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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D) (4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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LONE STAR INDUSTRIES, INC.
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(NAME OF SUBJECT COMPANY)
LONE STAR INDUSTRIES, INC.
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(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
COMMON STOCK PURCHASE WARRANTS
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(TITLE OF CLASSES OF SECURITIES)
COMMON STOCK--542290 408
WARRANTS--542290 11
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(CUSIP NUMBER OF CLASSES OF SECURITIES)
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WILLIAM M. TROUTMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LONE STAR INDUSTRIES, INC.
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06912-0014
(203) 969-8600
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING)
WITH A COPY TO:
PETER G. SAMUELS, ESQ.
PROSKAUER ROSE LLP
NEW YORK, NEW YORK 10036
(212) 969-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Lone Star Industries, Inc., a Delaware
corporation ("Lone Star" or the "Company"). The address of the principal
executive offices of the Company is 300 First Stamford Place, Stamford,
Connecticut 06912-0014. The title of the classes of equity securities to which
this Statement relates is the common stock, par value $1.00 per share (the
"Shares"), together with the associated rights to purchase common stock issued
pursuant to the Rights Agreement, dated as of November 10, 1994 (the "Rights
Agreement") between the Company and Chemical Bank, as Rights Agent (the
"Rights"), and the common stock purchase warrants, each representing the right
to purchase two Shares, issued pursuant to the Warrant Agreement dated as of
April 13, 1994 between the Company and Chemical Bank, as Warrant Agent (the
"Warrants" and together with the Shares (and associated Rights) the
"Securities"). All references herein to Rights shall include all benefits that
may inure to holders of the Rights pursuant to the Rights Agreement. Unless
the context otherwise requires, all references herein to Shares shall include
the Rights.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by Dyckerhoff Aktiengesellschaft,
a corporation formed under the laws of the Federal Republic of Germany
("Parent"), and Level Acquisition Corp., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("Purchaser"), disclosed in a
Tender Offer Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission on September 3, 1999 (as the same may be amended from time
to time, the "Schedule 14D-1"), to purchase for cash (i) all of the
outstanding Shares at a price of $50.00 per Share, net to the seller in cash
(subject to applicable withholding of taxes) and (ii) all of the outstanding
Warrants at a price of $81.25 per Warrant, net to the seller in cash (subject
to applicable withholding of taxes) upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 3, 1999 (the
"Offer to Purchase"), and the related Letters of Transmittal (which, together
with any amendments and supplements thereto, collectively constitute the
"Offer") included in the Schedule 14D-1.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 2, 1999, among Parent, Purchaser and the Company (the "Merger
Agreement"). The Offer is subject to the conditions set forth in the Merger
Agreement, including the condition that the number of Securities validly
tendered and not withdrawn prior to the expiration date of the Offer shall not
be less than a majority of the Shares then outstanding, calculated on a fully
diluted basis (the "Minimum Condition").
Pursuant to the Merger Agreement, following the consummation of the Offer
and subject to the satisfaction or waiver of certain conditions, Purchaser
will merge with and into the Company (the "Merger") and the Company will
continue as the surviving corporation and a wholly owned subsidiary of Parent;
alternatively, the Purchaser may elect to merge the Company with and into the
Purchaser (or another wholly owned Subsidiary of Parent). The company
surviving the Merger is referred to as the "Surviving Corporation." Upon
effectiveness of the Merger, each Share (other than Shares purchased in the
Offer or otherwise owned by the Purchaser or by the Company or any of its
subsidiaries and dissenting Shares) will be converted into the right to
receive $50.00 per Share in cash (the "Merger Consideration") and each Warrant
(other than Warrants held in the treasury of the Company, which will be
canceled) will remain outstanding and unaffected by the Merger, except that,
if the Company is not the Surviving Corporation, each holder of Warrants will
have the right to obtain upon the exercise of each Warrant the Merger
Consideration in lieu of each Share issuable upon exercise of such Warrant.
The terms of the Merger Agreement, a copy of which is filed as an Exhibit
hereto and is incorporated herein by reference, are summarized below under
Item 3(b) of this Schedule 14D-9.
Parent and Purchaser have also entered into a Tender Agreement, dated as of
September 2, 1999 (the "Tender Agreement"), with certain stockholders of the
Company together owning approximately 1,320,870 of the outstanding Shares,
pursuant to which such stockholders have agreed to tender their Shares into
the Offer upon the terms and subject to the conditions set forth therein. The
terms of the Tender Agreement, a copy of which is filed as an Exhibit hereto
and is incorporated herein by reference, are summarized below under Item 3(b)
of this Schedule 14D-9.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Parent, Purchaser or their affiliates, or actions or
events with respect to any of them, was provided by Parent, and the Company
takes no responsibility for the accuracy or completeness of such information
or for any failure by such
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entities to disclose events or circumstances that may have occurred and may
affect the significance, completeness or accuracy of any such information.
According to the Schedule 14D-1, the address of the principal executive
offices of Parent is Dyckerhoff Aktiengesellschaft, Biebricher Stra(Beta)e 69,
65203 Wiesbaden, Germany and of Purchaser is Level Acquisition Corp., Ten Post
Office Square South, Boston, Massachusetts 02109.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Except as described herein, in the Company's Information Statement filed
on September 3, 1999 pursuant to Section 14(f) of the Securities Exchange Act
of 1934, as amended ("the Exchange Act"), and attached hereto as Annex A and
in the Exhibits hereto, to the knowledge of the Company, as of the date hereof
there are no material contracts, agreements, arrangements or understandings,
or any potential or actual conflicts of interest between the Company or its
affiliates and (1) the Company, its executive officers, directors or
affiliates or (2) Parent or Purchaser or any of their respective executive
officers, directors or affiliates.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the Merger
Agreement filed as an exhibit to this Schedule 14D-9 and incorporated herein
by reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that upon the terms and subject to prior satisfaction or waiver
(to the extent permitted to be waived) of the conditions of the Offer, the
Purchaser will purchase all Securities validly tendered pursuant to the Offer.
The Merger Agreement provides that the Purchaser has the right, in its sole
discretion, to modify and make certain changes to the terms and conditions of
the Offer.
The Company's Board of Directors. The Merger Agreement provides that
immediately upon the acceptance for payment of and payment for any Securities
by Purchaser pursuant to the Offer, Purchaser will be entitled to designate
such number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Purchaser, subject to compliance with
Section 14(f) of the Exchange Act, representation on the Board of Directors of
the Company equal to the product of (i) the total number of directors on the
Board of Directors of the Company (giving effect to the increase in the size
of such Board pursuant to this paragraph) and (ii) the percentage that the
number of votes represented by Shares beneficially owned by Purchaser and its
affiliates (including Shares so accepted for payment and purchased and any
Warrants so accepted for payment and purchased and converted by Purchaser into
Shares) bears to the number of votes represented by Shares then outstanding.
In furtherance thereof, concurrently with such acceptance for payment and
payment for such Securities the Company will, upon request of Parent and in
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, use its best efforts promptly either to increase the size of its
Board of Directors or to secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable such designees of
Parent to be so elected or appointed to the Company's Board of Directors, and
the Company will take all actions available to the Company to cause such
designees of Parent to be so elected or appointed. At such time, the Company
will, if requested by Parent, also take all action necessary to cause persons
designated by Parent to constitute at least the same percentage (rounded up to
the next whole number) as is on the Company's Board of Directors of (i) each
committee of the Company's Board of Directors, (ii) each board of directors
(or similar body) of each subsidiary of the Company and (iii) each committee
(or similar body) of each such board. Notwithstanding the foregoing, the
Company will use its best efforts to ensure that, in the event that
Purchaser's designees are elected to the Board of Directors of the Company,
such Board of
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Directors will have, at all times prior to the effective time of the Merger
(the "Effective Time"), at least two directors who are directors on the date
of the Merger Agreement and who are not officers or affiliates of the Company
(it being understood that for purposes of this paragraph, a director of the
Company will not be deemed an affiliate of the Company solely as a result of
his status as a director of the Company), Parent or any of their respective
subsidiaries (the "Independent Directors"); and provided further, that, in
such event, if the number of Independent Directors is reduced below two for
any reason whatsoever the remaining Independent Director may designate a
person to fill such vacancy who will be deemed to be an Independent Director
for purposes of the Merger Agreement or, if no Independent Directors then
remain, the other directors may designate two persons to fill such vacancies
who may not be officers or affiliates of the Parent or any of its subsidiaries
(other than the Company), and such persons will be deemed to be Independent
Directors for purposes of the Merger Agreement. Subject to applicable law, the
Company will promptly take all action requested by Parent necessary to effect
any such election, including mailing to its securityholders the information
required by Section 14(f) of the Exchange Act and Rule 14(f)-1 promulgated
thereunder (or, at Parent's request, furnishing such information to Parent for
inclusion in the Offer documents initially filed with the Securities and
Exchange Commission (the "SEC") and distributed to the securityholders of the
Company) as is necessary to enable Parent's designees to be elected to the
Company's Board of Directors. Each of Parent and Purchaser will furnish to the
Company, and be solely responsible for, any information with respect to itself
and its nominees, directors and affiliates required by Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. From and after the time,
if any, that Parent's designees constitute a majority of the Company's Board
of Directors and prior to the Effective Time, any amendment of the Merger
Agreement, any termination of the Merger Agreement by the Company, any
extension of time for performance of any of the obligations of Parent or
Purchaser, any waiver of any material condition to the Company's obligations
or any of the Company's rights or other material action by the Company
thereunder may be effected only by the action of a majority of the Independent
Directors of the Company, which action will be deemed to constitute the action
of any committee specifically designated by the Board of Directors of the
Company to approve the actions contemplated thereby and the full Board of
Directors of the Company; provided that, if there shall be no Independent
Directors, such actions may be effected by majority vote of the entire Board
of Directors of the Company, except that no such action may amend the terms of
the Merger Agreement or modify the terms of the Offer or the Merger in a
manner materially adverse to the holders of Securities.
