<PAGE>
SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[_]Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Under Rule 14a-12
Lilly Industries, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X]Fee paid previously with preliminary materials.
[_]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:
<PAGE>
[LOGO OF LILLY INDUSTRIES, INC.]
200 West 103rd Street
Indianapolis, Indiana 46290
August 21, 2000
TO OUR SHAREHOLDERS:
You are cordially invited to attend a special meeting of shareholders of
Lilly Industries, Inc. to be held on September 27, 2000, at 10:00 a.m., local
time, at the Corporate Headquarters of Lilly Industries, 200 West 103rd Street,
Indianapolis, Indiana.
At the special meeting you will be asked to consider and vote upon a
proposal to approve a merger between Lilly Industries and The Valspar
Corporation. If the merger is completed, Lilly Industries will become a
subsidiary of Valspar, and you will receive $31.75 in cash for each of your
shares of Lilly Industries Class A and Class B common stock.
Your Board of Directors has determined that the merger is fair to and in the
best interests of Lilly Industries and its shareholders. Accordingly, your
Board has approved and adopted the merger agreement and the merger, and
recommends that you vote FOR the approval of the merger agreement at the
special meeting.
The accompanying notice of special meeting and proxy statement explain the
proposed merger and provide specific information concerning the special
meeting. Please read these materials carefully.
Your vote is very important. We cannot complete the merger unless the merger
agreement is approved by holders of a majority of all of the outstanding shares
of Lilly Industries Class A and Class B common stock, having equal voting
rights, share for share, voting together as one class. Accordingly, failing to
vote your shares will have the same effect as a vote against the merger.
Whether or not you plan to be present at the special meeting, please sign and
return your proxy as soon as possible in the enclosed self-addressed envelope
so that your vote will be recorded.
DOUGLAS W. HUEMME
Chairman of the Board of Directors
and Chief Executive Officer
This proxy statement is dated August 21, 2000, and is first being mailed to
shareholders on or about August 24, 2000.
<PAGE>
[LOGO OF LILLY INDUSTRIES LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 27, 2000
To Our Shareholders:
A special meeting of shareholders of Lilly Industries, Inc., an Indiana
corporation, will be held on September 27, 2000, at 10:00 a.m., local time, at
the Corporate Headquarters of Lilly Industries, 200 West 103rd Street,
Indianapolis, Indiana, to consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of June 23, 2000, among Lilly
Industries, The Valspar Corporation and a wholly owned subsidiary of Valspar,
pursuant to which the subsidiary will be merged into Lilly Industries and each
share of Class A and Class B common stock of Lilly Industries outstanding
immediately prior to the merger (other than shares held by Lilly Industries,
Valspar or their respective subsidiaries, which will be canceled) will be
converted into the right to receive $31.75 in cash, without interest.
The Board of Directors has fixed August 18, 2000 as the record date for the
determination of shareholders entitled to notice of and to vote at the special
meeting or any adjournment of the date of the special meeting to a date no
later than 120 days after the date of the special meeting.
Whether or not you expect to attend the special meeting in person, please
date and sign the accompanying proxy card and return it promptly in the
envelope enclosed for that purpose.
By Order of the Board of Directors,
JOHN C. ELBIN
Chief Financial Officer, Vice
President & Secretary
Indianapolis, Indiana
August 21, 2000
<PAGE>
SUMMARY TERM SHEET FOR THE MERGER
This summary term sheet for the merger highlights selected information from
this proxy statement regarding the merger and the merger agreement and may not
contain all of the information that is important to you as a Lilly Industries
shareholder. Accordingly, we encourage you to carefully read this entire
document and the documents to which we have referred you.
The Proposed Transaction
. The Proposal (page 2). You are being asked to consider and vote upon a
proposal to approve the merger agreement that provides for Lilly Industries
to be acquired by Valspar.
. What You Will Receive (page 21). Upon completion of the merger, you will be
entitled to receive $31.75 in cash for each of your shares of Lilly
Industries Class A and Class B common stock.
. The Acquiror (page 1). Valspar is a multinational paint and coatings
manufacturing company headquartered in Minneapolis, Minnesota.
Lilly Industries' Recommendation to Shareholders (page 6)
Your board of directors has determined by a unanimous vote that the merger
is fair to and in the best interests of Lilly Industries and its shareholders
and has approved and adopted the merger agreement and the merger. Your board
recommends that shareholders vote FOR approval of the merger agreement at the
special meeting.
Opinion of Wasserstein Perella (page 7 and Appendix B)
On June 23, 2000, Wasserstein Perella & Co., Inc., our financial advisor,
delivered its oral opinion, which it confirmed in a written opinion dated
June 23, 2000, to the Lilly Industries board that, as of the date of such
opinion and based on and subject to the matters stated in the opinion, the
$31.75 per share in cash to be received by the holders of shares of Class A and
Class B common stock of Lilly Industries was fair from a financial point of
view to such holders.
Wasserstein Perella provided its advisory services and its opinion for the
information and assistance of the Lilly Industries board in connection with its
consideration of the merger. Wasserstein Perella's opinion is not a
recommendation as to how any Lilly Industries shareholder should vote at the
special meeting. The opinion is attached as Appendix B to this proxy statement,
and you are urged to read the opinion in its entirety.
The Special Meeting
. Date, Time and Place (page 2). The special meeting will be held on September
27, 2000, at 10:00 a.m., local time, at the Corporate Headquarters of Lilly
Industries, 200 West 103rd Street, Indianapolis, Indiana.
. Required Vote (page 2). Approval of the merger requires the affirmative vote
of the holders of a majority of the outstanding shares of Lilly Industries
Class A and Class B common stock, having equal voting rights, share for
share, voting together as one class.
. Who May Vote (page 2). You are entitled to vote at the special meeting if
you owned shares of Lilly Industries Class A and Class B common stock at the
close of business on August 18, 2000, the record date for the special
meeting. 22,756,053 shares of Lilly Industries Class A common stock and
483,037 shares of Lilly Industries Class B common stock were outstanding as
of the record date and entitled to be voted.
. Procedure for Voting (page 2). You may vote in either of two ways:
(1) by completing and returning the enclosed proxy card, or
(2) by appearing at the special meeting.
If you complete and return the enclosed proxy but wish to revoke it, you
must either file with the Secretary of Lilly Industries a written, later-
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dated notice of revocation or send a later-dated proxy relating to the same
shares to the Secretary of Lilly Industries at or before the special
meeting.
The Merger
. The Structure (page 21). Upon the terms and conditions of the merger
agreement, a wholly owned subsidiary of Valspar will merge with and into
Lilly Industries. Lilly Industries will remain in existence as a wholly
owned subsidiary of Valspar. Lilly Industries shareholders will have no
equity interest in Lilly Industries or Valspar after the merger.
. Accounting Treatment (page 16). The merger will be treated as a "purchase"
for accounting purposes.
. Material Federal Income Tax Consequences (page 14). The merger will be a
taxable transaction to you. For United States federal income tax purposes,
you will generally recognize gain or loss in the merger in an amount
determined by the difference between the cash you receive and your tax basis
in Lilly Industries Class A and Class B common stock. Because determining
the tax consequences of the merger can be complicated, you should consult
your own tax advisor in order to understand fully how the merger will affect
you.
. Antitrust Matters (page 15). Under United States federal antitrust law, the
merger may not be completed until Valspar and Lilly Industries have made
filings with the United States Federal Trade Commission and the United
States Department of Justice and the applicable waiting periods have expired
or been terminated. On June 30, 2000, Valspar and Lilly Industries filed the
requisite notification reports with the Federal Trade Commission and the
Department of Justice. On July 28, 2000, the Federal Trade Commission issued
a request for additional information and documentary material. Under the
applicable provisions of the United States federal antitrust law, the merger
may not be consummated until the expiration of a statutory waiting period,
which expires 20 days after both Lilly Industries and Valspar substantially
comply with this request. We hope to complete the proposed merger by year
end. However, no assurances can be made that we will receive the necessary
governmental clearances on acceptable terms to complete the merger by then.
. Dissenters' Rights (page 18 and Appendix C). Under Indiana law, Lilly
Industries' Class A shareholders do not have dissenters' rights in the
merger, but holders of shares of Lilly Industries Class B common stock are
entitled to dissenters' rights in the merger.
. Merger Financing (page 16). While the merger agreement does not provide for
a financing condition, it is expected that Valspar will need approximately
$1.3 billion in order to complete the merger. Valspar has received a
commitment from a group of commercial banks to provide a syndicated
revolving credit facility to finance completion of the merger. The facility
is expected to consist of a credit facility between $750 million and $1
billion with a longer term maturity and a credit facility between $500
million and $750 million with a shorter term maturity. Depending on market
conditions, Valspar may issue promissory notes in a private or public
offering to provide alternative or additional financing for the merger,
refinance certain indebtedness of Lilly Industries and Valspar, pay fees and
expenses in connection with the merger or provide funds for general
corporate purposes after the merger.
The Merger Agreement (page 21 and Appendix A)
. Closing of the Merger (page 28). Before we can complete the merger, a number
of conditions must be satisfied. These include:
--approval of the merger agreement by the requisite vote of Lilly
Industries shareholders;
--expiration or early termination of applicable time periods under United
States federal antitrust laws;
--receipt of required governmental approvals and absence of any legal
prohibitions against
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the merger, except in each case as would not have a material adverse
effect on Valspar (giving effect to the merger) or result in a significant
criminal violation;
--each party's compliance with its representations and agreements under the
merger agreement except as would not reasonably be expected to have a
material adverse effect on that party;
--since the date of the merger agreement, no occurrence of a material
adverse effect on Lilly Industries other than as contemplated by the
merger agreement; and
--receipt of third-party approvals except as would not reasonably be
expected to have a material adverse effect on Lilly Industries.
We expect to merge as promptly as practicable after all of the conditions
to the merger have been satisfied or waived.
. Termination of the Merger Agreement (page 29). Lilly Industries and Valspar
may agree in writing to terminate the merger agreement at any time without
completing the merger, even after Lilly Industries shareholders have
approved it. The merger agreement may also be terminated at any time prior
to the effective time of the merger:
(1) by either party if the merger is not completed by June 30, 2001,
provided that the party seeking to terminate under this provision did not
cause the inability to complete the merger by that date;
(2) by either party if any court or governmental agency issues a final
and nonappealable order preventing the merger;
(3) by either party if the other party to the merger agreement breaches
its representations or agreements and such breach is uncurable and would
reasonably be expected to have a material adverse effect on the relevant
party;
(4) by Lilly Industries after giving Valspar at least four business
days' prior written notice of its intent to terminate the merger agreement,
negotiating possible adjustments to the merger agreement during that period
if reasonably requested by Valspar and paying a termination fee of $25
million, if the Lilly Industries board:
--receives what it determines in good faith to be a more favorable
acquisition proposal that is reasonably likely to be completed; and
--determines in good faith that by failing to terminate the merger
agreement it would likely violate its fiduciary duties.
(5) by Valspar if the Lilly Industries board fails to recommend or
adversely changes in any material respect its recommendation of the merger
agreement; and
(6) by either party if Lilly Industries shareholders fail to approve the
merger agreement at the special meeting.
. Termination Fee if Merger Is Not Completed (page 30). We must pay Valspar a
termination fee of $25 million if:
--the merger agreement is terminated for the reasons stated in clause (4)
of "--Termination of the Merger Agreement" above;
--the merger agreement is terminated for the reasons stated in clause (5)
of "--Termination of the Merger Agreement" above; or
--all of the following three events occur:
. a third party proposes to acquire Lilly Industries prior to the special
meeting,
. the merger agreement is terminated for the reasons stated in clause (6)
of "--Termination of the Merger Agreement" above, and
. within 12 months following the termination of the merger agreement,
Lilly Industries enters into a binding written agreement with respect
to that third-party proposal.
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Interests of Certain Persons in the Merger (page 16)
When the Lilly Industries board considered the merger and the merger
agreement, the Lilly Industries board was aware that certain of the officers
and directors of Lilly Industries have interests and arrangements that may be
different from, or in addition to, your interests as Lilly Industries
shareholders. All vested and unvested Lilly Industries stock options, including
those held by directors and officers, will be cancelled in exchange for a cash
payment in the merger. Pursuant to change of control agreements previously
approved by the Lilly Industries board, Lilly Industries' executives will
receive lump-sum cash payments and other benefits if their employment is
terminated under certain circumstances following the merger. In addition, Lilly
Industries' executive retirement plan provides for a minimum benefit to vest
upon completion of the merger. Under the merger agreement, Valspar and Lilly
Industries will indemnify and provide insurance for directors and officers of
Lilly Industries, among others.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Companies............................................................. 1
Lilly Industries, Inc................................................... 1
The Valspar Corporation................................................. 1
Merger Subsidiary....................................................... 1
The Special Meeting....................................................... 2
General................................................................. 2
Record Date and Voting.................................................. 2
Required Vote........................................................... 2
Proxies; Revocation..................................................... 3
Adjournments............................................................ 3
The Merger................................................................ 4
Background of the Merger................................................ 4
Lilly Industries' Reasons for the Merger; Recommendation of the Lilly
Industries Board....................................................... 6
Opinion of Wasserstein Perella.......................................... 7
Material Federal Income Tax Consequences................................ 14
Governmental and Regulatory Approvals................................... 15
Accounting Treatment.................................................... 16
Merger Financing........................................................ 16
Interests of Certain Persons in the Merger.............................. 16
Amendment to Lilly Industries Rights Agreement.......................... 18
Dissenters' Rights...................................................... 18
The Merger Agreement...................................................... 21
Structure and Effective Time............................................ 21
Merger Consideration.................................................... 21
Payment Procedures...................................................... 21
Treatment of Lilly Industries Stock Options............................. 21
Directors and Officers.................................................. 22
Representations and Warranties.......................................... 22
Covenants; Conduct of the Business of Lilly Industries Prior to the
Merger................................................................. 23
No Solicitation of Acquisition Transactions............................. 25
Employee Benefits....................................................... 25
Agreement to Cooperate.................................................. 25
Indemnification and Insurance........................................... 27
The Lilly Industries Board Recommendation............................... 27
Conditions to the Merger................................................ 28
Important Definitions................................................... 29
Termination............................................................. 29
Termination Fee......................................................... 30
Expenses................................................................ 30
Amendment............................................................... 30
Security Ownership of Management and Certain Shareholders................. 31
Market Price of Lilly Industries Class A Common Stock and Dividend
Information.............................................................. 33
Forward-Looking Statements................................................ 34
Future Shareholder Proposals.............................................. 34
Where You Can Find More Information....................................... 34
Incorporation of Certain Documents by Reference........................... 35
</TABLE>
APPENDICES
<TABLE>
<S> <C>
Appendix A--Agreement and Plan of Merger.................................... A-1
Appendix B--Opinion of Wasserstein Perella & Co., Inc....................... B-1
Appendix C--Chapter 44 of the Indiana Business Corporation Law.............. C-1
</TABLE>
v
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THE COMPANIES
Lilly Industries, Inc.
We believe we are a leader in the industrial coatings and specialty
chemicals industry, one of the five largest industrial coatings and specialty
chemicals manufacturers in North America, and one of the 15 largest in the
world based on net sales of $656.2 million in fiscal 1999. We formulate,
manufacture and market industrial coatings and specialty chemicals to original
equipment manufacturers, enhancing the appearance of and providing durability
to products such as home and office furniture, cabinets, appliances, building
products, transportation, agricultural and construction equipment, mirrors and
a variety of metal and fiberglass reinforced surfaces. A significant amount of
our sales are derived from industrial coatings and specialty chemicals
developed in cooperation with our customers to meet their specific product
requirements, resulting in a number of primary supplier relationships with
those customers.
We have only one reportable operating segment, and employ approximately
2,400 people. We have plants or sales offices in the United States, Australia,
Canada, China, Germany, Ireland, Malaysia, Mexico, Singapore, Taiwan and the
United Kingdom.
We were founded in 1865 and incorporated under the laws of the State of
Indiana on December 5, 1888. Our executive offices are located at 200 West
103rd Street, Indianapolis, Indiana 46290; telephone: (317) 814-8700.
The Valspar Corporation
The Valspar Corporation is a multinational paint and coatings manufacturer
with two reportable segments: Coatings and Coating Intermediates.
Within the Coatings segment, Valspar has various product lines. The
Architectural, Automotive and Specialty product line includes interior and
exterior decorative paints and aerosols, automotive and fleet refinish coatings
and floor coatings. The decorative paints and aerosols are sold primarily to
the do-it-yourself market in the United States. The Packaging product line
includes coating and inks for rigid packaging containers, principally food
containers and beverage cans. The Industrial product line includes decorative
and protective coatings for metal, wood and plastic substrates. These products
are sold primarily to original equipment manufacturers for the coating of
automotive parts, building products, railcars, agricultural equipment,
construction equipment and metal fabrication products.
Valspar's Coatings Intermediates are primarily resins and colorants. Valspar
manufactures and sells these resins and colorants to support its own
Architectural, Automotive and Specialty product line, Industrial product line
and Packaging product line. Valspar also sells resins and colorants to external
customers, such as other coatings manufacturers and building products
manufacturers.
Valspar is a Delaware corporation that was incorporated on December 3, 1934.
Valspar's executive offices are located at 1101 Third Street South,
Minneapolis, Minnesota 55415; telephone: (612) 332-7371.
Merger Subsidiary
Val Acquisition Corp. ("Merger Sub") is an Indiana corporation formed by
Valspar in 2000 solely for the purpose of obtaining financing for the merger
and merging into Lilly Industries. Merger Sub is a wholly owned subsidiary of
Valspar. The mailing address of Merger Sub's principal executive offices is c/o
The Valspar Corporation, 1101 Third Street South, Minneapolis, Minnesota 55415;
telephone: (612) 332-7371.
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THE SPECIAL MEETING
General
This proxy statement is being furnished to Lilly Industries shareholders as
part of the solicitation of proxies by the Lilly Industries board for use at a
special meeting to be held on September 27, 2000, starting at 10:00 a.m., local
time, at the Corporate Headquarters of Lilly Industries, 200 West 103rd Street,
Indianapolis, Indiana. The purpose of the special meeting is for the Lilly
Industries Class A and Class B shareholders to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of June 23,
2000, among Lilly Industries, Valspar and Merger Sub, which provides for the
merger of Merger Sub with and into Lilly Industries. A copy of the merger
agreement is attached to this proxy statement as Appendix A. This proxy
statement and the enclosed form of proxy are first being mailed to Lilly
Industries shareholders on or about August 24, 2000.
Record Date and Voting
The holders of record of Lilly Industries Class A and Class B common stock
as of the close of business on the record date, which was August 18, 2000, are
entitled to receive notice of, and to vote at, the special meeting. On the
record date, there were 22,756,053 shares of Lilly Industries Class A common
stock and 483,037 shares of Lilly Industries Class B common stock outstanding.
The holders of a majority of the outstanding shares of Lilly Industries
Class A and Class B common stock, grouped together as one class, on August 18,
2000, represented in person or by proxy, will constitute a quorum for purposes
of the special meeting. A quorum is necessary to hold the special meeting. Any
shares of Lilly Industries Class A and Class B common stock held in treasury by
Lilly Industries or by any of its subsidiaries are not considered to be
outstanding for purposes of determining a quorum. Abstentions and properly
executed broker non-votes will be counted as shares present and entitled to
vote for the purposes of determining a quorum. "Broker non-votes" result when,
under the rules of the New York Stock Exchange, brokers are precluded from
exercising their voting discretion with respect to the approval of non-routine
matters such as the merger proposal, and, thus, absent specific instructions
from the beneficial owner of those shares, brokers are not empowered to vote
the shares with respect to the approval of those proposals.
Required Vote
Each share of Lilly Industries Class A and Class B common stock outstanding
on August 18, 2000 is entitled to vote at the special meeting. Under Lilly
Industries' articles of incorporation, shares of Lilly Industries Class A and
Class B common stock have equal voting power, vote for vote, and vote as one
class, in the event of a vote on a transaction such as the merger with Valspar.
Approval of the merger therefore requires the affirmative vote of a majority of
the outstanding shares of Lilly Industries Class A and Class B common stock,
having equal voting power, share for share, voting as one class. Because the
vote is based on the number of shares outstanding rather than on the number of
votes cast, failure to vote your shares is effectively a vote against the
merger. In addition, although treated as shares that are present and entitled
to vote at the special meeting for purposes of determining whether a quorum
exists, abstentions and properly executed broker non-votes will have the same
effect as votes against approval of the merger. You may vote your shares in
either of two ways:
(1) by completing and returning the enclosed proxy card, or
(2) by appearing and voting in person at the special meeting.
As of the record date, the directors and executive officers of Lilly
Industries owned, in the aggregate, 404,286 outstanding shares of Lilly
Industries Class A common stock and 183,537 outstanding shares of Class B
common stock, or collectively approximately 2.5% of the outstanding shares of
Lilly Industries Class A and Class B common stock on that date.
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Proxies; Revocation
If you vote your shares of Lilly Industries Class A and Class B common stock
by signing a proxy, your shares will be voted at the special meeting as you
indicate on your proxy card. If no instructions are indicated on your signed
proxy card, your shares of Lilly Industries Class A and Class B common stock
will be voted FOR the approval of the merger agreement.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. You may revoke your proxy prior to the vote at the special
meeting in either of two ways:
(1) by submitting a written revocation dated after the date of the proxy
that is being revoked to the Secretary of Lilly Industries at 200 West
103rd Street, Indianapolis, Indiana 46290, or
(2) by submitting a new proxy dated after the date of the proxy that is
being revoked.
Lilly Industries and Valspar will share the costs associated with printing
and filing this proxy statement. Lilly Industries will pay the costs of
soliciting proxies for the special meeting. Officers, directors and employees
of Lilly Industries may solicit proxies by telephone, mail, the Internet or in
person. However, they will not be paid for soliciting proxies. Lilly Industries
also will request that individuals and entities holding shares in their names,
or in the names of their nominees, that are beneficially owned by others, send
proxy materials to and obtain proxies from those beneficial owners, and will
reimburse those holders for their reasonable expenses in performing those
services. Morrow & Co. has been retained by Lilly Industries to assist it in
the solicitation of proxies, using the means referred to above, and will
receive fees of up to $5,000, plus reimbursement of out-of-pocket expenses.
Adjournments
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies to a date not later than 120 days
after the date of the special meeting. If the special meeting is adjourned for
the purpose of soliciting additional proxies, Lilly Industries shareholders who
have already sent in their proxies will be allowed to revoke them at any time
prior to their use.
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THE MERGER
Background of the Merger
Lilly Industries is a leader in the industrial coatings and specialty
chemicals industry, one of the five largest industrial coatings and specialty
chemicals manufacturers in North America, and one of the 15 largest in the
world based on net sales of $656.2 million in fiscal 1999. Since 1993, Lilly
Industries has grown sales at a compound annual rate of 15%, primarily through
internal investment and selective acquisitions that have bolstered the
company's core product lines. International sales have contributed
substantially to Lilly Industries' growth during this period, accounting for
27% of total sales in fiscal 1999, compared with 24% of total sales in fiscal
1998.
Despite Lilly Industries' strong performance, management had become
increasingly concerned in 1999 and early 2000 that consolidation in the
industrial coatings industry has led to increased competition, and management
felt that this might begin to erode Lilly Industries' competitiveness going
forward. In particular, management was concerned that Lilly Industries would
not be large enough to win and finance the type of acquisitions that would be
necessary to maintain the company's cost effectiveness in this competitive
environment, given the increased scale and efficiency of competitors and the
rising price of acquisitions. In addition, while the price of acquisitions in
the industry had increased significantly, Lilly Industries' stock price had
grown at a compound annual rate of only 5% from the beginning of fiscal 1993
until the end of fiscal 1999, despite the company's strong growth performance.
This led management to conclude that the Lilly Industries board should consider
a review of strategic alternatives in order to ensure that it was following a
course that would best serve the interests of its shareholders.
At a board meeting on February 23, 2000, Lilly Industries' management
discussed with the Lilly Industries board the company's historical growth, the
current and expected operating environment and recent transactions in the
industrial coatings industry and asked the Lilly Industries board to consider
if it wanted to examine in the future whether the exploration of strategic
alternatives was desirable and to engage an investment banker to assist in that
effort, including advising on strategies to increase shareholder value in this
environment. Counsel reviewed with the Lilly Industries board the board's
fiduciary duties with respect to the matters discussed, including the board's
duties if it should determine to undertake the exploration of strategic
alternatives including a sale of the company. The Lilly Industries board
determined that an investment banker should be retained for this purpose. In
this regard, thereafter, Wasserstein Perella & Co. was asked to familiarize
itself with Lilly Industries and its operations, and to analyze Lilly
Industries' strategic alternatives.
On April 4, 2000, the Lilly Industries board heard a presentation from
management regarding, among other things, Lilly Industries' recent operating
and financial performance. In addition, representatives of Wasserstein Perella
reviewed some of the strategic alternatives that were available to Lilly
Industries, including maintaining the status quo as an independent company
pursuing the company's business plan, pursuing acquisitions, modifying Lilly
Industries' capital stock to eliminate the Class B shares, entering into a
leveraged recapitalization or conducting an auction process toward a sale or
merger transaction. After extensive discussion, the Lilly Industries board
determined to pursue an auction process that would lead to bids for an
acquisition of Lilly Industries.
