed to the Merger (other than the recommendation of the Merger as
directors by those persons who are also directors of the Company).
The negative factors considered by the Board which weighed against
consummation of the Merger were the time and cost involved in effecting the
transaction and the fact that the Company would no longer be registered under
the Exchange Act, which would make it difficult for the Company to pursue
financing publicly. However, these countervailing factors were viewed as being
less significant than the ultimate benefits of the Merger to the Company and its
employees.
The Board of Directors, which includes Martin Hirschorn and Frederic M.
Oran (the Company's Chief Executive Officer since May 1998), both of whom sold
all the
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shares in the Company that they owned to Holdings in March 1998 at a price of
$11.00 per share, unanimously approved the Merger Agreement on May 20, 1998.
Certain members of the Board of Directors have conflicts of interests. See
"Interests of Certain Persons in the Merger; Conflicts of Interest." The Company
and Holdings entered into the Merger Agreement on May 20, 1998. In approving the
Merger Agreement and reaching its conclusions as to the fairness of the Merger
to unaffiliated Shareholders, the Board of Directors considered the following
factors in particular: (a) providing minority Shareholders with the same
opportunity to dispose of their shares at the price obtained from Holdings by
the Company's founder, management and certain institutional holders, which was
at a premium to the recent market price and reflected a "control premium"; (b)
the limited market for the Company's Common Stock as has existed in recent years
and the resulting limited ability of minority Shareholders to realize on their
investment in the Company; and (c) the urgent need for the Company's management
to take actions to reverse operating losses, which may, in the short term,
adversely affect the Company's operating results.
Equivalent Price; Premium Over Market Price. In transactions with Holdings,
the founder and former Chief Executive Officer of the Company, Martin Hirschorn,
Frederic M. Oran, and other members of management and certain institutional
holders were able to receive $11.00 per share on their investment. This price
was negotiated on an arms-length basis between these unaffiliated parties after
giving effect to the recent trading range for the Common Stock and the Company's
financial position and prospects and recognizing a "control premium". See "--
Background of Change of Control." In considering the fairness of the Merger, the
Board of Directors gave particular weight to this factor.
The average market price of the Common Stock for the period from March 19,
1998 (the date Holdings acquired its interest in the Company) to May 20, 1998
(the date the Merger Agreement was executed) was $9.71. The closing bid price
for the Common Stock on May 19, 1998, the day before the Merger was announced to
the public, was $9 1/4. The last reported trade of the Common Stock during that
period took place on May 13, 1998 at a price of $9 1/4. The Merger Consideration
of $11.00 per share represents a premium of 19% to such last reported trade. See
"Stock Prices and Suspension of Dividends." In considering the fairness of the
Merger to minority shareholders, the Board of Directors also gave significant
weight to this factor.
Limited Trading Market. For several years there has a been a limited market
for the Company's Common Stock on the NASDAQ system. There are currently only
two market makers for the Common Stock. Additional purchases of some, but not
all of the outstanding shares of Common Stock by Holdings would only serve to
further contract the market for the Common Stock, thus resulting in an
increasingly illiquid minority.
At July 31, 1998, the Company had approximately 600 holders of 627,307
shares of Common Stock, excluding shares held by Holdings. The Company
understands
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that during the twelve months ended July 31, 1998, there were only 117 trades of
the Common Stock involving an aggregate of 97,365 shares of its Common Stock.
Other factors considered by the Board of Directors in determining that the
Company and its employees would be better served by private ownership included:
1. the ongoing cost to the Company of regulatory compliance as a public company
without the benefit of having a ready market for its securities; 2. greater
operating flexibility in the management of the business to remedy recent adverse
operating results; and 3. disappointing results of operations which, as a result
of the Company's public status, become available to its competitors.
Cost of Regulatory Compliance. The Company estimates that it spends
approximately $160,000 on an annual basis on costs solely related to being a
publicly-held entity, including legal, accounting, insurance, printing and
mailing costs. The Board considered the ongoing costs of remaining a public
company without the benefit of having a ready market for its securities in its
determination to approve the Merger.
Operating Flexibility. The Board is of the opinion that the Merger would
enable management to concentrate their efforts on reversing the Company's
operating losses and improving long-term growth of its businesses and to make
business decisions and acquisitions free from the constraints of public
ownership, which the Board of Directors believes often places undue emphasis on
short-term considerations. The Board of Directors also believes that the
short-term effect of such restructuring efforts on the future market value of
Common Stock may be negative. The Board therefore believes that prospects for
achieving the necessary business turnaround would improve if it were no longer a
public company.
Competitive Disadvantages. As a consequence of its publicly-held status,
the Company is required to file and make public detailed and periodic reports
about its operations and its financial status. The Company's detailed financial
reports disclose to the public (including the Company's competitors, customers,
suppliers and employee labor unions) operating losses which may be used to the
detriment of the Company by its competitors and in negotiations and dealings
with others. Certain of the Company's competitors are privately-owned companies,
not required to disclose publicly such sensitive financial details of their
operations. At the same time, competitors have the advantage of examining the
Company's financial statements. Those of the Company's competitors which are
publicly-held are either significantly larger, and engaged in a broader spectrum
of activities, or are subsidiaries of larger, diversified public companies whose
financial information is disclosed on a consolidated basis with other lines of
business. As to such competitors, required financial disclosures do not reveal
detailed information regarding the operations of those components directly
competitive with the Company. The Board of Directors believes that private
ownership of the Company would not only eliminate the requirement to disclose
results of operations but, as discussed above, would also provide management of
the Company with the
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operating flexibility to focus on and improve the Company's results of
operations on a long-term basis. The value of such flexibility cannot be
quantified.
Certain Results of Merger. As a result of the Merger, IMI will own all of
the outstanding equity interests of the Company (subject to agreements to grant
options in Common Stock to IAC Partners), so that IMI's interest in the Company,
including its future net earnings, will increase from approximately 79% to 100%
in return for the aggregate Merger Consideration of $6,900,377. According to the
terms of the Merger Agreement, each share of Common Stock (except treasury
shares and shares owned by Holdings) will be converted into the right to receive
the Merger Consideration of $11.00 per share. As a result, the Common Stock held
by existing Shareholders will no longer represent an equity interest in the
Company and will no longer share in future earnings or losses of the Company,
the risks associated with such earnings and losses, or the potential to realize
greater value in the event that strategic acquisitions, divestitures or other
extraordinary corporate transactions are pursued by the Company in the future.
Neither the Company nor, to the knowledge of the Company, Holdings now has any
such transactions under consideration. At September 30, 1997, the last quarterly
reporting date prior to the execution of a letter of intent between IAC Partners
and Martin Hirschorn for the sale of his shares, net book value of the Company
was approximately $41,009,000 or $13.77 per share. At March 31, 1998, the net
book value of the Company had declined to approximately $39,221,000, or $13.17
per share of Common Stock and at June 30, 1998 had further declined to
approximately $36,784,000 or $12.34 per share. Before giving effect to the
Merger, Holdings' 79% interest had a net book value to Holdings (that is, its
investment including the principal amount of the Loan but excluding
transactional expenses) of approximately $25,893,000, or $11.00 per share of
Common Stock. After giving effect to the Merger, Holdings will own all of the
outstanding shares of Common Stock of the Company and will have made an
investment, on a comparable basis, of approximately $32,793,000 or $11.00 per
share of pre-Merger Common Stock. The Company has reported net losses of $.78,
$.58 and $.41 per share for the quarters ended June 30 and March 31, 1998 and
the year ended December 31, 1997, respectively, and net income of $.12 per share
for the year ended December 31, 1996. The Company cannot predict when its recent
operating losses may be reversed.
Following the Merger, it is anticipated that the registration of the Common
Stock under the Exchange Act will be terminated and that the Company will no
longer file reports under the Exchange Act. In addition, upon consummation of
the Merger, Holdings' obligation under an uncollateralized loan of approximately
$17 million from IMC, a subsidiary of IMI (the "Loan"), will become an
obligation of the Company's and the option held by IAC Partners to acquire 12%
of the common stock of Holdings will become an option to acquire 12% of the
Common Stock of the Company. See "-- Background of Change of Control."
Federal Income Tax Considerations. The receipt of cash for Common Stock
pursuant to the Merger will be a taxable transaction for federal income tax
purposes under
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the Code, and also may be a taxable transaction under applicable state, local
and other tax laws. In general, a Shareholder will recognize gain or loss equal
to the difference between the tax basis for the Common Stock held by such
Shareholder and the amount of cash received in exchange therefor. See "Certain
Federal Income Tax Consequences of the Merger."
Board and Shareholder Approval; Independent Opinion. On May 20, 1998, the
Board of Directors of the Company approved the Merger unanimously. Certain
members of the Board of Directors have conflicts of interest. See "Interests of
Certain Persons in the Merger; Conflicts of Interest." No unaffiliated advisor
to the Board, any group of Directors or the Shareholders was retained prior to
May 20, 1998 for purposes of negotiating or reporting on the fairness of the
Merger. Subsequently, the Board engaged Laidlaw & Co. ("Laidlaw"), an investment
bank, to perform a financial analysis and to consider the fairness of the Merger
Consideration. See - "Laidlaw Review." In approving the Merger, the Board
considered the recent completion of Holdings' acquisition and its willingness to
effect the Merger at the same price per share being paid to minority
shareholders, which price Holdings and Mr. Hirschorn had negotiated at
arms-length. Holdings, IMI and IAC Partners considered the historic financial
results and position of the Company generally when the price between Holdings
and Mr. Hirschorn was agreed, made numerous inquiries to confirm the nature and
extent of the Company's assets and liabilities, and performed extensive
financial analyses. However, prior to approval of the Merger by the Board on May
20, 1998, no going concern or liquidation valuations were performed for the
Board. In considering the Merger, the Board of Directors did not undertake any
additional financial analyses to determine whether the Merger Consideration was
fair to unaffiliated shareholders. Based primarily on the fact that the Merger
Consideration of $11.00 per share represents a premium over the recent market
price of the Common Stock and that the price was agreed as a result of
arms-length negotiations between Holdings and Mr. Hirschorn, the Board of
Directors determined that additional financial analysis was not necessary to
reach a fairness determination. The Board of Directors also concluded that as a
result of the arms-length nature of the negotiations between Holdings and Mr.