The Merger. Pursuant to the Merger Agreement and the DGCL, as promptly as
practicable after the completion of the Offer and satisfaction or waiver, if
permissible, of all conditions, including the purchase of Securities pursuant
to the Offer and the approval and adoption of the Merger Agreement by the
stockholders of the Company (if required by applicable law), Purchaser will be
merged with and into the Company and the Company will be the surviving
corporation (the "Surviving Corporation") and, as of the Effective Time, an
indirect wholly owned subsidiary of Parent. Notwithstanding the foregoing,
Parent may elect at any time prior to the time that notice of the meeting of
stockholders of the Company to consider approval of the Merger and the Merger
Agreement (the "Stockholder Meeting") is first given to the Company's
stockholders that instead of merging Purchaser into the Company as hereinabove
described to merge the Company into Purchaser or another direct or indirect
wholly owned subsidiary of Parent. In such event the parties will execute an
appropriate ministerial amendment to the Merger Agreement in order to reflect
the foregoing and to provide that Purchaser or such other subsidiary of Parent
will be the Surviving Corporation. At the Effective Time, (x) each Share then
outstanding, other than Shares held by (i) the Company or any of its
subsidiaries, (ii) Parent or any of its subsidiaries, including Purchaser, and
(iii) stockholders who properly perfect their dissenters' rights under the
DGCL, will be converted into the right to receive the Merger Consideration,
without interest and (y) each Warrant then outstanding, other than Warrants
held by (i) the Company or any of its subsidiaries or (ii) Parent or any of
its subsidiaries, including Purchaser, will remain outstanding following, and
be unaffected by, the Merger, except that, to the extent provided in Section
10.5 of the Warrant Agreement, from and after the Effective Time each holder
of Warrants will have the right to obtain upon the exercise of each Warrant,
in lieu of each Share theretofore issuable upon exercise of such Warrant, the
Merger Consideration without interest thereon, net to the holder in cash.
Purchaser's Certificate of Incorporation will become the Certificate of
Incorporation of the Surviving Corporation, and Purchaser's Bylaws will be the
Bylaws of the Surviving Corporation.
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Options. The Merger Agreement provides that prior to the date of the Merger
Agreement, the Board of Directors of the Company (or, if appropriate, any
committee thereof) will adopt appropriate resolutions and take all other
actions necessary to provide that (A) effective on the date of the Merger
Agreement, no further grants will be made under the Company's Directors Stock
Option Plan, dated July 1, 1996 (the "Directors Plan"), the Company's
Management Stock Option Plan, dated April 14, 1994 (the "Management Plan") or
the Company's 1996 Long Term Incentive Plan (collectively, the "Company Stock
Option Plans"), (B) effective at the Effective Time, each outstanding Option,
or any other award providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any subsidiary heretofore
granted under any of the Company's Stock Option Plans, whether or not then
vested or exercisable, will, at the Effective Time, be canceled, and each
holder thereof will be entitled to receive a payment in cash from the Company
(the "Cash Payment"), upon cancellation, equal to the product of (x) the total
number of Shares subject or related to such Option, whether or not then vested
or exercisable, and (y) the excess, if any, of the Merger Consideration over
the exercise price or purchase price, as the case may be, per Share subject or
related to such Option, each such Cash Payment to be paid to each holder of an
outstanding Option upon cancellation. Except as specifically set forth in this
paragraph, the Company Stock Option Plans (and any benefit plan or other plan,
program or arrangement) providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary will
terminate as of the Effective Time. Within 5 business days of the date of the
Merger Agreement, the Company will obtain the consent of each of the holders
of the Options as is necessary to effectuate the transactions contemplated by
this paragraph. Notwithstanding anything to the contrary contained in the
Merger Agreement, payment will, at Parent's request, be withheld in respect of
any Option until all necessary consents are obtained, and in any event all
such consents, if any, must be obtained prior to Purchaser's acceptance for
payment of any Securities pursuant to the Offer. Effective on the date of the
Merger Agreement, the Company amended the Company's Employee Stock Purchase
Plan (the "Stock Purchase Plan") to provide (A) that no individual eligible to
participate in the Stock Purchase Plan will be permitted to increase the rate
or level of his or her participation in the Stock Purchase Plan (including
without limitation changing the amount of his or her contributions to the
Stock Purchase Plan or enrolling to participate in the Stock Purchase Plan
following the date of the Merger Agreement), (B) no further purchases of
Securities shall occur pursuant to the Stock Purchase Plan after the date
immediately preceding the date that Securities are first purchased pursuant to
the Offer and (C) effective on the date that Securities are first purchased
pursuant to the Offer, the Stock Purchase Plan shall terminate.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries,
capitalization, authority to enter into the Merger Agreement, the absence of
certain changes, required consents, no conflicts between the Merger Agreement
and applicable laws and certain agreements to which the Company or its assets
may be subject, financial statements, filings with the Commission, disclosures
in proxy statements and tender offer documents, absence of certain changes or
events, litigation, insurance, labor and employment matters, employee benefit
plans, tax matters, compliance with applicable laws, Year 2000 compliance,
brokers' and finders' fees, environmental matters, material contracts,
applicability of state takeover statutes, undisclosed liabilities, title to
properties, insurance, indemnification claims, excess parachute payments,
termination agreements, deductions under Section 162(m) of the Code, the vote
required to approve the Merger Agreement and its receipt of the opinion of
Merrill Lynch & Co., financial advisor to the Company, with respect to the
Offer and the Merger (the "Financial Advisor Opinion.")
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and applicable
laws and certain agreements to which Parent or Purchaser or their assets may
be subject, financing, disclosures in proxy statements and tender offer
documents and brokers' and finders' fees.
Interim Operations. Pursuant to the Merger Agreement, the Company has agreed
that, prior to the Effective Time, unless otherwise expressly contemplated by
the Merger Agreement or consented to in writing by Parent, it will and will
cause each of its subsidiaries to (i) operate its business in the usual and
ordinary course
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consistent with past practices; (ii) use its reasonable efforts to preserve
intact its business organization, maintain its rights and franchises, retain
the services of its respective key employees and maintain its relationships
with its respective customers and suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall be
unimpaired at the Effective Time; (iii) maintain and keep its properties and
assets in as good repair and condition as at present, ordinary wear and tear
excepted, and maintain supplies and inventories in quantities consistent with
its customary business practice; and (iv) use its reasonable efforts to keep
in full force and effect insurance and bonds comparable in amount and scope of
coverage to that currently maintained.