Based on analysis of strategic fit and potential ability and willingness to
pay a premium price for Lilly Industries, the board authorized Wasserstein
Perella to invite a select group of companies into the process, which group the
board, based on the advice of Lilly Industries' management and Wasserstein
Perella, believed to be the most likely appropriate buyers of Lilly Industries.
Each of the invited companies was then contacted, expressed interest and
entered into a customary confidentiality agreement containing customary
standstill provisions. After entering into the confidentiality agreements, each
company was invited to conduct extensive due diligence with respect to Lilly
Industries at a management presentation and data room assembled for such
purpose. As part of this presentation, management provided each of these
companies with certain confidential information relating to the company's
expected prospects and discussed with each of the interested parties the
4
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extent to which, in areas of operations, in management's view cost savings
might be achievable. Each of the interested parties was also given the
opportunity to conduct follow-up due diligence with representatives of Lilly
Industries and its advisors.
After the management presentations and data room visits were completed, one
of the interested parties advised Lilly Industries that it did not expect that
it would be able to make a competitive proposal, and, therefore, did not plan
to submit a final bid. The other interested parties were provided with a draft
of a merger agreement prepared by Wachtell, Lipton, Rosen & Katz and Barnes and
Thornburg, Lilly Industries' counsel, that Lilly Industries would be prepared
to enter into with the successful bidder if a decision to accept a bid and sell
the company were taken. In mid June 2000, these parties were also provided with
an update with respect to Lilly Industries' actual performance for the second
quarter of 2000 and an updated outlook for the remainder of 2000 (namely that
management expected 2000 earnings to be generally in line with market analysts'
expectations).
On Tuesday, June 20, 2000, the date on which proposals for the acquisition
of Lilly Industries were requested, the company received written proposals for
the sale of Lilly Industries (including an offer from Valspar to acquire Lilly
Industries for $31.50 per share in either an all-cash transaction or a mixed
cash-and-stock merger with no more than one-half of the merger consideration in
cash and the remainder in Valspar stock) as well as an oral indication of a
price range that might be offered from one party.
On Wednesday, June 21, 2000, the Lilly Industries board met and was advised
as to the proposals received as well as management's and Wasserstein Perella's
views with respect to the process going forward. The Lilly Industries board was
also advised by counsel as to certain legal aspects of a proposed transaction,
including the most prominent issues that had been raised on the form of merger
agreement. The Lilly Industries board determined that the auction process
should be continued to try to secure the highest price and until the material
terms of the merger agreement had been agreed. The Lilly Industries board
further determined that, in the case of Valspar, a cash transaction was
preferred to a stock transaction, assuming equal values as of signing, due to
the risks associated with the volatility of Valspar's share price, the
possibility of requiring a Valspar shareholder vote to approve the issuance of
Valspar stock in a stock transaction and the potential timeframe that might be
required to close the transaction.
The parties that had submitted written proposals were advised shortly
thereafter that negotiations on the agreement could begin. Those parties were
told that they should contact Lilly Industries' counsel to start the process of
negotiating the merger agreement and that they would be given one final
opportunity to improve their financial proposal. Negotiations with Valspar's
counsel concerning the agreement began on the evening of Wednesday, June 21,
2000, and were maintained continuously until all material terms of the
agreement were resolved on Friday, June 23, 2000. With respect to financial
terms, in discussions between the respective chief executive officers of Lilly
Industries and Valspar on June 23, 2000, Valspar offered to increase the price
to be paid in its proposal to $31.75 per Lilly Industries share. No other
interested party was offering a price as high as that offered by Valspar.
On Friday, June 23, 2000, the Lilly Industries board met again. Lilly
Industries' management reviewed for the Lilly Industries board developments in
the competitive process since the Wednesday, June 21, 2000, meeting of the
Lilly Industries board as well as the status of discussions with Valspar. Lilly
Industries' counsel reviewed the terms of the agreement that had been reached
with Valspar and again reviewed the fiduciary duties of the Lilly Industries
board in the matters under consideration. Wasserstein Perella rendered its oral
opinion, confirmed by a subsequent written opinion, that, as of the date of the
opinion and based upon and subject to the matters stated in the opinion, the
$31.75 cash per share consideration was fair from a financial point of view to
holders of shares of Class A and Class B common stock of Lilly Industries. The
Lilly Industries board was also reminded of the matters related to the
transaction in which the members of the Lilly Industries board and Lilly
Industries management had an interest which could be said to be different from
or in addition to the interests of Lilly Industries shareholders in general.
See "--Interests of Certain Persons in the Merger." After discussion
5
<PAGE>
and consideration, the Lilly Industries board voted unanimously to approve the
merger and the merger agreement and all related matters and to recommend to
Lilly Industries shareholders that they vote to approve and adopt the merger
and the merger agreement. On June 23, 2000, the Valspar board approved the
merger and the merger agreement.
Lilly Industries' Reasons for the Merger; Recommendation of the Lilly
Industries Board
At a special board meeting on June 23, 2000, the Lilly Industries board
determined that the merger is fair to and in the best interests of Lilly
Industries and its shareholders and unanimously approved and adopted the merger
agreement and the transactions contemplated by that agreement. Accordingly, the
Lilly Industries board recommends that Lilly Industries shareholders vote FOR
approval of the merger agreement at the special meeting.
In reaching its decision to approve and adopt the merger agreement and the
transactions contemplated by that agreement, and to recommend that Lilly
Industries shareholders vote to approve the merger agreement, the Lilly
Industries board considered the following material factors:
. the Lilly Industries board's familiarity with, and presentations by
Lilly Industries' management and its financial advisors regarding, the
business, operations, properties and assets, financial condition,
competitive position, business strategy and prospects of Lilly
Industries (as well as the risks involved in achieving those
prospects), and the current environment for the coatings and specialty
chemical industry in which Lilly Industries competes, and current
industry, economic and market conditions, both on an historical and on
a prospective basis;
. the current and historical market prices of Lilly Industries Class A
common stock relative to those of other industry participants and
general market indices;
. the fact that the $31.75 per share price represents a 133.0% premium
over the closing price of Lilly Industries Class A common stock on the
last trading day prior to the June 23, 2000 board meeting and a 128.8%
premium over the closing price per share of Lilly Industries Class A
common stock on the 30th calendar day preceding the date of that board
meeting;
. the fact that the merger consideration is all cash, which provides
certainty of value to Lilly Industries' shareholders;
. the extensive sale process conducted by management and the financial
advisor involving multiple potentially interested parties;
. the presentations by Wasserstein Perella on June 21 and June 23, 2000
and its oral opinion of June 23, 2000, which was confirmed in a written
opinion dated June 23, 2000, that, as of the date of such opinion, and
based on and subject to the matters set forth in that opinion, the
$31.75 per share in cash to be received by holders of Lilly Industries
Class A and Class B common stock pursuant to the merger agreement was
fair from a financial point of view to such holders (see "--Opinion of
Wasserstein Perella");
. the terms of the merger agreement that provide that, under certain
circumstances, and subject to certain conditions more fully described
under "The Merger Agreement--No Solicitation of Acquisition
Transactions," "--Termination," and "--Termination Fee", Lilly
Industries can furnish information to and conduct negotiations with a
third party in connection with an unsolicited potential superior
proposal for a business combination or acquisition of Lilly Industries
and can terminate the merger agreement for a superior proposal (see
"The Merger Agreement"); and
6
<PAGE>
. the fact that, under the terms of the merger agreement, the completion
of the merger is not conditioned on Valspar's ability to obtain
financing.
The Lilly Industries board also considered potential drawbacks or risks
relating to the merger, including the following material drawbacks and risks:
. the fact that an all-cash transaction would be taxable to Lilly
Industries shareholders for United States federal income tax purposes;
and
. the possibility that, notwithstanding the provisions of the merger
agreement allowing Lilly Industries, under certain circumstances, to
furnish information to and conduct negotiations with a third party and
terminate the merger agreement in connection with a superior proposal
for a business combination or acquisition of Lilly Industries, the
termination fee payable upon such termination might discourage other
parties that might have an interest in a business combination with, or
an acquisition of, Lilly Industries (see "The Merger Agreement").
In addition, the directors of Lilly Industries were aware of the interests
of executive officers and directors of Lilly Industries described under "--
Interests of Certain Persons in the Merger."
The foregoing discussion addresses the material information and factors
considered by the Lilly Industries board in its consideration of the merger,
including factors that support the merger as well as those that may weigh
against it. In view of the variety of factors and the amount of information
considered, the Lilly Industries board did not find it practicable to and did
not make specific assessments of, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. In addition,
the Lilly Industries board did not undertake to make any specific determination
as to whether any particular factor, or any aspect of any particular factor,
was favorable or unfavorable to its ultimate determination. The determination
to approve the merger was made after consideration of all of the factors as a
whole. In addition, individual members of the Lilly Industries board may have
given different weights to different factors.
Opinion of Wasserstein Perella
In connection with the merger, the Lilly Industries board retained
Wasserstein Perella to give its opinion as to the fairness, from a financial
point of view, of the consideration to be received by the holders of shares of
Class A and Class B common stock of Lilly Industries.
On June 23, 2000, Wasserstein Perella orally delivered its opinion to the
Lilly Industries board, which it later confirmed in a written opinion, dated
June 23, 2000, to the effect that, as of the date of such opinion and based on
and subject to the matters stated in the opinion, the $31.75 per share cash
consideration to be received by the holders of shares of Class A and Class B
common stock of Lilly Industries in the merger is fair, from a financial point
of view, to such holders. Wasserstein Perella also presented to the Lilly
Industries board the analyses described below.
A copy of Wasserstein Perella's written opinion is attached as Appendix B to
this proxy statement. Holders of shares of Class A and Class B common stock of
Lilly Industries are urged to read the Wasserstein Perella opinion in its
entirety for information about the procedures followed, assumptions made,
matters considered and limits of the review by Wasserstein Perella in rendering
its opinion. References to Wasserstein Perella's opinion in this proxy
statement and the summary of Wasserstein Perella's opinion in this section of
the proxy statement are qualified by reference to the full text of Wasserstein
Perella's opinion, which is incorporated in this proxy statement by reference.
Wasserstein Perella's opinion only addresses the fairness, from a financial
point of view, of the cash consideration to be received by the holders of
shares of Class A and Class B common stock of Lilly Industries and it does not
address any other aspect of the merger. Wasserstein Perella's opinion does not
constitute a recommendation to holders of shares of Class A and Class B common
stock of Lilly Industries to vote in favor of the merger and the holders should
not rely upon it as a recommendation.
7
<PAGE>
In arriving at its opinion, Wasserstein Perella reviewed, among other
things,
. a draft of the merger agreement dated June 23, 2000, and for purposes
of its opinion Wasserstein Perella assumed that the final form of the
merger agreement did not differ in any material respect from the draft
provided to Wasserstein Perella;
. publicly available business and financial information relating to Lilly
Industries which Wasserstein Perella deemed to be relevant;
. internal non-public financial and operating information, including
certain management projections provided to Wasserstein Perella for the
purposes of its analysis;
. financial and stock market data relating to Lilly Industries, and
compared this data with similar data for other companies, the
securities of which are publicly traded, that Wasserstein Perella
deemed to be relevant; and
. the financial terms of the merger, and compared its terms with the
financial terms of other transactions in the coatings industry
specifically, and in other industries generally, which Wasserstein
Perella deemed to be relevant to its inquiry.
In addition, Wasserstein Perella took into account that the terms of the
merger, including the $31.75 per share price, were determined through arm's
length negotiations between Lilly Industries and Valspar.
Wasserstein Perella had discussions with the management of Lilly Industries
and its representatives about Lilly Industries' business, operations, assets,
financial condition and future prospects. Wasserstein Perella also performed
such financial studies, analyses and investigations and reviewed other
information as it considered appropriate for purposes of arriving at and
preparing its opinion.
In conducting its review and analysis and arriving at its opinion,
Wasserstein Perella assumed and relied upon the accuracy and completeness of
all financial and other information that was provided to or discussed with it
or was publicly available, and did not assume any responsibility for
independently verifying this information. Wasserstein Perella also relied upon
the reasonableness and accuracy of the financial information and projections,
including estimates of cost savings and other operating efficiencies expected
to result from the consummation of the merger provided to them and assumed that
all financial information and projections provided by Lilly Industries were
prepared in good faith and on bases reflecting the best currently available
judgments and estimates of Lilly Industries' management. Wasserstein Perella
did not express any opinion with respect to that financial information and
projections or the assumptions upon which they are based. In addition,
Wasserstein Perella did not review any of the books and records of Lilly
Industries, except as described above, or assume any responsibility for
conducting a physical inspection of the properties or facilities of Lilly
Industries, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of Lilly Industries, and Wasserstein Perella was not
provided with any such independent valuation or appraisal. Wasserstein Perella
also assumed that obtaining all regulatory and other approvals and third party
consents required for the consummation of the merger will not have an adverse
impact on Lilly Industries or on the anticipated benefits of the merger, and
the transactions described in the merger agreement would be consummated on the
terms set forth in the merger agreement, without material waiver or
modification.
Wasserstein Perella's opinion necessarily was based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella on the date of its opinion.
Summary and Analysis of the Merger
During Lilly Industries' June 23, 2000 board meeting, Wasserstein Perella
reviewed financial, industry and market information about Lilly Industries, and
the procedures used in arriving at, and the analyses underlying, Wasserstein
Perella's opinion. The following summary describes the material analyses
performed by Wasserstein Perella relating to its opinion and presented to the
Lilly Industries board. Some of the summaries
8
<PAGE>
of financial analyses include information presented in a tabular format. The
tables must be read together with the accompanying text. The preparation of a
fairness opinion is a complex process that is not purely mathematical and is
not necessarily susceptible to partial analyses or summary description. Holders
of shares of Class A and Class B common stock of Lilly Industries are
encouraged to review Wasserstein Perella's entire opinion, which is attached to
this proxy statement as Appendix B.
Stock Price History
Wasserstein Perella reviewed the stock price history of shares of Class A
common stock of Lilly Industries, including the following. Shares of the Class
A common stock of Lilly Industries started trading on the NYSE on June 30, 1995
at a closing price of $11.75 per share on that date. Between June 30, 1995 and
June 21, 2000, the low and the high month-end closing trading price of each
share of Class A common stock of Lilly Industries was $10.88 on April 30, 2000
and $22.31 on July 31, 1997, respectively. On June 22, 2000, prior to the
announcement of the merger, the closing price for each share of Class A common
stock of Lilly Industries was $13.63. The $31.75 per share cash consideration
to be received by the holders of shares of Class A and Class B common stock of
Lilly Industries represented a 133.0% premium over the closing price of each
share of Class A common stock of Lilly Industries on June 22, 2000, an implied
enterprise value of $974 million and an implied equity value of $767 million.
Comparable Company Analysis
Using publicly available information, Wasserstein Perella compared selected
financial data of Lilly Industries with similar data of comparable companies,
the securities of which are publicly traded and which are engaged in the
businesses that Wasserstein Perella believed to be comparable in various
respects to those of Lilly Industries. This analysis demonstrates how the value
of Valspar's offer for Lilly Industries compares to the value ranges implied
for Lilly Industries by applying the trading multiples of other comparable
publicly-traded companies to the management projections for Lilly Industries
and adjusting the results for a control premium. These companies were BASF AG,
Benjamin Moore & Co., Ferro Corp., Imperial Chemical Industries plc, PPG
Industries Inc., RPM Inc., Sherwin-Williams Co. and Valspar. Wasserstein
Perella calculated the following market trading multiples and percentages for
each of these companies based on actual data for 1998 and 1999, and estimates
for 2000 (based upon analysts' estimates):
(1) enterprise value (defined as market value plus net debt plus minority
interests) as a multiple of (a) sales, (b) earnings before interest,
taxes, depreciation and amortization ("EBITDA") and (c) earnings
before interest and taxes ("EBIT"),
(2) market value (defined as fully diluted shares outstanding multiplied
by the closing share price on June 22, 2000) as a multiple of net
income and the latest available book value, and
(3) dividend yield.
9
<PAGE>
Based on these calculations, Wasserstein Perella noted that the ranges of
market trading multiples and percentages for these comparable companies and the
market trading multiples and percentages for Lilly Industries were:
1998
<TABLE>
<CAPTION>
Enterprise Value
as a Multiple of Market
------------------ Value/Net Dividend
1998 1998 1998 Income Yield
Sales EBITDA EBIT 1998 1998
----- ------ ----- --------- --------
<S> <C> <C> <C> <C> <C>
Mean................................. 1.0x 6.9x 9.4x 14.0x 3.5%
Median............................... 0.9x 6.5x 9.0x 12.5x 3.1%
High................................. 1.7x 12.0x 14.9x 21.9x 7.9%
Low.................................. 0.8x 4.9x 5.5x 9.4x 1.1%
Sample Size.......................... 8 8 8 8 8
Lilly Industries(1).................. 0.8x 5.7x 7.3x 10.0x 2.3%
</TABLE>
--------
(1) Based on the closing share price of Class A common stock of Lilly
Industries of $13.63 on June 22, 2000.
1999
<TABLE>
<CAPTION>
Enterprise Value
as a Multiple of Market
------------------ Value/Net
1999 1999 1999 Income
Sales EBITDA EBIT 1999
----- ------ ----- ---------
<S> <C> <C> <C> <C>
Mean.......................................... 1.0x 6.4x 8.8x 13.2x
Median........................................ 0.9x 6.5x 9.1x 12.6x
High.......................................... 1.4x 9.5x 11.9x 19.7x
Low........................................... 0.7x 3.8x 4.2x 8.3x
Sample Size................................... 8 8 8 8
Lilly Industries(1)........................... 0.8x 5.6x 7.2x 9.5x
</TABLE>
--------
(1) Based on the closing share price of Class A common stock of Lilly
Industries of $13.63 on June 22, 2000.
2000E(1)
<TABLE>
<CAPTION>
Enterprise Value
as a Multiple of Market
------------------ Market Value/Net
2000E 2000E 2000E Value/Book Income
Sales EBITDA EBIT Value(2) 2000E
----- ------ ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Mean............................... 0.9x 6.2x 8.5x 2.3x 11.9x
Median............................. 0.9x 5.9x 7.5x 2.2x 10.7x
High............................... 1.2x 8.7x 11.2x 3.9x 17.2x
Low................................ 0.7x 4.0x 6.9x 1.4x 9.9x
Sample Size........................ 7 7 7 7 7
Lilly Industries(3)................ 0.8x 5.4x 7.1x 1.6x 9.4x
</TABLE>
--------
(1) The source of Lilly Industries' projections: Lilly Industries'
management projections. The source of all other projections:
Analyst Reports and First Call.
(2) Based on the latest available book value, which was as of May 31,
2000.
(3) Based on the closing share price of Class A common stock of Lilly
Industries of $13.63 on June 22, 2000.
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<PAGE>
Wasserstein Perella analyzed these comparable companies and concluded that
RPM, Sherwin-Williams and Valspar were most similar to Lilly Industries and
gave special consideration to their market multiples in deriving the reference
multiples set forth below:
<TABLE>
<CAPTION>
Reference Lilly Industries
Multiples (in millions)(1)
------------- ----------------
<S> <C> <C>
Sales 2000E............................... 0.9x - 1.2x $696
EBITDA 2000E.............................. 6.0x - 8.0x $ 97
EBIT 2000E................................ 8.0x - 10.5x $ 74
Net Income 2000E.......................... 10.0x - 17.0x $ 34
Book Value(2)............................. 1.5x - 3.5x $202
</TABLE>
--------
(1) Source: Lilly Industries' management projections.
(2) Based on the latest available book value, which was as of
May 31, 2000.
Based on the reference multiples and financial projections listed above,
Wasserstein Perella noted that the related valuation ranges were as follows:
<TABLE>
<S> <C>
Reference Enterprise Value Range (millions): ................. $550 - $800
Plus: 30% Control Premium on Market Value (millions):......... $100 - $175
Adjusted Reference Enterprise Value Range (millions):......... $650 - $975
</TABLE>
After Wasserstein Perella derived the reference multiples and a reference
enterprise value range for Lilly Industries, it also added a 30% control
premium on the market value range to reach the adjusted reference enterprise
value range of $650 million to $975 million. The implied enterprise value of
$974 million for Lilly Industries (at a per share price of $31.75) was within
this adjusted reference enterprise value range.
Review of Coatings Company Acquisitions
Wasserstein Perella reviewed publicly available financial and other
information for 37 business combinations announced between June 1992 and
December 1999 in the coatings industry. This analysis demonstrates how some
financial data about the merger compares to that of recent transactions in the
coatings industry. In reviewing each of these transactions, Wasserstein Perella
calculated the adjusted purchase price as a multiple of the acquired company's
last twelve months (or "LTM") net sales, LTM EBITDA, LTM EBIT and the purchase
price as a multiple of LTM net income and latest available book value for each
of these transactions, based on the latest publicly available information at
the time of each of these transactions.
Based on these calculations, Wasserstein Perella noted that the ranges of
implied multiples for these transactions were as follows:
<TABLE>
<CAPTION>
Adjusted Purchase Purchase Price
Price(1) as a as a Multiple
Multiple of: of:
------------------ ---------------
Net Net Book
Sales EBITDA EBIT Income Value(2)
----- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C>
Mean......................................... 1.1x 10.5x 14.8x 25.5x 3.8x
Median....................................... 1.0x 10.6x 14.1x 22.9x 2.8x
High......................................... 2.7x 14.1x 21.3x 53.0x 12.3x
Low.......................................... 0.4x 5.9x 7.1x 11.1x 1.0x
Sample Size.................................. 33 14 22 14 21
</TABLE>
--------
(1) Adjusted purchase price equals net debt plus market value (calculated
based on fully diluted shares outstanding, assuming all outstanding
options are cashed out).
(2) Based on the latest available book value, which was as of May 31, 2000.
Wasserstein Perella analyzed these comparable coatings transactions and
determined that the acquisitions of BASF/Rohm and Haas (Morton Industrial
Coatings), TOTAL/Kalon, DuPont/Herberts, Akzo
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<PAGE>
Nobel/Courtaulds and Kalon Group/Euridep were the most relevant in deriving the
valuation range for the business combinations in the coatings industry. Based
on that determination, Wasserstein Perella noted that the ranges of reference
multiples and the related financial information of Lilly Industries were as
follows:
<TABLE>
<CAPTION>
Reference Lilly Industries
Multiples (in millions)
------------- ----------------
<S> <C> <C>
Sales 1999....................................... 1.0x - 1.2x $656
EBITDA 1999...................................... 9.0x - 11.0x $ 93
EBIT 1999........................................ 12.0x - 14.0x $ 72
Net Income 1999.................................. 15.0x - 22.0x $ 33
Book Value(1).................................... 3.0x - 6.0x $202
</TABLE>
--------
(1) Based on the latest available book value as at May 31, 2000.
Based on the reference multiples and financial information from Lilly
Industries listed above, Wasserstein Perella noted that the related valuation
range was as follows:
<TABLE>
<S> <C>
Reference Enterprise Value Range (millions): .................. $850 - $1,000
</TABLE>
The implied enterprise value of $974 million for Lilly Industries (at a per
share price of $31.75) was within the reference enterprise value range derived
through an analysis of the most relevant business combinations in the coatings
industry.
Discounted Cash Flow Analysis
Wasserstein Perella performed a discounted cash flow analysis of Lilly
Industries' business. A discounted cash flow analysis is a traditional
valuation methodology used to derive a valuation of a corporate entity by
calculating the estimated future unlevered free cash flows of such corporate
entity and discounting such aggregate results back to a present value.
Wasserstein Perella's discounted cash flow analysis was based on financial
forecasts provided to Wasserstein Perella by the management of Lilly
Industries. This discounted cash flow analysis also showed a sensitivity
analysis of the range of potential values assuming no synergies to the
purchaser up to potential maximum annual pre-tax synergies identified in
management's projections of $62 million.
Assuming a discount rate of 11% and a perpetuity growth rate ranging from 2%
to 4% and assuming that synergies will not be fully realized until 2002,
Wasserstein Perella arrived at a value range of $600 million to $680 million
without synergies and $1,025 million to $1,175 million with potential maximum
annual pre-tax synergies of $62 million.
Wasserstein Perella also performed some sensitivities on the discounted cash
flow analysis by modifying some variables used by Lilly Industries' management
in preparing their financial projections. The sensitivities were as follows:
. a 1% change in sales led to an approximately $25 million change in the
enterprise value,
. a 1% change in the operating margin led to an approximately $100 million
change in enterprise value, and
. a 10% change in capital expenditures led to an approximately $20 million
change in the enterprise value.