Hirschorn and the fact that the price per share reflected a premium over the
market value of the Company, the process used in arriving at the Merger
Consideration was procedurally fair to all shareholders, including those not
affiliated with Holdings, IMI, IMC or IAC Partners. Certain members of the Board
of Directors have conflicts of interest. See "Interests of Certain Persons in
the Merger; Conflicts of Interest."
Adoption of the Merger Agreement requires that it be approved by the
holders of two-thirds of the shares of Common Stock. Given the approximately 79%
interest of Holdings, the favorable vote of Holdings would assure such approval.
The Merger has not been structured to require the approval of a majority of
unaffiliated Shareholders.
Although the net book value per share of Common Stock was $13.71 at March
31, 1998, the Board of Directors, Holdings, IMI, IMC and IAC Partners concluded
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that recent net losses incurred by the Company of $.78, $.58 and $.41 per share
for the quarters ended June 30 and March 31, 1998 and the year ended December
31, 1997, respectively, and the lack of certainty as to when these losses may be
reversed, did not make book value a reliable indicator as to the going-concern
value of the Company. At June 30, 1998 the net book value per share of Common
Stock was $12.34.
Although it is impracticable to assign a specific weight given to each of
the factors considered by the Board, the most heavily weighted factors in the
Board's decision were the premium being paid over the market price of the Common
Stock and the arm's length negotiation of the $11.00 price per share paid by
Holdings to Mr. Hirschorn. See "-- Acquisition; Purpose of the Merger; Fairness
Factors."
Laidlaw Review. On July 22, 1998, the Company retained Laidlaw to perform a
financial analysis of the Merger and to consider the fairness of the Merger
Consideration previously approved by the Board of Directors, from the
perspective of shareholders not affiliated with Holdings, IMI, IMC or IAC
Partners. Laidlaw was engaged to provide an additional level of procedural
fairness to such unaffiliated holders. Laidlaw has no other relationship to the
Company, Holdings, IMI, IMC or IAC Partners.
Laidlaw, founded in 1842, is a privately held, full service, international
investment bank which serves domestic and international corporations and
investors. Laidlaw's capabilities include asset management, institutional and
retail sales, trading, research and investment banking. As part of its
investment banking services, Laidlaw is engaged in public offerings and private
placements of both debt and equity securities. Additionally, Laidlaw offers its
clients a wide array of advisory services including merger and acquisitions,
divestitures, recapitalizations and fairness opinions.
On July 31, 1998, Laidlaw delivered its conclusions (the "Laidlaw Review")
with respect to the Merger and the fairness of the Merger Consideration to the
Board of Directors of the Company.
In summary, among other things, Laidlaw (i) reviewed certain publicly
available business and financial information, (ii) reviewed certain other
information, including financial forecasts provided by the Company, and (iii)
met with the Company's and Holdings' management to discuss the business and
prospects of the Company.
Based on the above procedures Laidlaw concluded that the consideration of
$11.00 per share to be paid to the Company's shareholders was fair from a
financial point of view.
On July 31, 1998 the Board of Directors met to consider the Laidlaw Review.
Based on the Laidlaw Review, as well as the various factors relating to the
Merger which it had previously considered, and further operating losses incurred
since the May 20, 1998 approval of the Merger, the Board of Directors
unanimously reapproved the Merger.
-10-
<PAGE>
A copy of the opinion of Laidlaw is available for inspection and copying at
the principal executive offices of the Company located at 1160 Commerce Avenue,
Bronx, New York during regular business hours (9:00 a.m. to 5:00 p.m.) by any
interested Shareholder or representative of a Shareholder who has been so
designated in writing.
Background of Change of Control. In November 1997, IAC Partners approached
Mr. Hirschorn with a view toward arranging a purchase of Mr. Hirschorn's stock
in the Company. After a lengthy due diligence investigation, IAC Partners
negotiated a preliminary agreement with Mr. Hirschorn and IAC Partners
approached IMI, a Netherlands Antilles company engaged in the business of
investing in companies in the United States and Europe, about investing in the
Company.
IMI decided to pursue an acquisition of the Common Stock of the Company
held by Mr. Hirschorn and certain other management and institutional
shareholders of the Company.
IMI organized Holdings as a wholly-owned subsidiary of IMI to effect the
stock acquisition. In January 1998, Holdings entered into separate stock
purchase agreements with Mr. Hirschorn and the other selling Shareholders. On
March 19, 1998, Holdings and Mr. Hirschorn signed an amendment to the stock
purchase agreement between them waiving certain financial conditions to closing
and effecting a minor change in the number of shares being purchased. On that
date, Holdings acquired 2,353,904 shares of the Common Stock of the Company, or
approximately 79% of the issued and outstanding shares of the Common Stock of
the Company, 1,914,429 of which were purchased from Mr. Hirschorn and 439,475 of
which were purchased from the other selling Shareholders, all at a price of
$11.00 per share.
In order to effect the acquisition, Holdings received an equity
contribution of approximately $10 million from IMI and an uncollaterized loan of
approximately $17 million from IMC, a subsidiary of IMI. Interest on the unpaid
principal amount of the Loan accrues at a rate per annum equal to LIBOR (as
defined in the IMC-Holdings loan agreement) plus 3.50 percent. The Loan matures
on March 19, 2000. The Company has been informed by Holdings that Holdings will
amend the IMC-Holdings loan agreement to allow for additional borrowings by
Holdings in order to enable the Company to pay all or a portion of the Merger
Consideration. If the Merger is consummated, the Loan, including any additional
borrowings, will become an obligation of the Company and its maturity could be
accelerated. No arrangements have been made to repay or refinance the Loan. IMI
will make a capital contribution to Holdings in an amount sufficient to pay the
balance, if any, of the Merger Consideration.
Holdings and IAC Partners have agreed that IAC Partners would receive a due
diligence and consulting fee equal to 1.5% of the total consideration paid by
Holdings in the acquisition and would be granted an option to acquire 12% of the
common stock of
-11-
<PAGE>
Holdings on a fully diluted basis, exercisable upon the sale by Holdings of all
or a majority of its interest in the Company, at an exercise price equal to the
net cost of IMI's equity investment in Holdings on a per share basis. Upon
consummation of the Merger, such option would become an option to acquire 12% of
the Common Stock of the Company on a fully diluted basis, exercisable upon the
sale by IMI of all or a majority of its interest in the Company. Holdings and
Messrs. Hemsley and Davies also expect to enter into a management agreement
pursuant to which Messrs. Hemsley and Davies will agree to provide certain
management services to Holdings relating to its investment in the Company,
including providing the services of Messrs. Hemsley and Davies as officers or
directors of the Company, if so requested.
Immediately after the closing of the acquisition by Holdings, Messrs.
Handley, Michael Hirschorn, Kanarek and Svendsen resigned from the Board of
Directors of the Company and, on March 20, 1998, the remaining Directors
appointed Messrs. Davies, Dineen, Haidinger, Hemsley and Read to join Mr.
Hirschorn and Frederic Oran as members of the Board of Directors. On April 28,
1998, the Board of Directors accepted the resignations of Arnold Kanarek and
John Handley as senior officers of the Company, which resignations became
effective on May 1, 1998. Mr. Hirschorn also resigned as an executive officer of
the Company but remains the Chairman of the Board of Directors. On April 28,
1998, the Board of Directors elected Frederic Oran as President and Chief
Executive Officer of the Company, Robert N. Bertrand as Senior Vice President of
Finance and Administration and Secretary, and Robert A. Schmidt as Senior Vice
President of Marketing and Sales, all as of May 1, 1998.
Interests of Certain Persons in the Merger; Conflicts of Interest
Messrs. Maarten D. Hemsley, Robert M. Davies and Robert N. Haidinger
(Directors of the Company) are directors of Holdings. Messrs. James A. Read and
Martin Dineen (Directors of the Company) are officers and directors of Holdings.
Messrs. Read and Dineen are affiliated with a private management group which is
the sole investment advisor to IMI, which owns 100% of the capital stock of
Holdings. As a principal of Mezzanine Management Ltd., an investment advisor to
IMI, Mr. Read may receive fees from IMI in connection with the provision of
services. Mr. Dineen is a salaried employee of Mezzanine Management Ltd. Through
companies owned by them, Messrs. Davies and Hemsley control IAC Partners which,
if requested, has agreed to provide advisory and consulting services to
Holdings. In addition, IAC Partners holds an option to acquire 12% of the common
stock of Holdings on a fully diluted basis. Upon consummation of the Merger,
such option would become an option to acquire 12% of the Common Stock of the
Company on a fully diluted basis. Through IAC Partners, Mr. Davies and Mr.
Hemsley have an indirect interest in 80% of such option and 80% to 100% of fees
for such advisory and consulting services depending on the type of services
provided. Mr. Haidinger is president of a company in which IMI has a substantial
interest. Although Mr. Haidinger may not have a conflict of interest that is
financial in nature, his relationship with IMI may be such that
-12-
<PAGE>
scenarios may arise where the interests of the Company differ from those of IMI.
The nature of these conflicts is such that the Directors indicated may have an
interest in the Company beyond their status as directors. Any increase in the
value of the Company may benefit not only Holdings and persons affiliated or
associated with Holdings (including its directors), but also management and
employees of the Company.
Regulatory Approvals
The Company does not believe that any federal or state requirements must be
complied with or that approval must be obtained in connection with the Merger,
other than filings required pursuant to federal securities laws and the filing
of the Certificate of Merger with the Secretary of State of New York and the
Secretary of State of Delaware.
Material Federal Income Tax Consequences of the Merger
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction for federal income tax purposes under the Code, and also may
be a taxable transaction under applicable state, local and other tax laws.
In general, a Shareholder will recognize gain or loss equal to the
difference between the tax basis for the Common Stock held by such stockholder
and the amount of cash received in exchange therefor. Such gain or loss will be
capital gain or loss if the Common Stock in the hands of the Shareholder is a
capital asset and, in the case of non-corporate Shareholders, generally will be
long-term gain or loss if the holding period for the Common Stock is more than
eighteen months prior to the Effective Date and mid-term gain or loss if the
holding period is more than one year but not more than eighteen months prior
thereto. In certain circumstances, Shareholders who are individuals may be
entitled to preferential treatment for long-term and mid-term capital gains;
however, the ability to offset capital losses against ordinary income is
limited. If the holding period is less than one year then the gain or loss will
be short term gain or loss.