Except as set forth in the disclosure schedules to the Merger Agreement, the
Company has agreed that, except as expressly contemplated by the Merger
Agreement or otherwise consented to in writing by Parent (which consent will
not be unreasonably withheld or delayed), from the date of the Merger
Agreement until the Effective Time, it will not, and will not permit any of
its subsidiaries to (a) (i) increase the compensation (or benefits) payable to
or to become payable to any director or employee, except for increases in
salary or wages of employees in the ordinary course of business and consistent
with past practice; (ii) grant any severance or termination pay (other than
pursuant to the severance policy or practice of the Company or its
subsidiaries as disclosed in the disclosure schedules to the Merger Agreement
and in effect on the date of the Merger Agreement) to, or enter into or amend
in any material respect any employment or severance agreement with, any
employee; (iii) establish, adopt, enter into or amend in any material respect
any collective bargaining agreement or any benefit plan of the Company or any
commonly controlled entity; or (iv) take any action to accelerate any rights
or benefits, or make any determinations not in the ordinary course of business
consistent with past practice, under any collective bargaining agreement or
benefit plan of the Company or any commonly controlled entity; provided that
the Company may amend the Company Stock Option Plans to accelerate the vesting
of any unvested Options and to permit employees and directors to tender any
shares acquired upon exercise of any Option into the Offer in accordance with
the terms of the Merger Agreement; (b) declare, set aside or pay any dividend
on, or make any other distribution in respect of (whether in cash, stock or
property), outstanding shares of capital stock, except for (i) dividends by a
wholly owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company and (ii) regular quarterly cash dividends by the
Company consistent with past practices (including as to declaration, record
and payment dates) in no event to exceed $0.05 per Share per fiscal quarter;
(c) redeem, purchase or otherwise acquire, or offer or propose to redeem,
purchase or otherwise acquire, any outstanding shares of capital stock of, or
other equity interests in, or any securities that are convertible into or
exchangeable for any shares of capital stock of, or other equity interests in,
or any outstanding options, warrants or rights of any kind to acquire any
shares of capital stock of, or other equity interests in, the Company or any
of its subsidiaries (other than (i) any such acquisition by the Company or any
of its wholly owned subsidiaries directly from any wholly owned subsidiary of
the Company in exchange for capital contributions or loans to such subsidiary,
or (ii) any purchase, forfeiture or retirement of shares or the Options
occurring pursuant to the terms (as in effect on the date of the Merger
Agreement) of any existing benefit plan of the Company or any of its
subsidiaries, in a manner otherwise consistent with the terms of the Merger
Agreement; (d) effect any reorganization or recapitalization; or split,
combine or reclassify any of the capital stock of, or other equity interests
in, the Company or any of its subsidiaries or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of such capital stock or such equity interests; (e)
offer, sell, issue or grant, or authorize or propose the offering, sale,
issuance or grant of, any shares of capital stock of, or other equity
interests in, any securities convertible into or exchangeable for (or
accelerate any right to convert or exchange securities for) any shares of
capital stock of, or other equity interest in, or any options, warrants or
rights of any kind to acquire any shares of capital stock of, or other equity
interests in, or any voting company debt or other voting securities of, the
Company or any of its subsidiaries, or any "phantom" stock, "phantom" stock
rights, stock appreciation rights or stock-based performance units, other than
issuances of Shares upon the exercise of the Options and Warrants outstanding
at the date of the Merger Agreement in accordance with the terms thereof (as
in effect on the date of the Merger Agreement); (f) acquire or agree to
acquire, by merging or consolidating with, by purchasing an equity interest in
or a portion of the assets of, or in any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets of any other person (other
than the purchase of
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assets from suppliers or vendors in the ordinary course of business and
consistent with past practice); (g) sell, lease, exchange or otherwise dispose
of, or grant any lien with respect to, any of the properties or assets of the
Company or any of its subsidiaries that are, individually or in the aggregate,
material to the business of the Company and its subsidiaries, except for
dispositions of excess or obsolete assets and sales of inventories in the
ordinary course of business and consistent with past practice; (h) propose or
adopt any amendments to its certificate of incorporation or bylaws or other
organizational documents; (i) effect any change in any accounting methods,
principles or practices in effect as of December 31, 1998 affecting the
reported consolidated assets, liabilities or results of operations of the
Company, except as may be required by a change in generally accepted
accounting principles; (j) (i) incur any indebtedness for borrowed money,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities of the Company or any of its subsidiaries, guarantee any such
indebtedness or debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to or in the Company or any
direct or indirect wholly owned subsidiary of the Company; (k) pay, discharge,
settle or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company's filings and reports under the Exchange Act filed and publicly
available prior to the date of the Merger Agreement or incurred since the date
of such financial statements in the ordinary course of business consistent
with past practice; (l) settle the terms of any material litigation affecting
the Company or any of its subsidiaries; (m) make any tax election except in a
manner consistent with past practice, change any method of accounting for tax
purposes, or settle or compromise any material tax liability; (n) make or
agree to make any new capital expenditures which individually are in excess of
$1,000,000 or which in the aggregate are in excess of $3,000,000 except in
accordance with the Company's budget; or (o) agree in writing or otherwise to
take any of the foregoing actions or any action which would make any
representation or warranty in the Merger Agreement untrue or incorrect or
cause any condition set forth under "--Conditions to the Offer" to occur or
any condition under "--Conditions to the Merger" to be unsatisfied.
No Solicitation. In the Merger Agreement, the Company has agreed that from
and after the date of the Merger Agreement until the Effective Time or the
termination of the Merger Agreement, the Company and its subsidiaries will
not, and the Company will use its reasonable best efforts to cause their
respective officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by the Company or any of its subsidiaries) not to,
directly or indirectly, initiate, solicit or knowingly encourage (including by
way of furnishing non-public information or assistance), or take any other
action to facilitate, any inquiries or the making or submission of any
Acquisition Proposal (as defined herein) or enter into or maintain or continue
discussions or negotiate with any person or group in furtherance of such
inquiries or to obtain or induce any person or group to make or submit an
Acquisition Proposal or agree to or endorse any Acquisition Proposal or assist
or participate in, facilitate or knowingly encourage, any effort or attempt by
any other person or group to do or seek any of the foregoing or authorize any
of its officers, directors or employees or any of its subsidiaries or
affiliates or any investment banker, financial advisor, attorney, accountant
or other representative or agent retained by it or any of its subsidiaries to
take any such action; provided, however, that nothing contained in the Merger
Agreement prohibits the Company or the Board of Directors of the Company from,
prior to the earlier to occur of payment for the Securities pursuant to the
Offer or adoption of the Merger Agreement by the requisite vote of the
stockholders of the Company, (i) furnishing information to or (ii) entering
into discussions or negotiations with any person or entity that makes an
unsolicited written Acquisition Proposal, if, and only to the extent that (x)
in each case referred to in (i) and (ii) above, the Board of Directors of the
Company, with the advice of independent legal counsel (who may be the
Company's regularly engaged independent legal counsel), determines in good
faith that the failure to do so would result in a breach of the fiduciary duty
of the Board of Directors of the Company to stockholders of the Company under
applicable law and (y) in the case referred to in (ii), the Board of Directors
of the Company determines in good faith that such Acquisition Proposal is
reasonably likely to lead to a Superior Proposal and (z) prior to taking
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such action the Company (A) delivers to Parent and Purchaser the notice
required pursuant to the Merger Agreement stating that it is taking such
action and (B) receives from such person or group an executed confidentiality
agreement that is not, in any material respect, less restrictive (including in
respect of confidentiality and standstill restrictions) as to such person or
entity than the confidentiality agreement dated July 8, 1999 between Parent
and the Company.
Except as expressly permitted by the Merger Agreement, neither the Board of
Directors of the Company nor any committee thereof will (i) withdraw, modify
or fail to make, or propose to withdraw, modify or fail to make its approval
or recommendation of the Offer or the Merger or of the Merger Agreement, the
Tender Agreement, and the other transactions contemplated by the Merger
Agreement and the Tender Agreement (the "Transactions"), (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, (iii)
take any action to render the provisions of any anti-takeover statute, rule or
regulation (including Section 203 of the DGCL) inapplicable to any person
(other than Parent, Purchaser or their affiliates) or group or to any
Acquisition Proposal or redeem the Rights or otherwise modify the Rights
Agreement to facilitate any Acquisition Proposal or purchase of Shares by any
Person other than Parent and Purchaser, or (iv) cause the Company to accept
such Acquisition Proposal and/or enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, an
"Acquisition Agreement") related to any Acquisition Proposal; provided,
however, that prior to the earlier to occur of acceptance for payment of
Securities pursuant to the Offer or adoption of the Merger Agreement by the
requisite vote of the stockholders of the Company, the Board of Directors of
the Company may terminate the Merger Agreement if, and only to the extent that
(A) such Acquisition Proposal is a Superior Proposal, (B) the Board of
Directors of the Company, with the advice of independent legal counsel (who
may be the Company's regularly engaged independent counsel), determines in
good faith that the failure to do so would result in a breach of the fiduciary
duty of the Board of Directors of the Company to the stockholders of the
Company under applicable law, (C) the Company shall, prior to or
simultaneously with the taking of such action, have paid or pay to Parent or
Purchaser or their designee the Termination Fee (as defined below), (D) the
Company is not in material breach of the provisions of the Merger Agreement
relating to the solicitation and negotiation of Acquisition Proposals which
material breach has resulted in a Superior Proposal, and (E) the Company shall
have complied with its obligations relating to termination of the Merger
Agreement in this situation.