Premiums Analysis
Wasserstein Perella reviewed 87 announced transactions from January 1, 1999
through June 5, 2000 involving the merger of publicly-held companies, where
transaction values ranged from $500 million to $1 billion, to derive a range of
premiums paid over the public trading prices one day, one week and 30 days
12
<PAGE>
before the announcement of each transaction. In addition, Wasserstein Perella
reviewed 16 announced transactions from January 1, 1997 to May 4, 2000
involving the mergers of publicly-held companies in the chemicals industry,
where transaction values were $100 million and above, to derive a range of
premiums paid over the public trading prices one day, one week and 30 days
before the announcement of each transaction in the chemicals industry. In
connection with these analyses, Wasserstein Perella noted, among other things,
that (1) the reasons for, and circumstances surrounding, each of the analyzed
transactions were diverse, (2) the characteristics of the companies involved
were not necessarily comparable to those of Lilly Industries, and (3) premiums
fluctuated based on perceived growth, synergies, strategic value, the type of
consideration utilized in the transaction, information in the securities
markets and other factors.
Wasserstein Perella's premiums analyses indicated that in the 87 announced
transactions from January 1, 1999 through June 5, 2000 with values ranging from
$500 million to $1 billion, the average premium paid over the public per share
trading prices one day, one week and 30 days before the announcement was 27.2%,
36.1% and 43.0%, respectively. Wasserstein Perella's premiums analyses further
indicated that in the 16 announced transactions in the chemicals industry from
January 1, 1997 to May 4, 2000, the average premium paid over the public per
share trading prices one day, one week and 30 days before the announcement was
33.1%, 39.6% and 45.6%, respectively. In comparison, the transaction premium
paid over the per share trading prices for the Class A common stock of Lilly
Industries one day, one week and 30 days before the announcement was 133.0%,
126.8% and 128.8%, respectively.
Summary
The preceding summary is not a complete description of the analyses
performed by Wasserstein Perella or its presentations to the Lilly Industries
board. Wasserstein Perella believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all factors and analyses, could create a misleading
view of the process underlying its analyses set forth in its opinion. In
arriving at its opinion, Wasserstein Perella considered the results of all of
the analyses as a whole. Wasserstein Perella did not attribute any particular
weight to any analysis or factor considered by it, nor, except as set forth
above, did it derive any value from, or draw any conclusion with respect to
fairness based on any particular analysis. Rather, Wasserstein Perella made its
determination as to fairness on the basis of its experience and professional
judgment after considering the results of all the analyses. In performing its
analyses, Wasserstein Perella made numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business,
regulatory and economic conditions and other matters, many of which are beyond
the control of Lilly Industries. Any estimates incorporated in the analyses
performed by Wasserstein Perella are not necessarily indicative of actual past
or future results or values, which may be significantly more or less favorable
than these estimates. Estimated values do not purport to be appraisals and do
not necessarily reflect the prices at which coatings companies may be sold.
Because these estimates are inherently subject to uncertainty, Wasserstein
Perella does not assume any responsibility for their accuracy. No company or
transaction analyzed for comparative purposes is identical to Lilly Industries
or the merger. Accordingly, an analysis of comparative companies and
comparative business combinations is not simply mathematical, but rather
involves complex considerations and judgments concerning financial and
operating characteristics of the companies involved and other factors that
affect value.
Wasserstein Perella concluded that, in its judgment, including the full
range of its analyses described above, the $31.75 per share cash consideration
to be received by the holders of shares of Class A and Class B common stock of
Lilly Industries is fair, from a financial point of view, to such holders.
Wasserstein Perella is an investment banking firm engaged in, among other
things, the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The Lilly Industries board
selected Wasserstein Perella as its financial advisor because Wasserstein
Perella is an internationally recognized investment banking firm, and members
of
13
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Wasserstein Perella have substantial experience in transactions such as the
merger and in the valuation of companies.
Lilly Industries agreed to pay Wasserstein Perella (1) a financial advisory
fee of $200,000 payable upon the signing of the engagement letter and
creditable against the transaction fee and (2) a percentage-based transaction
fee totaling approximately $6 million (equal to 0.62% of the aggregate merger
consideration), $1.5 million of which was contingent upon and payable at the
time of the public announcement of the merger, and the remainder of which is
contingent upon and payable at the time of the successful consummation of the
merger. In addition, Lilly Industries agreed to reimburse Wasserstein Perella
for its reasonable out-of-pocket expenses related to its engagement, including
the reasonable fees and expenses of counsel. Lilly Industries also has agreed
to indemnify Wasserstein Perella and specified related persons against specific
liabilities relating to or arising out of its engagement, including specific
liabilities under the federal securities laws.
In the ordinary course of its business, Wasserstein Perella may actively
trade the securities of Valspar and Lilly Industries for the accounts of
Wasserstein Perella and for the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
Material Federal Income Tax Consequences
General
The following is a summary of the material United States federal income tax
consequences of the merger to Lilly Industries shareholders. This summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended,
applicable current and proposed United States Treasury Regulations, judicial
authority, and administrative rulings and practice. Legislative, judicial or
administrative rules and interpretations are subject to change, possibly on a
retroactive basis, at any time, and, therefore, the following statements and
conclusions could be altered or modified. It is assumed that the shares of
Lilly Industries Class A and Class B common stock are held as capital assets by
a United States person (i.e., a citizen or resident of the United States or a
domestic corporation). This discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular Lilly
Industries shareholder in light of that Lilly Industries shareholder's personal
investment circumstances, or those Lilly Industries shareholders subject to
special treatment under the United States federal income tax laws (for example,
life insurance companies, tax-exempt organizations, financial institutions,
United States expatriates, foreign corporations and nonresident alien
individuals), Lilly Industries shareholders who hold shares of Lilly Industries
Class A and Class B common stock as part of a hedging, "straddle," conversion
or other integrated transaction, or Lilly Industries shareholders who acquired
their shares of Lilly Industries Class A and Class B common stock through the
exercise of employee stock options or other compensation arrangements. In
addition, the discussion does not address any aspect of foreign, state or local
taxation or estate and gift taxation that may be applicable to a Lilly
Industries shareholder.
Consequences of the Merger to Lilly Industries Shareholders
The receipt of the merger consideration in the merger will be a taxable
transaction for United States federal income tax purposes (and also may be a
taxable transaction under applicable state, local and other income tax laws).
In general, for United States federal income tax purposes, a holder of Lilly
Industries Class A and Class B common stock will recognize gain or loss equal
to the difference between such shareholder's adjusted tax basis in Lilly
Industries Class A and Class B common stock converted in the merger, and the
amount of cash received. Gain or loss will be calculated separately for each
block of shares converted in the merger (i.e., shares acquired at the same cost
in a single transaction). The gain or loss will generally be capital gain or
loss, and will be short-term gain or loss if, at the effective time of the
merger, the shares of Lilly Industries Class A and Class B common stock so
converted were held for one year or less. If the shares were held for more than
one year, the gain or loss would be long-term. In the case of shareholders who
are individuals, long-term capital gain is currently eligible for reduced rates
of federal income tax. There are limitations on the deductibility of capital
losses.
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Backup Tax Withholding
Under the United States federal income tax backup withholding rules, unless
an exemption applies, Valspar is required to and will withhold 31% of all
payments to which a Lilly Industries shareholder or other payee is entitled in
the merger, unless the Lilly Industries shareholder or other payee provides its
taxpayer identification number ("TIN") (social security number, in the case of
an individual, or employer identification number, in the case of other
shareholders), and certifies under penalties of perjury that the TIN provided
is correct (or that such shareholder or other payee is awaiting a TIN). Each
Lilly Industries shareholder and, if applicable, each other payee, should
complete and sign the substitute Form W-9 that will be part of the letter of
transmittal to be returned to the exchange agent (or other agent) in order to
provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is otherwise proved in a
manner satisfactory to the exchange agent (or other agent). The exemptions
provide that certain Lilly Industries shareholders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding requirements. In order for a foreign individual to qualify
as an exempt recipient, however, he or she must submit a signed statement (such
as a Certificate of Foreign Status on Form W-8) attesting to his or her exempt
status. Any amounts withheld will be allowed as a credit against the holder's
United States federal income tax liability for that year. If withholding
results in an overpayment of taxes, a refund may be obtained by filing a tax
return with the Internal Revenue Service.
Lilly Industries shareholders should consult their own tax advisors to
determine the United States federal, state and local and foreign tax
consequences of the merger to them in view of their own particular
circumstances.
Governmental and Regulatory Approvals
Transactions such as the merger are reviewed by the United States Department
of Justice and the United States Federal Trade Commission to determine whether
they comply with applicable antitrust laws. Under the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act") applicable to the merger,
the merger may not be completed until applicable waiting period requirements
have been satisfied. Valspar and Lilly Industries each filed notification
reports with the Department of Justice and Federal Trade Commission under the
HSR Act on June 30, 2000. On July 28, 2000, the Federal Trade Commission issued
a request for additional information and documentary material. Under the
applicable provisions of the HSR Act, the merger may not be consummated until
the expiration of a statutory waiting period, which expires 20 days after both
Lilly Industries and Valspar substantially comply with this request, unless the
waiting period is terminated earlier by the Federal Trade Commission. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Federal Trade Commission
raises substantive issues in connection with a proposed transaction, the
parties frequently negotiate with the relevant governmental agency concerning
possible means of addressing those issues and may agree to delay completion of
the transaction while such negotiations continue. The expiration or termination
of the applicable waiting period under the HSR Act is a condition to the
completion of the merger. We hope to complete the proposed merger by year end.
However, no assurances can be made that we will receive the necessary
governmental clearances on acceptable terms to complete the merger by then.
The Department of Justice and the Federal Trade Commission frequently
scrutinize the legality under the antitrust laws of transactions such as the
merger. At any time before or after the merger, the Department of Justice or
the Federal Trade Commission could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the merger or seeking divestiture of substantial assets of Valspar or
Lilly Industries or their subsidiaries. Private parties and state attorneys
general may also bring an action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
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Accounting Treatment
The merger will be accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended. Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the merger (with the excess of
the purchase price after such allocations being recorded as goodwill).
Merger Financing
While the merger agreement does not provide for a financing condition, it is
expected that Valspar will need approximately $1.3 billion in order to complete
the merger. This includes payments to be made to Lilly Industries shareholders
and holders of Lilly Industries stock options, refinancing of certain
indebtedness of Lilly Industries and Valspar, payment of fees and expenses in
connection with the merger and funds for general corporate purposes after the
merger.
Valspar has received a commitment from a group of commercial banks to
provide a syndicated revolving credit facility of not less than $1.5 billion to
finance completion of the merger. The facility is expected to consist of a
credit facility between $750 million and $1.0 billion with a longer-term (3
years or more) maturity and a credit facility between $500 million and $750
million with a shorter-term (less than 3 years) maturity. Depending on market
conditions, Valspar may issue promissory notes in a private or public offering
to provide alternative or additional financing for the merger, refinance
certain indebtedness of Lilly Industries and Valspar, pay fees and expenses in
connection with the merger or provide funds for general corporate purposes
after the merger.
Valspar's obligations under the bank credit facility will be unsecured, and
Valspar will agree not to pledge its assets to other lenders, subject to
customary exceptions. The agreement governing the credit facility will contain
representations and warranties, covenants, terms as to fees and pricing, and
events of default which are customary for agreements of this type. The banks
providing the commitment or certain of their affiliates may, subject to certain
limitations and in consultation with Valspar, change the pricing, structure,
amount or other terms of the credit facility before it is signed if they
determine that such changes are necessary to ensure a successful syndication of
the credit facility, provided that the total amount of the credit facility
remains sufficient to complete the merger.
Interests of Certain Persons in the Merger
General
Some members of Lilly Industries' management and the Lilly Industries board
have certain interests in the merger that are different from or in addition to
the interests of Lilly Industries shareholders generally. They are, or may
become, entitled to certain compensation and benefits in connection with the
merger, as follows:
. acceleration and payments in respect of outstanding Lilly Industries
stock options,
. payments and benefits under change of control employment agreements,
. vesting of a minimum benefit under the executive retirement plan, and
. the indemnification of and provisions for liability insurance for Lilly
Industries directors and officers.
All of these additional interests, to the extent material, are described
below. The Lilly Industries board was aware of these interests and considered
them in approving and adopting the merger agreement and the merger.
Stock Options
All stock options held by employees and directors of Lilly Industries,
whether vested or not, will be canceled at the time of the merger in exchange
for a cash payment equal to "spread" on the option. The "spread" equals $31.75
minus the exercise price of the option, times the number of shares subject to
the option. In the case of nonqualified stock options held by employees, an
additional payment of 35% of the spread will be made. The total of these cash
payments to the executive officers, assuming that the merger
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occurs October 1, 2000 and that no options that do not otherwise expire before
that date are exercised, will be: Mr. Huemme, $8,965,172; Mr. Taylor,
$2,757,565; Mr. Elbin, $1,466,005; Mr. Dorris, $1,267,366; Mr. Dalton,
$1,055,942; and Mr. Mills, $548,695.
Change of Control Agreements
The Company has entered into change of control agreements with Messrs.
Huemme, Taylor, Elbin, Dorris and Dalton and eleven other executives, including
all of the other executive officers. Under this agreement, the consummation of
the merger will be a change of control. For a three-year period following the
merger, each executive will be entitled to remain employed, in a position, and
with pay and benefits and other terms and conditions of employment, at least as
favorable as before the merger. If the executive's employment is terminated
within that three-year period by Lilly Industries without cause or by the
executive for good reason, as those terms are defined in the agreement, or if
the executive terminates his own employment during the 30-day period beginning
one year after a change of control, the executive will be entitled to the
following severance pay and benefits:
. A cash payment equal to a multiple of base salary, annual bonus and the
three years' average employer contributions credited to the executive's
accounts in the Lilly Industries Employee 401(k) Savings Plan, Defined
Contribution Plan, defined contribution portion of the Replacement Plan
and the Employee Stock Purchase Plan -- the multiple is three in the
case of Messrs. Huemme, Elbin, Taylor and Dorris, and two in all other
cases;
. A pro-rata annual bonus for the year of termination based upon the
higher of the target bonus or the most recent annual bonus before the
termination;
. A lump sum payment representing the value of the additional benefits
the executive would have received under Lilly Industries' qualified and
nonqualified defined benefit pension plans and the Executive Retirement
Plan if the executive had remained employed for three or two more
years, as applicable; and
. If the executive was an eligible participant in Lilly Industries'
Unfunded Supplemental Retirement Plans as of the day before the merger,
but is not in fact entitled to any such benefits as of the date of
termination, a lump sum payment equal to the present value of the
aggregate of the retirement benefits he would have been eligible to
receive under the Unfunded Supplemental Retirement Plans, if the
executive had retired at age sixty-five.
The annual bonus component of this severance benefit is based on the higher
of the executive's target bonus for the year of the merger and his most recent
bonus earned before the date of termination. In addition, the executive will
receive continued welfare benefits for three or two years following termination
of employment, as applicable. Finally, to the extent that the executive is
subject to the excise tax on excess parachute payments, Lilly Industries will
make an additional payment to make the executive whole for this tax.
We estimate that if the merger occurred on October 1, 2000 and the
employment of all of the executive officers were terminated immediately
following the merger by Lilly Industries without cause or by the executive
officers for good reason, the total cash severance payments (not including
excise tax grossup and noncash benefits) would be as follows: Mr. Huemme,
$4,210,000; Mr. Taylor, $2,072,000; Mr. Elbin, $1,387,000; Mr. Dorris,
$1,334,000; Mr. Dalton, $837,000; and Mr. Mills, $554,000.
Executive Retirement Plan
Fourteen executives, including all executive officers, are participants in
the Executive Retirement Plan (the "SERP"). Under the SERP, upon the merger:
. All participants will be vested in a minimum SERP benefit. This minimum
benefit will be a percentage of the maximum SERP benefit equal to the
participant's years of service as of the date of the merger, divided by
22.
. Also, if a participant does not have at least 11 years of service at
the time of the merger, he will nevertheless be vested in 50% of his
maximum SERP benefit.
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. Each participant's vested SERP benefit will be paid out in a lump sum
immediately following a change of control, unless the participant has
previously elected not to receive the lump sum.
The estimated present value of the additional benefits that the executive
officers will receive under the SERP as a result of the merger, assuming the
merger occurs on October 1, 2000 and using a 5.75% discount rate, is as
follows: Mr. Huemme, $890,000; Mr. Taylor, $381,000; Mr. Elbin, $309,000;
Mr. Dorris, $170,000; Mr. Dalton, $294,000; and Mr. Mills, $240,000.
Indemnification of Officers and Directors
In the merger agreement, Valspar has agreed that each of Valspar and the
surviving corporation in the merger will indemnify and hold harmless, to the
fullest extent permitted under applicable law, each present and former
director, officer, employee or agent of Lilly Industries or any of its
subsidiaries against costs, expenses (including attorneys' fees), damages and
liabilities and amounts paid in settlement in connection with any actual or
threatened claim, action, proceeding or investigation arising out of, relating
to or in connection with (1) any act or omission occurring or alleged to occur
before the merger and (2) the merger and the other transactions contemplated by
the merger agreement to the extent that such person is indemnified by Lilly
Industries pursuant to its articles of incorporation, bylaws or otherwise
existing prior to the effective time of the merger.
In the merger agreement, Valspar has agreed that, for a period of six years
after the effective time of the merger, it will cause to be maintained in
effect the current policies of directors' and officers' liability insurance
maintained by Lilly Industries and its subsidiaries with respect to matters
arising on or before the effective time of the merger. Valspar may substitute
policies of at least the same coverage and amounts containing terms and
conditions that are no less advantageous to the insured parties, and which
coverages and amounts will be no less than the coverages and amounts provided
at that time for Valspar's directors and officers. However, Valspar and the
surviving corporation in the merger are not required to expend in any year an
amount in excess of 250% of the annual aggregate premiums currently paid by
Lilly Industries for such coverage. If their aggregate expenditure on coverage
exceeds 250%, Valspar has agreed to obtain a policy reasonably determined by
Valspar to have the greatest coverage available for a cost not exceeding that
amount.
The merger agreement also provides that the indemnification provisions in
the articles of incorporation and bylaws of Lilly Industries in effect at the
effective time of the merger will not be amended, repeated or otherwise
modified for six years after the effective time of the merger in any manner
that would adversely affect the rights of individuals who at the effective time
of the merger were directors, officers, employees or agents of Lilly Industries
relating to service prior to the effective time of the merger. The merger
agreement also provides that Valspar will assume, be jointly and severally
liable for, and honor, guarantee and stand surety for, and cause the surviving
corporation to honor, each of the provisions regarding indemnification in the
merger agreement.
Amendment to Lilly Industries Rights Agreement
Lilly Industries amended the rights agreement, dated as of January 12, 1996,
between Lilly Industries and National City Bank, as rights agent, to provide
that neither the merger nor the merger agreement will cause Valspar or any of
its subsidiaries or affiliates to become an "acquiring person" under the rights
agreement.
Dissenters' Rights
Under Indiana law, Lilly Industries' Class A shareholders do not have
dissenters' rights in the merger, but holders of shares of Lilly Industries
Class B common stock are entitled to dissenters' rights in the merger.
Any holder of shares of Class B common stock who does not vote in favor of
the merger may elect to receive payment of the value of the shares in cash in
accordance with Chapter 44 of the Indiana Business Corporation Law.
Any shareholder contemplating the exercise of the right to dissent should
review carefully the provisions of Chapter 44 reprinted as Appendix C to this
proxy statement. A summary of the principal steps to be taken if
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the right to dissent is to be exercised is set forth below. This summary should
be read in conjunction with, and is qualified in its entirety by reference to,
the full text of Chapter 44.
Each step must be taken in strict compliance with the applicable provisions of
Chapter 44 in order for holders of shares of Class B common stock to perfect
dissenters' rights.
Written Notice to Lilly Industries
A Class B shareholder who intends to assert dissenters' rights with respect
to the merger must, before the shareholders vote on the merger agreement, send
Lilly Industries written notice of intent to demand payment for the shares
pursuant to Chapter 44 in the event the shareholders approve the merger. Such
written notice should state the number of shares as to which dissenters' rights
are being asserted and should be sent to the attention of the Secretary of
Lilly Industries at 200 West 103rd Street, Indianapolis, Indiana 46290.
Dissenters' rights are not available unless this notice requirement is
fulfilled.
Differing Record and Beneficial Owners
A record shareholder may assert dissenters' rights as to fewer than all
shares registered in that shareholder's name only if the shareholder dissents
(in accordance with the provisions of Chapter 44) with respect to all the
shares beneficially owned by any one person and notifies Lilly Industries in
writing of the name and address of each person on whose behalf the record
shareholder is asserting dissenters' rights.
A person owning a beneficial interest in shares may assert dissenters'
rights as to the shares held on such beneficial owner's behalf only if (i) the
beneficial owner submits to Lilly Industries the record shareholder's written
consent to the dissent no later than the time the beneficial owner asserts
dissenters' rights, and (ii) the beneficial owner asserts dissenters' rights
(in accordance with the provisions of Chapter 44) with respect to all the
beneficial owner's shares or all those shares over which the beneficial owner
has power to direct the vote.
Voting
Shareholders who deliver notice of their intent to dissent from the merger
must not vote in favor of the merger. A shareholder who wishes to exercise his
or her dissenters' rights must (i) vote against the adoption of the merger
agreement or (ii) abstain from voting on the adoption of the merger agreement.
Notice to Dissenting Shareholders
If the merger is approved, Lilly Industries will send a written notice to
each dissenting shareholder within ten days of such approval. The dissenters'
notice must (i) supply a form which includes the date of the first announcement
to news media or to shareholders of the terms of the merger and requires that
the dissenting shareholder certify whether or not he or she was a beneficial
owner of his or her shares before such date; (ii) state where the payment
demand and certificates for the shares must be sent; (iii) set a date by which
Lilly Industries must receive the payment demand and certificates representing
the dissenting shareholder's shares (which may not be fewer than 30 nor more
than 60 days after the date of delivery of the dissenters' notice); and (iv)
include a copy of Chapter 44. If Lilly Industries does not complete the merger
within 60 days after the date set forth in the dissenters' notice for demanding
payment and depositing shares, Lilly Industries must return the shares. If
Lilly Industries completes the merger after returning the shares, it must send
a new dissenters' notice and repeat the payment demand procedure.
Payment Demand
In order to preserve statutory dissenters' rights, the dissenting
shareholder must (1) demand payment, (2) certify whether he or she was a
beneficial owner of his or her shares prior to the date set forth in the
dissenters' notice and (3) deposit the certificates formerly representing his
or her shares, all in accordance with the terms of the dissenters' notice. A
dissenting shareholder who demands payment and deposits stock
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certificates in accordance with the terms of the dissenters' notice retains all
other rights as a shareholder until the rights are canceled or modified by the
effectuation of the merger. A dissenting shareholder who fails to demand
payment or deposit stock certificates as required by the dissenters' notice by
the date set forth therein is not entitled to payment for his or her shares and
is considered to have voted in favor of the merger.
Payment by Lilly Industries
Upon the consummation of the merger, Lilly Industries will pay the
dissenting shareholders who have met all statutory conditions the amount Lilly
Industries estimates to be the fair value of the dissenting shareholders'
shares accompanied by certain information specified in Chapter 44. However,
Lilly Industries may elect to withhold payment from dissenting shareholders who
acquired beneficial ownership of shares after the date set forth in the
dissenters' notice as the date of the first announcement to news media or
shareholders of the terms of the merger. If Lilly Industries elects to withhold
payment from such shareholders, it will send each post-announcement shareholder
an offer accompanied by certain information specified in Chapter 44 to pay
Lilly Industries' estimate of the fair value of the shareholder's shares;
provided such post-announcement shareholders agree to accept the payment
offered in full satisfaction of their dissenters' demands.
Optional Secondary Payment Demand
Within 30 days after (1) Lilly Industries pays the dissenting shareholders
Lilly Industries' estimate of the fair value of their shares or (2) Lilly
Industries offers to pay the post-announcement shareholders its estimate of the
fair value of their shares, each such shareholder may notify Lilly Industries
of the shareholder's own estimate of the value of the shares (if it differs
from Lilly Industries' estimate) and demand payment of the shareholder's
estimate of the fair value of the shares less any payment received from Lilly
Industries or reject the offer and demand payment of the shareholder's estimate
of the fair value of the shares. The dissenter may exercise this right if the
dissenter believes the amount paid or offered by Lilly Industries is less than
the fair value of the shares, Lilly Industries fails to make payment within 60
days after the date set for demanding payment or Lilly Industries has failed to
complete the merger and has not returned the deposited certificates within 60
days after the date set for demanding payment.
Petition for Determination of Value
If a demand for payment by a dissenting shareholder remains unsettled, Lilly
Industries will commence a proceeding in the Circuit Court or the Superior
Court of Hamilton County, Indiana to appraise the value of the dissenting
shares. Lilly Industries must commence the appraisal proceeding within 60 days
after the receipt by Lilly Industries of such demand. All dissenting
shareholders whose claims remain unsettled at such time will be made parties to
those proceedings. A dissenting shareholder will be entitled to judgment for
the amount, if any, by which the court finds the fair value of his or her
shares, plus interest, exceeds any amount paid by Lilly Industries. A post-
announcement shareholder will be entitled to judgment for the fair value, plus
accrued interest, of such holder's shares. If Lilly Industries does not
commence the proceeding within the 60 days period, it must pay each dissenter
whose demand for payment is unsettled the amount demanded.