Long-term capital gains recognized by Shareholders who are individuals are
taxable at a maximum rate of 20% and mid-term capital gains are taxable at a
maximum rate of 28% (as compared with a maximum rate of 39.6% on ordinary
income). Corporations generally are subject to tax at a maximum rate of 35% on
both capital gains and ordinary income. The distinction between capital gain and
ordinary income may be relevant for certain other purposes, including the
taxpayer's ability to utilize capital loss carryovers to offset any gain
recognized.
If a Shareholder has long-term, mid-term and short-term capital
transactions during the year, a multi-step netting process occurs. First, gains
and losses within each group are netted separately. The long-term capital gains,
if any, are offset by net short-term capital losses, if any. Short-term capital
losses are then applied to reduce any mid-term capital gain from the 28% group.
A net loss from the 20% group is used first to re-
-13-
<PAGE>
duce net gain from the 28% group. A net loss in the 28% group may be used to
offset gain from the 20% group.
If the result of combining all of the Shareholder's capital gains and
losses during the taxable year is a net capital gain, the full amount of such
gain will be included in the Shareholder's gross income. Any net capital gain
that is attributable to a particular rate group is taxed at that group's
marginal tax rate. In general, if the result of combining all such capital gains
and losses recognized during the taxable year is a net capital loss, a
Shareholder that is a corporation may not deduct any portion of such loss, and a
Shareholder that is not a corporation (such as an individual) may deduct such
loss only to the extent that it does not exceed $3,000 ($1,500 in the case of a
married individual filing a separate return), with the remainder available for
carryover into future taxable years.
The foregoing discussion may not be applicable to Shareholders who acquired
their Common Stock pursuant to the exercise of options or other compensation
arrangements or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Code.
THE FOREGOING DISCUSSION IS THE COMPANY'S INTERPRETATION OF THE TAX
CONSEQUENCES OF THE MERGER AND IS BASED ON THE PROVISIONS OF THE CODE, TREASURY
REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE
SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED RETROACTIVELY IN A MANNER
THAT COULD ADVERSELY AFFECT SHAREHOLDERS. EACH SHAREHOLDER SHOULD CONSULT ITS
OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS OF THE RECEIPT OF
CASH FOR COMMON STOCK PURSUANT TO THE MERGER.
The Merger Agreement
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Exhibit 1 to this Proxy Statement. Such summary is
qualified in its entirety by reference to the Merger Agreement.
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, and in accordance with the BCL, at the Effective Time of the
Merger, Holdings shall be merged with and into the Company, with the Company
being the surviving corporation.
The Merger Agreement provides that at the Effective Time, by virtue of the
Merger and without any action on the part of Holdings, the Company or the
holders of Common Stock:
-14-
<PAGE>
(a) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than Common Stock owned by Holdings and
Common Stock held by the Company as treasury stock) will be cancelled and
will be converted automatically into the right to receive, in cash, from
the Company an amount equal to $11.00 per share payable, without interest,
to the holder of each such share, upon surrender of the certificate that
formerly evidenced such share;
(b) Each share of common stock of Holdings issued and outstanding
immediately prior to the Effective Time will be cancelled and converted
into a new share of common stock of the Company issued and outstanding, and
no payment or distribution will be made with respect thereto; and
(c) Each share of Common Stock held by Holdings or in the Company's
treasury will be cancelled.
Employees holding options under the Company's 1995 Stock Option Plan, as
amended, will be entitled, under the terms of the plan, to receive the
difference between the exercise price of each such option per share and $11.00
multiplied by the number of shares of Common Stock subject to such options.
Under the Merger Agreement, the respective obligations of each party to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of the following conditions: (a) the Merger Agreement and the transactions
contemplated thereby have been approved and adopted by the affirmative vote of
the holders of a two-thirds of the Company's Common Stock; (b) there is no
statute, rule, injunction or order that would prevent consummation of the
Merger; (c) all required authorizations, consents and approvals have been
obtained; (d) Holdings having obtained funds or arranged financing sufficient to
pay the Merger Consideration; and (e) all agreements and obligations of the
parties under the Merger Agreement have been performed and complied with.
Termination. The Merger Agreement may be terminated and the Merger and the
other transactions contemplated by the Merger Agreement may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the shareholders of the Company or by Holdings.
Amendment and Waiver. The Merger Agreement may be amended in writing by the
parties thereto or by their respective Boards of Directors at any time prior to
the Effective Time. Except as otherwise provided by the Merger Agreement, any
party thereto may (i) extend the time for the performance of any obligation or
other act of any other party thereto, (ii) waive any inaccuracy in the
representations and warranties contained therein and (iii) waive compliance with
any agreement or condition contained therein.
-15-
<PAGE>
Accounting Treatment
The Merger wll be treated as a pooling of interests for accounting
purposes.
Stock Prices and Suspension of Dividends
The Company's Common Stock is traded over the counter on the Nasdaq
National Market under the symbol IACI. As of August 3, 1998, there were
approximately 600 shareholders of record. Market price ranges (high and low bid
quotations) obtained from the Nasdaq Stock Market's Summary of Activity for the
Common Stock for the third calendar quarter through August 3, 1998 and the first
and second calendar quarters of 1998 and for each quarter of the fiscal years
ended December 31, 1995, 1996 and 1997 were as follows:
High Low
---- ---
1995
First Quarter 16 1/4 15
Second Quarter 16 14 1/2
Third Quarter 16 9 3/4
Fourth Quarter 11 1/2 10
1996
First Quarter 11 9 3/4
Second Quarter 11 1/2 10
Third Quarter 11 9 1/2
Fourth Quarter 11 1/4 8 1/2
1997
First Quarter 16 8 3/4
Second Quarter 11 1/4 8
Third Quarter 9 1/2 8 1/4
Fourth Quarter 11 1/4 8 1/2
1998
First Quarter 11 9 7/8
Second Quarter 10 7/8 9 1/16
Third Quarter (through August 3, 1998) 10 1/8 10
The closing bid price of the Company's Common Stock on May 19, 1998, the
day before the Merger was announced to the public, was $9.25.
-16-
<PAGE>
The Board of Directors did not declare a dividend for the year ended
December 31, 1997. A dividend of $.10 per share was paid on March 21, 1997 to
shareholders of record on March 14, 1997 for the year ended December 31, 1996. A
dividend of $.10 per share was paid on March 22, 1996 to shareholders of record
on March 15, 1996 for the year ended December 31, 1995.
Information With Respect to Holdings, IMI, IMC and IAC Partners
The sole stockholder of Holdings is IMI. The address of the principal
executive offices of IMI is John B. Gorsiraweg 14, P.O. Box 3889, Curacao,
Netherlands Antilles. IMI is a private company which invests in the debt and
equity securities of corporations in Europe and the United States. IMC is a
wholly owned subsidiary of IMI. Its principal executive offices are located at
Herengracht 424, 1017BZ, Amsterdam, The Netherlands and its principal business
is investing in the debt and equity securities of corporations in Europe and the
United States. IAC Partners is a partnership whose principal executive offices
are located at 82 Powder Point Avenue, Duxbury, Massachusetts 02332. IAC
Partners was formed in connection with the Acquisition and its only continuing
business is providing advisory and consulting services to Holdings. Set forth
below is certain information concerning the Directors and Executive Officers of
Holdings, IMI, IMC and IAC Partners.
<TABLE>
<CAPTION>
Directors and Executive Officers of Holdings
Name and Business Address Principal Occupation Citizenship
<S> <C> <C>
James A. Read Managing Director USA
c/o Mezzanine Management Ltd. Mezzanine Management Ltd.
Mansfield House (an investment advisor to IMI)
One Southampton Street
London WC2/ROLR England
Robert M. Davies Merchant Banking United Kingdom
c/o The Menai Group LLC Managing Director
100 First Stamford Place Menai Capital LLC
6th Floor
Stamford, Connecticut 06902
Maarten D. Hemsley Merchant Banking United Kingdom
c/o Bryanston Management Ltd. Managing Director
82 Powder Point Avenue Menai Capital LLC
Duxbury, Massachusetts 02332
Martin P. Dineen Vice President USA
c/o Mezzanine Management LLC Mezzanine Management LLC
100 First Stamford Place - 6th Floor
Stamford, Connecticut 06902
-17-
<PAGE>
Robert M. Haidinger President, CEO USA
c/o JJI Lighting Group JJI Lighting Group
67 Holly Hill Lane
Greenwich, Connecticut 06830
</TABLE>
- --------------------
Messrs. Read and Haidinger have been at their respective present positions for
more than the last 5 years. Prior to his current employment, Mr. Davies was Vice
President of Wexford Capital Corporation from 1994 to March 1997. From September
1993 to May 1994, he was Managing Director of Steinhardt Enterprises, Inc. and
from 1987 to August 1993, he was Executive Vice President of the Hallwood Group
Incorporated. Mr. Dineen was involved in banking with Chase Manhattan Bank from
1989 to 1995 and with Bank of Boston from 1995 to 1997. In addition to his
position with Menai Capital LLC, Mr. Hemsley has been President of Bryanston
Management Ltd. since 1993.
Directors of IMI and IMC
Each of the persons named below is a director of both IMI and IMC other
than MeesPierson Trust (Curacao) N.V. which is a director of IMI but not IMC and
Mr. Schouten who is a director of IMC but not IMI. Other than Mr. Schouten,
whose principal occupation is to act as a director of IMC (and First Britannia
Mezzanine Capital B.V., an unrelated investing corporation advised by Mezzanine
Management Ltd.), IMI and IMC have no executive officers.
<TABLE>
<CAPTION>
Name and Business Address Principal Occupation Citizenship
<S> <C> <C>
D. Thomas Abbott Chairman USA
c/o Mees Pierson Holdings, Inc. Mees Pierson Holdings, Inc.