In addition to the obligations of the Company set forth in the two preceding
paragraphs above, the Company agreed to promptly advise Parent of any request
for information or the submission or receipt of any Acquisition Proposal, or
any inquiry with respect to or which could lead to any Acquisition Proposal,
the material terms and conditions of such request, Acquisition Proposal or
inquiry, and the identity of the person making any such request, Acquisition
Proposal or inquiry and its response or responses thereto. The Company agreed
to keep Parent fully informed of the status and details (including amendments
or proposed amendments) of any such request, Acquisition Proposal or inquiry.
The Company also agreed to immediately cease and cause to be terminated any
then-existing activities, discussions or negotiations with any parties
conducted prior to execution of the Merger Agreement with respect to any of
the foregoing.
"Acquisition Proposal" means an inquiry, offer or proposal regarding any of
the following (other than the transactions contemplated by the Merger
Agreement) involving the Company: (i) any merger, consolidation, share
exchange, recapitalization, liquidation, dissolution, business combination or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 15% or more of the assets of the Company and
its subsidiaries, taken as a whole, or of any Material Business (as defined
herein) or of any subsidiary or subsidiaries responsible for a Material
Business in a single transaction or series of related transactions; (iii) any
tender offer (including a self tender offer) or exchange offer that, if
consummated, would result in any person or group beneficially owning more than
15% of the outstanding shares of any class of equity securities of the Company
or its subsidiaries or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any acquisition of 15% or more of
the outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith or any
other acquisition or disposition the consummation of which would prevent or
materially diminish the benefits to Parent
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of the Merger; or (v) any public announcement by the Company or any third
party of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing. "Superior Proposal" means any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
other similar transaction, for at least a majority of the shares, on a fully
diluted basis, or at least 51% of the consolidated assets of the Company,
which the Board of Directors of the Company determines in good faith (after
consultation with a financial advisor of nationally recognized reputation) to
be superior to the Company's stockholders (taking into account any changes to
the terms of the Merger Agreement and the Offer that have been proposed by
Parent in response to such proposal) and to be more favorable to the Company
and the Company's stockholders (taking into account relevant considerations,
including relevant legal, financial, regulatory and other aspects of such
proposal and the third party making such proposal and the conditions and
prospects for completion of such proposal) than the Offer, the Merger and the
other Transactions taken as a whole. "Material Business" means any business
(or the assets needed to carry out such business) that contributed or
represented 15% or more of the net sales, the net income or the assets
(including equity securities) of the Company and its subsidiaries taken as a
whole, or the Company's interest in a particular joint venture.
The Merger Agreement provides that nothing contained therein will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
making any disclosure to the Company's stockholders if the Board of Directors
of the Company, with the advice of independent legal counsel (who may be the
Company's regularly engaged independent counsel), determines in good faith
that the failure to take such action would result in a breach of the fiduciary
duty of the Board of Directors to the stockholders of the Company under
applicable law; provided that neither the Board of Directors of the Company
nor any committee thereof withdraws or modifies, or proposes to withdraw or
modify, the approval or recommendation of the Board of Directors of the
Company of the Offer or the Merger or approves or recommends, or publicly
proposes to approve or recommend, an Acquisition Proposal unless the Company
and the Board of Directors of the Company have complied in all material
respects with all the provisions of the Merger Agreement relating to the
solicitation and negotiation of Acquisition Proposals.
Indemnification. In the Merger Agreement, Purchaser has agreed that all
rights to indemnification for acts or omissions occurring prior to the
Effective Time existing as of the date of the Merger Agreement in favor of the
current or former directors or officers, employees and agents of the Company
and its subsidiaries as provided in their respective certificates of
incorporation, bylaws or certain specified agreements as in effect on the date
of the Merger Agreement will survive the Merger and will continue in full
force and effect in accordance with their terms for a period of six years from
the Effective Time. Parent will cause to be maintained, if available, for a
period of six years from the Effective Time the Company's current directors'
and officers' insurance and indemnification policy and fiduciary liability
policy (the "D&O Insurance") (provided that Parent may substitute therefor, at
its election, policies or financial guarantees with the same carriers or other
reputable and financially sound carriers of at least the same coverage and
amounts containing terms and conditions which are no less advantageous than
the existing D&O Insurance) to the extent that such insurance policies provide
coverage for events occurring prior to the Effective Time for all persons who
are directors and officers of the Company on or prior to the date of the
Merger Agreement, so long as the annual premium to be paid by the Company
after the date of the Merger Agreement for such D&O Insurance during such six-
year period would not exceed 200% of the annual premium as of the date of the
Merger Agreement. If, during such six-year period, such insurance coverage
cannot be obtained at all or can only be obtained for an amount in excess of
200% of the annual premium therefor as of the date of the Merger Agreement,
Parent will use reasonable best efforts to cause insurance coverage to be
obtained for an amount equal to 200% of the current annual premium therefor,
on terms and conditions substantially similar to the existing D&O Insurance.
Employee Plans and Benefits and Agreements. In the Merger Agreement, the
Surviving Corporation agreed, from and after the Effective Time, to honor in
accordance with their terms (i) all existing employment, change of control
agreements and other arrangements between the Company or any of its
subsidiaries and any current or former officer of the Company or any of its
subsidiaries which are specifically disclosed on the
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<PAGE>
disclosure schedule to the Merger Agreement, (ii) with respect to all
employees and directors of the Company, all benefits or other amounts earned
or accrued through the Effective Time under the benefit plans disclosed in the
disclosure schedule to the Merger Agreement and (iii) certain obligations
relating to retiree medical benefits.
For a period of not less than one year following the Effective Time, the
Company and the Surviving Corporation, as the case may be, will establish or
maintain a compensation structure and benefit plans for former employees of
the Company (other than its officers and/or directors) who remain employees of
the Surviving Corporation ("Transferred Employees") with terms that, in the
aggregate, are substantially comparable to the compensation structure and
benefit plans currently in place for such employees; provided that Parent,
Purchaser, the Company and/or the Surviving Corporation do not have any
obligation to (i) include any individual in any stock option or other equity-
based compensation or benefit plan or arrangement, (ii) include any such
Transferred Employee in any benefit plan of Parent or any related entity or
(iii) provide any individual with benefits resulting from any change of
control of Parent, the Company or the Surviving Corporation that occurs after
the Effective Time; provided further that the Company or the Surviving
Corporation, as the case may be, will honor certain specified severance plans.
From and after the Effective Time, for eligibility and vesting purposes (but
not for benefit accrual purposes) under any severance, welfare, pension or
other benefit plan or arrangement sponsored by the Company and/or the
Surviving Corporation, as the case may be, that are made available to
Transferred Employees, service with the Company and/or the Surviving
Corporation, as the case may be (whether before or after the Effective Time)
will be credited as if such services had been rendered to Parent or any
related entity.
Reasonable Best Efforts. In the Merger Agreement, subject to the terms and
conditions thereof, each of the parties thereto has agreed to use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective as soon
as reasonably practicable the transactions contemplated by the Merger
Agreement and the Tender Agreement. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
the Merger Agreement and the Tender Agreement, the proper officers and
directors of each party to the Merger Agreement and the Tender Agreement will
take all such necessary action. Such reasonable best efforts include, without
limitation, (i) using such efforts to obtain all necessary consents, approvals
or waivers from third parties and any Federal, state or local government or
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental
Entity") necessary to the consummation of the transactions contemplated by the
Merger Agreement and the Tender Agreement and (ii) opposing vigorously any
litigation or administrative proceeding relating to the Merger Agreement or
the Tender Agreement, including, without limitation, promptly appealing any
adverse court or agency order. Notwithstanding the foregoing or any other
provisions contained in the Merger Agreement and the Tender Agreement to the
contrary, (i) neither Parent nor the Company nor any of their respective
affiliates will be under any obligation of any kind to enter into any
negotiations or to otherwise agree with or litigate against any Governmental
Entity, including but not limited to any governmental or regulatory authority
with jurisdiction over the enforcement of any applicable Federal, state, local
and foreign antitrust, competition or other similar laws and (ii) neither
Parent or any of its affiliates will be under any obligation to otherwise
agree with any Governmental Entity or any other party to sell or otherwise
dispose of, agree to any limitations on the ownership or control of, or hold
separate (through the establishment of a trust or otherwise) particular assets
or categories of assets or businesses of any of the Company, its subsidiaries,
Parent or any of Parent's affiliates.