The court in an appraisal proceeding will determine and assess costs against
all parties in such amounts as the court finds equitable. The court may assess
fees and expenses of counsel and experts against Lilly Industries if the court
finds that Lilly Industries did not substantially comply with the requirements
of Chapter 44 or against either Lilly Industries or a dissenting shareholder if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith. In addition, if the court
finds that the services of counsel for any dissenter were of substantial
benefit to other dissenting shareholders similarly situated and that the fees
for those services should not be assessed against Lilly Industries, the court
may award to such counsel reasonable fees to be paid out of the amounts awarded
the dissenting shareholders who were benefited.
Effect on Dividends and Voting Rights
A dissenting shareholder will retain the rights, if any, to vote and receive
dividends until the merger is consummated. Upon the consummation of the merger,
any shareholder who has given proper notice and made a valid demand will cease
to be a shareholder and will have no rights with respect to his or her shares
except the right to receive payment of the fair value.
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THE MERGER AGREEMENT
The following is a summary of all the material terms of the merger
agreement. The summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy statement as Appendix A.
Structure and Effective Time
The merger agreement provides for the merger of Merger Sub with and into
Lilly Industries upon the terms and subject to the conditions of the merger
agreement. Lilly Industries will survive the merger and continue to exist after
the merger as a wholly owned subsidiary of Valspar. The merger will become
effective at the time the articles of merger are filed with the Indiana
Secretary of State (or at a later time if agreed in writing by the parties and
specified in the articles of merger). We intend to complete the merger as
promptly as practicable subject to receipt of the Lilly Industries shareholder
approval and all requisite regulatory approvals. See "The Merger--Governmental
and Regulatory Approvals" and "The Merger Agreement--Agreement to Cooperate"
and "--Conditions to the Merger."
Merger Consideration
The merger agreement provides that each share of Lilly Industries Class A
and Class B common stock outstanding immediately prior to the effective time of
the merger will be converted at the effective time of the merger into the right
to receive $31.75 in cash from Valspar, without interest. At the effective time
of the merger, the shares will be cancelled, and each holder of a certificate
representing shares of Class A or Class B common stock will have no further
rights with respect to such shares, other than the right to receive the $31.75
per share merger consideration, without interest, applicable to those shares.
All shares of Lilly Industries common stock held in the treasury of Lilly
Industries and shares of Lilly Industries Class A and Class B common stock
owned by Lilly Industries' wholly owned subsidiaries, Valspar and Valspar's
wholly owned subsidiaries will be canceled at the effective time of the merger,
and no payment will be made for those shares.
Payment Procedures
Valspar will appoint a disbursing agent that will make payment of the merger
consideration in exchange for certificates representing shares of Lilly
Industries Class A and Class B common stock. Valspar will deposit sufficient
cash with the disbursing agent prior to or at the effective time of the merger
in order to permit the payment of the merger consideration. Promptly after the
effective time of the merger, the disbursing agent will send Lilly Industries
shareholders a letter of transmittal and instructions explaining how to send
their stock certificates to the disbursing agent. The disbursing agent will
mail checks for the appropriate merger consideration, minus any withholding
taxes required by law, to Lilly Industries shareholders promptly following the
disbursing agent's receipt and processing of the Lilly Industries stock
certificates and properly completed transmittal documents.
Treatment of Lilly Industries Stock Options
The merger agreement provides that Valspar will use reasonable efforts to
take all actions so that, at the effective time of the merger, each outstanding
Lilly Industries stock option previously granted, whether or not then vested or
exercisable, will automatically be canceled in return for a lump-sum cash
payment by Valspar or the surviving corporation equal to the excess of $31.75
over the exercise price of the Lilly Industries stock option multiplied by the
number of shares of Lilly Industries Class A and Class B common stock subject
to the canceled Lilly Industries stock option, plus, to holders of non-
qualified options (other than non-employee directors), an amount equal to 35%
of the lump sum cash payment (less in each case any applicable withholding
taxes).
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Directors and Officers
The merger agreement provides that the directors of Merger Sub immediately
before the effective time of the merger will be the directors of the surviving
corporation in the merger. The officers of Lilly Industries will be the
officers of the surviving corporation in the merger.
Representations and Warranties
The merger agreement contains representations and warranties made by Lilly
Industries to Valspar and Merger Sub, including representations and warranties
relating to:
. due organization, power and standing, and other corporate matters;
. capital structure;
. authorization, execution, delivery and enforceability of the merger
agreement;
. subsidiaries;
. conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
. reports and financial statements filed with the Securities and Exchange
Commission and the accuracy of the information in those documents;
. absence of certain undisclosed liabilities;
. absence of a material adverse effect on Lilly Industries;
. litigation;
. correctness of information supplied by Lilly Industries for inclusion in
this proxy statement;
. no violation of law;
. material contracts and compliance with agreements;
. tax matters;
. retirement and other employee benefit plans;
. labor matters;
. environmental matters;
. intellectual property;
. requisite Lilly Industries shareholder approval;
. opinion of financial advisor; and
. brokers' and finders' fees with respect to the merger.
The merger agreement also contains representations and warranties made by
Valspar and Merger Sub to Lilly Industries, including representations and
warranties relating to:
. due organization, power and standing, and other corporate matters;
. authorization, execution, delivery and enforceability of the merger
agreement;
. conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
. correctness of information supplied by Valspar for inclusion in this
proxy statement;
22
<PAGE>
. ownership of Lilly Industries Class A and Class B common stock;
. availability of financing; and
. brokers' and finders' fees with respect to the merger.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
Covenants; Conduct of the Business of Lilly Industries Prior to the Merger
From the date of the merger agreement through the effective time of the
merger, Lilly Industries and its subsidiaries are required to comply with
certain restrictions on their conduct and operations.
Lilly Industries has agreed that, prior to the effective time of the merger,
except as otherwise contemplated by the merger agreement or with the prior
consent of Valspar, Lilly Industries will and will cause its subsidiaries to:
(1) conduct their respective businesses in the ordinary and usual course
of business, consistent with past practice.
(2) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of
their respective present officers and key employees, and preserve the
goodwill and business relationships with customers, suppliers and
others having business relationships with them other than as
contemplated by the merger agreement.
(3) not amend or propose to amend their articles of incorporation, bylaws
or equivalent organizational documents.
(4) not split, combine or reclassify their outstanding capital stock.
(5) not issue, sell, pledge or dispose of (a) any shares of their capital
stock, (b) any options, warrants or rights to acquire shares of their
capital stock, or (c) any securities convertible into or exchangeable
for their capital stock, or redeem, purchase or offer to purchase any
securities of the types described in (a)-(c) above.
. Exception: Lilly Industries is permitted to issue shares upon the
exercise of any Lilly Industries stock options that are outstanding
on the date of the merger agreement and for repurchases of shares
for use in its 401(k) plan, dividend reinvestment plan or employee
stock purchase plan.
(6) not declare, set aside or pay any dividends.
. Exception: Lilly Industries may declare, set aside and pay regular
quarterly dividends of not more than $.08 per share declared and
paid at times consistent with past practice.
(7) not incur or become contingently liable with respect to any
indebtedness for borrowed money.
. Exception: Lilly Industries and its subsidiaries may borrow (a) in
the ordinary course of business under existing credit facilities up
to the existing borrowing limit on the date of the merger agreement,
or (b) to refinance existing indebtedness on market terms.
(8) not acquire any assets or businesses in excess of certain thresholds,
except for expenditures for current assets in the ordinary course of
business and fixed or capital assets in the ordinary course consistent
with Lilly Industries' capital expenditure budget.
(9) not sell, pledge, dispose of or encumber any material assets or
businesses.
. Exceptions: Lilly Industries and its subsidiaries may:
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<PAGE>
--sell businesses or assets contemplated by the merger agreement;
--pledge or encumber assets or businesses pursuant to existing
credit facilities or other permitted borrowings;
--sell or dispose of assets and businesses as may be required by
applicable law; or
--sell idle facilities and related assets.
(10) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
agreement with any director, officer or key employee of Lilly
Industries or its subsidiaries.
. Exceptions: Lilly Industries and its subsidiaries may take such
action if:
--required to comply with applicable law,
--pursuant to previously existing contractual arrangements or
policies, or
--pursuant to certain employment agreements entered into with a
person hired after the date of the merger agreement in the
ordinary course of business.
(11) not increase any salary or monetary compensation to any person, except
(a) as required to comply with applicable law, (b) pursuant to
previously existing contractual arrangements, or (c) in the ordinary
course of business consistent with past practice.
(12) not enter into, adopt or amend to increase benefits or obligations of
any employee benefit, incentive or welfare plan or other material
arrangement in respect of any directors, officers or employees of
Lilly Industries or its subsidiaries, except (a) as required to comply
with applicable law, (b) pursuant to previously existing contractual
arrangements, or (c) with respect to any plan of any company acquired
after the date of the merger agreement.
(13) not make any capital expenditures or enter into any binding commitment
to make those expenditures in excess of year 2000 and 2001 budgets.
(14) not enter into any contract or commitment (a) providing for the
provision of products by Lilly Industries or any of its subsidiaries
that has a term of more than three years and which is reasonably
expected to generate more than $25 million in revenues over its term
or more than $10 million in revenues per year, or (b) providing for
the purchase of services by Lilly Industries or any of its
subsidiaries that has a term of more than one year and which is
reasonably expected to involve payments of more than $25 million over
its term.
(15) not make, change or revoke any material tax election unless required
by law or make any agreement or settlement with any tax authority
either regarding any material amount of taxes or which would
reasonably be expected to materially increase the obligations of Lilly
Industries (before or after the merger) to pay taxes in the future.
(16) not prepare or file any tax return inconsistent with past practice or
make any election on such form that is inconsistent with positions
taken in prior years other than, in each case, as required by law or
in the ordinary course.
(17) not make any change in accounting policies or methods other than
changes required by law or generally accepted accounting principles.
(18) not amend or modify in any material respect any existing material
contract except in the ordinary course of business and except for
extensions of existing agreements.
(19) not enter into any settlement or similar agreement with respect to any
claim which involves payments in excess of certain amounts.
(20) not enter into any agreement to do the foregoing.
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<PAGE>
No Solicitation of Acquisition Transactions
The merger agreement provides that Lilly Industries will not, will cause its
subsidiaries not to, and will use its reasonable best efforts to cause any
officer, director or employee of Lilly Industries, or any attorney, accountant,
investment banker, financial advisor or other agent retained by it or any of
its subsidiaries not to, initiate, solicit or negotiate or provide nonpublic or
confidential information to facilitate, any proposal to acquire all or any
substantial part of the business, properties or capital stock of Lilly
Industries, whether by merger, tender offer, purchase of assets or otherwise
(an "acquisition transaction").
Lilly Industries may furnish nonpublic or confidential information to, and
engage in discussions and negotiate with, any person who makes an unsolicited
bona fide written proposal or offer with respect to an acquisition transaction
(an "acquisition proposal") that the Lilly Industries board determines in good
faith, after consultation with and consideration of the views of its
independent financial advisor and legal counsel, could reasonably likely lead
to a superior proposal. A "superior proposal" is an acquisition proposal that
the Lilly Industries board determines, taking into account all legal,
financial, regulatory and other aspects of the proposal, in its good faith
judgment and after consultation with and consideration of the views of its
independent financial advisor and legal counsel, (a) is reasonably likely to be
completed, and (b) would, if completed, be more favorable to the Lilly
Industries shareholders than the merger.
The merger agreement requires Lilly Industries to promptly notify Valspar
after receipt of any acquisition proposal or request for access to the
properties, books or records of Lilly Industries or any subsidiary by any
person or entity that informs the Lilly Industries board or such subsidiary
that it is considering making, or has made, an acquisition proposal.
Employee Benefits
Lilly Industries and Valspar have agreed that, after the merger, Valspar and
its affiliates will assume and honor all employee benefit plans and material
employment agreements, subject to any amendment or termination thereof that may
be permitted by their terms. The merger agreement also provides that for a
period of not less than two years following the merger, Lilly Industries'
current employees will receive compensation and employee benefits that are, in
the aggregate, no less favorable than those provided to similarly situated
employees of Valspar and its affiliates. Lilly Industries' severance plan, as
in effect on the date of the merger agreement, will remain in effect, without
any amendments that are adverse to eligible employees, for not less than two
years following the effective time of the merger. Lilly Industries employees'
prior service to Lilly Industries will count as prior service to Valspar under
Valspar's employee benefit plans, except to the extent such credit would result
in the duplication of benefits. From and after the merger, each of Lilly
Industries' current employees will be immediately eligible to participate in
any and all employee benefit plans of Valspar providing benefits to those Lilly
Industries employees after the effective time of the merger ("new plans") to
the extent coverage under such plan replaces coverage under a comparable Lilly
Industries employee benefits plan in which the employee participated prior to
the merger. In addition, Valspar will cause any pre-existing condition
exclusions and actively-at-work requirements of plans in which Lilly
Industries' employees and their dependents participate after the merger to be
waived, and will give them credit towards applicable deductibles and annual
out-of-pocket limits under such plans for expenses incurred prior to the merger
under old plans during the plan year in which they begin to participate in the
new plans.
Agreement to Cooperate
Subject to the terms and conditions of the merger agreement, Valspar has
agreed to use reasonable best efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to complete the transactions contemplated by
the merger agreement. This includes:
25
<PAGE>
. obtaining all necessary or appropriate waivers, consents or approvals of
third parties required in order to preserve material contractual
relationships of Valspar and Lilly Industries and their respective
subsidiaries;
. obtaining all necessary or appropriate waivers, consents and approvals
to effect all necessary registrations, filings and submissions; and
. lifting any injunction or other legal bar to the merger (and, in such
case, to proceed with the merger as expeditiously as possible),
including through all possible appeals.
Lilly Industries has agreed to cooperate in such efforts. In addition, subject
to the fiduciary duties of their respective boards of directors, none of
Valspar, Merger Sub or Lilly Industries will knowingly take or cause to be
taken any action which would reasonably be expected to materially delay or
prevent consummation of the merger.
The merger agreement requires each of Valspar and Lilly Industries to
respond as promptly as practicable to any inquires or requests received from
any governmental agency for additional information or documentation. Valspar
and Lilly Industries have also agreed to:
. promptly notify the other party of any written communication from any
governmental agency and, subject to applicable law, permit the other
party to review in advance any proposed written communication to any
governmental agency;
. to the extent practicable, permit the other party to review and discuss
in advance and consider in good faith the views of one another in
connection with certain proposed communication with any governmental
agencies;
. not agree to participate in any substantive meeting or discussion with
any governmental agency in respect of any filings, investigation or
inquiry concerning the merger agreement or the merger unless it consults
with the other party in advance and, to the extent permitted by such
governmental agency, gives the other party the opportunity to attend and
participate at the meeting or discussion; and
. furnish the other party with copies of all correspondence, filings and
communications between them and their affiliates and their respective
representatives on the one hand and any governmental agency on the other
hand, with respect to the merger agreement and the merger.
Valspar and Lilly Industries have further agreed not to extend any waiting
period under the HSR Act or enter into any agreement with any governmental
agency not to consummate the transactions contemplated by the merger agreement,
except with the prior consent of the other parties to the merger agreement
(which consent will not be unreasonably withheld).
The merger agreement provides that Valspar will offer to take (and if the
offer is accepted, commit to take) all steps that it is capable of taking to
avoid or eliminate impediments under any antitrust, competition or trade
regulation law that may be asserted by any governmental agency with respect to
the merger so as to enable the effective time of the merger to occur prior to
June 30, 2001. Valspar must also defend through litigation on the merits any
claim asserted in any court by any party, including appeals. The merger
agreement further provides that Valspar will:
. propose, negotiate, offer to commit and effect, by consent decree, hold
separate order or otherwise, the sale, divestiture or disposition of
such assets or businesses of Valspar, or after the merger the surviving
corporation, or their respective subsidiaries; and
. otherwise offer to take or offer to commit to take an action which it is
capable of taking and if the offer is accepted, take or commit to take
such action that limits its freedom of action with respect to, or its
ability to retain, any of the business, services or assets of Valspar,
the surviving corporation or their respective subsidiaries,
26
<PAGE>
in order to avoid the filing of any suit or proceeding or the entry of, or to
effect the dissolution of, any injunction, temporary restraining order or other
order in any suit or proceeding, which would otherwise have the effect of
preventing or delaying the effective time beyond June 30, 2001, or which may be
necessary to allow the effective time to occur prior to that date.
The merger agreement also provides that, at the request of Valspar, Lilly
Industries will agree to divest, hold separate or otherwise take or commit to
take any action that limits its freedom of action with respect to, or its
ability to retain, any of its businesses, services or assets or those of its
subsidiaries, provided that such action may be conditioned upon the completion
of the merger and the transactions contemplated by the merger agreement.
However, Valspar is not required to take any actions in connection with, or
agree to, any hold separate order, sale, divestiture or disposition of plants,
assets and businesses of Valspar and its subsidiaries or Lilly Industries and
its subsidiaries that account in the aggregate for more than $60 million of the
combined sales of Valspar and Lilly Industries in fiscal year 1999.
Indemnification and Insurance
Valspar has agreed that the indemnification provisions of the articles of
incorporation and bylaws of Lilly Industries as in effect at the effective time
of the merger will not be amended, repealed or otherwise modified for a period
of six years from the effective time of the merger in any manner that would
adversely affect the rights of individuals who at the effective time of the
merger were directors, officers, employees or agents of Lilly Industries.
Relating to service prior to the effective time of the merger, Valspar will
assume, be jointly and severally liable for, and honor, guaranty and stand
surety for, and will cause the surviving corporation to honor, the provisions
in the merger agreement addressing indemnification without limit as to time.
Valspar has agreed that, to the fullest extent permitted under applicable
law, Valspar and the surviving corporation in the merger will indemnify and
hold harmless each present and former director, officer, employee, and agent of
Lilly Industries or any of its subsidiaries ("indemnified parties") against any
costs, expenses (including attorneys' fees), damages, amounts paid in
settlement and liabilities in connection with any actual or threatened claim or
investigation arising out of, relating to or in connection with any action or
omission occurring or alleged to have occurred prior to the effective time of
the merger or the merger and the other transactions contemplated by the merger
agreement or arising out of or pertaining to the transactions contemplated by
the merger agreement to the extent that any such indemnified party is
indemnified by Lilly Industries pursuant to its charter or bylaws, any other
indemnification agreement, state law or otherwise existing immediately prior to
the effective time of the merger.
Valspar has agreed that, for a period of six years after the effective time
of the merger, it will cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by Lilly Industries and
its subsidiaries (provided that Valspar may substitute policies of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous to the indemnified parties, and which coverages and amounts will
be no less than the coverages and amounts provided at that time for Valspar's
directors and officers) with respect to matters arising on or before the
effective time of the merger. However, Valspar and the surviving corporation
are not required to expend in any year an amount in excess of 250% of the
annual aggregate premiums currently paid by Lilly Industries for such coverage.
If their aggregate expenditure on coverage exceeds that amount, Valspar has
agreed that it will obtain a policy reasonably determined by Valspar to have
the greatest coverage available for a cost not exceeding that amount.
The Lilly Industries Board Recommendation
The merger agreement provides that the Lilly Industries board will recommend
that the Lilly Industries shareholders approve the merger agreement and will
use its reasonable best efforts to solicit proxies in favor of the merger and
to take all other action in its judgment necessary and appropriate to secure
the vote of Lilly
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<PAGE>
Industries shareholders. However, Valspar has agreed that the Lilly Industries
board may change its recommendation in any respect or not take efforts to
solicit proxies in favor of the merger if the Lilly Industries board determines
in good faith, based upon the advice of outside counsel, that the failure to
take such action would likely result in a violation of its fiduciary duties.
Conditions to the Merger
The obligations of Lilly Industries, Valspar and Merger Sub to complete the
merger are subject to the satisfaction of each of the conditions described
below.
(1) The merger agreement has been approved by the requisite vote of the
Lilly Industries shareholders.
(2) (a) All statutory approvals required to be obtained by Valspar and
Lilly Industries in order to permit completion of the merger under
applicable law have been obtained, and (b) no provision of any
applicable law or regulation and no judgment, order or decree shall be
in effect which makes the merger illegal or otherwise restrains or
prohibits completion of the merger, except in either case for any
approval the failure of which to obtain or any law or regulation the
violation of which would not, singly or in the aggregate, reasonably be
expected to:
. have a material adverse effect (after giving effect to the merger)
on Valspar, or
. result in certain criminal violations.
(3) The waiting period applicable to completion of the merger under the HSR
Act has expired or been terminated.
Unless waived by Lilly Industries, the obligation of Lilly Industries to
complete the merger is subject to the satisfaction of the following condition:
Valspar and Merger Sub have performed their agreements contained in the merger
agreement required to be performed on or prior to the effective time of the
merger, and the representations and warranties of Valspar and Merger Sub
contained in the merger agreement are true and correct on and as of the
effective time of the merger (except to the extent that the representations and
warranties speak as of an earlier date), except for failures to perform or to
be true and correct (without giving effect to any qualification in such
representations and warranties relating to a material adverse effect on Valspar
or knowledge or, except for any representation and warranty that calls for a
list, materiality) that would not reasonably be expected to have a material
adverse effect on Valspar.
Unless waived by Valspar and Merger Sub, the obligations of Valspar and
Merger Sub to complete the merger are subject to the satisfaction of both of
the following additional conditions:
(1) Lilly Industries has performed its agreements contained in the merger
agreement required to be performed on or prior to the effective time of
the merger, and the representations and warranties of Lilly Industries
contained in the merger agreement are true and correct (without giving
effect to any qualification in such representations and warranties
relating to a material adverse effect on Lilly Industries or knowledge
or, except for any representation and warranty that calls for a list,
materiality) on and as of the effective time of the merger (except to
the extent that the representations and warranties speak as of an
earlier date), except for failures to perform and to be true and
correct that would not reasonably be expected to have a material
adverse effect on Lilly Industries.
(2) All third party approvals required to be obtained by Lilly Industries
have been obtained, except for approvals the failure of which to obtain
would not, singly or in the aggregate, reasonably be expected to have a
material adverse effect on Lilly Industries.
(3) Since the date of the merger agreement, there has not occurred any
material adverse effect on Lilly Industries except as contemplated by
the merger agreement.
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<PAGE>
Important Definitions
In the merger agreement, the phrase "material adverse effect on Valspar"
means any effect that is materially adverse to the business, properties,
operations, assets, financial condition or results of operations of Valspar and
its subsidiaries, taken as a whole.
In the merger agreement, the phrase "material adverse effect on Lilly
Industries" means any effect that is materially adverse to the business,
properties, operations, assets, financial condition or results of operations of
Lilly Industries and its subsidiaries, taken as a whole. However, any event
relating to (1) the economy or financial markets in general or the industries
in which Lilly Industries operates in general or (2) the announcement or
pendency of the merger is excluded from the determination of whether there has
been a material adverse effect with respect to Lilly Industries.
For the purposes of determining whether any fact or circumstance involves a
material adverse effect on the results of operations of a party, any special
transaction charges, costs or expenses incurred by such party as a result of
the completion of a transaction contemplated by the merger agreement will not
be considered.
Termination
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger (notwithstanding any
approval by Lilly Industries shareholders):
(1) by mutual written consent of Lilly Industries and Valspar;
(2) by either Lilly Industries or Valspar if the merger has not been
completed by June 30, 2001, but the right to terminate the merger
agreement under this paragraph is not available to any party whose
failure to fulfill any of its obligations under the merger agreement
has been the cause of or resulted in the failure to complete the merger
by that date;
(3) by either Lilly Industries or Valspar if any judgment, injunction,
order or decree of a court or governmental agency or authority of
competent jurisdiction restrains or prohibits the completion of the
merger, and that judgment, injunction, order or decree has become final
and nonappealable and was not entered at the request of the terminating
party;
(4) by either Lilly Industries or Valspar if there has been an uncurable
breach by the other party of any representation or warranty, covenant,
or agreement contained or set forth in the merger agreement which would
reasonably be expected to have a material adverse effect on Valspar or
Lilly Industries;
(5) by Lilly Industries, if, after receipt of a bona fide written offer for
an acquisition transaction, the Lilly Industries board determines in
good faith that (a) the acquisition transaction is a superior proposal,
and (b) based on the advice of outside counsel, failure to terminate
the agreement would likely violate its fiduciary duties under
applicable law, but only after:
. Lilly Industries has given Valspar four business days' prior notice
of its intention to terminate,
. to the extent reasonably requested by Valspar, Lilly Industries has
caused its financial and legal advisors to negotiate during that
four-business-day period with Valspar concerning adjustments in the
terms and conditions of the merger agreement as would enable Lilly
Industries to proceed with the merger on adjusted terms,
. if Valspar makes a bona fide written offer of any such adjustments
prior to the expiration of the four-business-day period, the Lilly
Industries board has concluded in good faith that the transactions
contemplated in the merger agreement on such adjusted terms are not
more favorable to the Lilly Industries shareholders than the other
offer, and
. Lilly Industries has paid the $25 million termination fee;
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<PAGE>
(6) by Valspar if the Lilly Industries board has failed to recommend or has
withdrawn, adversely modified or adversely amended in any material
respects its approval or recommendation of the merger; or
(7) by Valspar or Lilly Industries if the shareholders of Lilly Industries
fail to approve the merger agreement at the special meeting, including
any adjournment of that special meeting.