31 Stamford Plaza
310 Tresser Boulevard
Stamford, CT 06901-3239
Ian Cotterill Director, United Kingdom
c/o HSBC Investment Bank plc Hongkong Shanghai Bank
Vintner's Place
68 Upper Thames Street
London EC4V 3BJ, England
Franz Horhager Director, Austria
c/o Bank Austria AG Bank Austria AG
Am Hof 2
A-1010 Vienna, Austria
A. Kipp Koester Managing Director, USA
c/o The Northwestern Mutual Life The Northwestern Mutual Life
Insurance Company Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4797
-18-
<PAGE>
Hamish Mair Associate Director, United Kingdom
c/o Scottish Eastern Investment Martin Currie Investment
Trust plc Management Ltd.
Saltire Court
20 Castle Terrace
Edinburgh EH1 2ES Scotland
MeesPierson Trust (Curacao) N.V. Trust company
John B. Gorsiraweg 14 Netherlands Antilles
P.O. Box 3889
Curacao
Netherlands Antilles
Muneef Othman Executive Director United Arab
Abu Dhabi Investment Authority Abu Dhabi Investment Authority Emirates
P.O. Box 3600
Abu Dhabi, United Arab Emirates
Jacobus Schouten Director, IMC The Netherlands
c/o International Mezzanine and First Britannia Mezzanine
Capital B.V. Capital B.V.
Herengracht 424
1017 BZ Amsterdam
The Netherlands
Charles E. Symington Vice President, USA
c/o Metropolitan Life Investment Metropolitan Life Investment
Company Company
43 Pippins Way
Morristown, N.J. 07960
Stephen Weber Director Equities United Kingdom
c/o Norwich Union Life & Pensions Norwich Union Life & Insurance
Limited Society
P.O. Box 150
37 Surrey Street
Norwich NR1 3UZ England
</TABLE>
- -----------------------------
From December 1993 to May 1995, Mr. Abbot was Chairman and Chief Executive
Officer of Savin Corp. Prior to December 1993, he was President of Harvest
Group, Inc. Messrs. Horhager, Cotterill, Symington, Weber, Mair, Othman and
Schouten have been at their respective present positions for more than the last
five years. From 1993 to 1997, Mr. Koester was Vice President of Northwestern
Mutual Life Insurance Company.
<TABLE>
<CAPTION>
Partners of IAC Partners
Name and Business Address Principal Occupation Citizenship
<S> <C> <C>
Robert M. Davies(1) Merchant Banking United Kingdom
c/o The Menai Group LLC Managing Director
-19-
<PAGE>
100 First Stamford Place Menai Capital LLC
6th Floor
Stamford, Connecticut 06902
Maarten D. Hemsley(1) Merchant Banking United Kingdom
c/o Bryanston Management Ltd. Managing Director
82 Powder Point Avenue Menai Capital LLC
Duxbury, Massachusetts 02332
Robert P. Schreimer Attorney USA
c/o StoneRidge Partners, Inc.
650 Third Avenue - 3rd Floor
New York, New York 10016
David Stoller Attorney USA
c/o Millbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
</TABLE>
- -----------------------------
(1) The interests of Messrs. Davies and Hemsley in IAC Partners are held by
the Menai Group LLC, which is wholly owned by Mr. Davies , and
Bryanston Management Ltd., which is wholly owned by Mr. Hemsley.
Expenses
It is estimated that the following expenses will be incurred in connection
with the Merger, all of which have been or will be paid by the Company:
SEC Filing Fee.................................. $ 1,380
Laidlaw & Co opinion fee........................ 50,000
Legal Fees and Expenses......................... 100,000
Accounting Fees and Expenses.................... 10,000
Printing Expenses............................... 5,000
Miscellaneous................................... 3,620
-------
Total.................................. $170,000
=======
In connection with the Merger, neither the Company nor Holdings anticipate
incurring any appraisal or solicitation fees or expenses. Proxies may be
solicited by employees of the Company without additional compensation.
-20-
<PAGE>
Independent Auditors
PriceWaterhouseCoopers LLP are the Company's independent auditors.
Representatives of PriceWaterhouseCoopers LLP are expected to be present at the
Meeting. They will have the opportunity to make a statement if they so desire
and are expected to be available to respond to appropriate questions.
Other Matters
The Board of Directors knows of no other matters which will be presented
for consideration at the Meeting. However, if any other matter is properly
brought before the Meeting, it is the intention of the persons named in the
proxy forms to vote the Proxies in accordance with their best judgment.
Shareholder Proposals
If the Merger is consummated, no public annual meetings of shareholders of
the Company will be held in the future. If the Merger is not consummated, and
because the date of any such meeting cannot currently be determined,
Shareholders will be informed (by press release or other means determined
reasonable by the Company) of the date of such meeting and the date that
Shareholder proposals for inclusion in the proxy material must be received by
the Company, which proposals must comply with the rules and regulations of the
Securities and Exchange Commission ("SEC") then in effect.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than 10 percent of the outstanding Common
Stock to file reports of ownership and changes in ownership with the SEC. Based
solely on reports and other information submitted by executive officers and
directors, the Company believes that during the year ended December 31, 1997,
and prior fiscal years, each of its executive officers, directors and persons
who owns more than 10 percent of the outstanding Common Stock filed all reports
required by Section 16(a).
Available Information
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the SEC. Such reports and other information may be inspected
and copied or obtained by mail upon payment of the SEC's prescribed rates at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the New York Regional Office of the
SEC, 7 World Trade Center, New York, New York 10048. The SEC also maintains a
Web site that contains reports, proxy, information state-
-21-
<PAGE>
ments and other information regarding registrants that file electronically with
the SEC. The address of such site is http://www.sec.gov.
Accompanying and forming a part of this Proxy Statement is the Company's
Annual Report on Form 10-K (the "Annual Report") for the year ended December 31,
1997, as amended. In addition, the Company's Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31 and June 30, 1998 accompany and form a part
of this Proxy Statement.
Financial Information
Selected Financial Data
The following table sets forth selected consolidated financial data of the
Company for each of the last five years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $ 72,911 $ 73,623 $ 70,633 $ 71,736 $ 86,571
Net (Loss) Income $ (1,218) $ 364 $ (448) $ (1,701) $ 3,918
Basic and Diluted
(Loss) Income per common share $ (0.41) $ 0.12 $ (0.15) $ (0.57) $ 1.32
---------- ---------- ---------- ----------- ----------
Total Assets $ 74,262 $ 72,845 $ 75,716 $ 71,730 $ 73,124
Long Term Obligations $ 5,081 $ 4,499 $ 4,683 $ 2,431 $ 2,504
Cash Dividends per Common Share* None $ 0.10 $ 0.10 $ 0.10 $ 0.30
</TABLE>
* Declared and paid in March of subsequent year.
-22-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Industrial Acoustics Company, Inc.:
We have audited the consolidated financial statements and financial
statement schedule of INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES as
appearing in of this Proxy Statement. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We did not audit the financial
statements and financial statement schedule of Industrial Acoustics Company
Limited and Subsidiaries, a wholly owned subsidiary, which statements reflect
total assets of $17,104,000 and $18,690,000 at December 31, 1997 and 1996,
respectively, and total revenues of $19,310,000, $22,126,000 and $23,731,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Those statements
and schedule were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for
Industrial Acoustics Company Limited and Subsidiaries, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Industrial Acoustics Company, Inc. and
Subsidiaries as of December 3l, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 3l,1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, based on our audits and the report of
other auditors, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L. L. P.
New York, New York
March 11, 1998
-23-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Industrial Acoustics Company Limited
We have audited the consolidated balance sheets of Industrial Acoustics
Company Limited and subsidiaries (a wholly owned subsidiary of Industrial
Acoustics Company Inc.) as of 31st December 1997 and 1996 and the related
consolidated statements of income and retained earnings, and cash flows and the
financial statement schedule for each of the three years in the period ended
31st December 1997. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Industrial
Acoustics Company Limited and subsidiaries as of 31st December 1997 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended 31st December 1997 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, present fairly.
in all material respects, the information required to be included therein.
Kidsons Impey
Registered Auditors
Chartered Accountants
London
February 12, 1998
-24-
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except per share data)
1997 1998
---- ----
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 3,032 $ 1,254
Short-term investments, available for sale................................. 457 218
Receivables................................................................ 17,843 22,713
Costs and estimated earnings in excess of billings on uncompleted
contracts................................................................ 6,774 5,108
Inventories................................................................ 5,856 4,605
Income tax receivable...................................................... 685
Deferred income taxes...................................................... 215 130
Prepaid expenses........................................................... 1,609 1,473
----- -----
Total Current Assets 35,786 36,186
MARKETABLE SECURITIES, available for sale....................................... 22,328 20,584
PROPERTY, PLANT AND EQUIPMENT, net.............................................. 12,540 13,028
DEFERRED INCOME TAXES........................................................... 975 124
OTHER ASSETS.................................................................... 2,633 2,923
----- -----
Total Assets $74,262 $72,845
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Loans payable................................................................ $ 9,656 $ 8,775
Accounts payable and accrued expenses........................................ 16,167 15,606
Income taxes................................................................. 193
Customer deposits............................................................ 730 389
Current portion of long-term debt and capital lease obligations.............. 78 71
Billings In excess of costs and estimated earnings on uncompleted
contracts.................................................................. 1,491 1,128
----- -----
Total Current Liabilities 28,315 25,969
CAPITAL LEASE OBLIGATIONS....................................................... 3,055 3,132
DEFERRED INCOME TAXES........................................................... 687
DEFERRED COMPENSATION........................................................... 1,339 1,367
----- -----
Total Liabilities 33,396 30,468
====== ======
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, par value $.1 0 per share; authorized 5,000 shares; issued and
outstanding 2,979 shares, excluding 87 shares held in treasury at par value 298 298
Additional paid-in capital................................................... 2,223 2,223
Equity Adjustments:
Cumulative currency translation adjustment................................. (117) 152
Net unrealized gain (loss) on marketable securities........................ 107 (167)
Retained earnings............................................................ 38,355 39,871
------ ------
-25-
<PAGE>
Total Shareholders' Equity 40,866 42,377
------ ------
Total Liabilities and Shareholders' Equity $74,262 $72,845
======= =======
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
for the years ended December 31, 1997,1996 and 1995
(in thousands, except per share daft)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net sales.................................................... $72,911 $73,623 $70,633
Interest..................................................... 1,615 1,609 1,553
Other........................................................ 738 918 574
------ ------ ------
75,264 76,150 72,760
------ ------ ------
COST AND EXPENSES
Cost of products sold........................................ 61,934 62,105 59,657
Selling, administrative and general.......................... 13,474 12,680 13,068
Interest..................................................... 939 1,078 586
------ ------ ------
76,347 75,863 73,311
------ ------ ------
(Loss) income before income taxes (1,083) 287 (551)
Provision (benefit) for income taxes............................ 135 (77) (103)
------ ------ ------
Net (loss) income ($1,218) $364 ($448)
======= ====== ======
Basic and diluted net (loss) income per common share............ ($0.41) $0.12 ($0.15)
======= ====== ======
Weighted Average Number of Shares Outstanding:
Basic........................................................ 2,979 2,979 2,979
======= ====== ======
Diluted...................................................... 2,979 2,990 2,979
======= ====== ======
</TABLE>
See notes to consolidated financial statements
-27-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS of SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share data)
Common Stock* Equity Adjustments
------------- ------------------
Net
Unrealized
Number Additional Cumulative Gain (Loss) on
of Paid-in Currency Marketable Retained
Shares Amount Capital Translation Securities Earnings Total
------ ------ ------- ----------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 3l, 1994.. 2,979 $298 $2,223 ($325) ($580) $40,550 $42,166
Net loss for 1995........... (448) (448)
Cash dividends paid -- $.10
per share.................. (298) (298)
Equity adjustments:
Currency translation....... (20) (20)
Net unrealized gain on
marketable securities, net
of income taxes
of $306................... 1,034 1,304
------- ------ ------- ------ ------ ------ ------
Balance at December 31, 1995.. 2,979 298 2,223 (345) 454 39,804 42,434
Net income for 1996......... 364 364
Cash dividends paid -- $.10
per share.................. (297) (297)
Equity adjustments:
Currency translation....... 497 497
Not unrealized loss on
marketable securities, net
of income taxes (621)
of $111................... (621)
------- ------ ------- ------ ------ ------ ------
Balance at December 31, 1996.. 2,979 298 2,223 152 (167) 39,871 $42,377
Net loss for 1997........... (1,218) (1,218)
Cash dividends paid -- $.1 0
per share.................. (298) (298)
Equity adjustments:
Currency translation....... (269) (269)
Not unrealized gain on
marketable securities, net
of Income taxes 274 274
of $182...................