Pursuant to the Merger Agreement, the Company and its Board of Directors
will (i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Offer, the
Merger, the Merger Agreement, the Tender Agreement or any of the other
transactions contemplated by the foregoing and (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Offer, the
Merger, the Merger Agreement, the Tender Agreement or any other transactions,
take all action necessary to ensure that the Offer, the Merger and the other
transactions, including the transactions contemplated by the Merger Agreement
and the Tender Agreement, may be consummated as promptly as practicable on the
terms
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<PAGE>
contemplated by the Merger Agreement and the Tender Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer, the Merger and
the other transactions.
Standstill Agreements. During the period from the date of the Merger
Agreement through the Effective Time, the Merger Agreement provides that the
Company will not terminate, amend, modify or waive any provision of any
confidentiality or standstill or similar agreement to which the Company or any
of its subsidiaries is a party (other than any involving Parent). Subject to
the foregoing, during such period, the Company agrees to enforce and agrees to
permit Parent and Purchaser to enforce on its behalf and as third party
beneficiaries thereof, to the fullest extent permitted under applicable law,
the provisions of any such agreements, including obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court or other tribunal having jurisdiction. In
addition, the Company waived any rights the Company may have under any
standstill or similar agreements to object to the transfer to Purchaser of all
Securities held by securityholders covered by such standstill or similar
agreements and agreed not to consent to the transfer of any Securities held by
such securityholders to any other person unless (i) the Company has obtained
the specific, prior written consent of Parent with respect to any such
transfer or (ii) the Merger Agreement has been terminated in accordance with
the provisions set forth in "--Termination."
Stockholder Meeting. The Merger Agreement provides that, to the extent
required by applicable law, the Company will promptly after consummation of
the Offer take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to convene a meeting of the
stockholders of the Company to consider and vote on the Merger and the Merger
Agreement. At such stockholder meeting, all of the Shares then owned by
Parent, Purchaser or any other subsidiary of Parent will be voted to approve
the Merger and the Merger Agreement. The Board of Directors of the Company
will recommend that the Company's stockholders vote to approve the Merger and
the Merger Agreement if such vote is sought, will use its best efforts to
solicit from stockholders of the Company proxies in favor of the Merger and
will take all other action in its judgment necessary and appropriate to secure
the vote of stockholders required by the DGCL to effect the Merger.
Notwithstanding the foregoing, in the event that Purchaser acquires at least
90% of the then outstanding Shares, at the request of Purchaser, the parties
to the Merger Agreement will take all necessary and appropriate action to
effect the Merger as a "short-form" merger without a meeting of the
stockholders of the Company.
Conditions to the Merger. The respective obligations of each party to effect
the Merger are subject to the satisfaction or waiver, where permissible, prior
to the Effective Time, of the following conditions: (i) if required by the
DGCL, the Merger Agreement will have been approved by the affirmative vote of
the stockholders of the Company by the requisite vote in accordance with
applicable law; and (ii) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time (notwithstanding approval
thereof by the stockholders of the Company) prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of the Company, Parent and Purchaser;
(b) by Parent, Purchaser or the Company if any court of competent
jurisdiction or other Governmental Entity shall have issued a final order,
decree or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the consummation of the Offer or the Merger and such
order, decree or ruling or other action is or shall have become
nonappealable;
(c) by Parent or Purchaser if due to the occurrence and continued
existence of any of the conditions to the Offer, Purchaser shall have (i)
failed to commence the Offer within the time required by Regulation 14D
under the Exchange Act, (ii) terminated the Offer without purchasing any
securities pursuant to the Offer or (iii) failed to accept for payment
Securities pursuant to the Offer prior to November 30, 1999;
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<PAGE>
(d) by the Company (i) if there shall not have been a material breach of
any representation, warranty, covenant or agreement on the part of the
Company, and Purchaser shall have (A) failed to commence the Offer within
the time required by Regulation 14D under the Exchange Act, (B) terminated
the Offer without purchasing any Securities pursuant to the Offer, or (C)
failed to accept for payment Securities pursuant to the Offer prior to
November 30, 1999; provided further that the applicable date pursuant to
this clause (C) shall also be extended to the extent that the four business
day notice period in clause (ii)(y) below is applicable and has not yet
expired and also to the extent the expiration date of the Offer is required
to be extended by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to any modifications to the Offer by
Purchaser in response to the Superior Proposal which gave rise to the
notice period in clause (ii)(y) below, or (ii) prior to the purchase of
Securities pursuant to the Offer, concurrently with the execution of an
Acquisition Agreement under the circumstances permitted by the provisions
described under "--No Solicitation" in connection with a Superior Proposal,
provided that such termination under this clause (ii) will not be effective
unless (x) the Company and its Board of Directors shall have complied in
all material respects with their obligations under the provisions described
under "--No Solicitation" in connection with such Superior Proposal and the
Company has paid the Termination Fee and (y) the Company provides Parent
and Purchaser with at least four business days' written notice prior to
terminating the Merger Agreement, which notice is accompanied by (1) a copy
of the proposed Acquisition Agreement with respect to the Superior Proposal
that the Company proposes to accept and (2) the Company's written
certification that it has made the determinations with respect to such
Superior Proposal set forth in clauses (A) and (B) of the proviso in the
second paragraph under "--No Solicitation" and the representation that the
Company will, in the absence of any other superior Acquisition Proposal,
execute such Acquisition Agreement unless Parent or Purchaser modifies the
Offer or the Merger Agreement such that the Company's Board of Directors
reasonably believes in good faith after consultation with its independent
legal counsel and financial advisors that the Offer and the Merger (as so
modified) are at least as favorable as such Superior Proposal;
(e) by Parent or Purchaser prior to the purchase of Securities pursuant
to the Offer, if (i) any representations or warranties of the Company
(without reference to any materiality qualifications therein) contained in
the Merger Agreement shall not be true and correct at any time prior to the
acceptance for payment of Securities pursuant to the Offer, except where
the failure to be true and correct would not have a Material Adverse Effect
(as defined below) on the Company (other than to the extent such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall not be true and
correct as of such date except where the failure to be true and correct
would not have a Material Adverse Effect on the Company), or (ii) the
Company shall not have performed and complied with, in all material
respects (without reference to any materiality qualifications therein),
each material covenant or agreement contained in the Merger Agreement and
required to be performed or complied with by it, and which breach, in the
case of clause (i) and (ii) above, shall not have been cured prior to the
earlier of (A) fifteen days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, provided,
however, (x) that in the event of a material breach of the provisions
described under""--No Solicitation" the Company will have three days
following notice of such breach in order to cure and (y) in the event of a
willful or intentional breach Parent and Purchaser may immediately
terminate this Agreement, provided further there will be no right to cure
breaches which are non-curable, or (iii) the Board of Directors of the
Company or any committee thereof shall have withdrawn, or modified, amended
or changed (including by amendment of the Schedule 14D-9) in a manner
adverse to Parent or Purchaser its approval or recommendation of the Offer,
the Merger, any of the Transactions or the Merger Agreement, or shall have
approved or recommended to the Company's stockholders an Acquisition
Proposal or any other acquisition of Securities other than the Offer and
the Merger, or shall have adopted any resolutions to effect any of the
foregoing or the Company shall have taken action to redeem the Rights or
otherwise modify the Rights Agreement to facilitate an Acquisition Proposal
or purchase of Securities by any person other than Parent or Purchaser, or
(iv) Merrill Lynch shall have withdrawn, or modified or qualified in any
manner adverse to Parent or Purchaser, the Financial Advisor Opinion;
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<PAGE>
(f) by the Company prior to the purchase of any Securities pursuant to
the Offer if (i) there shall have been a material breach of any
representation or warranty in the Merger Agreement on the part of Parent or
Purchaser which materially adversely affects (or materially delays) the
consummation of the Offer or (ii) Parent or Purchaser shall not have
performed or complied with, in all material respects (without reference to
any materiality qualifications therein), each covenant or agreement
contained in the Merger Agreement and required to be performed or complied
with by them, and such breach materially adversely affects (or materially
delays) the consummation of the Offer, and which breach, in the case of
clause (i) and clause (ii) above, shall not have been cured prior to the
earlier of (A) 10 days following notice of such breach and (B) two business
days prior to the date on which the Offer expires; provided, however, that
Parent and Purchaser shall have no right to cure such breach and the
Company may immediately terminate the Merger Agreement in the event that
such breach by Parent or Purchaser was willful or intentional, provided
further there shall be no right to cure breaches which are noncurable; or
(g) by Parent or Purchaser prior to the purchase of Securities pursuant
to the Offer if any person or group (which includes a "person" or "group"
as such terms are defined in Section 13(d)(3) of the Exchange Act) other
than Parent, Purchaser, or any of their affiliates, shall have acquired
beneficial ownership of more than 51% of the Shares outstanding or shall
have consummated or entered into a definitive agreement with the Company
with respect to an Acquisition Proposal, or consummates an Acquisition
Proposal pursuant to a definitive agreement with the Company.