Termination Fee
The merger agreement obligates Lilly Industries to pay a fee to Valspar
equal to $25 million in cash if:
(1) Valspar terminates the merger agreement for the reasons described in
paragraph (6) of "--Termination";
(2) the merger agreement is terminated for the reasons specified in
paragraph (7) of "--Termination," and
. prior to the time of the special meeting, an acquisition proposal had
been made to Lilly Industries, and
. within 12 months of termination of the merger agreement, Lilly
Industries enters into a binding written agreement with respect to
that acquisition proposal; or
(3) Lilly Industries terminates the merger agreement for the reasons
described in paragraph (5) of "--Termination."
Expenses
The merger agreement provides that all costs and expenses incurred in
connection with the merger agreement and the transactions contemplated thereby
will be paid by the party incurring the expenses, except that those expenses
incurred in connection with printing and filing this proxy statement will be
shared equally by Valspar and Lilly Industries.
Amendment
The merger agreement provides that it may be amended by the parties to the
merger agreement, by action taken or authorized by their respective boards of
directors, at any time before or after approval by the Lilly Industries
shareholders. No amendment is permitted to be made after the Lilly Industries
shareholder approval which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such shareholders without
that further approval.
At any time prior to the effective time of the merger, the parties to the
merger agreement, by action taken or authorized by their respective boards of
directors, may, to the extent legally permitted, (a) extend the time for
performance of any obligations or other acts of the other parties to the
merger agreement, (b) waive any inaccuracies in the representations contained
in the merger agreement or any document delivered pursuant to that agreement,
and (c) waive compliance with any of the agreements or conditions contained in
the merger agreement.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
The following table sets forth the amount of Lilly Industries Class A and
Class B common stock beneficially owned by each of its directors, its five most
highly compensated executive officers during fiscal year 1999, and all
directors and executive officers as a group as of August 18, 2000, and each
shareholder known to Lilly Industries to be the owner of more than five percent
of the outstanding shares of Class A common stock or Class B common stock.
Unless otherwise indicated, each shareholder has sole investment and voting
power with respect to the shares indicated, as of August 18, 2000.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
---------------------------- ----------------------------
Shares Beneficially Percent Shares Beneficially Percent
Owned of Class Owned of Class
Name of Beneficial Owner ------------------- -------- ------------------- --------
<S> <C> <C> <C> <C>
James M. Cornelius...... 28,815(1) * 0 *
William C. Dorris....... 81,059(2) * 26,377 5.5%
John C. Elbin........... 76,293(3) * 7,423 1.5%
Paul K. Gaston.......... 26,420(4) * 0 *
Douglas W. Huemme....... 489,045(5) 2.1% 48,000 9.9%
Harry Morrison, Ph.D.... 11,815(6) * 0 *
Norma J. Oman........... 9,452(7) * 0 *
John D. Peterson........ 219,634(8) * 0 *
Thomas E. Reilly, Jr.... 52,914(9) * 0 *
Robert A. Taylor........ 154,659(10) * 33,219 6.9%
Larry H. Dalton......... 60,377(11) * 45,291 9.4%
Kenneth L. Mills........ 29,926(12) * 23,227 4.8%
All current directors
and executive
officers as a group (12
persons)............... 1,240,409(13) 5.5% 183,537(14) 38.0%
Tweedy, Browne Company
LLC.................... 1,809,065(15) 7.9% 0 *
52 Vanderbilt Avenue
New York, NY 10017
Wanger Asset Management,
L.P.................... 1,909,500(15) 8.4% 0 *
227 W. Monroe St.,
Suite 3000
Chicago, IL 60606
Ned L. Fox.............. 56,662(16) * 32,602 6.7%
Gary D. Missildine...... 65,253(17) * 36,498 7.6%
Jay M. Wiegner.......... 36,735(18) * 27,047 5.6%
</TABLE>
--------
* Represents less than one percent of class of outstanding shares.
(1) Includes 11,815 shares of Class A common stock which Mr. Cornelius has the
right to acquire pursuant to stock options.
(2) Includes 883 shares of Class A common stock which Mr. Dorris' wife holds
as custodian for their child. Mr. Dorris disclaims beneficial ownership of
those 883 shares. Includes 65,000 shares of Class A common stock which Mr.
Dorris has the right to acquire pursuant to stock options.
(3) Includes 75,000 shares of Class A common stock which Mr. Elbin has the
right to acquire pursuant to stock options.
(4) Includes 7,089 shares of Class A common stock which Mr. Gaston has the
right to acquire pursuant to stock options.
(5) Includes 410,000 shares of Class A common stock which Mr. Huemme has the
right to acquire pursuant to stock options.
(6) Includes 11,815 shares of Class A common stock which Mr. Morrison has the
right to acquire pursuant to stock options.
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<PAGE>
(7) Includes 9,452 shares of Class A common stock which Ms. Oman has the right
to acquire pursuant to stock options.
(8) Includes 64,018 shares held in an investment account at City Securities
Corporation. Mr. Peterson owns more than 10% of the equity of City
Securities Corporation. Includes 34,548 shares of Class A common stock
owned of record and beneficially by Mr. Peterson's wife. Mr. Peterson
disclaims beneficial ownership of those 34,548 shares. Includes 14,449
shares of Class A common stock owned beneficially by Mr. Peterson as
trustee of a GST Investment Share Trust for benefit of Mr. Peterson and
34,298 shares of Class A common stock owned beneficially by Mr. Peterson
as trustee of two GST Investment Share Trusts for benefit of Mr.
Peterson's two sisters. Includes 11,815 shares of Class A common stock
which Mr. Peterson has the right to acquire pursuant to stock options.
(9) Includes 5,384 shares of Class A common stock which Mr. Reilly's wife
holds as custodian for one of their children. Mr. Reilly disclaims
beneficial ownership of those 5,384 shares. Includes 11,815 shares of
Class A common stock which Mr. Reilly has the right to acquire pursuant to
stock options.
(10) Includes 138,333 shares of Class A common stock which Mr. Taylor has the
right to acquire pursuant to stock options.
(11) Includes 55,000 shares of Class A common stock which Mr. Dalton has the
right to acquire pursuant to stock options.
(12) Includes 28,989 shares of Class A common stock which Mr. Mills has the
right to acquire pursuant to stock options.
(13) Includes 836,123 shares of Class A common stock which all current
directors and executive officers as a group have the right to acquire
pursuant to stock options.
(14) No shares of Class B common stock are beneficially owned by non-employee
directors.
(15) Based on information as of June 30, 2000.
(16) Includes 35,000 shares of Class A common stock which Mr. Fox has the right
to acquire pursuant to stock options.
(17) Includes 55,000 shares of Class A common stock which Mr. Missildine has
the right to acquire pursuant to stock options.
(18) Includes 27,500 shares of Class A common stock which Mr. Wiegner has the
right to acquire pursuant to stock options.
32
<PAGE>
MARKET PRICE OF LILLY INDUSTRIES CLASS A COMMON STOCK AND
DIVIDEND INFORMATION
Lilly Industries Class A common stock is traded on the New York Stock
Exchange, Inc. under the symbol "LI". The table below sets forth by quarter,
since the beginning of Lilly Industries' fiscal year ended November 30, 1998,
the high and low sale prices of Lilly Industries Class A common stock on the
NYSE Composite Transactions Tape, as reported in The Wall Street Journal, and
the dividends paid per share.
<TABLE>
<CAPTION>
Market Prices
---------------- Dividends
High Low Per Share
-------- ------- ---------
<S> <C> <C> <C>
Fiscal Year 1998
1st Quarter Ended February 28................. $20 5/8 $17 7/8 $.08
2nd Quarter Ended May 31...................... 22 3/4 17 3/4 .08
3rd Quarter Ended August 31................... 24 5/8 18 1/2 .08
4th Quarter Ended November 30................. 19 7/8 14 3/8 .08
Fiscal Year 1999
1st Quarter Ended February 28................. $20 1/8 $16 1/4 $.08
2nd Quarter Ended May 31...................... 19 3/8 14 .08
3rd Quarter Ended August 31................... 19 3/4 15 5/8 .08
4th Quarter Ended November 30................. 16 1/4 13 1/8 .08
Fiscal Year 2000
1st Quarter Ended February 29................. $15 3/16 $12 5/8 $.08
2nd Quarter Ended May 31...................... 15 10 1/2 .08
3rd Quarter Ended August 31 (through August
18, 2000).................................... 30 3/4 12 7/8 .08
</TABLE>
On June 23, 2000, the last full trading day prior to the public announcement
of the merger agreement, the high and low sale prices of Lilly Industries Class
A common stock as reported on the NYSE Composite Transactions Tape were $13
13/16 and $12 7/8, respectively. On August 18, 2000, the last full trading day
prior to the date of this proxy statement, the closing price of Lilly
Industries Class A common stock as reported on the NYSE Composite Transactions
Tape was $30 9/16.
Lilly Industries shareholders are encouraged to obtain current market
quotations for Lilly Industries Class A common stock.
Lilly Industries Class B common stock is not listed or traded on any
national securities exchange or automatic quotation system.
33
<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement includes and incorporates by reference statements that
are not historical facts. These statements are "forward-looking statements" (as
defined in the Private Securities Litigation Reform Act of 1995) based, among
other things, on our current plans and expectations relating to analyses of
value and expectations of anticipated growth in the future and future success
under various circumstances, and, as such, these forward-looking statements
involve uncertainty and risk. These forward-looking statements are contained in
the sections entitled "Summary Term Sheet for the Merger" and "The Merger" and
other sections of this proxy statement. These forward-looking statements should
be read in conjunction with the section entitled "Forward Looking Statements"
in Item 1 of our Annual Report on Form 10-K for the year ended November 30,
1999, which describes many of the external factors that could cause our actual
results to differ materially from our expectations. Our Form 10-K is on file
with the Securities and Exchange Commission, and a copy is available without
charge upon written request to: John C. Elbin, Secretary, Lilly Industries,
Inc., 200 West 103rd Street, Indianapolis, Indiana 46290. The Form 10-K is also
available via the Internet at www.sec.gov. In addition, actual results could
differ materially from the forward-looking statements contained in this proxy
statement because of many factors, such as competition within the industrial
coatings and specialty chemical industry, the cyclicality of the industrial
coatings and specialty chemical business, the completion and impact of the
merger on operating results and capital resources, the impact on profitability
of economic and market conditions, and the impact on cash requirements and
liquidity.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in any forward-looking
statement. We do not undertake any obligation to update the forward-looking
statements contained or incorporated in this proxy statement to reflect actual
results, changes in assumptions, or changes in other factors affecting these
forward-looking statements.
All information contained in this proxy statement with respect to Valspar,
Merger Sub and the financing for the merger has been supplied by and is the
responsibility of Valspar.
FUTURE SHAREHOLDER PROPOSALS
Lilly Industries intends to hold an annual meeting in 2001 only if the
merger is not completed. Proposals of shareholders intended to be presented at
the Annual Meeting to be held in April of 2001 must be received by Lilly
Industries at its principal executive offices for inclusion in the proxy
statement and form of proxy relating to that meeting no later than October 28,
2000. If Lilly Industries does not receive notice by January 12, 2001 of any
other matter which a shareholder desires to bring before the 2001 Annual
Meeting which is not the subject of a proposal timely submitted for inclusion
in the proxy statement, then the proxies designated by the Lilly Industries
board for that meeting may vote in their discretion on any such matter without
mention of the matter in Lilly Industries' proxy statement or proxy card for
that annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Each of Lilly Industries and Valspar is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended. Each company
files reports, proxy statements and other information with the SEC. You may
read and copy these reports, proxy statements and other information at the
SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
website, located at www.sec.gov, that contains reports, proxy statements and
other information regarding companies and individuals that file electronically
with the SEC.
You may also read reports, proxy statements and other information relating
to Lilly Industries and Valspar at the offices of the NYSE at 20 Broad Street,
New York, New York 10005.
34
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Lilly Industries incorporates by reference into this proxy statement the
following documents that Valspar has filed with the SEC (File No. 001-03011):
(1) Annual Report on Form 10-K for the year ended October 31, 1999, (2)
Quarterly Reports on Form 10-Q for the periods ended January 28, 2000 and April
28, 2000, and (3) Current Report on Form 8-K filed on May 3, 2000.
All documents and reports filed by Valspar pursuant to Section 13(a), 13(c),
14, or 15(d) of the Exchange Act after the date of this proxy statement and on
or prior to the date of the special meeting are deemed to be incorporated by
reference in this proxy statement from the date of filing of those documents or
reports. Any statement contained in a document incorporated or deemed to be
incorporated by reference in this proxy statement will be deemed to be modified
or superseded for purposes of this proxy statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this proxy statement
modifies or supersedes that statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this proxy statement.
Any person receiving a copy of this proxy statement may obtain, without
charge, upon written or oral request, a copy of any of the documents
incorporated by reference except for the exhibits to such documents (other than
the exhibits expressly incorporated in those documents by reference). Requests
should be directed to: Secretary, The Valspar Corporation, 1101 Third Street
South, Minneapolis, Minnesota 55415, telephone: (612) 332-7371. A copy will be
provided by first class mail or other equally prompt means within one business
day after receipt of your request.
We have authorized no one to give you any information or to make any
representation about the merger or our company that differs from or adds to the
information contained in this proxy statement or in the documents we have
publicly filed with the SEC. Therefore, if anyone should give you any different
or additional information, you should not rely on it.
The information contained in this proxy statement speaks only as of the date
indicated on the cover of this proxy statement unless the information
specifically indicates that another date applies.
35
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 23, 2000
BY AND
AMONG
LILLY INDUSTRIES, INC.,
THE VALSPAR CORPORATION
AND
VAL ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
ARTICLE I THE MERGER............................................. A-1
SECTION 1.01. The Merger............................... A-1
SECTION 1.02. Conversion of Shares..................... A-1
SECTION 1.03. Payment for Shares....................... A-2
SECTION 1.04. Stock Options............................ A-3
ARTICLE II SURVIVING CORPORATION; DIRECTORS AND OFFICERS.......... A-3
SECTION 2.01. Articles of Incorporation................ A-3
SECTION 2.02. By-Laws.................................. A-3
SECTION 2.03. Directors and Officers................... A-3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
ARTICLE III SUB.................................................... A-4
SECTION 3.01. Organization and Qualification........... A-4
SECTION 3.02. Authority; Non-Contravention; Approvals.. A-4
SECTION 3.03. Proxy Statement.......................... A-5
SECTION 3.04. Ownership of Company Common Stock........ A-5
SECTION 3.05. Financing................................ A-5
SECTION 3.06. Brokers and Finders...................... A-5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... A-5
SECTION 4.01. Organization and Qualification........... A-5
SECTION 4.02. Capitalization........................... A-6
SECTION 4.03. Subsidiaries............................. A-7
SECTION 4.04. Authority; Non-Contravention; Approvals.. A-7
SECTION 4.05. Reports and Financial Statements......... A-8
SECTION 4.06. Absence of Undisclosed Liabilities....... A-8
SECTION 4.07. Absence of Certain Changes or Events..... A-8
SECTION 4.08. Litigation............................... A-9
SECTION 4.09. Proxy Statement.......................... A-9
SECTION 4.10. No Violation of Law...................... A-9
SECTION 4.11. Material Contracts; Compliance with
Agreements............................................. A-9
SECTION 4.12. Taxes.................................... A-10
SECTION 4.13. Employee Benefit Plans; ERISA............ A-10
SECTION 4.14. Collective Bargaining Agreements; Labor
Controversies.......................................... A-12
SECTION 4.15. Environmental Matters.................... A-12
SECTION 4.16. Intellectual Property.................... A-13
SECTION 4.17. Company Shareholders' Approval........... A-13
SECTION 4.18. Opinion of Financial Advisor............. A-13
SECTION 4.19. Brokers and Finders...................... A-13
ARTICLE V COVENANTS.............................................. A-13
SECTION 5.01. Conduct of Business by the Company
Pending the Merger..................................... A-13
SECTION 5.02. Control of the Company's Operations...... A-15
SECTION 5.03. Acquisition Transactions................. A-15
SECTION 5.04. Access to Information; Confidentiality... A-15
SECTION 5.05. Notices of Certain Events................ A-16
SECTION 5.06. Merger Sub............................... A-17
SECTION 5.07. Employee Benefits........................ A-17
SECTION 5.08. Meeting of the Company's Shareholders.... A-18
SECTION 5.09. Proxy Statement.......................... A-18
SECTION 5.10. Public Announcements..................... A-18
SECTION 5.11. Expenses and Fees........................ A-19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
SECTION 5.12. Agreement to Cooperate.................... A-19
SECTION 5.13. Directors' and Officers' Indemnification.. A-20
SECTION 5.14. State Takeover Laws....................... A-21
SECTION 5.15. Employee Stock Purchase Plan.............. A-21
ARTICLE VI CONDITIONS TO THE MERGER................................ A-21
SECTION 6.01. Conditions to the Obligations of Each
Party................................................... A-21
SECTION 6.02. Conditions to Obligation of the Company to
Effect the Merger....................................... A-22
SECTION 6.03. Conditions to Obligations of Parent and
Subsidiary to Effect the
Merger.......................................... A-22
ARTICLE VII TERMINATION............................................. A-22
SECTION 7.01. Termination............................... A-22
ARTICLE VIII MISCELLANEOUS........................................... A-23
SECTION 8.01. Effect of Termination..................... A-23
SECTION 8.02. Non-Survival of Representations and
Warranties.............................................. A-23
SECTION 8.03. Notices................................... A-24
SECTION 8.04. Interpretation............................ A-24
SECTION 8.05. Miscellaneous............................. A-25
SECTION 8.06. Counterparts.............................. A-25
SECTION 8.07. Amendments; Extensions.................... A-25
SECTION 8.08. Entire Agreement.......................... A-25
SECTION 8.09. Severability.............................. A-25
SECTION 8.10. Specific Performance...................... A-25
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 23, 2000,
among Lilly Industries, Inc., an Indiana corporation (the "Company"), The
Valspar Corporation, a Delaware corporation ("Parent"), and Val Acquisition
Corp., an Indiana corporation and a wholly-owned subsidiary of Parent ("Merger
Sub").
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have each approved the merger of Merger Sub with and into the Company
on the terms and subject to the conditions set forth in this Agreement and have
adopted this Agreement as a plan of merger pursuant to the Business Corporation
Law of the State of Indiana (the "IBCL"); and
WHEREAS, the Merger is subject to approval by the Company's stockholders, as
provided herein, and the Board of Directors of the Company has agreed to
recommend such approval, on the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. (a) Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the IBCL, Merger Sub
shall be merged with and into the Company (the "Merger") at the Effective Time.
Following the Merger, the Company shall continue as the surviving corporation
(the "Surviving Corporation"), and the separate corporate existence of Merger
Sub shall cease.
(b) The Merger shall be consummated by filing with the Secretary of State of
the State of Indiana articles of merger (the "Articles of Merger") in
accordance with the IBCL. The Merger shall become effective at such time as the
Articles of Merger are duly filed, or at such later time after the Articles of
Merger are so filed as Merger Sub and the Company shall agree and specify in
the Articles of Merger (the time the Merger becomes effective being the
"Effective Time").
(c) The Merger shall have the effects specified under the IBCL.
SECTION 1.02. Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company or
the holders of any of the following securities:
(a) Each issued and outstanding share of the Company's Class A Common Stock,
without par value (the "Class A Common Stock"), and of the Company's Class B
Common Stock, without par value (the "Class B Common Stock,") and together with
the Class A Common Stock, the "Company Common Stock"), held by the Company as
treasury stock and each issued and outstanding share of Company Common Stock
owned by any wholly owned subsidiary of the Company or of Parent shall be
cancelled and retired and shall cease to exist, and no payment or consideration
shall be made with respect thereto.
(b) Each issued and outstanding share of Company Common Stock, other than
shares of Company Common Stock referred to in paragraph (a) above, shall be
converted into the right to receive an amount in cash, without interest, equal
to $31.75 (the "Merger Consideration"). At the Effective Time, all such shares
of Company Common Stock shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration, without interest, applicable thereto.
A-1
<PAGE>
(c) Each issued and outstanding share of capital stock of Merger Sub shall
be converted into one fully paid and nonassessable share of common stock, par
value $0.01, of the Surviving Corporation.
SECTION 1.03. Payment for Shares. (a) Prior to the Effective Time, Parent
shall appoint a bank or trust company reasonably satisfactory to the Company to
act as disbursing agent (the "Disbursing Agent") for the payment of Merger
Consideration upon surrender of certificates representing shares of Company
Common Stock and shall enter into a disbursing agent agreement with the
Disbursing Agent in form and substance reasonably acceptable to the Company. At
or prior to the Effective Time, Parent shall deposit or cause to be deposited
with the Disbursing Agent in trust for the benefit of the Company's
shareholders cash in an aggregate amount necessary to make the payments
pursuant to Section 1.02 to all holders of shares of Company Common Stock (such
amounts being hereinafter referred to as the "Exchange Fund"). The Disbursing
Agent shall invest the Exchange Fund as the Surviving Corporation directs in
direct obligations of the United States of America, obligations for which the
full faith and credit of the United States of America is pledged to provide for
the payment of all principal and interest or commercial paper obligations
receiving the highest rating from either Moody's Investors Service, Inc. or
Standard & Poor's, a division of The McGraw Hill Companies, or a combination
thereof, provided that, in any such case, no such instrument shall have a
maturity exceeding three months. Any net profit resulting from, or interest or
income produced by, such investments shall be held in the Exchange Fund. The
Exchange Fund shall not be used for any other purpose except as provided in
this Agreement.
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
the Disbursing Agent to mail to each person who was a record holder as of the
Effective Time of an outstanding certificate or certificates which immediately
prior to the Effective Time represented shares of Company Common Stock (the
"Certificates"), and whose shares were converted into the right to receive
Merger Consideration pursuant to Section 1.02, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Disbursing Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for payment of the applicable Merger
Consideration. Upon surrender to the Disbursing Agent of a Certificate,
together with such letter of transmittal duly executed and such other documents
as may be reasonably required by the Disbursing Agent, the holder of such
Certificate shall be paid promptly in exchange therefor cash in an amount equal
to the product of the number of shares of Company Common Stock represented by
such Certificate multiplied by the Merger Consideration, and such Certificate
shall forthwith be cancelled. No interest will be paid or accrued on the cash
payable upon the surrender of the Certificates. Notwithstanding anything to the
contrary, in the event that prior to the Effective Time the Company shall
declare any dividend or distribution with respect to shares of Company Common
Stock, and such dividend or distribution shall have a record date on or prior
to the Effective Time and shall not have been paid prior to the Effective Time,
each holder of shares of Company Common Stock on the record date shall be
entitled to receive such dividend or distribution from the Surviving
Corporation. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 1.03, each Certificate (other than Certificates
representing shares of Company Common Stock which have been cancelled) shall
represent for all purposes only the right to receive in cash the Merger
Consideration multiplied by the number of shares of Company Common Stock
evidenced by such Certificate, without any interest thereon.
(c) At and after the Effective Time, there shall be no registration of
transfers of shares of Company Common Stock which were outstanding immediately
prior to the Effective Time on the stock transfer books of the Surviving
Corporation. From and after the Effective Time, the holders of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company Common Stock
except as otherwise provided in this Agreement or by applicable law. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Agreement shall be deemed to
A-2
<PAGE>
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock previously represented by such Certificates. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, such Certificates shall be cancelled and exchanged for cash as provided
in this Agreement. At the close of business on the day of the Effective Time
the stock ledger of the Company shall be closed.
(d) At any time more than six months after the Effective Time, the Surviving
Corporation shall be entitled to require the Disbursing Agent to deliver to it
any funds which had been made available to the Disbursing Agent and not
disbursed in exchange for Certificates (including, without limitation, any
interest and other income received by the Disbursing Agent in respect of all
such funds). Thereafter, holders of shares of Company Common Stock shall look
only to Parent (subject to the terms of this Agreement, abandoned property,
escheat and other similar laws) as general creditors thereof with respect to
any Merger Consideration that may be payable, without interest, upon due
surrender of the Certificates held by them. If any Certificates shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such time on which any payment in respect hereof would otherwise
escheat or become the property of any governmental unit or agency), the payment
in respect of such Certificates shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto. Notwithstanding
the foregoing, none of Parent, the Company, the Surviving Corporation nor the
Disbursing Agent shall be liable to any holder of a share of Company Common
Stock for any Merger Consideration delivered in respect of such share of
Company Common Stock to a public official to the extent required by any
abandoned property, escheat or other similar law.