------- ------ ------- ------ ------ ------ ------
Balance at December 31, 1997 2,979 $298 $2,223 ($117) $ 107 $38,355 $40,866
======= ====== ======= ====== ====== ======= =======
* Excluding common stock held in treasury of 87 shares for all years presented.
</TABLE>
See notes to consolidated financial statements
-28-
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share data)
1997 `1996 1995
---- ----- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) income............................................ ($1,218) 364 ($448)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization.............................. 1,267 1,305 1,204
Deferred income taxes...................................... (431) (184) 102
Deferred compensation...................................... (28) 90 50
Changes in operating assets and liabilities:
Receivables................................................ 4,489 4,731 2,736
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... (1,667) 2,230 (3,288)
Inventories and prepaid expenses........................... (1,447) (834) 395
Income tax receivable...................................... 685 (685) --
Accounts payable and accrued expenses...................... 820 (776) 400
Income taxes 193 (131) 1,329
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... 364 103 (2,105)
Customer deposits.......................................... 346 103 (444)
Other assets............................................... 345 (2,537) (121)
------ ------- -------
Net cash Provided by (used in) operating activities 3,718 3,779 (190)
------ ------- -------
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................... (1,024) (1,956) (3,964)
Sales of short-term investments and marketable securities.... 3,564 15,184 3,176
Purchases of short-term investments and marketable securities (5,091) (14,103) (3,738)
------ ------- -------
Net cash used in investing activities (2,551) (875) (4,526)
------ ------- -------
FINANCING ACTIVITIES
Loans payable, net........................................... 1,018 (2,720) 3,412
Payments on long-term debt and capital lease obligations..... (72) (13) (194)
Dividends paid............................................... (298) (297) (298)
------ ------- -------
Net cash provided by (used in)
financing activities 648 (3,030) 2,920
------ ------- -------
FOREIGN EXCHANGE
Effect of exchange rate changes on cash...................... (37) (126) 29
Increase (decrease) in cash and
cash equivalents 1,778 (252) (1,767)
Cash and cash equivalents at beginning of year.................. 1,254 1,506 3,273
------ ------- -------
Cash and cash equivalents at end of year $ 3,032 $1,254 $1,506
======= ======= =======
-29-
</TABLE>
<PAGE>
See notes to consolidated financial statements.
-30-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands, except per share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated.
Management's Use of Estimates:
In conformity with generally accepted accounting principles, management
must make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Long-term Construction Contracts:
Estimated earnings on long-term construction type contracts are recognized
on the percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. Periodic reviews of
estimated final revenues and costs during the terms of such contracts may result
in revisions of contract estimates, the effects of which are recognized in the
periods in which the revisions are determined. Provision for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Included in receivables are retainages of $1,054 and $844 at December 31,
1997 and 1996, respectively. The Company expects to collect the open retainage
in 1998.
-31-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Before tax operating results for 1997 and 1996 were decreased by $1,066 and
$2,250, net, due to changes in revenues and cost estimates on long-term
contracts.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment, including leased property, are
provided principally by the straight-line method based over the estimated useful
lives of the depreciable assets or the term of the related leases, if less. The
cost and accumulated depreciation or amortization of assets refined or sold are
removed from the respective accounts and any gain or loss is recognized in
operations.
Research and Development:
Research and development expenditures, which are expensed as incurred,
amounted to $825, $944 and $872 in 1997, 1996 and 1995, respectively.
Short-Term Investments and Marketable Securities:
The Company primarily invests its available funds into U.S. federal, state
and local government and corporate debt securities. The Company considers such
investments to be "available-for-sale" as defined by Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for certain Investments in
Debt and Equity Securities". SFAS 115 requires that the difference between the
carrying value and market value, as of the balance sheet date, of available
for-sale-investments be recorded as an adjustment to shareholders' equity.
In the event of a decline in market value below carrying value ("Decline"),
which is other than temporary and resulting from factors other than changes in
interest rate, such Decline would be included in the operating results of the
Company in the period in which it occurs. In addition, if a Decline exists for
an investment which has been identified to be sold, such Decline would also be
included in operating results in the period in which it is identified to be
sold. During the year ended December 31, 1997, there were no Declines.
Earnings per Common Share Data:
The Company adopted SFAS No. 128, "Earnings per Share," in 1997. As
required by the statement, the Company restated all prior-period per share data
presented. SFAS No. 128 requires presentation of both basic and diluted earnings
per share. Basic
-32-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
earnings per share are calculated based on the weighted average number of shares
of common stock outstanding during the reporting period. Diluted earnings per
share are calculated giving effect to all potentially dilutive common shares,
assuming such shares were outstanding during the reporting period.
As required by SFAS No. 128, the Company has provided a reconciliation of
basic weighted average shares to diluted weighted average shares within the
table outlined below. The conversion of diluted shares has no impact on the
Company's operating results. Options to purchase 200,000 shares of common stock
were also outstanding at December 31, 1997 and 1995 but were not included in the
computation of diluted earnings per share because they would have had an
anti-dilutive effect on the earnings per share.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average number of shares - basic............................. 2,979 2,979 2,979
Dilutive effect of shares issuable as of year end under the
stock option plan.................................................. -- 11 --
----- ----- -----
Weighted average number of shares - diluted........................... 2,979 2,990 2,979
===== ===== =====
</TABLE>
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash, cash equivalents, short-term
investments, marketable securities and accounts receivable. The Company holds no
collateral for these financial instruments. The Company places its available
funds into government and corporate debt securities as well as investments with
financial institutions and, by policy, limits the amount of credit exposure to
any one issuer. Except for contracts with the United States Government,
concentration of credit risk with respect to accounts receivables are limited
due to a large diversified customer bass which is not concentrated in any one
geographic area. Some of the Company's contracts with the United States
Government have delivery schedules extending for more than one year. Under
applicable United States Government procedures, such contracts may be subject to
annual funding. Accordingly, there is some risk, even after a United States
Government contract has been awarded to the Company, that the necessary funding
for purposes of the contract may not be made available, in subsequent years, to
the relevant United States Government agency. United States Government contracts
may also be subject to cancellation, in which event, the Company would be
entitled to recover incurred costs on completed units, work in progress and
profits associated with such costs.
-33-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Recently Issued Accounting Standards:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in full set general purpose financial statements. SFAS No. 131
establishes accounting standards for the way that public business enterprises
report selected information about operating segments and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 130 and SFAS No. 131 are
required to be adopted by 1998. The Company is currently evaluating the impact,
if any, of SFAS No. 130 and SFAS No. 131.
Foreign Currency Translation:
All non-U.S. subsidiaries consider their local currencies to be their
functional currencies. Net assets of non-U.S. subsidiaries are translated into
U.S. dollars based on the current rates of exchange. Income and expense items
are translated at the average exchange rate for the year. The resulting
translation adjustments are recorded directly into a separate component of
shareholders' equity.
Foreign currency transaction gains and losses result from the periodic
fluctuation in exchange rates, as measured at the respective balance sheet
dates, for transactions denominated in currencies other than the respective
functional currencies used by the Company and its subsidiaries. Such gains and
losses are included in the Company's operating results in the period in which
the exchange rate changes. The net foreign currency transaction (losses) gains
included in (loss) income before taxes for 1 997,1996 and 1995 were ($169), $211
and ($52), respectively. These net foreign currency translation (losses) gains
include ($149) and $366 in 1997and 1966, respectively, applicable to a U.S.
dollar demand loan payable to the Company by its subsidiary, Industrial
Acoustics Company Ltd (IAC Ltd).
Reclassification:
Certain items in 1996 and 1995 have been reclassified to conform to the
1997 presentation.
-34-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
NOTE B - SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The Company considers its marketable securities to be "available-for-sale",
as defined by SFAS 115, and, accordingly, unrealized holding gains and losses
are excluded from operations and reported as a net amount in a separate
component of shareholders' equity.