In the event of the termination and abandonment of the Merger Agreement
pursuant to the provisions set forth under "--Termination" above, the Merger
Agreement, except for certain enumerated provisions, will become void and have
no effect, without any liability on the part of any party or its affiliates,
directors, officers or stockholders. Nothing in this provision will relieve
any party to the Merger Agreement of liability for breach of the Merger
Agreement.
Termination Fee. Except as provided below, the Merger Agreement provides
that all fees and expenses incurred by the parties to the Merger Agreement
will be borne solely and entirely by the party which has incurred such fees
and expenses.
If:
(i) Parent or Purchaser terminates the Merger Agreement pursuant to
paragraph (c) under "--Termination" or the Company terminates pursuant to
clause (d)(i) under "--Termination", in either case due to a failure to
achieve the Minimum Condition and Parent and Purchaser are not in material
breach of the Merger Agreement, Parent or Purchaser terminates pursuant to
paragraph (c) under "--Termination" because of the occurrence and continued
existence of the conditions set forth in paragraphs (a) or (b) of "--
Conditions to the Offer" or Parent or Purchaser terminates pursuant to
clauses (e)(i) or (ii) under Termination", in each case set forth in this
clause (i), in circumstances when, prior to such termination any third
party shall have acquired beneficial ownership of 51% or more of the
outstanding Shares or made or consummated or announced an intention to make
or consummate an Acquisition Proposal for 51% or more of the consolidated
assets of the Company or a majority of the outstanding Shares of the
Company (or with respect to any such proposal that may be existing on the
date hereof, not withdrawn such Acquisition Proposal), and, in the case of
such an Acquisition Proposal which has not been consummated prior to such
termination, within 12 months thereafter such Acquisition Proposal (or, in
the case Parent or Purchaser terminates the Merger Agreement pursuant to
paragraph (c) under "--Termination" due to a failure to achieve the Minimum
Condition, any other Acquisition Proposal for 51% or more of the
consolidated assets of the Company or a majority of the outstanding Shares
of the Company) has been consummated for consideration per Share higher
than the per Share consideration in the Offer or for an aggregate
consideration, including the retention of any equity by shareholders, of
more than the aggregate consideration of the Offer and the Merger;
(ii) Parent or Purchaser terminates the Merger Agreement pursuant to
clauses (e)(iii) or (iv) under""--Termination", pursuant to paragraph (c)
under "--Termination" because of the occurrence and
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<PAGE>
continued existence of the conditions set forth in paragraphs (g) or (i) of
"--Conditions to the Offer", pursuant to paragraph (g) under "--
Termination", because of a material breach of the provisions described
under "--No Solicitation", or a willful or intentional breach of the
Company's covenants and agreements which materially interferes with the
consummation of the Transactions;
(iii) the Company terminates the Merger Agreement pursuant to clause
(d)(ii) under "--Termination"; or
(iv) the Company terminates the Merger Agreement pursuant to paragraph
(f) under "--Termination" in circumstances when Parent or Purchaser shall
also have the right to terminate the Merger Agreement in the circumstances
where Parent or Purchaser would have been entitled to a Termination Fee
pursuant to clauses (i) or (ii) above;
then, in each case, the Company will pay to Parent, within one business day
following the date on which Parent becomes entitled to a Termination Fee (or
earlier, if applicable), a fee (a "Termination Fee"), in cash, equal to
$42,250,000; provided that the Company in no event shall be obligated to pay
more than one such Termination Fee with respect to all such agreements and
occurrences and such termination. Any payment required to be made pursuant to
these provisions shall be made to Parent by wire transfer of immediately
available funds to an account designated by Parent. These provisions will not,
subject to the following paragraph, derogate from any rights or remedies which
Parent, Purchaser or the Company may possess under the Merger Agreement or the
Tender Agreement or under applicable law, as the case may be, including with
respect to any breach of the representations, warranties, agreements or
covenants contained in the Merger Agreement, provided that, notwithstanding
the foregoing, the Termination Fee shall be the sole and exclusive remedy of
Parent unless the Parent elects to forego the Termination Fee in such
circumstances and pursue other rights and remedies in such circumstances.
If the Merger Agreement is terminated by Parent or Purchaser pursuant to the
provisions set forth in paragraph (c) under "--Termination" because of the
occurrence and continued existence of the conditions set forth in paragraph
(a) of "--Conditions to the Offer" or pursuant to the provisions set forth in
clause (e)(i) under "--Termination" and the condition does not result from a
willful breach, promptly upon demand the Company shall reimburse Parent and
Purchaser for all their reasonable documented out-of-pocket fees and expenses
incurred by Parent, Purchaser and their respective affiliates in connection
with the Merger Agreement, the Offer, the Merger, the Tender Agreement and the
other Transactions, including all such fees and expenses of counsel,
accountants, investment bankers, experts and consultants to each of Parent and
Purchaser and their respective affiliates, commitment and other reasonable
documented fees and expenses payable to financing sources and the expenses of
the preparation, printing, filing and mailing of the Offer documents and any
other related costs and expenses (the "Expenses"). Other than as provided in
the enforcement provisions of the Merger Agreement, payment of Expenses shall
be the sole and exclusive remedy of Parent and Purchaser for such a breach,
provided that Purchaser shall also be entitled to a Termination Fee to the
extent clause (i) under "--Termination Fee" is applicable to the termination
(in which event the payment of Expenses shall be returned).
For purposes of the provisions under "--Termination Fee", "willful" shall
mean that the Merger Agreement is terminated as a result of one or more
representations and warranties in the Merger Agreement not being true when
made and one or more of the persons listed on the disclosure schedules to the
Merger Agreement had knowledge at that time of events, facts, circumstances or
conditions not disclosed in the Merger Agreement which caused such
representations and warranties to be false or misleading.
Conditions to the Offer. Notwithstanding any other provision of the Offer
but subject to the terms and conditions of the Merger Agreement, in addition
to (and not in limitation of) Purchaser's rights pursuant to the Merger
Agreement to extend and amend the Offer at any time, in its sole discretion,
to the extent permitted by the Merger Agreement, Purchaser shall not be
required to accept for payment or, subject to Rule 14e-1(c) of the Exchange
Act, pay for and may delay the acceptance for payment of or, subject to Rule
14e-1(c) of the Exchange Act, the payment for, any Securities not theretofore
accepted for payment or paid for, and Purchaser may terminate or amend the
Offer if (i) a number of Securities representing at least a majority of the
Fully Diluted
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Shares shall not have been validly tendered and not withdrawn immediately
prior to the expiration of the Offer, or (ii) at any time on or after the date
of the Merger Agreement and prior to the time of acceptance of such Securities
for payment or the payment therefor, any of the following conditions has
occurred and continues to occur:
(a) any representation and warranty of the Company in the Merger
Agreement (without reference to any materiality qualifier therein other
than the representations and warranties in the Merger Agreement concerning
capitalization, which must be true and correct in all material respects)
shall not be true and correct as of such time, except where the failure to
be so true and correct (other than the representations and warranties in
the Merger Agreement concerning capitalization) would not have a Material
Adverse Effect on the Company (other than to the extent any such
representation and warranty expressly relates to an earlier date, in which
case such representation and warranty shall not be true and correct as of
such date, except where the failure to be so true and correct would not
have a Material Adverse Effect on the Company) and which breach shall not
have been cured prior to the earlier of (i) fifteen days following notice
of such breach and (ii) two business days prior to the date on which the
Offer expires; provided, however, that the Company shall have no right to
cure such breach in the event that such breach by the Company was willful
or intentional, provided further, there shall be no right to cure breaches
which are non-curable;
(b) the Company shall not have performed and complied with, in all
material respects (without reference to any materiality qualifications
therein), each covenant or agreement contained in the Merger Agreement and
required to be performed or complied with by it and which breach shall not
have been cured prior to the earlier of (i) fifteen days following notice
of such breach and (ii) two business days prior to the date on which the
Offer expires; provided, however, (x) that in the event of a material
breach of a provision set forth under "--No Solicitation", the Company
shall have three days following notice of such breach in order to cure and
(y) in the event of a willful or intentional breach Parent and Purchaser
may immediately terminate the Merger Agreement, provided further, there
shall be no right to cure breaches which are non-curable;
(c) there shall have occurred and be continuing (i) any general
suspension of trading in, or limitation on prices for, securities on the
New York Stock Exchange (excluding any coordinated trading halt triggered
as a result of a specified decrease in a market index) related to market
conditions, (ii) any extraordinary adverse change in the financial markets
in the United States or the Federal Republic of Germany, (iii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or the Federal Republic of Germany by
any Governmental Entity, (iv) any material mandatory limitation by any
Governmental Entity on the extension of credit by banks or other lending