SECTION 1.04. Stock Options. The Company shall (a) terminate the Company's
1991 Director Stock Option Plan and 1992 Stock Option Plan (collectively, the
"Company Option Plans") immediately prior to the Effective Time without
prejudice to the rights of the holders of options (the "Options") awarded
pursuant thereto and (b) following such termination grant no additional Options
under the Company Option Plans. Prior to the Effective Time, the Company shall
use its reasonable efforts to take all actions necessary (including obtaining
any consents necessary from holders of Options), so that, as of the Effective
Time, each outstanding Option shall be cancelled in return for a lump sum cash
payment to the holder thereof by Parent or the Surviving Corporation, equal to
the product of (i) the total number of shares of Company Common Stock subject
to the Option immediately prior to the Effective Time (whether or not vested)
and (ii) the excess of the Merger Consideration over the exercise price per
share of Company Common Stock subject to such Company Option, plus, to holders
of non-qualified options (other than non-employee directors), an amount equal
to 35% of the foregoing lump sum cash payment; less in each case any applicable
withholding.
ARTICLE II
SURVIVING CORPORATION; DIRECTORS AND OFFICERS
SECTION 2.01. Articles of Incorporation. The Articles of Incorporation of
the Merger Sub in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law.
SECTION 2.02. By-Laws. The By-Laws of Merger Sub in effect at the Effective
Time shall be the By-Laws of the Surviving Corporation until thereafter amended
in accordance with applicable law and the Surviving Corporation's Articles of
Incorporation.
SECTION 2.03. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving Corporation
as of the Effective Time.
A-3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company that, except as set forth in the Disclosure Schedule dated and
delivered by Parent to the Company as of the date hereof (the "Parent
Disclosure Schedule"):
SECTION 3.01. Organization and Qualification. Each of Parent and Merger Sub
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each of Parent and Merger
Sub is qualified to transact business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except as would not reasonably be expected to have a material adverse effect on
the business, properties, operations, assets, financial condition or results of
operations of Parent and its subsidiaries, taken as a whole (a "Parent Material
Adverse Effect").
SECTION 3.02. Authority; Non-Contravention; Approvals. (a) Parent and Merger
Sub each have full corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
approved by the Boards of Directors of Parent and Merger Sub and the sole
shareholder of Merger Sub, and no other corporate proceedings (including any
shareholder approval) on the part of Parent or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or the consummation by
Parent and Merger Sub of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery hereof by the Company,
constitutes a valid and legally binding agreement of each of Parent and Merger
Sub enforceable against each of them in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
(b) The execution, delivery and performance of this Agreement by each of
Parent and Merger Sub and the consummation of the Merger and the transactions
contemplated hereby do not and will not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective certificates of incorporation or by-laws of
Parent or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to Parent or any of its subsidiaries
or any of their respective properties or assets, subject, in the case of
consummation, to obtaining (prior to the Effective Time) the Parent Required
Statutory Approvals, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (each a "Contract" and
collectively "Contracts") to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or any of their respective
properties or assets may be bound or affected, subject, in the case of
consummation, to obtaining and/or giving (prior to the Effective Time) consents
required from and/or notices required to third parties as specified in Section
3.02(b) of the Parent Disclosure Schedule (the "Parent Third Party Approvals")
and other than, in the case of (ii) and (iii) above, such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests or encumbrances that would not reasonably be expected
to have a Parent Material Adverse Effect or prevent or materially delay the
consummation of the Merger.
(c) Except for (i) the filings by Parent required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) applicable
filings, if any, with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"),
A-4
<PAGE>
(iii) filing of the Articles of Merger with the Secretary of State of the State
of Indiana in connection with the Merger and (iv) any required filings with or
approvals from authorities of any state or foreign country in which the Company
or its subsidiaries conduct any business or own any assets (the filings and
approvals referred to in clauses (i) through (iv) are collectively referred to
as the "Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Parent or Merger Sub or the consummation by
Parent or Merger Sub of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not
reasonably be expected to have a Parent Material Adverse Effect or prevent or
materially delay the consummation of the Merger.
SECTION 3.03. Proxy Statement. None of the information to be supplied by
Parent or its subsidiaries for inclusion in any proxy statement or information
statement to be distributed in connection with the Company Meeting (the "Proxy
Statement") will, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the Company Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
SECTION 3.04. Ownership of Company Common Stock. Neither Parent nor any of
its subsidiaries beneficially owns any shares of Company Common Stock as of the
date hereof.
SECTION 3.05. Financing. Without prejudice to the fact that this Agreement
does not provide for any financing condition or contingency, Parent has
provided to the Company a true and complete copy (not including schedules or
exhibits) of a financing commitment letter signed by the lender for the
financing necessary to consummate the Merger and to pay all associated costs
and expenses (including any refinancing of indebtedness of Parent or the
Company required in connection therewith). Parent will, at the Effective Time,
have available cash in an amount sufficient to consummate the transactions
contemplated hereby, including, without limitation, to pay the aggregate Merger
Consideration to be paid to the Company's shareholders in the Merger and the
aggregate consideration to be paid to holders of Options.
SECTION 3.06. Brokers and Finders. Except as disclosed in the Parent
Disclosure Schedule, Parent has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company to pay any investment banking fees, finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the Company SEC Reports or the disclosure schedule dated and
delivered by the Company to Parent as of the date hereof (the "Company
Disclosure Schedule"):
SECTION 4.01. Organization and Qualification. The Company is a corporation
duly organized and validly existing under the laws of the State of Indiana and
has the requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being
conducted. The Company is qualified to transact business and, where applicable,
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except as would not reasonably be expected to have a
Company Material Adverse Effect. True, accurate and complete copies of the
Company's Amended and Restated Articles of Incorporation and Code of By-Laws,
in each case as in effect on the date hereof, including all amendments thereto,
have heretofore been delivered to Parent.
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SECTION 4.02. Capitalization. (a) The authorized capital stock of the
Company consists of 100,000,000 shares of Company Common Stock of which
97,000,000 are shares of Class A Common Stock and 3,000,000 are shares of Class
B Common Stock. As of May 31, 2000, (i) 22,715,254 shares of Class A Common
Stock, and 501,766 shares of Class B Common Stock, including in each case the
associated Rights (as defined in Section 4.02(b)), were issued and outstanding,
all of which shares of Company Common Stock were validly issued and are fully
paid, nonassessable and free of preemptive rights, (ii) 5,290,008 shares of
Class A Common Stock and 38,234 shares of Class B Common Stock were held in the
treasury of the Company and (iii) 2,738,933 shares of Class A Common Stock and
no shares of Class B Common Stock were reserved for issuance upon exercise of
options issued and outstanding. Since May 31, 2000 through the date hereof,
except as permitted by the Agreement, (i) no shares of Company Common Stock
have been issued except in connection with the exercise of options issued and
outstanding and except for shares of Company Common Stock required to be issued
in connection with the Company's existing Dividend Reinvestment Plan (the
"DRP"), Employee Savings 401(k) Plan (the "401(k) Plan") or Employee Stock
Purchase Plan (the "ESPP") and (ii) no options, warrants, securities
convertible into, or commitments with respect to the issuance of, shares of
capital stock of the Company have been issued, granted or made except Rights in
accordance with the terms of the Rights Agreement.
(b) Except for the Common Share Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement (the "Rights Agreement"), dated as of January
12, 1996, by and between the Company and National City Bank (the "Rights
Agent"), or for options issued and outstanding, as of the date hereof, there
were no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other antitakeover
agreement, obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
Company Common Stock or obligating the Company or any subsidiary of the Company
to grant, extend or enter into any such agreement or commitment. As of the date
hereof, there are no obligations, contingent or otherwise, of the Company to
(i) repurchase, redeem or otherwise acquire any shares of Company Common Stock
or the capital stock or other equity interests of any subsidiary of the Company
except in connection with the exercise of options issued and outstanding or
(ii) (other than advances to subsidiaries in the ordinary course of business)
provide material funds to, or make any material investment in (in the form of a
loan, capital contribution or otherwise), or provide any guarantee with respect
to the obligations of, any subsidiary of the Company or any other person. There
are no outstanding stock appreciation rights or similar derivative securities
or rights of the Company or any of its subsidiaries. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as
otherwise contemplated by this Agreement there are no voting trusts,
irrevocable proxies or other agreements or understandings to which the Company
or any subsidiary of the Company is a party or is bound with respect to the
voting of any shares of Company Common Stock. The Board of Directors of the
Company has taken all action to amend the Rights Agreement (subject only to the
execution of such amendment by the Rights Agent) to provide that (i) none of
the Parent and its subsidiaries shall become an "Acquiring Person" and no
"Share Acquisition Date" shall occur as a result of the execution, delivery and
performance of this Agreement and the consummation of the Merger, (ii) no
"Distribution Date" shall occur as a result of the announcement of or the
execution of this Agreement or any of the transactions contemplated hereby and
(iii) the Rights will expire without any further force or effect as of
immediately prior to the consummation of the Merger. Upon execution of such
amendment to the Rights Agreement by the Rights Agent, such amendment to the
Rights Agreement shall become effective and shall remain in full force and
effect until immediately following the termination of this Agreement in
accordance with its terms.
(c) The Company has previously made available to Parent complete and correct
copies of the Company Option Plans, including all amendments thereto. The
Company has previously made available to Parent a complete and correct list
setting forth as of May 31, 2000, (i) the number of Options outstanding and
(ii) the weighted average exercise price for all outstanding Options. Since May
31, 2000, the Company has not granted or agreed to grant any Options.
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SECTION 4.03. Subsidiaries. Each direct and indirect subsidiary of the
Company is duly organized, validly existing and, where applicable, in good
standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and each
subsidiary of the Company is qualified to transact business, and is in good
standing, in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary; except in all cases as would not reasonably be
expected to have a Company Material Adverse Effect. All of the outstanding
shares of capital stock of each subsidiary of the Company are validly issued,
fully paid, nonassessable and free of preemptive rights and are owned directly
or indirectly by the Company free and clear of any liens (other than liens
arising by operation of law), claims, encumbrances, security interests,
equities and options of any nature whatsoever. There are no subscriptions,
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any subsidiary of the Company, including any right
of conversion or exchange under any outstanding security, instrument or
agreement. The Company has no material investment in any entity other than its
subsidiaries.
SECTION 4.04. Authority; Non-Contravention; Approvals. (a) The Company has
full corporate power and authority to enter into this Agreement and, subject to
the Company Shareholder Approval, to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or, except
for the Company Shareholder Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Merger Sub, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution, delivery and performance of this Agreement by the Company
and the consummation of the Merger and the transactions contemplated hereby do
not and will not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, contractually require any offer to purchase or any
prepayment of any debt or result in the creation of any lien, security interest
or encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under any of the terms, conditions or provisions of (i) the
respective articles or certificates of incorporation or by-laws of the Company
or any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
governmental authority applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, subject in the case of
consummation, to obtaining (prior to the Effective Time) the Company Required
Statutory Approvals and the Company Shareholder Approval, or (iii) any Contract
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective properties or
assets may be bound or affected, subject, in the case of consummation, to
obtaining and/or giving (prior to the Effective Time) consents required from
and/or notices required to third parties as specified in Section 4.04(b) of the
Company Disclosure Schedule (the "Company Third Party Approvals") and other
than, in the case of (ii) and (iii) above, such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests or encumbrances that would not reasonably be expected to have a
Company Material Adverse Effect or prevent or materially delay the consummation
of the Merger.
(c) Except for (i) the filings by the Company required by the HSR Act, (ii)
the filing of the Proxy Statement with the SEC pursuant to the Exchange Act,
(iii) the filing of the Articles of Merger with the Secretary of State of the
State of Indiana in connection with the Merger, (iv) any filings with or
approvals from
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authorities required solely by virtue of the jurisdictions in which Parent or
its subsidiaries conduct any business or own any assets and (v) any required
filings with or approvals from applicable domestic or foreign environmental
authorities, public service commissions and public utility commissions (the
filings and approvals referred to in clauses (i) through (v) and those
disclosed in Section 4.04(c) of the Company Disclosure Schedule are
collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not reasonably be expected to have a Company Material Adverse Effect or prevent
or materially delay the consummation of the Merger.
(d) The Board of Directors of the Company has adopted resolutions to exempt
the Merger, this Agreement and the transactions contemplated hereby from the
restrictions of Sections 23-1-42-1 to 11 and Sections 23-1-43-1 to 24 of the
IBCL, and, accordingly, none of such Sections applies to any such transactions.
SECTION 4.05. Reports and Financial Statements. Since January 1, 1998, the
Company has filed with the SEC all material forms, statements, reports and
documents (including all exhibits, posteffective amendments and supplements
thereto) (the "Company SEC Reports") required to be filed by it under each of
the Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which, as amended if applicable, complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. As of their respective dates except as amended or
supplemented prior to the date hereof, the Company SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the twelve months ended November 30,
1999 and the unaudited financial statements of the Company included in the
Company's Quarterly Report on Form 10-Q (the "Company 10-Q") for the quarterly
period ended February 29, 2000 (collectively, the "Company Financial
Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of their operations and changes in financial position
for the periods then ended (subject, in the case of the unaudited financial
statements, to normal year-end adjustments).
SECTION 4.06. Absence of Undisclosed Liabilities. Except as disclosed in the
Company Financial Statements or the notes thereto, neither the Company nor any
of its subsidiaries had at February 29, 2000, or has incurred since that date
through the date hereof, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except (a) liabilities,
obligations or contingencies (i) which are accrued or reserved against in the
Company Financial Statements or reflected in the notes thereto or (ii) which
were incurred in the ordinary course of business and consistent with past
practices and (b) liabilities, obligations or contingencies which would not
reasonably be expected to have a Company Material Adverse Effect, and
(c) liabilities, obligations and contingencies which are of a nature not
required to be reflected in the consolidated financial statements of the
Company and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied which are not, excluding all matters
set forth on the Company Disclosure Schedules, material to the Company and its
subsidiaries taken as a whole.
SECTION 4.07. Absence of Certain Changes or Events. Since February 29, 2000,
there has not been any Company Material Adverse Effect. From February 29, 2000
through the date hereof, the Company and its subsidiaries have conducted their
business and operations in the ordinary course of business and consistent with
past practice and there has not been any amendment to the Company's charter or
bylaws.
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SECTION 4.08. Litigation. As of the date hereof, there are no claims, suits,
actions or proceedings ("Claims") pending or, to the knowledge of the Company,
threatened against, relating to or affecting the Company or any of its
subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that would reasonably be
expected to have a Company Material Adverse Effect. Neither the Company nor any
of its subsidiaries is subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits the
consummation of the transactions contemplated hereby or would reasonably be
expected to have a Company Material Adverse Effect. As of the date hereof,
there are no Claims pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
or mediator, alleging that the Company or any of its subsidiaries has liability
arising from the presence of lead in any product sold by the Company or any of
its subsidiaries.
SECTION 4.09. Proxy Statement. None of the information to be supplied by the
Company or its subsidiaries for inclusion in the Proxy Statement will, at the
time of the mailing thereof and any amendments or supplements thereto, and at
the time of the Company Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply, as of its mailing date, as to form in all material respects with
all applicable laws, including the provisions of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made
by the Company with respect to information supplied by Parent, Merger Sub or
any stockholder of Parent for inclusion therein.
SECTION 4.10. No Violation of Law. As of the date hereof, neither the
Company nor any of its subsidiaries is in violation of or has been given
written notice of any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) or other legal requirement of any
governmental or regulatory body or authority, except for violations which would
not reasonably be expected to have a Company Material Adverse Effect. No
investigation or review by any governmental or regulatory body or authority is
pending as to which the Company has received notice or, to the knowledge of the
Company, threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, as of the date hereof other than,
in each case, those the outcome of which, as far as reasonably can be foreseen,
would not reasonably be expected to have a Company Material Adverse Effect. The
Company and its subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently conducted
(collectively, the "Company Permits"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which would not reasonably be expected to have a
Company Material Adverse Effect. The Company and its subsidiaries are not in
violation of the terms of any Company Permit, except for delays in filing
reports or violations which would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 4.11. Material Contracts; Compliance with Agreements. (a) Except for
those agreements and other documents filed as exhibits to the Company SEC
Reports, none of the Company or its subsidiaries is a party to, bound by or
subject to any Contract that (i) is a "material contract" within the meaning of
Item 601(b)(10) of Regulation S-K of the SEC or (ii) restricts the Company to
from conducting its business in any geographical regions or selling any lines
of product.
(b) Since January 1, 1998 through the date hereof, neither the Company nor
any of its subsidiaries has entered into any Contract (other than any Contract
entered into in the ordinary course or for current assets or fixed or capital
assets) (i) to acquire (including by way of merger, consolidation or
acquisition of stock or assets) any company or business or any division thereof
or material portion of the assets thereof for over $7,500,000 in value or (ii)
to sell or commit to sell, transfer or otherwise dispose of (including by way
of merger, consolidation or acquisition of stock or assets) any business or
assets of the Company or such subsidiary for over $7,500,000 in value.
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(c) The Company and each of its subsidiaries are not in breach or violation
of or in default in the performance or observance of any term or provision of,
and no event has occurred which, with lapse of time or action by a third party,
would result in a default under, (i) the respective articles or certificates of
incorporation, by-laws or similar organizational instruments of the Company or
any of its subsidiaries or (ii) any Contract to which the Company or any of its
subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, other than as would not reasonably be expected to
have a Company Material Adverse Effect. To the Company's knowledge, there has
been no material default, cancellation or breach by any other party to any
material Contract to which the Company or any of its subsidiaries is a party.
SECTION 4.12. Taxes. (a) The Company and its subsidiaries have (i) duly
filed with the appropriate governmental authorities all Tax Returns required to
be filed by them, and such Tax Returns are true, correct and complete in all
material respects, and (ii) duly paid in full all taxes shown as due on such
Tax Returns, except in each case where the failure to file such Tax Returns or
pay such Tax would not, individually or in the aggregate, have a Company
Material Adverse Effect. The liabilities and reserves for Taxes reflected in
the Company's latest balance sheet included in the Company 10-Q to cover all
Taxes for all periods ending at or prior to the date of such balance sheet have
been determined in accordance with generally accepted accounting principles,
and there is no material liability for Taxes for any period beginning after
such date other than Taxes arising in the ordinary course of business. There
are no material liens for Taxes upon any property or asset of the Company or
any subsidiary thereof, except for liens for Taxes not yet due or Taxes
contested in good faith and reserved against in accordance with generally
accepted accounting principles. As of the date hereof, there are no unresolved
issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service (the "IRS") or any
other governmental taxing authority with respect to Taxes of the Company or any
of its subsidiaries which would reasonably be expected to be material to the
Company. Neither the Company nor any of its subsidiaries is a party to any
agreement providing for the allocation or sharing of material Taxes with any
entity that is not, directly or indirectly, a wholly-owned corporate subsidiary
of the Company.
(b) The Company and each of its subsidiaries have withheld or collected and
have paid over to the appropriate governmental entities (or are properly
holding for such payment) all material Taxes required to be collected or
withheld.
(c) For purposes of this Agreement, "Tax" (including, with correlative
meaning, the terms "Taxes") includes all federal, state, local and foreign
income, profits, franchise, gross receipts, environmental, customs duty,
capital stock, communications services, severance, stamp, sales, unemployment,
disability, use, property, withholding, excise, production, value added,
occupancy and other taxes, duties or assessments of any nature whatsoever,
together with all interest, penalties and additions imposed with respect to
such amounts and any interest in respect to such penalties and additions, and
includes any liability for Taxes of another person by contract, as a transferee
or successor, under Treas. Reg. 1.1502-6 or analogous state, local or foreign
law provision or otherwise, and "Tax Return" means any return, report or
similar statement (including attached schedules) required to be filed with
respect to any Tax, including without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
SECTION 4.13. Employee Benefit Plans; ERISA. (a) Section 4.13(a) of the
Disclosure Schedule includes a complete list of (i) each material employee
benefit plan, program or policy providing benefits to any current or former
employee, officer or director of the Company or any of its subsidiaries or any
beneficiary or dependent thereof that is sponsored or maintained by the Company
or any of its subsidiaries or to which the Company or any of its subsidiaries
contributes or is obligated to contribute (other than employee benefit plans,
programs or policies providing benefits to non-U.S. employees of the Company),
including without limitation any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA,
and including any "multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA (a "Multiemployer Plan")) and any bonus, incentive, deferred
compensation, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit plan, program or policy (collectively, the
"Employee Benefit
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Plans") and (ii) each employment and severance agreement pursuant to which the
Company or any of its subsidiaries has or would have any obligation to provide
compensation and/or benefits in an amount or having a value in excess of
$250,000 per year or $500,000 in the aggregate (each, a "Material Employment
Agreement").
(b) With respect to each Employee Benefit Plan other than a Multiemployer
Plan (a "Plan"), the Company has delivered or made available to Parent a true,
correct and complete copy of: (i) all plan documents and trust agreements; (ii)
the most recent Annual Report (Form 5500 Series) and accompanying schedule, if
any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS, if any. The Company
has delivered or made available to Parent a true, correct and complete copy of
each Material Employment Agreement. Except as specifically provided in the
foregoing documents, or in other documents, delivered or made available to
Parent, there are no amendments to any Plan or Material Employment Agreement
that have been adopted or approved nor has the Company or any of its
subsidiaries undertaken to make any such amendments or to adopt or approve any
new Plan or Material Employment Agreement.
(c) The IRS has issued a favorable determination letter with respect to each
Plan that is intended to be a "qualified plan" within the meaning of Section
401(a) of the Code (a "Qualified Plan") and the related trust that has not been
revoked, and there are no circumstances and no events have occurred that could
adversely affect the qualified status of any Qualified Plan or the related
trust, which cannot be cured without a Company Material Adverse Effect. For
purposes of this Agreement, "Code" means the Internal Revenue Code of 1986, as
amended.
(d) Except as would not have a Company Material Adverse Effect: (i) the
Company and its subsidiaries have complied, and are now in compliance, with all
provisions of ERISA, the Code and all laws and regulations applicable to the
Employee Benefit Plans and each Plan has been administered in all material
respects in accordance with its terms; (ii) none of the Company and its
subsidiaries nor any other person, including any fiduciary, has engaged in any
"prohibited transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA), which could subject any of the Employee Benefit Plans or their
related trusts, the Company, any of its subsidiaries or any person that the
Company or any of its subsidiaries has an obligation to indemnify, to any
material tax or penalty imposed under Section 4975 of the Code or Section 502
of ERISA; (iii) there are no pending or, to the Company's knowledge, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the Plans, any
fiduciaries thereof with respect to their duties to the Plans or the assets of
any of the trusts under any of the Plans which could reasonably be expected to
result in any liability of the Company or any of its subsidiaries to the
Pension Benefit Guaranty Corporation, the Department of Treasury, the
Department of Labor, any Multiemployer Plan, any Plan or any participant in a
Plan.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting,
funding or delivery of, or increase the amount or value of, any payment or
benefit to any employee, officer or director of the Company or any of its
subsidiaries, or result in any limitation on the right of the Company or any of
its subsidiaries to amend, merge, terminate or receive a reversion of assets
from any Employee Benefit Plan or related trust or any Material Employment
Agreement or related trust. Without limiting the generality of the foregoing,
no amount paid or payable (whether in cash, in property, or in the form of
benefits) by the Company or any of its subsidiaries in connection with the
transactions contemplated hereby (either solely as a result thereof or as a
result of such transactions in conjunction with any other event) will be an
"excess parachute payment" within the meaning of Section 280G of the Code.
(f) With respect to each Plan that is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code, except as would not have a Company
Material Adverse Effect: (i) there does not exist any accumulated funding
deficiency within the meaning of Section 412 of the Code or Section 302 of
ERISA, whether or not waived; (ii) no reportable event within the meaning of
Section 4043(c) of ERISA for which the 30-day notice requirement has not been
waived has occurred; (iii) all premiums to the Pension Benefit
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Guaranty Corporation have been timely paid in full; (iv) no liability (other
than for premiums to the PBGC) under Title IV of ERISA has been or is expected
to be incurred by the Company or any of its subsidiaries; and (v) the PBGC has
not instituted proceedings to terminate any such Plan and, to the Company's
knowledge, no condition exists that presents a risk that such proceedings will
be instituted or which would constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any such
Plan.
(g) No Employee Benefit Plan is a Multiemployer Plan, none of the Company
and its subsidiaries nor any of their respective ERISA Affiliates has, at any
time during the last six years, contributed to or been obligated to contribute
to any Multiemployer Plan, and none of the Company and its subsidiaries nor any
ERISA Affiliates has incurred any withdrawal liability to a Multiemployer Plan
that has not been satisfied in full.
SECTION 4.14. Collective Bargaining Agreements; Labor Controversies. As of
the date hereof, none of Seller or its Subsidiaries is a party to or bound by
any collective bargaining agreement or other agreement with a labor union or
labor organization. There are no controversies pending or, to the knowledge of
the Company, threatened between the Company or its subsidiaries and any
representatives (including unions) of any of their employees that would
reasonably be expected to have a Company Material Adverse Effect. To the
knowledge of the Company, there are no material organizational efforts
presently being made involving any of the presently unorganized employees of
the Company or its subsidiaries, except for such organizational efforts which
would not reasonably be expected to have a Company Material Adverse Effect.