The following table summarizes the aggregate fair value of short-term
investments and marketable securities, gross unrealized holding gains and
losses, and the amortized cost basis of short term investments and marketable
securities at December 31, 1997:
<TABLE>
<CAPTION>
Unrealized Holding
------------------
Amortized Market
Description Cost Basis Value Gains (Losses) Net
- ----------- ---------- ----- ----- -------- ---
<S> <C> <C> <C> <C> <C>
Maturities within one year:
Corporate debt securities............... $ 452 $ 457 $ 5 $ 0 $ 5
------- ------- ------ ------ ------
452 457 5 0 5
------- ------- ------ ------ ------
Maturities between one and five years:
Corporate debt securities............... 3,616 3,698 116 (34) 82
U.S. Government securities.............. 501 518 17 0 17
State and Local Government securities... 186 191 5 0 5
------- ------- ------ ------ ------
4,303 4,407 138 (34) 104
------- ------- ------ ------ ------
Maturities between five and ten years:
Corporate debt securities............... 7,393 7,393 103 (103) (0)
U.S. Government securities.............. 254 251 0 (3) (3)
State and local government securities... 120 122 3 (1) 2
------- ------- ------ ------ ------
7,767 7,766 106 (107) (1)
------- ------- ------ ------ ------
Maturities after ten years
Corporate debt securities............... 9,495 9,572 165 (88) 77
State and local government securities... 590 583 9 (16) (7)
------- ------- ------ ------ ------
10,085 10,155 174 (104) 70
------- ------- ------ ------ ------
$22,607 $22,785 $ 423 ($245) $178
======= ======= ====== ====== ======
</TABLE>
The aggregate net unrealized gain of $178, less applicable taxes of $71,
has been included as a $107 addition to shareholders' equity at December 31,
1997. At December 31, 1996, the aggregate net unrealized loss of $278, less
applicable taxes of $111, was included as a $167 reduction in shareholders'
equity.
Realized gains and losses are included as a component of other income. For
the year ended December 31, 1997, gross realized gains were $89 and gross
realized losses were $38 for a total not realized gain of $51. For the years
ended December 31, 1996 and 1995, net realized gains (losses) were $249 and
($120), respectively. In computing realized
-35-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
gains and losses, the Company computes the cost of its investments on a specific
identification basis. Such cost includes the direct costs to acquire the
securities, adjusted for the amortization of any discount or premium. The fair
value of investments has been estimated based on quoted market prices.
-36-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
NOTE C - SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31
1997 1998
---- ----
RECEIVABLES:
<S> <C> <C>
Completed orders, less allowances for doubtful accounts
(1997-- $534 1996-- $913).............................................. $15,266 $18,082
Billings on uncompleted contracts........................................ 1,560 3,648
Other.................................................................... 1,017 983
------- -------
$17,843 $22,713
======= =======
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
Direct costs incurred on uncompleted contracts........................... $32,983 $45,776
Estimated earnings....................................................... 15,376 21,049
------- -------
48,359 66,825
Low billings to date..................................................... (43,076) (62,845)
------- -------
$5,283 $3,980
======= =======
The above balance is included in the accompanying balance sheets under the
following captions:
Costs and estimated eamings in excess of billings on uncompleted contracts $6,774 $5,108
Billings in excess of costs and estimated earnings on uncompleted contracts (1,491) (1,128)
------- -------
$5,283 $3,980
======= =======
INVENTORIES:
Materials and supplies................................................... $2,246 $1,492
Work in process.......................................................... 3,610 3,113
------- -------
$5,856 $4,605
======= =======
PROPERTY, PLANT AND EQUIPMENT:
Land..................................................................... $203 $203
Buildings................................................................ 12,252 12,537
Machinery, fixtures and equipment........................................ 10,796 9,931
Leasehold improvements................................................... 565 539
Lab and wind tunnel...................................................... 245 245
------- -------
24,061 23,455
Less allowances for depreciation and amortization........................... (11,521) (10,427)
------- -------
$12,540 $13,028
======= =======
</TABLE>
In 1995, IAC Ltd. completed the acquisition of a 90,000 square foot factory
in Winchester, England for $3,146. This purchase price and costs related to
factory renovations were substantially financed with the proceeds of a
short-term loan from Midland Bank. IAC Ltd moved to the Winchester facilities
during the second quarter of 1996. For 1996, selling, administrative and general
expenses include $683 attributable to the relocation.
-37-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Fully depreciated assets were $4,181 and $3,317 in 1997 and 1996,
respectively.
OTHER ASSETS:
In 1992, the Company entered into a Split-Dollar Life Insurance Agreement
with Michael Hirschorn, a director of the Company, wherein the Company agreed to
advance up to one-half of the amount of premiums on an insurance policy owned by
Michael Hirschorn on the life of Martin Hirschorn, his father and President of
the Company. The Company shall be reimbursed for such advances, which are
non-interest bearing, by Michael Hirschorn upon the earlier to occur of the
surrender of such policy or the payment of proceeds upon the death of Martin
Hirschorn. As of December 31, 1997 and 1996, advances totaling approximately
$391 and $344, respectively, are included in other assets.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable............................. $ 9,374 $ 9,764
Accrued commissions.......................... 1,726 1,844
Salaries, wages and related items............ 2,267 1,752
Accrued expenses............................. 2,800 2,246
------- -------
$16,167 $15,606
======= =======
NOTE D - BORROWINGS
Loans Payable -- The Company, as of December 31, 1997 and 1996, had
outstanding $9,656 and $8,775 of short-term borrowings. At December 31, 1997,
the Company borrowed $6,250 ($5,150 at December 31, 1996) under a $10,000 line
of credit from a commercial bank. Such amount accrues interest, payable monthly,
at a variable rate of 7.31% (7.1% at December 31, 1996) and is collateralized by
marketable securities with a market value of $11,850. In addition, the Company
owes $3,406 in the United Kingdom ($3,625 at December, 31, 1996) in connection
with the purchase of property. The loan is payable on demand, is collateralized
by the purchased property, and accrues interest, payable monthly, at 8.75% per
annum at December 3l, 1997 (8% at December 3l, 1996). For the years ended
December 31, 1997 and 1996, the weighted average interest rate on all short-term
loans payable was 7.52% and 7.35% respectively. Interest paid amounted to $940,
$1,100 and $563 in 1997, 1996 and 1995, respectively.
-38-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
The carrying amount for the bank borrowings approximates fair value because
the loans are short term.
NOTE E - INCOME TAXES
The components of (loss) income before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic........................................................ $703 ($28) $985
Foreign......................................................... (1,786) 315 (1,536)
------- ------- ------
($1,083) $287 ($551)
======= ======= ======
Provision (benefit) for federal, foreign, state and local income taxes
consist of the following:
1997 1996 1995
---- ---- ----
Current:
Federal.............................................. $ 352 ($72) $304
Foreign.............................................. (21) 32 (471)
State and local...................................... 235 95 60
------- ------- ------
566 55 (107)
------- ------- ------
Deferred:
Federal.............................................. (231) (212) (102)
Foreign.............................................. (259) 86 (22)
State and local...................................... 59 (6) 128-
------- ------- ------
(431) (132) 4
------- ------- ------
$ 135 ($77) ($103)
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Deferred taxes at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory and accounts receivable reserves....................... $ 135 $ 106
Accrued expenses................................................. 80 115
Deferred compensation............................................ 701 618
Marketable securities............................................ -
Deferred gain in United Kingdom from intercompany
-39-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
sale of building 309 111
State and local net operating loss carry forwards................ 274 120
------- -------
Total deferred tax assets 1,499 1,070
------- -------
Deferred tax liabilities:..........................................
Property, plant and equipment.................................... 297 534
Marketable securities............................................ 71 -
Pension liability................................................ 319 282
------- -------
Total deferred tax liabilities..................................... 687 816
------- -------
Net deferred tax asset............................................. $ 812 $ 254
Less: valuation allowance.......................................... (309) --
------- -------
$ 503 $ 254
======= =======
</TABLE>
The valuation allowance was established for the amount by which
deferred tax assets exceed deferred tax liabilities in ther United
Kingdom as a result of the recent losses at IAC Ltd.
The following table accounts for the differences between the actual
provision and the amounts obtained by applying the statutory U.S. Federal Income
tax rate of 34% to the income before Income taxes:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rates............................... (34)% 34% (34)%
State and local Income taxes, net of federal benefit...... 18 (1) 29
Nontaxable interest....................................... -- (69) (19)
Different effective tax rate in the United Kingdom........ 30 4 6
Other..................................................... (2) 5 (1)
---- --- ---
12% (27)% (19)%
==== === ===
</TABLE>
Accumulated undistributed earnings of foreign subsidiaries at December 31,
1997 aggregated $2,229. No federal income taxes have been provided, since the
Company plans to reinvest undistributed earnings of the subsidiaries to finance
expansion and meet operating requirements. If such earnings were distributed,
foreign tax credits should be-
-40-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
come available under current law to reduce or eliminate the resulting U.S.
income tax liability.
Federal, foreign, state and local income taxes paid amounted to
approximately $118, $488 and $70 in 1997, 1996 and 1995, respectively.
NOTE F - EMPLOYEE BENEFIT PLANS
The Company has a Defined Contribution Tax Deferred Savings Plan covering
all U.S. employees not covered by collective bargaining agreements. The
Company's elective contribution is allocated to employees based on a five year
average salary basis and is integrated with Social Security. In 1997, the
Company expensed $300 in connection with this Plan.
The Company has a defined benefit pension plan in the United Kingdom
covering certain eligible employees. The Plan provides benefits based on years
of service and an employee's average compensation for the last three years of
employment before retirement. The Company's funding policy is to contribute
amounts sufficient to meet the minimum funding requirements. Assets of the plan
are comprised of a "with profits group" bond effected with an United Kingdom
assurance company.