institutions, or (v) a commencement of a war, armed hostilities or other
national or international calamity directly or indirectly involving the
United States or the Federal Republic of Germany;
(d) any applicable waiting period under the HSR Act shall not have
expired or been terminated or there shall be threatened or pending any
suit, action, investigation or proceeding by any Governmental Entity, or
pending any suit by any other person which has a reasonable possibility of
success, (i) challenging the acquisition by Parent or Purchaser of any
Securities, seeking to make illegal, materially delay, make materially more
costly or otherwise directly or indirectly restrain or prohibit the making
or consummation of the Offer and the Merger or the performance of any of
the other Transactions or seeking to obtain from the Company, Parent or
Purchaser any damages that are material in relation to the Company and its
subsidiaries taken as whole, (ii) seeking to prohibit or limit the
ownership or operation by the Company, Parent or any of their respective
subsidiaries or affiliates of any of the businesses or assets of the
Company, Parent or any of their respective subsidiaries or affiliates, or
to compel the Company, Parent or any of their respective subsidiaries or
affiliates to dispose of or hold separate any of the businesses or assets
of the Company, Parent or any of their respective subsidiaries or
affiliates, as a result of the Offer, the Merger or any of the other
Transactions, (iii) seeking to impose limitations on the ability of Parent
or Purchaser to acquire or hold, or exercise full rights of ownership of,
any Securities accepted for payment pursuant to the Offer including,
without limitation, the right to vote the Shares accepted for payment by it
on all matters properly presented to the stockholders of the Company, (iv)
seeking to prohibit Parent or any of its
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<PAGE>
subsidiaries or affiliates from effectively controlling in any material
respect the business or operations of the Company or its subsidiaries, (v)
requiring divestiture by Purchaser or any of its affiliates of any
Securities or (vi) which otherwise is reasonably likely to have a Material
Adverse Effect on the Company or Parent;
(e) there shall be any statute, rule, regulation, judgment, order or
injunction (including with respect to competition or antitrust matters)
threatened, proposed or sought (which in each case Parent believes in good
faith is reasonably likely to become effective), enacted, entered,
enforced, promulgated or issued with respect to or deemed applicable to, or
any consent or approval withheld with respect to (i) Parent, the Company or
any of their respective subsidiaries or affiliates or (ii) the Offer or the
Merger or any of the other Transactions by any Governmental Entity or
court, that has resulted or is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) though
(v) of paragraph (d) above;
(f) since the date of the Merger Agreement there shall have occurred any
events, changes, effects or developments that, individually or in the
aggregate, have had or are reasonably likely to have, a Material Adverse
Effect on the Company;
(g) (1) the Board of Directors of the Company or any other committee
thereof shall have (i) withdrawn, or modified, amended or changed
(including by amendment of the Schedule 14D-9) in a manner adverse to
Parent or Purchaser, its approval or recommendation of the Offer, the
Merger, any of the other Transactions or the Merger Agreement, (ii)
approved or recommended to the Company's stockholders an Acquisition
Proposal or any other acquisition of Securities other than the Offer and
the Merger or (iii) adopted any resolution to effect any of the foregoing,
or the Company shall have taken action to redeem the Rights or otherwise
modify the Rights Agreement to facilitate an Acquisition Proposal or
purchase of Securities by any person other than Parent or Purchaser or (2)
Merrill Lynch shall have withdrawn, or modified or qualified in any manner
adverse to Parent or Purchaser, the Financial Advisor Opinion;
(h) the Merger Agreement shall have been terminated in accordance with
its terms; or
(i) any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Parent, Purchaser, any of
their affiliates, or any group of which any of them is a member, shall have
acquired beneficial ownership of more than 51% of the Shares or shall have
consummated or entered into a definitive agreement with the Company with
respect to an Acquisition Proposal.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent regardless of the circumstances
giving rise to any such condition and, subject to certain limitations
described in Section 1.1 of the Merger Agreement, may be waived by Purchaser
or Parent, in whole or in part, at any time and from time to time, in the sole
discretion of Purchaser or Parent. The failure by Purchaser or Parent or any
of their respective affiliates at any time to exercise any of the foregoing
rights will not be deemed a waiver of any right, the waiver of any such right
with respect to particular facts and circumstances shall not be deemed a
waiver with respect to any other facts and circumstances and each right will
be deemed an ongoing right which may be asserted at any time and from time to
time.
"Material Adverse Effect" shall mean any change or effect that is (after
giving effect to any appropriate reserves for such matter on the financial
statements included in the Company's filings and reports under the Exchange
Act filed and publicly available prior to the date of the Merger Agreement)
materially adverse to the business, results of operations, assets, liabilities
or financial condition of the Company and its subsidiaries, taken as a whole,
or any event, matter, condition or effect which precludes the Company from
performing its obligations under the Merger Agreement or the consummation of
the Transactions; provided, however, that in determining whether there has
been a Material Adverse Effect, any adverse effect directly attributable to
the following shall be disregarded: (i) general economic or business
conditions; (ii) general industry conditions; (iii) the taking of any action
permitted or required by the Merger Agreement or the Tender Agreement; (iv)
the announcement or pendency of the Offer, the Merger or any of the other
Transactions; (v) the breach by Parent or Purchaser of the Merger Agreement;
and (vi) a decline in the Company's stock price (provided, however, that
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<PAGE>
any adverse effect attributable to the factors identified in clause (i) or
(ii) above shall not be disregarded to the extent that the impact on the
Company is greater than that on similarly situated companies).
Tender Agreement
The following is a summary of certain provisions of the Tender Agreement.
This summary is not a complete description of the terms and conditions of the
Tender Agreement and is qualified in its entirety by reference to the Tender
Agreement filed as an exhibit to this Schedule 14D-9 and incorporated herein
by reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Tender Agreement.
Pursuant to the Tender Agreement, certain stockholders of the Company (each,
a " Certain Securityholder") agreed that such Certain Securityholder will
validly tender (or cause the record owner of such shares to validly tender)
and sell pursuant to and in accordance with the terms of the Offer not later
than the tenth business day after commencement of the Offer (or the earlier of
the expiration date of the offer and the tenth business day after such Shares
or Warrants, as the case may be, are acquired by such Certain Securityholder
if the Certain Securityholder acquires Securities after the date of the Tender
Agreement), or, if the Certain Securityholder has not received the Offer
Documents by such time, within two business days following receipt of such
documents, all of the then outstanding Securities beneficially owned by such
Certain Securityholder (including the Securities outstanding as of the date of
the Tender Agreement and set forth in the Tender Agreement opposite such
Certain Securityholder's name). Subject to the terms of the Tender Agreement,
upon the purchase by Purchaser of all of such then outstanding Securities
beneficially owned by such Certain Securityholder pursuant to the Offer in
accordance with this the Tender Agreement, the Tender Agreement will terminate
as it relates to such Certain Securityholder. Each Certain Securityholder
acknowledges that Purchaser's obligation to accept for payment and pay for the
Securities tendered in the Offer is subject to all the terms and conditions of
the Offer and the Merger Agreement.
The Tender Agreement will terminate as to any Certain Securityholder upon
the earlier of (a) the purchase of all the Securities beneficially owned by
such Certain Securityholder pursuant to the Offer in accordance with the
provisions in the Tender Agreement setting forth how to tender the Securities
and (b) the date the Merger Agreement is terminated in accordance with its
terms.
Confidentiality Agreement
The following is a summary of certain provisions of the Confidentiality
Agreement entered into on July 8, 1999 by Parent and the Company (the
"Confidentiality Agreement"). This summary is not a complete description of
the terms and conditions of the Confidentiality Agreement and is qualified in
its entirety by reference to the Confidentiality Agreement filed as an exhibit
to this Schedule 14D-9 and is incorporated herein by reference. Capitalized
terms not otherwise defined below have the meanings set forth in the
Confidentiality Agreement.
Pursuant to the terms of the Confidentiality Agreement that Parent and an
affiliate and the Company entered into on July 8, 1999, the Company and Parent
agreed to provide, among other things, for the confidential treatment of their
discussions regarding the Offer and the Merger and the exchange of certain
confidential information concerning the Company. In addition, Parent has
agreed in the Confidentiality Agreement to certain restrictions on its ability
to acquire, or offer to acquire, Shares or take certain other actions, subject
to certain exceptions with respect to third party offers to purchase Shares.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation. The Board of Directors of the Company (the "Board") has
unanimously approved the Merger Agreement and the Offer and has determined
that the terms of the Offer and the Merger are fair to and in the best
interests of the Company's stockholders and Warrant holders and unanimously
recommends that stockholders and Warrant holders accept the Offer and tender
their Securities to Purchaser pursuant to the Offer.