SECTION 4.15. Environmental Matters. (a) (i) The Company and its
subsidiaries have conducted their respective businesses in compliance with all
applicable Environmental Laws, including, without limitation, having and
complying with all permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as presently
conducted, (ii) there has been no release or threatened release, and none of
the properties owned or, to the Company's knowledge, operated by the Company or
any of its subsidiaries contain any Hazardous Substance in violation of or
requiring remediation, corrective action, removal, response or cleanup under
any Environmental Law as a result of any activity of the Company or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) since January 1, 1997, neither the Company nor any of
its subsidiaries has received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity
indicating that the Company or any of its subsidiaries may be in violation of,
or liable under, any Environmental Law in connection with the ownership or
operation of their businesses or real property, (iv) there are no civil,
criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or threatened, against the Company or any
of its subsidiaries relating to any violation, or alleged violation, of any
Environmental Law or claims for remedial action or any injury or damage to
human health, property, natural resources or the environment, (v) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company or any of
its subsidiaries as a result of any activity of the Company or any of its
subsidiaries during the time such properties were owned, leased or operated by
the Company or any of its subsidiaries and (vi) neither the Company, its
subsidiaries nor any of their respective properties are subject to any material
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (vi) that would not reasonably be expected
to have a Company Material Adverse Effect.
(b) As used herein, "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, common law, license,
permit, authorization, approval, consent, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating to (x) the
protection, preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety, or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect at the date hereof.
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(c) As used herein, "Hazardous Substance" means any substance presently
listed, defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation,
any toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or byproduct thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam insulation or
polychlorinated biphenyls.
SECTION 4.16. Intellectual Property. The Company and its subsidiaries have
through ownership or licensing or otherwise all intellectual property rights
necessary for the conduct of the business of the Company and its subsidiaries
as it is presently being conducted. Neither the Company nor any of its
subsidiaries has infringed any intellectual property rights of any third party
other than any infringements that, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 4.17. Company Shareholders' Approval. The affirmative vote of
shareholders of the Company required for approval and adoption of this
Agreement and the Merger is a majority of all votes entitled to be cast by the
holders of the outstanding shares of Company Common Stock, having equal voting
rights, share for share, voting as one class.
SECTION 4.18. Opinion of Financial Advisor. As of the date hereof, the
Company's financial advisor, Wasserstein Perella & Co., Inc. (the "Company
Financial Advisor"), has delivered to the Board of Directors of the Company an
oral opinion, to be confirmed in writing (the "Fairness Opinion"), to the
effect that, as of the date of this Agreement, the consideration to be received
by the holders of Company Common Stock in the Merger is fair to such holders
from a financial point of view. Subject to the prior review and consent by the
Company Financial Advisor, the Fairness Opinion shall be available for
inclusion in its entirety in the Proxy Statement.
SECTION 4.19. Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any investment banking fees, finder's
fees, brokerage or agent commissions or other like payments in connection with
the transactions contemplated hereby, other than fees payable to the Company
Financial Advisor. The Company has previously disclosed the fee schedule for
the Company Financial Advisor to Parent.
ARTICLE V
COVENANTS
SECTION 5.01. Conduct of Business by the Company Pending the Merger. Except
as otherwise contemplated by this Agreement or disclosed in Section 5.01 of the
Company Disclosure Schedule, after the date hereof and prior to the Effective
Time, without Parent's prior consent (which shall not be unreasonably
withheld), the Company shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective articles of
incorporation or by-laws or equivalent constitutional documents, (ii)
split, combine or reclassify their outstanding capital stock, (iii) effect
any merger, corporate restructuring or liquidation of the Company or any of
its subsidiaries, or (iv) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise, except for the
payment of dividends or distributions to the Company or its subsidiary by a
subsidiary of the Company and regular quarterly dividends on Company Common
Stock of not more than $.08 per share declared and paid at times consistent
with past practice;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any
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class or any debt or equity securities convertible into or exchangeable for
such capital stock, except that the Company may issue shares upon exercise
of Options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business consistent with past practice up to the amount of the
existing borrowing limit of the Company's existing credit facilities on the
date hereof (which is $150 million) and (B) borrowings to refinance
existing indebtedness on market terms, (ii) redeem, purchase, acquire or
offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any
security convertible into or exchangeable for its capital stock other than
in connection with the exercise of outstanding Options pursuant to the
terms of the Company Option Plans, or to use for the 401(k) Plan, the DRP
or the ESPP, (iii) make any acquisition of any assets or businesses in
excess of the amounts set forth in Section 5.01 of the Company Disclosure
Schedule other than expenditures for current assets in the ordinary course
of business and expenditures for fixed or capital assets in the ordinary
course of business consistent with Section 5.01(i) below, or (iv) sell,
pledge, lease, dispose of or encumber any material assets or businesses
other than (A) sales of businesses or assets disclosed in the Company
Disclosure Schedule, (B) pledges or encumbrances pursuant to Existing
Credit Facilities or other permitted borrowings, (C) sales or dispositions
of businesses or assets as may be required by applicable law, or (D) sales
of idle facilities and related assets;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers, suppliers and others having
business relationships with them other than as contemplated by the terms of
this Agreement;
(f) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees or
with any other persons, except (i) as required to comply with applicable
law, (ii) pursuant to previously existing contractual arrangements or
policies or (iii) employment agreements entered into with a person who is
hired by the Company or one of its subsidiaries after the date hereof in
the ordinary course of business, provided that such employment agreement
would not qualify as a Material Employment Agreement;
(g) not increase the salary or monetary compensation of any person
except for increases in the ordinary course of business consistent with
past practice or except as required to comply with applicable law or
pursuant to previously existing contractual arrangements;
(h) not adopt, enter into or amend to increase benefits or obligations
of any Plan or Material Employment Agreement, except (i) as required to
comply with changes in applicable law, (ii) any of the foregoing involving
any such then existing plans, agreements, trusts, funds or arrangements of
any company acquired after the date hereof or (iii) as required pursuant to
existing contractual arrangements;
(i) not make capital expenditures, or enter into any binding commitment
or contract to make such expenditures in excess of the amount specified for
years 2000 and 2001 in Section 5.01 of the Company Disclosure Schedules;
(j) not enter into any contract or commitment (i) providing for the
provision of products by the Company or any of its subsidiaries that has a
term of more than three years and which is reasonably expected to generate
more than $25 million in revenues over its term or more than $10 million in
revenues per year or (ii) providing for the purchase of services by the
Company or any of its subsidiaries that has a term of more than one year
and which is reasonably expected to involve payments of more than
$25 million over its term;
(k) not make, change or revoke any material Tax election unless required
by law or make any agreement or settlement with any taxing authority
regarding any material amount of Taxes or which would reasonably be
expected to materially increase the obligations of the Company or the
Surviving Corporation to pay Taxes in the future;
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(l) (i) prepare or file any Tax Return inconsistent with past practice
or (ii) on such Tax Return, take any position, make any election or adopt
any method that is inconsistent with position taken, elections made or
methods used in preparing and filing similar Tax Returns in prior years,
other than, in either case, as required by law and other than in the
ordinary course;
(m) make any change in accounting policies, procedures, methods,
assumptions or principles (other than changes required by law or generally
accepted accounting principles);
(n) amend or modify in any material respect any existing material
Contract except in the ordinary course of business and except for
extensions of existing agreements;
(o) enter into any settlement or similar agreement with respect to any
Claim to which the Company or any of its subsidiaries is a party, which
settlement or agreement, involves the payment by the Company of an amount
in excess of the amount set forth in Section 5.01 of the Company Disclosure
Schedule; or
(p) enter into any agreement to do any of the foregoing.
SECTION 5.02. Control of the Company's Operations. Nothing contained in this
Agreement shall give to Parent, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its business
and operations.
SECTION 5.03. Acquisition Transactions. (a) After the date hereof and prior
to the Effective Time or earlier termination of this Agreement, the Company
shall not, and shall not permit any of its subsidiaries to, initiate, solicit
or negotiate or provide nonpublic or confidential information to facilitate,
and the Company shall use its reasonable best efforts to cause any officer,
director or employee of the Company, and any attorney, accountant, investment
banker, financial advisor or other agent retained by it or any of its
subsidiaries, not to initiate, solicit or negotiate or provide nonpublic or
confidential information to facilitate, any proposal or offer to acquire all or
any substantial part of the business, properties or capital stock of the
Company, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(any such transactions being referred to herein as an "Acquisition
Transaction").
(b) Notwithstanding the provisions of paragraph (a) above or any other
provision of this Agreement, the Company may, in response to an unsolicited
bona fide written offer or proposal with respect to an Acquisition Transaction
(an "Acquisition Proposal") from a corporation, partnership, person or other
entity or group (a "Potential Acquirer") which the Company's Board of Directors
determines, in good faith and after consultation with and consideration of the
views of its independent financial advisor and legal counsel, could reasonably
likely lead to a Superior Proposal, furnish confidential or nonpublic
information to, and engage in discussions and negotiate with, such Potential
Acquirer. For purposes of this Agreement, "Superior Proposal" means an
Acquisition Proposal which the Company's Board of Directors determines, taking
into account all legal, financial, regulatory and other aspects of the
proposal, in its good faith judgment and after consultation with and
consideration of the views of its independent financial advisor and legal
counsel, is (i) reasonably likely to be consummated and (ii) would, if
consummated, be more favorable to the Company's stockholders than the Merger.
(c) The Company shall as promptly as practicable notify Parent after receipt
of any Acquisition Proposal, or for access to the properties, books or records
of the Company or any subsidiary by any person or entity that informs the Board
of Directors of the Company or such subsidiary that it is considering making,
or has made, an Acquisition Proposal. Such notice to Parent shall be made
orally and in writing and shall indicate in reasonable detail the identity of
the offeror and the material terms and conditions of such proposal, inquiry or
contact to the extent known.
SECTION 5.04. Access to Information; Confidentiality.
(a) Except for competitively sensitive information as to which access, use
and treatment is covered by Section 5.04(b), and subject to applicable law, the
Company and its subsidiaries shall afford to Parent and
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Merger Sub and their respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") reasonable access during
normal business hours upon reasonable notice throughout the period prior to the
Effective Time to their respective properties, books, contracts, commitments
and records and, during such period, shall furnish promptly (i) a copy of each
report, schedule and other document filed or received by any of them pursuant
to the requirements of federal or state securities laws or filed by any of them
with the SEC in connection with the transactions contemplated by this Agreement
and (ii) such other information concerning its businesses, properties and
personnel as Parent or Merger Sub shall reasonably request and will use
reasonable best efforts to cause the cooperation of the Company's officers,
employees, counsel, accountants, consultants and financial advisors in
connection with the investigation of the Company by Parent and the Parent
Representatives; provided, however, such investigation shall not unreasonably
disrupt the Company's operations. All nonpublic information provided to, or
obtained by, Parent in connection with the transactions contemplated hereby
shall be "Evaluation Material" for purposes of the Confidentiality Agreement
previously entered into between Parent and the Company (the "Confidentiality
Agreement"), and, as applicable, "Common Interest Material" or "Confidential
Information" for purposes of the Joint Defense, Common Interest and
Confidentiality Agreement among the parties thereto, previously entered into
(the "Joint Defense Agreement"), the terms of each of which shall continue in
force until the Effective Time provided that Parent, Merger Sub and the Company
may disclose such information as may be necessary in connection with seeking
the Parent Required Statutory Approvals, the Company Required Statutory
Approvals and the Company Shareholder Approval. Notwithstanding the foregoing,
the Company shall not be required to provide any information which (in
consultation with outside counsel) (i) it reasonably believes it may not
provide to Parent by reason of applicable law, rules or regulations, (ii)
constitutes information protected by attorney/client privilege, or (iii) the
Company or any subsidiary is required to keep confidential by reason of
contract, agreement or understanding with third parties. No investigation
pursuant to this Section 5.04(a) shall affect any representation or warranty in
this Agreement of any party hereto or any condition to the obligations of the
parties hereto.
(b) As promptly as possible following the date hereof the parties intend to
establish an appropriate protocol which shall remain in place until the
expiration of the applicable waiting periods under the HSR Act pursuant to
which the Company may disclose to a limited number of representatives of the
Parent confidential information which is competitively sensitive in nature for
the purpose of preparing filings required under the HSR Act, and otherwise
consistent with the advice of the parties outside antitrust counsel. Any such
information shall be "Evaluation Material" for purposes of the Confidentiality
Agreement. The Company and Parent may, as each deems advisable and necessary,
reasonably designate any competitively sensitive material provided to the other
under this Section as "outside counsel only." Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to
employees, officers or directors of the recipient unless express permission is
obtained in advance from the source of such materials (the Company or Parent as
the case may be) or its legal counsel.
(c) The Company shall make reasonable best efforts to segregate and preserve
unchanged in a secure location until the Effective Time all documentation
contained in the data room to which Parent Representatives were given access
prior to the date hereof, and as soon as practicable after the Closing such
documentation shall be transferred to the possession of the Company. Parent
Representatives shall be given access to such documentation in accordance with
Section 5.04(a).
SECTION 5.05. Notices of Certain Events. (a) The Company shall promptly
after any of the 16 executive officers of the Company acquire knowledge
thereof, notify Parent of: (i) any notice or other communication from any
person alleging that the consent of such person (or another person) is or may
be required in connection with the transactions contemplated by this Agreement
which consent relates to a material Contract to which the Company or any of its
subsidiaries is a party or the failure of which to obtain would materially
delay consummation of the Merger; (ii) any notice or other communication from
any governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and (iii) any actions, suits,
claims, investigations or proceedings commenced against the Company or any of
its subsidiaries that relate to the consummation of the transactions
contemplated by this Agreement.
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(b) Each of Parent and Merger Sub shall promptly after any of the executive
officers of the Parent acquire knowledge thereof, notify the Company of: (i)
any notice or other communication from any person alleging that the consent of
such person (or other person) is or may be required in connection with the
transactions contemplated by this Agreement which consent relates to a material
Contract to which Parent or its subsidiaries are a party or the failure of
which to obtain would materially delay the Merger, (ii) any notice or other
communication from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement, and (iii) any
actions, suits, claims, investigations or proceedings commenced against Parent
or Merger Sub that relate to consummation of the transactions contemplated by
this Agreement.
(c) Subject to the provisions of Section 5.03, each of the Company, Parent
and Merger Sub agrees to give prompt notice to each other of (i) the occurrence
or failure to occur of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to
be untrue or inaccurate at the Effective Time unless such failure or occurrence
would not have a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be, and (ii) any failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder unless such failure or occurrence would not have a Company
Material Adverse Effect or a Parent Material Adverse Effect, as the case may
be; provided, however, that the delivery of any notice pursuant to this Section
5.05(c) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 5.06. Merger Sub. Parent will take all action necessary (a) to cause
Merger Sub to perform its obligations under this Agreement and to consummate
the Merger on the terms and conditions set forth in this Agreement and (b) to
ensure that, prior to the Effective Time, Merger Sub shall not conduct any
business or make any investments other than as specifically contemplated by
this Agreement, or incur or guarantee any indebtedness.
SECTION 5.07. Employee Benefits. (a) From and after the Effective Time,
Parent and its affiliates shall assume and honor all Employee Benefit Plans and
Material Employment Agreements in accordance with their terms as in effect
immediately before the Effective Time, including the Company's severance plan
(the "Severance Plan"), subject to any amendment or termination thereof that
may be permitted by such terms. For a period of not less than two years
following the Effective Time, Parent shall provide, or shall cause to be
provided, to current employees of the Company and its Subsidiaries (the
"Company Employees") compensation and employee benefits that are, in the
aggregate, not less favorable than those provided to similarly situated
employees of Parent and its affiliates. Without limiting the generality of the
foregoing, the Lilly Industries, Inc. Severance Plan, as amended as of June 23,
2000, shall remain in effect, without any amendments that are adverse to
eligible employees thereunder, for the benefit of Company Employees, for not
less than two years following the Effective Time. The foregoing shall not be
construed to prevent the termination of employment of any Company Employee or
the amendment or termination of any particular Employee Benefit Plan to the
extent permitted by its terms as in effect immediately before the Effective
Time.
(b) For all purposes under the employee benefit plans of Parent and its
affiliates providing benefits to any Company Employees after the Effective Time
(the "New Plans"), each Company Employee shall be credited with his or her
years of service with the Company and its affiliates before the Effective Time,
to the same extent as such Company Employee was entitled, before the Effective
Time, to credit for such service under any similar Company Employee Plans,
except to the extent such credit would result in a duplication of benefits. In
addition, and without limiting the generality of the foregoing: (i) each
Company Employee shall be immediately eligible to participate, without any
waiting time, in any and all New Plans to the extent coverage under such New
Plan replaces coverage under a comparable Company Employee Plan in which such
Company Employee participated immediately before the Effective Time (such
plans, collectively, the "Old Plans"); and (ii) for purposes of each New Plan
providing medical, dental, pharmaceutical and/or vision benefits to any Company
Employee, Parent shall cause all pre-existing condition exclusions and
actively-at-work requirements of such New Plan to be waived for such employee
and his or her covered dependents, and Parent shall cause
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any eligible expenses incurred by such employee and his or her covered
dependents during the portion of the plan year of the Old Plan ending on the
date such employee's participation in the corresponding New Plan begins to be
taken into account under such New Plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements applicable to
such employee and his or her covered dependents for the applicable plan year as
if such amounts had been paid in accordance with such New Plan.
(c) Without limited the generality of the foregoing, Parent shall cause
Company Employees whose employment is involuntarily terminated after the
Effective Time to be provided with outplacement services consistent with
Parent's current practices for its employees.
(d) For so long after the Effective Time as the Company maintains the cash
or deferred arrangement under Section 401(k) of the Code in which Company
Employees participate immediately prior to the Effective Time and Parent's
401(k) plans have a loan feature, Parent shall cause the plan to retain the
loan feature of such plan.
SECTION 5.08. Meeting of the Company's Shareholders. The Company shall on a
timely basis take all action necessary in accordance with the IBCL and its
Amended and Restated Articles of Incorporation and Code of By-Laws to convene a
meeting of the Company's shareholders (the "Company Meeting") to vote on the
Merger and on this Agreement. The Board of Directors of the Company shall
recommend that the Company's shareholders vote to approve and adopt this
Agreement and the Merger, and use its reasonable best efforts to solicit from
shareholders of the Company proxies in favor of the Merger and this Agreement
and to take all other action in its judgment necessary and appropriate to
secure the vote of shareholders required by the IBCL to effect the Merger;
provided, however, that the Board of Directors may change or withdraw such
recommendation in any respect and not take such efforts to solicit proxies if
the Board of Directors determines in good faith, based on the advice of outside
counsel, that the failure to take such action would likely result in a
violation of the Board of Directors' fiduciary duties. Nothing herein shall
impair the Company's ability to take and disclose a position contemplated by
Rule 14e-2 under the Exchange Act or otherwise to comply with applicable
securities laws.
SECTION 5.09. Proxy Statement. Reasonably promptly after execution of this
Agreement, the Company shall prepare the Proxy Statement, file it with the SEC
under the Exchange Act, and use reasonable best efforts to have the Proxy
Statement cleared by the SEC. Parent, Merger Sub and the Company shall
cooperate with each other in the preparation of the Proxy Statement, and the
Company shall notify Parent of the receipt of any comments of the SEC with
respect to the Proxy Statement and of any requests by the SEC for any amendment
or supplement thereto or for additional information and shall provide to Parent
reasonably promptly copies of all correspondence between the Company or any
representative of the Company and the SEC. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Each of the Company, Parent and Merger
Sub agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC. As promptly as practicable after the Proxy Statement has been
cleared by the SEC, the Company shall mail the Proxy Statement to the
shareholders of the Company. Prior to the date of approval of the Merger by the
Company's shareholders, each of the Company, Parent and Merger Sub shall
correct promptly any information provided by it and used in the Proxy Statement
that shall have become false or misleading in any material respect and the
Company shall take all steps necessary to file with the SEC and cleared by the
SEC any amendment or supplement to the Proxy Statement so as to correct the
same and to cause the Proxy Statement as so corrected to be disseminated to the
shareholders of the Company, in each case to the extent required by applicable
law.
SECTION 5.10. Public Announcements. Parent and the Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with the NYSE,
will not issue any such press release or make any such public statement prior
to such consultation.
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SECTION 5.11. Expenses and Fees. (a) All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, except that those expenses
incurred in connection with printing and filing the Proxy Statement shall be
shared equally by Parent and the Company.
(b) If this Agreement shall be terminated:
(i) by Parent pursuant to clause (f) of Section 7.01, the Company shall
pay to Parent the Company Termination Fee upon termination of this
Agreement;
(ii) by either party pursuant to (g) of Section 7.01 and (A) at any time
after the date of this Agreement and prior to the time of the vote of the
shareholders of the Company an Acquisition Proposal has been made to the
Company and (B) within 12 months of termination the Company enters into a
binding written agreement with respect to such Acquisition Proposal, the
Company shall pay the Company Termination Fee within two business days of
entry into such binding written agreement; or
(iii) by the Company pursuant to clause (e) of Section 7.01, the Company
shall pay the Company Termination Fee upon termination of this Agreement.
For purposes of the foregoing, "Company Termination Fee" shall mean an
amount equal to $25 million in cash.
SECTION 5.12. Agreement to Cooperate. (a) Subject to the terms and
conditions of this Agreement Parent shall use reasonable best efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including to obtain all necessary or appropriate waivers, consents or approvals
of third parties required in order to preserve material contractual
relationships of Parent and the Company and their respective subsidiaries, all
necessary or appropriate waivers, consents and approvals to effect all
necessary registrations, filings and submissions and to lift any injunction or
other legal bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible), including through all possible appeals. The Company
shall cooperate with Parent's efforts pursuant to the foregoing sentence. In
addition, subject to the terms and conditions herein provided and subject to
the fiduciary duties of the respective boards of directors of the Company and
Parent, none of the parties hereto shall knowingly take or cause to be taken
any action which would reasonably be expected to materially delay or prevent
consummation of the Merger.
(b) In addition to and without limitation of the foregoing, each of Parent
and the Company undertakes and agrees to file as soon as practicable, and in
any event prior to 3 business days after the date hereof, a Notification and
Report Form under the HSR Act with the United States Federal Trade Commission
and the Antitrust Division of the United States Department of Justice (and
shall file as soon as practicable any form or report required by any other
Governmental Agency relate to antitrust matters). Each of Parent and the
Company shall (i) respond as promptly as practicable to any inquiries or
requests received from any domestic or foreign government or governmental
agency or authority (each, a "Governmental Agency") for additional information
or documentation, (ii) (A) promptly notify the other party of any written
communication to that party from any Governmental Agency and, subject to
applicable law, permit the other party to review in advance any proposed
written communication to any of the foregoing, (B) to the extent practicable,
permit the other party to review and discuss in advance and consider in good
faith the views of one another in connection with, any proposed written (or any
material oral) communication with any Governmental Entity; (C) not agree to
participate in any substantive meeting or discussion with any Governmental
Agency in respect of any filings, investigation or inquiry concerning this
Agreement or the Merger unless it consults with the other party in advance and,
to the extent permitted by such Governmental Agency, gives the other party the
opportunity to attend and participate thereat, and (D) furnish the other party
with copies of all correspondence, filings and communications (and memoranda,
if any, setting forth the substance thereof) between them and their affiliates
and their respective representatives on the one hand, and any government or
regulatory authority or members or their respective
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staffs on the other hand, with respect to this Agreement and the Merger, and
(iii) not extend any waiting period under the HSR Act or enter into any
agreement with any Governmental Agency not to consummate the transactions
contemplated by this Agreement, except with the prior consent of the other
parties hereto (which shall not be unreasonably withheld). Parent shall offer
to take (and if such offer is accepted, commit to take) all steps that it is
capable of taking to avoid or eliminate impediments under any antitrust,
competition, or trade regulation law that may be asserted by any Governmental
Agency with respect to the Merger so as to enable the Effective Time to occur
prior to June 30, 2001 (the "Outside Date") and shall defend through litigation
on the merits any claim asserted in any court by any party, including appeals.
In addition to and without limiting the foregoing, Parent shall propose,
negotiate, offer to commit and effect (and if such offer is accepted, commit to
and effect), by consent decree, hold separate order, or otherwise, the sale,
divestiture or disposition of such assets or businesses of Parent or, effective
as of the Effective Time, the Surviving Corporation, or their respective
subsidiaries or otherwise offer to take or offer to commit to take any action
which it is capable of taking and if the offer is accepted, take or commit to
take such action that limits its freedom of action with respect to, or its
ability to retain, any of the businesses, services or assets of Parent, the
Surviving Corporation or their respective subsidiaries, in order to avoid the
filing of any suit or proceeding or the entry of, or to effect the dissolution
of, any injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying the
Effective Time beyond the Outside Date, or which may be necessary to allow the
Effective Time to occur prior to the Outside Date. At the request of Parent,
the Company shall agree to divest, hold separate or otherwise take or commit to
take any action that limits its freedom of action with respect to, or its
ability to retain, any of the businesses, services, or assets of the Company or
any of its subsidiaries, provided that any such action may be conditioned upon
the consummation of the Merger and the transactions contemplated hereby.