Pension costs include the following components:
<TABLE>
<CAPTION>
1997 1`996 1995
<S> <C> <C> <C>
Service cost-- benefits earned during the period.......... $ 312 $ 309 $ 450
Interest cost on projected benefit obligation............. 465 389 1,137
Actual return on plan assets.............................. (373) (891) (2,125)
Net amortization and deferral............................. (378) 275 1,026
----- ----- ------
Pension cost of the defined benefit plans................. $ 26 $ 82 $ 488
===== ===== ======
</TABLE>
The funded status of the defined benefit plan and amounts recognized In the
consolidated balance sheets at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated benefit obligation..................................... $ 5,535 $ 5,233
------- -------
Projected benefit obligation....................................... $ 5,989 $ 5,696
-41-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Plan assets at fair value.......................................... 8,043 7,890
------- -------
Plan assets in excess of projected benefit obligation.............. 2,054 2,194
Unrecognized net gain.............................................. (1,924) (2,332)
Unrecognized prior service cost.................................... 1,053 1,195
Unrecognized not transition asset.................................. (155) (202)
------- -------
Prepaid pension costs recognized in the balance sheet.............. $ 1,028 $ 855
======= =======
</TABLE>
Assumptions used to calculate the actuarial present value of the projected
benefit obligation and the expected long-term return on assets for the defined
benefit plan are as follows:
1997 1996
---- ----
Discount rate.......................................... 8.5% 8.5%
Rate of increase in future compensation levels......... 6.5% 6.5%
Expected long term rate of return on plan assets....... 8.5% 8.5%
The Company contributes to multi-employer pension plans on behalf of
employees who are members of collective bargaining units. Benefit and asset
information comparable to that shown above for the Company's plans are not
determinable. Under the Employee Retirement Income Security Act of 1974, as
amended, an employer upon withdrawal from a multi-employer plan is required to
continue funding its proportionate share of the plan's unfunded vested benefits.
The plan administrator has not provided the Company with information regarding
its proportionate share of the plan's unfunded vested benefits (for withdrawal
liability purposes); however, the Company has no immediate intention of
withdrawing from the plan. Expenditures incurred amounted to $122, $145 and $119
In 1997, 1996 and 1995, respectively.
The Company has deferred compensation agreements with certain present and
past key officers, directors and employees ("participants"). The agreements
provide for the participants to receive defined amounts after reaching age 65.
The Company provides for the cost of the benefits payable under the agreements
over the participants' active employment. During the years ended December 31,
1997, 1996 and 1995, the Company incurred expenses related to these agreements
of $178, $202 and $164, respectively. As of December 31, 1997 and 1996, the
accrued liability totaled $1,339 and $1,367, respectively. The Company has
insured the lives of the participants to assist In the funding of this
liability.
-42-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
NOTE G - LEASES
The Company conducts a large part of Its operations from leased facilities
which include manufacturing and office facilities. Certain leases include
options to renew for periods ranging from 5 to 67 years. Certain Company leases
also require it to pay all real estate taxes and operating costs and one lease
is subject to periodic rental escalations.
The following represents the amounts of assets under capital leases
included in property, plant and equipment:
December 31
1997 1996
---- ----
Buildings and computer equipment....... $3,295 $3,295
Less accumulated amortization.......... (693) (554)
------ ------
$2,602 $2,741
====== ======
The building lease pertains to the New York manufacturing facility which
expires in 2019. However, the Company has entered into an agreement with the
landlord to purchase for $4,000 the approximately 72.500 square feet of
manufacturing space it now leases from the landlord.
Future minimum payments, by yearand in the aggregate, under capital leases
and noncancellable operating leases with initial or remaining terms of one year
or more consist of the following at December 31, 1997 (net of annual sub-lease
income of $98 through 2002):
Capital Operating
Leases Losses
------ ------
Year ending December 31:
1998...................................... $ 304 $ 409
1999...................................... 304 383
2000...................................... 304 110
2001...................................... 304 59
2002...................................... 291 19
Later years............................... 4,645 851
------ ------
Total minimum lease payments................ $6,152 $1,831
======
-43-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Less amounts representing Interest............... (3,019)
Present value of minimum lease payments.......... (3,133)
Less current portion............................. (78)
------
$3,055
======
The composition of rental expense is as follows:
Year Ended December 31
1997 1996 1995
---- ---- ----
Minimum rentals.................. $1,030 $908 $1,275
Sublease rental income........... (145) --
------ ----- ------
$885 $908 $1,275
====== ===== ======
NOTE H - STOCK OPTION PLAN
On September 20, 1995, the Company adopted a stock option plan and granted
options to key employees to purchase 200,000 shares of common stock, the maximum
amount permitted under the plan, at $9.75 per share, the market value on the
date of grant. Options became exercisable after one year at the rate of 25% per
year for four consecutive years.
In January 1997. the options granted in 1995 were rescinded and new options
to purchase another 200,000 shares of common stock were granted at $8.00 per
share, the market value on the date of grant. The options will become
exercisable after one year at the rate of 25% per year for four consecutive
years.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation", which allows companies to measure compensation
cost in connection with employee stock compensation plans using a fair value
based method or to continue to use an intrinsic value based method. The Company
will continue to use the intrinsic value based method which generally does not
result in compensation cost. Had compensation cost been determined under the
fair value based method for the
-44-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
stock options granted In 1995, the Company's 1997 and 1996 net (loss) income per
common share would have been changed to the pro forma amounts indicated below:
As Reported Pro Forma
----------- ---------
Net (loss) Income
1997...................................... ($1,218) ($1,366)
1996...................................... $364 $275
Net (loss) Income per common share
1997
Basic and diluted.............................. ($0.41) ($0.46)
1996
Basic and diluted.............................. $0.12 $0.09
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the options granted in l995: -- dividend yield 1.17%;
expected volatility 40%; risk free interest rate of 6.33%; and expected lives of
6 years.
NOTE I - GEOGRAPHIC INFORMATION
The Company and its subsidiaries operate within a single industry segment
which is the development, manufacturing, fabrication, and sale of products
designed for noise control and acoustically conditioned environments. The
Company's customers include governmental entities and companies in diversified
industries.
The Company primarily operates in two geographic areas: North America and
Europe. North America includes the United States and Canada. Europe includes the
United Kingdom and Germany. The following information sets forth the data by
geographic area.
During 1997, 1996 and 1995, revenues from the United States Government
amounted to approximately $l2,282, $15,510 and $13,169, respectively.
<TABLE>
<CAPTION>
North
American(1) European(2) Elimination Consolidated
Year ended December 31, 1997:
<S> <C> <C> <C>
Net sales to unaffiliated customers. $53,645 $19,266 $72,911
-45-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
Inter-area net sales................ 139 ($139)
------- ------- ------- -------
$53,784 $19,266 ($139) $72,911
======= ======= ======= =======
Operating profit (loss)(3).......... 1,322 (1,107) (359) (144)(4)
Identifiable assets(5).............. 57,158 17,104 74,262
Year ended December 31, 1996:
Net sales to unaffiliated customers. $51,521 $22,102 $73,623
Inter-area net sales................ 226 1,864 ($2,090) --
------- ------- ------- -------
$51,747 $23,966 ($2,090) $73,623
======= ======= ======= =======
Operating profit(3)................. 832 791 (258) 1,365(4)
Identifiable assets................. 54,155 18,690 72,845
Year ended December 31, 1995:
Net sales to unaffiliated customers. $46,974 $23,659 $70,633
Inter-area net sales(3)............. 336 1,368 ($1,704)
------- ------- ------- -------
$47,310 $25,027 ($1,704) $70,633
======= ======= ======= =======
Operating profit (loss)(3).......... 1,572 (1,537) 35(4)
Identifiable assets(s)(5)........... 58,850 16,866 75,716
</TABLE>
(1) Includes Canadian sales of $25, $114 and $448 in 1997, 1996 and 1995,
respectively.
(2) Includes German sales of $4,000, $3,891 and $4,691 in 1997,1996 and 1995,
respectively.
(3) North American operating profit includes royalty income of $101 (1997), $74
(1996) and $419 (1995) charged against European operating profit and
Canadian operating profit of $1 (1997), $1 (1996), and $1 (1995). European
operating (loss) profit includes German operating profit (loss) of $61
(1997), ($152) (1996) and $124 (1995).
(4) Excludes interest expense of $940, $1,078 and $586 in 1997, 1996 and 1995,
respectively. The 1997 and 1996 elimination of $359 and $258, respectively,
relates to interest on an intercompany loan.
(5) North American includes Canadian assets of $202 (1997), $253 (1996) and
$244 (1995). European includes German assets of $1,722 (1997), $2041 (1996)
and $1,862 (1995).
-46-
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars and shares in thousands, except per share data)
NOTE J - SUBSEQUENT EVENT
The principal stockholder of the Company entered into a
stock-purchase agreement, in January 1998, to sell his shareholdings,
representing approximately 64% of the outstanding common stock of the Company,
to IAC Holding Corp. whose principal investor is a European investment company.
-47-
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL ACOUSTICS COMPANY, INC. and SUBSIDIARIES
SCHEDULE 11 - VALUATION and OUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions (Deductions)
----------------------
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions - End of
Description of Period Expenses Describe(1) Describe(2) Period
--------- -------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowances for doubtful accounts.... $ 913 ($391) ($8) $20 $ 534
Year ended December 31, 1996:
Allowances for doubtful accounts.... $ 613 302 20 (22) $ 913
Year ended December 31, 1995:
Allowances for doubtful accounts.... $1,090 (362) 1 (116) $ 613
</TABLE>
(1) Represents the effect of exchange rate changes on translation of foreign
currencies into U.S. dollars.
(2) Represents write-offs (recoveries).
<PAGE>
[FORM OF PROXY]
- -------------------------------------------------------------------------------
INDUSTRIAL ACOUSTICS COMPANY, INC.
1160 Commerce Avenue, Bronx, New York 10462
Proxy Solicited on Behalf of the Board of Directors of the Company
The undersigned hereby constitutes and appoints James A. Read and Robert M.
Davies, and each of them, as true and lawful agents and proxies with full power
of substitution in each, to represent the undersigned at the Special Meeting of
Shareholders of Industrial Acoustics Company, Inc. (the "Company") to be held at
1160 Commerce Avenue, Bronx, New York 10462, on __________, 1998 at 10:00 a.m.
New York time and at any postponements and adjournments thereof, on all matters
coming before said meeting.
1. Approval of the Agreement and Plan of Merger between IAC Holdings Corp.
("Holdings") and the Company dated as of May 20, 1998, pursuant to which
Holdings will be merged with and into the Company and shareholders of the
Company (other than Holdings) will receive $11.00 in cash for each share of
Common Stock of the Company.
/ / FOR
/ / AGAINST
2. In their discretion, upon other matters as they may properly come before
the meeting.