Notwithstanding anything to the contrary in this Section 5.12, Parent shall not
be required to take any actions in connection with, or agree to, any hold
separate order, sale, divestiture, or disposition of plants, assets and
businesses of Parent and its Subsidiaries or the Company and its Subsidiaries
that accounted in the aggregate for more than $60,000,000 of the combined sales
of Parent and the Company in fiscal year 1999. The Company and Parent may, as
each deems advisable and necessary, reasonably designate any competitively
sensitive material provided to the other under this Section as "outside counsel
only." Such materials and the information contained therein shall be given only
to the outside legal counsel of the recipient and, in the case of Parent, its
General Counsel (provided that the General Counsel of Parent enter into an
agreement with the Company covenanting that he will not disclose any such
competitively sensitive material to employees, officers or directors of Parent
or its subsidiaries unless express permission is obtained in advance from the
Company) and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient unless express permission is obtained
in advance from the source of the materials (the Company or Parent, as the case
may be) or its legal counsel.
SECTION 5.13. Directors' and Officers' Indemnification. (a) The
indemnification provisions of the Amended and Restated Articles of
Incorporation or Code of By-Laws of the Company as in effect at the Effective
Time shall not be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company relating to service prior to
Effective Time. Parent shall assume, be jointly and severally liable for, and
honor, guaranty and stand surety for, and shall cause the Surviving Corporation
to honor, in accordance with their respective terms each of the covenants
contained in this Section 5.13 without limit as to time.
(b) After the Effective Time for a period of six years from the Effective
Time, each of Parent and the Surviving Corporation shall, to the fullest extent
permitted under applicable law, indemnify and hold harmless, each present and
former director, officer, employee and agent of the Company or any of its
subsidiaries (each, together with such person's heirs, executors or
administrators, an "Indemnified Party" and collectively, the "Indemnified
Parties") against any costs or expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of, relating to or in connection with any action or omission
occurring or alleged to occur prior to the Effective
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Time (including, without limitation, acts or omissions in connection with such
persons serving as an officer, director or other fiduciary in any entity if
such service was at the request or for the benefit of the Company) or the
Merger or the other transactions contemplated by this Agreement or arising out
of or pertaining to the transactions contemplated by this Agreement to the
extent that any such Indemnified Party is indemnified by the Company pursuant
to the Amended and Restated Articles of Incorporation or Code of By-Laws of the
Company, any other indemnification arrangement, the IBCL or otherwise existing
immediately prior to the Effective Time.
(c) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company and its subsidiaries (provided
that Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous to the
Indemnified Parties, and which coverages and amounts shall be no less than the
coverages and amounts provided at that time for Parent's directors and
officers) with respect to matters arising on or before the Effective Time;
provided, however, that Parent shall not be required to expend in any year an
amount in excess of 250% of the annual aggregate premiums currently paid by the
Company for such insurance; and provided, further, that if the annual premiums
of such insurance coverage exceed such amount, Parent shall be obligated to
obtain a policy reasonably determined by Parent to have the greatest coverage
available for a cost not exceeding such amount.
(d) Parent shall pay all reasonable expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided in this Section 5.13.
(e) The rights of each Indemnified Party hereunder shall be in addition to,
and not in limitation of, any other rights such Indemnified Party may have
under the Amended and Restated Articles of Incorporation or Code of By-Laws of
the Company, any other indemnification arrangement, the IBCL or otherwise. The
provisions of this Section 5.13 shall survive the consummation of the Merger
and expressly are intended to benefit each of the Indemnified Parties.
SECTION 5.14. State Takeover Laws. The Board of Directors of the Company
shall, upon the request of Parent, adopt such resolutions as may be necessary
to render any applicable state anti-takeover law inapplicable to the Merger,
this Agreement and the transactions contemplated hereby.
SECTION 5.15. Employee Stock Purchase Plan. The Company shall ensure that no
purchases may be made under the ESPP after the Effective Time.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Sub to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have been adopted by the
requisite vote of the shareholders of the Company in accordance with IBCL
(the "Company Shareholder Approval");
(b) (i) the Company Statutory Approvals and the Parent Statutory
Approvals shall have been obtained and (ii) no provision of any applicable
domestic (whether federal, state or local) or foreign law or regulation and
no judgment, injunction, order or decree of a court or governmental agency
or authority of competent jurisdiction shall be in effect which has the
effect of making the Merger illegal or shall otherwise restrain or prohibit
the consummation of the Merger (each party agreeing to use its reasonable
best efforts, including appeals to higher courts, to have any judgment,
injunction, order or decree lifted), except in the case of (i) or (ii) for
any approval the failure of which to obtain or any law or regulation the
violation of which would not, singly or in the aggregate, reasonably be
expected to (i) have a Parent Material Adverse Effect (after giving effect
to the Merger) or (ii) result in a criminal violation (other than a
misdemeanor the only penalty for which is a monetary fine); and
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(c) the waiting period applicable to consummation of the Merger under
the HSR Act shall have expired or been terminated.
SECTION 6.02. Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Effective
Time of the following additional condition:
(a) Parent and Merger Sub shall have performed their agreements
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct on and as of the
Effective Time as if made at and as of such date (except to the extent that
such representations and warranties speak as of an earlier date, which
shall be true and correct as of such earlier date), except for such
failures to perform or to be true and correct (without giving effect to any
qualification in such representations and warranties relating to Parent
Material Adverse Effect or knowledge or, except for any representation and
warranty that calls for a list, materiality) that would not reasonably be
expected to have a Parent Material Adverse Effect, and the Company shall
have received a certificate of the Chief Executive Officer, the President
or a Vice President of Parent and of the Chief Executive Officer, the
President or a Vice President of Merger Sub to that effect.
SECTION 6.03. Conditions to Obligations of Parent and Subsidiary to Effect
the Merger. Unless waived by Parent and Merger Sub, the obligations of Parent
and Merger Sub to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Effective Time and
the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the Effective Time as if
made at and as of such date (except to the extent that such representations
and warranties speak as of an earlier date, which shall be true and correct
as of such earlier date), except for such failures to perform and to be
true and correct (without giving effect to any qualification in such
representations and warranties relating to Company Material Adverse Effect
or knowledge or, except for any representation and warranty that calls for
a list, materiality) that would not reasonably be expected to have a
Company Material Adverse Effect, and Parent shall have received a
Certificate of the Chief Executive Officer, the President or a Vice
President of the Company to that effect; and
(b) all Company Third Party Approvals shall have been obtained, except
for approvals the failure of which to obtain would not, singly or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) since the date hereof, there shall not have occurred any Company
Material Adverse Effect except for the matters disclosed on the Company
Disclosure Schedule.
ARTICLE VII
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the shareholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not been
consummated by June 30, 2001; provided that the right to terminate this
Agreement under this clause (b) shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement has been the
cause of or resulted in the failure to consummate the Merger by such date;
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(c) by either the Company or Parent if any judgment, injunction, order
or decree of a court or governmental agency or authority of competent
jurisdiction shall restrain or prohibit the consummation of the Merger, and
such judgment, injunction, order or decree shall become final and
nonappealable and was not entered at the request of the terminating party;
(d) by either the Company or Parent, if (x) there has been an uncurable
breach by the other party of any representation or warranty contained in
this Agreement which would reasonably be expected to have a Company
Material Adverse Effect or a Parent Material Adverse Effect, as the case
may be, or (y) there has been an uncurable breach of any of the covenants
or agreements set forth in this Agreement on the part of the other party,
which would reasonably be expected to have a Parent Material Adverse Effect
or a Company Material Adverse Effect, as the case may be;
(e) by the Company, if any person shall have made a bona fide written
offer for an Acquisition Transaction provided that the Board of Directors
determines in good faith (I) that such Acquisition Transaction is a
Superior Proposal and (II) that, based upon the advice of outside counsel,
failure to take such action would likely violate its fiduciary duties under
applicable law; provided, however, that (i) not less than four business
days prior to such termination the Company shall notify Parent of its
intention to terminate this Agreement pursuant to this Section 7.01(e) and
(ii) to the extent reasonably requested by Parent, shall cause its
respective financial and legal advisors to negotiate during such four-
business-day period with Parent concerning adjustments in the terms and
conditions of this Agreement as would enable the Company to proceed with
the transactions contemplated herein on adjusted terms, and (iii) if Parent
makes a bona fide written offer of any such adjustments prior to the
expiration of such four-business-day period, the Board of Directors of the
Company concludes in good faith that the transactions contemplated herein
on such adjusted terms are not more favorable to the shareholders of the
Company than such offer; provided, further, that any termination under this
Section 7.01(e) shall not be effective until the Company has made payment
of any fee required by Section 5.11(b).
(f) by the Parent, if the Board of Directors of the Company shall have
failed to recommend, or shall have withdrawn, adversely modified or
adversely amended in any material respects its approval or recommendation
of the Merger and this Agreement to the Company's shareholders; or
(g) by Parent or the Company if the shareholders of the Company fail to
approve the Merger after a vote is taken at a duly held meeting of the
Company's shareholders called for such purpose or any adjournment or
postponement thereof.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
7.01, this Agreement shall forthwith become void and there shall be no
liability or further obligation on the part of the Company, Parent, Merger Sub
or their respective officers or directors (except as set forth in this section,
in the second sentence Section 5.04 and in Sections 5.11 and 8.05, all of which
shall survive the termination). Nothing in this Section 8.01 shall relieve any
party from liability for any willful or material breach of any covenant or
agreement of such party contained in this Agreement, except that the payment of
any fee pursuant to Section 5.11(b) shall be liquidated damages and shall
discharge any liability of the payer thereof relating to this Agreement.
SECTION 8.02. Non-Survival of Representations and Warranties. No
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger.
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SECTION 8.03. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to Parent or Merger Sub, to:
The Valspar Corporation
1101 South Third Street
Minneapolis, Minnesota 55415
Attention: General Counsel
Facsimile: (612) 375-7313
(b) With copies to:
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Jay L. Swanson, Esq.
Facsimile: (612) 340-8738
(c) If to the Company, to:
Lilly Industries, Inc.
200 West 103rd Street
Indianapolis, Indiana
Attention: Chief Financial Officer
Facsimile: (312) 814-8710
(d) with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Attention: Steven A. Cohen, Esq.
Facsimile: (212) 403-2000
SECTION 8.04. Interpretation. (a) The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, (ii) "knowledge" shall mean
actual knowledge of the top five executive officers of the Company or the
executive officers of Parent, as the case may be, or the knowledge of a prudent
person acting in such capacity, (iii) "subsidiary" means, with respect to any
person, any corporation which such person has, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through ownership of voting securities, by contract or
otherwise, (iv) "affiliate" has the meaning set forth in Rule 405 of the SEC,
(v) "person" means any individual, corporation, general or limited partnership,
limited liability company, governmental entity, joint venture, state, trust,
association, organization or other entity of any kind or nature, and (vi)
reference to any Article or Section means such Article or Section hereof. No
provision of this Agreement shall be interpreted or construed against any party
hereto solely because such party or its legal representative drafted such
provision. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(b) "Company Material Adverse Effect" means any effect that is materially
adverse to the business, properties, operations, assets, financial condition
or results of operations of the Company and its
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subsidiaries taken as a whole, other than any effect relating to (1) the
economy or financial markets in general or the industries in which the
Company operates in general, or (2) the announcement or pendency of the
Merger. For purposes of determining whether any fact or circumstance
involves a material adverse effect on the results of operations of a party,
any special transaction charges, costs or expenses incurred by such party
as a result of the consummation of transactions contemplated by this
Agreement shall not be considered.
SECTION 8.05. Miscellaneous. This Agreement (including the documents and
instruments referred to herein) shall not be assigned by operation of law or
otherwise except that Merger Sub may assign its obligations under this
Agreement to any other wholly-owned subsidiary of Parent subject to the terms
of this Agreement. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF INDIANA
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE
WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.
SECTION 8.06. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.07. Amendments; Extensions. (a) This Agreement may be amended by
the parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company, but, after any
such approval, no amendment shall be made which by law or in accordance with
the rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
(b) At any time prior to the Effective Time, the parties hereto, by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure or delay of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
SECTION 8.08. Entire Agreement. This Agreement, the Confidentiality
Agreement and the Joint Defense Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any person
other than the parties hereto any rights or remedies hereunder except for the
provisions of Section 5.13, which is intended for the benefit of the Company's
former and present officers, directors, employees and agents, and the
provisions of Articles I and II, which are intended for the benefit of the
Company's shareholders, including holders of Options, in the event of
consummation of the Merger.
SECTION 8.09. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.
SECTION 8.10. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
LILLY INDUSTRIES, INC.
By: /s/ Douglas W. Huemme
---------------------------------
Name: Douglas W. Huemme
Title: Chairman and Chief Executive
Officer
THE VALSPAR CORPORATION
By: /s/ Rolf Engh
---------------------------------
Name: Rolf Engh
Title: Senior Vice President
VAL ACQUISITION CORP.
By: /s/ Rolf Engh
---------------------------------
Name: Rolf Engh
Title: Senior Vice President
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APPENDIX B
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
June 23, 2000
Board of Directors
Lilly Industries, Inc.
200 West 103rd Street
Indianapolis, IN 46290
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the shareholders of Lilly Industries, Inc. (the
"Company") of the consideration to be received by such shareholders pursuant to
the terms of the Agreement and Plan of Merger, dated as of June 23, 2000 (the
"Merger Agreement"), between the Company, Valspar Corporation ("Parent") and
Val Acquisition Corp., a wholly owned subsidiary of Parent ("Sub"). The Merger
Agreement provides for, among other things, a merger of Sub with and into the
Company (the "Merger") pursuant to which each outstanding share of the
Company's Class A Common Stock, without par value (the "Class A Common Stock")
and the Company's Class B Common Stock, without par value (the "Class B Common
Stock" and together with the Class A Common Stock the "Shares") (other than any
such shares held in the treasury of the Company or owned by Parent, Sub or
their respective subsidiaries) will be converted into $31.75 in cash. The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement.
In connection with rendering our opinion, we have reviewed a draft of the
Merger Agreement, and for purposes hereof, we have assumed that the final form
of this document will not differ in any material respect from the draft
provided to us. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company for recent years and
interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared
by or on behalf of the Company and provided to us for purposes of our analysis,
and we have met with management of the Company to review and discuss such
information and, among other matters, each of the Company's business,
operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its respective businesses or assets, and we have reviewed and
considered the financial terms of certain recent acquisitions and business
combination transactions in the coatings industry specifically, and in other
industries generally, that we believe to be reasonably comparable to the Merger
or otherwise relevant to our inquiry. We have also performed such other
financial studies, analyses, and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.
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In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the historical
financial and other information provided to or discussed with us or publicly
available, and we have not assumed any responsibility for independent
verification of any of such information. We have also assumed and relied upon
the reasonableness and accuracy of the financial projections, forecasts and
analyses provided to us (including estimates of certain cost savings and other
operating efficiencies expected to result from consummation of the Merger), and
we have assumed that such projections, forecasts and analyses were reasonably
prepared in good faith and on bases reflecting the best currently available
judgments and estimates of the Company's management. We express no opinion with
respect to such projections, forecasts, analyses and estimates or the
assumptions upon which they are based. In addition, we have not reviewed any of
the books and records of the Company or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the
Company, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of the Company, and no such independent valuation or
appraisal was provided to us. We also have assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the Merger will not have an adverse impact on the Company or on
the anticipated benefits of the Merger, and we have assumed that the
transactions described in the Merger Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. Our opinion is necessarily based on economic and
market conditions and other circumstances as they exist and can be evaluated by
us as of the date hereof.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company and Parent for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Company in connection with the
proposed Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company of the consideration to be received by such
shareholders pursuant to the Merger Agreement, and we do not express any views
on any other term of the Merger. Specifically, our opinion does not address the
Company's underlying business decision to effect the transactions contemplated
by the Merger Agreement.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger, and except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of the Company relating to the
Merger, may not be quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder or as to how such holder should vote with
respect to the Merger, and should not be relied upon by any shareholder as
such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof
the $31.75 per Share cash consideration to be received by the shareholders of
the Company pursuant to the Merger Agreement is fair to the shareholders of the
Company from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
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APPENDIX C
CHAPTER 44
DISSENTERS' RIGHTS
23-1-44-1 "CORPORATION".--As used in this chapter, "corporation" means the
issuer of the shares held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange of that issuer.
23-1-44-2 "DISSENTER".--As used in this chapter, "dissenter" means a
shareholder who is entitled to dissent from corporate action under section 8
of this chapter and who exercises that right when and in the manner required
by sections 10 through 18 of this chapter.
23-1-44-3 "FAIR VALUE".--As used in this chapter, "fair value", with
respect to a dissenter's shares, means the value of the shares immediately
before the effectuation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
23-1-44-4 "INTEREST".--As used in this chapter, "interest" means interest
from the effective date of the corporate action until the date of payment, at
the average rate currently paid by the corporation on its principal bank loans
or, if none, at a rate that is fair and equitable under all the circumstances.
23-1-44-5 "RECORD SHAREHOLDER".--As used in this chapter, "record
shareholder" means the person in whose name shares are registered in the
records of a corporation or the beneficial owner of shares to the extent that
treatment as a record shareholder is provided under a recognition procedure or
in a disclosure procedure established under IC 23-1-30-4.
23-1-44-6 "BENEFICIAL SHAREHOLDER".--As used in this chapter, "beneficial
shareholder" means the person who is a beneficial owner of shares held by a
nominee as the record shareholder.
23-1-44-7 "SHAREHOLDER".--As used in this chapter, "shareholder" means the
record shareholder or the beneficial shareholder.
23-1-44-8 WHEN SHAREHOLDER MAY DISSENT.--(a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholders' shares
in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
if:
(A) shareholder approval is required for the merger by IC 23-1-40-3 or the
articles of incorporation; and
(B) the shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
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(5) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or non-voting shareholders are entitled to
dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares
of that class or series were:
(1) registered on a United States securities exchange registered under the
Exchange Act (as defined in IC 23-1-43-9); or
(2) traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets--National Market Issues
or a similar market.
(c) A shareholder:
(1) who is entitled to dissent and obtain payment for the shareholder's
shares under this chapter; or
(2) who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b);
may not challenge the corporate action creating (or that, but for the
provisions of subsection (b), would have created) the shareholder's
entitlement.
23-1-44-9 DISSENTERS' RIGHTS WITH RESPECT TO FEWER THAN ALL SHARES
REGISTERED IN SHAREHOLDER'S NAME.--(a) A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in
writing of the name and address of each person on whose behalf the shareholder
asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which the shareholder
dissents and the shareholder's other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares on
the shareholder's behalf only if:
(1) the beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) the beneficial shareholder does so with respect to all the beneficial
shareholder's shares or those shares over which the beneficial shareholder has
power to direct the vote.
23-1-44-10 NOTICE OF PROPOSED ACTION CREATING DISSENTERS' RIGHTS.--(a) If
proposed corporate action creating dissenters' rights under section 8 of this
chapter is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in section 12
of this chapter.
23-1-44-11 NOTICE OF SHAREHOLDER'S INTENT TO ASSERT DISSENTERS' RIGHTS.--
(a) If proposed corporate action creating dissenters' rights under section 8
of this chapter is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(1) must deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares if
the proposed action is effectuated; and
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(2) must not vote the shareholder's shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for the shareholder's shares under this chapter.
23-1-44-12 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under section 8 of this chapter is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Section 11 of this
chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(4) set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty (30) nor more than sixty (60) days
after the date the subsection (a) notice is delivered; and
(5) be accompanied by a copy of this chapter.
23-1-44-13 DEMAND.--(a) A shareholder sent a dissenters' notice described in
IC 23-1-42-11 or in section 12 of this chapter must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date required to be set forth in the dissenters' notice under section 12(b)(3)
of this chapter, and deposit the shareholder's certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action,
23-1-44-14 TRANSFER OF UNCERTIFICATED SHARES.--(a) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is taken or the
restrictions released under section 16 of this chapter.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
23-1-44-15 PAYMENT OF FAIR VALUE.--(a) Except as provided in section 17 of
this chapter, as soon as the proposed corporate action is taken, or, if the
transaction did not need shareholder approval and has been completed, upon
receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 13 of this chapter the amount the corporation estimates
to be the fair value of the dissenters' shares.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
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(2) a statement of the corporation's estimate of the fair value of the
shares; and
(3) a statement of the dissenter's right to demand payment under section 18
of this chapter.
23-1-44-16 RETURN OF DEPOSITED CERTIFICATES--RELEASE OF TRANSFER
RESTRICTIONS.--(a) If the corporation does not take the proposed action within
sixty (60) days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 of this chapter and repeat the payment
demand procedure.
23-1-44-17 WITHHOLDING PAYMENT.--(a) A corporation may elect to withhold
payment required by section 15 of this chapter from a dissenter unless the
dissenter was the beneficial owner of the shares before the date set forth in
the dissenters' notice as the date of the first announcement to news media or
to the shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 of this chapter.
23-1-44-18 DISSENTERS' ESTIMATE.--(a) A dissenter may notify the corporation
in writing of the dissenters' own estimate of the fair value of the dissenters'
shares and demand payment of the dissenter's estimate (less and payment under
section 15 of this chapter), or reject the corporation's offer under section 17
of this chapter and demand payment of the fair value of the dissenters' shares,
if:
(1) the dissenter believes that the amount paid under section 15 of this
chapter or offered under section 17 of this chapter is less than the fair value
of the dissenter's shares;
(2) the corporation fails to make payment under section 15 of this chapter
within sixty (60) days after the date set for demanding payment; or
(3) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(b) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (a) within thirty (30) days after the corporation made or
offered payment for the dissenter's shares.
23-1-44-19 APPRAISAL PROCEEDING.--(a) If a demand for payment under IC 23-1-
42-11 or under section 18 of this chapter remains unsettled, the corporation
shall commence a proceeding within sixty (60) days after receiving the payment
demand and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or superior
court of the county where a corporation's principal office (or, if none in
Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served
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with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one (1) or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(2) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
section 17 of this chapter.
23-1-44-20 DETERMINATION OF COSTS OF APPRAISAL PROCEEDING.--(a) The court in
an appraisal proceeding commenced under section 19 of this chapter shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against such parties and in such amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of sections 10 through 18 of this chapter; or
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court
may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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DETACH HERE
PROXY LILLY INDUSTRIES, INC. CLASS A STOCK PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ON September 27, 2000
The undersigned appoints JOHN C. ELBIN and WILLIAM C. DORRIS, or either of
them, with full power of substitution, as proxies to vote all shares of Class A
Stock held by the undersigned at the Special Meeting of Shareholders of Lilly
Industries, Inc. to be held at the Corporate Headquarters of Lilly Industries,
Inc., located at 200 West 103rd Street, Indianapolis, Indiana, at 10:00 a.m.,
local time, on September 27, 2000, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR item 1.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
DETACH HERE
(Continued from the other side)
MARK THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION.
1. Proposal to approve the Agreement and Plan of Merger, dated as of June 23,
2000, among Lilly Industries, The Valspar Corporation and a wholly owned
subsidiary of Valspar, pursuant to which the subsidiary will be merged into
Lilly Industries and each share of Class A and Class B common stock of Lilly
Industries outstanding immediately prior to the merger (other than shares
held by Lilly Industries, Valspar or their respective subsidiaries, which
will be canceled) will be converted into the right to receive $31.75 in
cash, without interest.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: , 2000
-------------------
-------------------------------
-------------------------------
Signature(s)
Please sign exactly as your
name appears. Joint owners
should each sign personally.
Where applicable, indicate your
official position or
representation capacity.
<PAGE>
DETACH HERE
PROXY LILLY INDUSTRIES, INC. CLASS B STOCK PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ON SEPTEMBER 27, 2000
The undersigned appoints DOUGLAS W. HUEMME and ROBERT A. TAYLOR, or either
of them, with full power of substitution, as proxies to vote all shares of Class
B Stock held by the undersigned at the Special Meeting of Shareholders of Lilly
Industries, Inc. to be held at the Corporate Headquarters of Lilly Industries,
Inc., located at 200 West 103rd Street, Indianapolis, Indiana, at 10:00 a.m.,
local time, on September 27, 2000, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR item 1.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
DETACH HERE
(Continued from the other side)
MARK THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION.
1. Proposal to approve the Agreement and Plan of Merger, dated as of June 23,
2000, among Lilly Industries, The Valspar Corporation and a wholly owned
subsidiary of Valspar, pursuant to which the subsidiary will be merged into
Lilly Industries and each share of Class A and Class B common stock of Lilly
Industries outstanding immediately prior to the merger (other than shares
held by Lilly Industries, Valspar or their respective subsidiaries, which
will be canceled) will be converted into the right to receive $31.75 in cash,
without interest.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: , 2000
-------------------
-------------------------------
-------------------------------
Signature(s)
Please sign exactly as your
name appears. Joint owners
should each sign personally.
Where applicable, indicate your
official position or
representation capacity.