(Continued and to be signed on the other side.)
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
(Continued from other side.)
You are encouraged to specify your choices by marking the appropriate box, see
reverse side, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The persons named on the reverse
side as agents and proxies cannot vote your share unless you sign and return
this card.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted FOR
Proposal 1.
Dated____________________________________
1998
-----------------------------------------
----------------------------------------
-----------------------------------------
Signature(s)
Please mark, sign and return
promptly using the enclosed
envelope. Executors, administrators,
trustees, etc. should give a title
as such. If the signer is a
corporation, please sign full
corporate name by duly authorized
officer.
- ------------------------------------------------------------------------------
-2-
AGREEMENT
AND PLAN OF MERGER
BETWEEN
IAC HOLDINGS CORP.
AND
INDUSTRIAL ACOUSTICS COMPANY, INC.
Agreement and Plan of Merger (the "Agreement"), dated as of May 20, 1998,
between IAC HOLDINGS CORP., a Delaware corporation ("Holdings") and INDUSTRIAL
ACOUSTICS COMPANY, INC., a New York corporation (the "Company").
WHEREAS, Holdings is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of 1,000 shares of
common stock, par value $.01. As of the date hereof, 1,000 shares of Common
Stock of Holdings are issued and outstanding and entitled to one vote per share.
WHEREAS, the Company is a corporation duly organized and existing under the
laws of the State of New York and has an authorized capital of 5,000,000 shares
of common stock, $.10 par value (the "Common Stock"). As of the date hereof,
2,981,211 shares of Common Stock are issued and outstanding and entitled to one
vote per share.
<PAGE>
-2-
WHEREAS, the Board of Directors of the Company has determined that (i) a
merger between Holdings and the Company is fair and in the best interests of the
Company and its shareholders and (ii) among other things, the business purpose
in effecting such a merger is to ultimately increase the value of the Company
and improve its management structure.
WHEREAS, notwithstanding anything contained herein to the contrary, at any
time prior to filing a certificate of merger with the Secretary of State of New
York, the plan of merger may be abandoned by the Board of Directors of the
Company or Holdings.
WHEREAS, the respective Boards of Directors of Holdings and the Company and
the stockholders of Holdings have approved this Agreement and have directed that
this Agreement be submitted to a vote of the shareholders of the Company.
NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Holdings and the Company hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
<PAGE>
-3-
ARTICLE I
MERGER
1.1 Merger. Subject to the terms and conditions of this agreement, Holdings
shall be merged with and into the Company in accordance with the New York
Business Corporation Law (the "NYBCL") and the General Corporation Law of the
State of Delaware (the "DGCL") (the "Merger").
The separate existence of Holdings shall cease, and the Company shall be
the surviving corporation and continue its corporate existence under the laws of
the State of New York. Thereafter, without further action, the Company shall
succeed, insofar as permitted by law, to all the rights, assets, privileges,
franchises, liabilities and obligations of Holdings.
1.2 Filing and Effectiveness. The Merger shall become effective upon the
completion of the following actions:
(a) This Agreement and the Merger shall have been approved by the
shareholders of the Company in accordance with the provisions of the NYBCL;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
<PAGE>
-4-
(c) An executed Certificate of Merger, in the form attached hereto as
Exhibit 1, meeting the requirements of the DGCL or an executed counterpart of
this Agreement shall have been filed with the Secretary of State of Delaware;
and
(d) An executed Certificate of Merger, in the form attached hereto as
Exhibit B, meeting the requirements of the NYBCL shall have been filed with the
Secretary of State of New York.
(e) Holdings shall have the funds necessary, or shall have arranged to
borrow the funds on terms reasonably acceptable to its Board of Directors, to
pay the Merger Consideration (as defined herein).
The date and time when the Merger shall become effective, as set forth
above, is hereinafter referred to as the "Effective Date."
1.3 Certificate of Incorporation. The Certificate of Incorporation of the
Company, attached hereto as Exhibit C, in effect immediately prior to the
Effective Date shall continue in full force and effect as the Certificate of
Incorporation of the Company until duly amended in accordance with the
provisions thereof and applicable law, and the name of the surviving Corporation
shall be Industrial Acoustics Company, Inc.
<PAGE>
-5-
1.4 By-laws. The By-laws of the Company in effect immediately prior to the
Effective Date shall continue in full force and effect as the By-laws of the
Company until duly amended in accordance with the provisions thereof and
applicable law.
1.5 Directors and Officers. The directors and officers of the Company
immediately prior to the Effective Date shall continue as the directors and
officers of the Company until their successors shall have been elected or until
otherwise provided by law, the Certificate of Incorporation of the Company or
the By-laws of the Company.
1.6 Effect of Merger. Upon the Effective Date, the separate existence of
Holdings shall cease and the Company, (i) shall continue to possess all of its
assets, rights, powers and property as constituted immediately prior to the
Effective Date, shall be subject to all actions previously taken by its Board of
Directors and shall succeed, without other transfer, to all of the assets,
rights, powers and property of Holdings in the manner and as more fully set
forth in Section 259 of the DGCL, and (ii) shall continue to be subject to all
of its debts, liabilities and obligations as constituted immediately prior to
the Effective Date and succeed, without other transfer, to all of the debts,
liabilities and obligations of Hold-
<PAGE>
-6-
ings in the same manner as if the Company had incurred them, all as more fully
provided under the applicable provisions of the DGCL and the NYBCL.
ARTICLE II
MANNER OF CONVERSION OF STOCK
2.1 Outstanding stock of the Company. Upon the Effective Date, by virtue of
the Merger, each share of Common Stock outstanding immediately prior thereto
(other than Common Stock held by Holdings and Common Stock held by the Company
as treasury stock) shall be converted into the right to receive $11.00 per share
in cash (the "Merger Consideration"), upon surrender of the stock certificates
representing such Common Stock in accordance with Section 2.2 herein, with any
fractional shares issuable to a registered owner of Common Stock in the
aggregate to be rounded up to the nearest whole share.
Each outstanding share of Common Stock owned by Holdings or held by the
Company as treasury stock will be cancelled.
2.2 Stock Certificates. (a) After the Effective Date, each holder of a
certificate(s) formerly evidencing Common Stock which has been converted into
the right to receive the Merger Consideration, upon surrender of the same to an
ex-
<PAGE>
-7-
change agent appointed by the Company (the "Exchange Agent"), shall be entitled
to receive the Merger Consideration.
(b) Promptly after the Effective Date, the Exchange Agent shall send a
notice and a transmittal form (which shall specify that the delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery of
the certificates formerly representing Common Stock to the Exchange Agent
(subject to Section 2.2(d)) to each holder of certificates formerly evidencing
Common Stock advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such certificates for exchange
into the Merger Consideration. The notice and transmittal form provided for in
this Section 2.2(b) shall be sent by the Exchange Agent to the address for each
holder of Common Stock contained in the stock record books of the Company
promptly after the Effective Date. Each holder of certificates formerly
evidencing Common Stock, upon proper surrender thereof to the Exchange Agent
together and in accordance with such transmittal form, shall be entitled to
receive in exchange therefor the Merger Consideration. Notwithstanding the
foregoing, neither the Exchange Agent nor any party shall be liable to a holder
of certificates formerly evidencing Common Stock for any amount which may be
required to be paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
<PAGE>
-8-
(c) If any portion of the Merger Consideration is to be delivered to a
Person other than the Person in whose name the certificates surrendered in
exchange therefor are registered, it shall be a condition to such payment that
the certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise be proper and that the Person requesting such transfer shall
pay to the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Exchange Agent that such taxes
have been paid or are not required to be paid. For purposes of this Agreement,
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
(d) In the event any certificate theretofore representing Common Stock
shall have been lost, stolen or destroyed, upon the making of an appropriate
affidavit of that fact by the shareholder claiming such certificate to be lost,
stolen or destroyed, such shareholder shall be paid the Merger Consideration;
provided that when the Merger Consideration is paid to such shareholder, the
Board of Directors of the Company may, in its discretion and as a condition
precedent to the issuance
<PAGE>
-9-
thereof, require the claiming Person to give the Company a bond or
indemnification in such form and sum as the Company may reasonably direct as
indemnity against any claim that may be made against the Company with respect to
the certificate alleged to have been lost, stolen or destroyed.
2.3 Outstanding Common Stock of Holdings. Upon the Effective Date, by
virtue of the merger, each issued and outstanding common stock of Holdings shall
be cancelled and converted into one share of Common Stock of the Company.
ARTICLE III
GENERAL
3.1 Termination and Abandonment. At any time prior to the Effective Date,
this Agreement may be terminated and the Merger abandoned by the Board of
Directors of either Holdings or the Company if (a) approval by the shareholders
of the Company specified in Article I hereof shall not have been obtained, or
(b) the respective Board of Directors of either Holdings or the Company
determines that in its sole discretion the Merger does not appear to be in the
best interests of either of Holdings or the Company or their respective
shareholders or is otherwise not advisable.
<PAGE>
-10-
3.2 Amendment. This Agreement may be amended, modified, supplemented or
abandoned at any time (before or after shareholder approval) prior to the
Effective Date with the mutual consent of the Boards of Directors of Holdings
and the Company; provided, however, that this Agreement may not be amended,
modified or supplemented after it has been approved by the shareholders of the
Company in any manner which, in the judgment of the Board of Directors of the
Company, would have a material adverse effect on the rights of such shareholders
or in any manner not permitted under applicable law.
3.3 Headings. The headings set forth herein are inserted for convenience or
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
3.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, and all of which, when
taken together, shall constitute one and the same instrument.
3.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law, except to the extent that the laws of the State of Delaware
require application herein.
<PAGE>
-11-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf and attested by its officers hereunto duly authorized,
all as of the date and year first above written.
INDUSTRIAL ACOUSTICS COMPANY, INC.
By: /s/ Frederic M. Oran
---------------------------------
Name: Frederic M. Oran
Title: President
Attest:
By: /s/ Robert N. Bertrand
---------------------------
Name: Robert N. Bertrand
Title: Secretary
IAC HOLDINGS CORP.
By: /s/ James A. Read
---------------------------------
Name: James A. Read
Title: President
Attest:
By: /s/ Martin P. Dineen
---------------------------
Name: Martin P. Dineen
Title: Secretary