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A copy of a letter to the Company's stockholders communicating the Board's
recommendation is filed as an Exhibit hereto and is incorporated herein by
reference.
(b)(1) Background.
In May 1996, the Company issued a press release stating that it had received
and turned down a proposal regarding a business combination with another
company which proposal the Company did not believe maximized shareholder
value. The Company indicated that it was continuing to explore opportunities
to maximize shareholder value.
Since May 1996, the Company has from time to time received unsolicited
indications of interest in the acquisition of the Company or a business
combination with the Company. In each case, the potential purchaser was
unwilling to meet the Company's terms.
In June 1999, Michael Clarke, President and Chief Executive Officer of
Dyckerhoff, Inc., Parent's U.S. subsidiary, contacted William M. Troutman,
President and Chief Executive Officer of the Company, regarding a possible
acquisition of the Company by Parent. Mr. Troutman agreed to arrange a meeting
with representatives of Parent to discuss the specifics of a proposed
transaction.
On June 22, 1999, Mr. Troutman and David W. Wallace, Chairman of the
Company, met with Felix Pardo, Chairman of Dyckerhoff Inc. and Mr. Clarke. At
the meeting, the Company indicated its required terms for a proposed
transaction, including a $50.00 per Share price, and Mr. Pardo and Mr. Clarke
informed Messrs. Wallace and Troutman that they might be able to make such an
offer if warranted by Parent's due diligence.
In June 1999, the Company met with another potential acquiror, who was
advised that a transaction must be all cash at a price of at least $50 per
Share for all Shares. This company was not interested in pursuing a
transaction on those terms.
On July 8, 1999, Parent signed a confidentiality agreement with the Company
and during July 1999, Parent conducted business and legal due diligence with
respect to the Company. The Company furnished to Parent detailed information
concerning the Company's business and prospects.
On July 30, 1999, Mr. Wallace and Mr. Pardo met again. Mr. Wallace repeated
the $50.00 per Share minimum price, and Mr. Pardo indicated that Parent was
still interested in pursuing the transaction. However, Mr. Pardo indicated at
that time that Parent valued the Company at between $47.00 and $48.00 per
share.
In July 1999, the Company met with another potential acquiror, who was also
advised that a transaction must be all cash at a price of at least $50 per
Share for all Shares. This company was not interested in pursuing a
transaction on those terms.
On August 2, 3 and 4, 1999, representatives of Parent toured certain of the
Company's facilities. On August 10, 11 and 12, 1999, representatives of Parent
and Morgan Stanley met with senior management of the Company and
representatives of Merrill Lynch & Co. ("Merrill Lynch") to conduct due
diligence on the Company.
On August 6, 1999 the Company formally engaged Merrill Lynch to serve as its
financial advisor in connection with a potential acquisition of the Company by
a third party.
On August 13, 1999, Mr. Wallace advised Mr. Peter Steiner, Chief Financial
Officer of the Parent, that a transaction had to value the Company at a price
of at least $50.00 per Share, and requested Mr. Steiner to respond to the
Company before its regularly scheduled Board meeting on August 19, 1999, if
Purchaser remained interested in proceeding with the transaction at that
price. On August 14, 1999, the Purchaser's counsel furnished drafts of the
Merger Agreement and the Tender Agreement to the Company and its counsel. On
August 17, 1999, Mr. Steiner advised Mr. Wallace that subject to the
satisfactory conclusion of due diligence and the negotiation
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<PAGE>
of an acceptable Merger Agreement, including provision for a mutually
acceptable termination fee, Parent would proceed with the transaction at
$50.00 per Share.
On August 19, 1999, at its regularly scheduled meeting, the Board of
Directors of the Company was advised of, and discussed the terms of, the
proposed transaction and the status of the negotiations with Parent, and based
upon the price indication, the Board authorized management to proceed.
On August 24, 1999, Dr. Peter Rohde, Chairman of the Management Board of
Parent, along with Mr. Steiner, Mr. Pardo and Mr. Clarke, met with Messrs.
Wallace, Troutman, William E. Roberts, Vice President and Chief Financial
Officer of the Company, and James W. Langham, Vice President and General
Counsel of the Company. Dr. Rohde confirmed that Parent remained interested in
acquiring the Company for $50.00 per Share, subject to the satisfactory
completion of selected due diligence items and the negotiation of an
acceptable Merger Agreement including the amount of the termination fee.
Thereafter the parties negotiated the terms of the Merger Agreement and the
Tender Agreement, including during meetings in Greenwich, Connecticut on
August 24 and 25, 1999.
On August 27, 1999, revised drafts of the Merger Agreement and the Tender
Agreement were delivered to the Board of Directors of the Company.
On September 1, 1999, the Company's Board of Directors held a meeting in
Greenwich, Connecticut to consider the proposed transaction. Present were
representatives of Merrill Lynch and counsel for the Company. The terms and
conditions of the proposed Merger Agreement and Tender Agreements were
discussed in detail. The reasons for the Merger described below under "Reasons
for the Recommendation" were also discussed in detail. Merrill Lynch presented
its financial analysis of the Offer and the Merger and stated that it was
prepared to render its opinion that the proposed purchase price was fair from
a financial point of view to the holders of the Shares and the Warrant
holders.
On September 2, 1999, the Company's Board of Directors met again to consider
the proposed transaction. Merrill Lynch delivered its opinion to the effect
that the proposed purchase price of $50.00 per Share and $81.25 per Warrant in
cash in the Offer and the Merger are fair from a financial point of view to
the holders of the Shares and the Warrants. At the meeting, the Company's
Board of Directors unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger,
determined that the Offer and the Merger are fair to, and in the best
interests of, the Company's stockholders and Warrant holders and recommended
that stockholders and Warrant holders accept the Offer and tender their
Securities pursuant to the Offer.
On September 2, 1999, the Parent's Supervisory Board and Board of Managing
Directors each approved the Merger Agreement and the Company, Parent and
Purchaser executed the Merger Agreement, and Parent, the Company and certain
of the Company's stockholders executed the Tender Agreement.
On September 2, 1999, Parent and the Company also issued a joint press
release announcing the transactions contemplated by the Merger Agreement.
On September 3, 1999, Purchaser commenced the Offer.
(b)(2) Reasons for the recommendation.
In making its recommendations to the Company's stockholders and Warrant
holders with respect to the Offer and the Merger, the Board considered a
number of factors, the material ones being the following:
(i) The familiarity of the Board with the financial condition, results of
operations, competitive position, business and prospects of the Company (as
reflected in the Company's historical and projected financial information),
current economic and market conditions and the nature of the industry in
which the Company operates.
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(ii) The historical market prices of, and recent trading activity in, the
Securities, particularly the fact that the $50.00 per Share in cash and the
$81.25 price per Warrant in cash to be paid in the Offer represents a
premium of approximately 45% and 61% over the closing price of the Shares
and the Warrants, respectively, on September 1, 1999, the last trading day
prior to the public announcement on September 2, 1999 of the Merger
Agreement, and a premium of approximately 39% and 51%, respectively, over
the average closing prices for the 30 trading days ending on September 1,
1999.
(iii) The presentation of Merrill Lynch, the Company's financial adviser,
at the September 1, 1999 meeting of the Board of Directors and the written
opinion of Merrill Lynch, dated September 2, 1999 to the effect that, as of
such date and based upon and subject to certain matters in such opinion,
the purchase price of $50.00 per Share and $81.25 per Warrant in the Offer
and the Merger are fair from a financial point of view to the holders of
the Shares and the Warrants. The full text of the written opinion of
Merrill Lynch, dated September 2, 1999 which sets forth the assumptions
made, matters considered and limitations on the review undertaken in
connection with such opinion, is filed as Annex B and filed as an Exhibit
hereto. Stockholders and Warrant holders are urged to read such opinion
carefully in its entirety. The opinion of Merrill Lynch was presented for
the information of the Board in connection with its consideration of the
Merger Agreement and is directed only to the fairness of the consideration
to be received by the holders of the Shares and the Warrants in the Offer
and the Merger. The opinion does not constitute a recommendation to any
stockholder or Warrant holder as to whether to tender Shares or Warrants in
the Offer.
(iv) The fact that, unlike certain alternative transactions, the proposed
structure of the transactions involves an immediate cash tender offer for
all outstanding Securities to be followed by a merger for the same
consideration, thereby enabling stockholders and Warrant holders to obtain
cash for their Securities at the earliest possible time.
(v) The other terms and conditions of the Offer, the Merger and the
Merger Agreement, including the fact that the terms of the Merger Agreement
permit the Company to accept a superior offer if failure to do so would
result in a breach of the Board's fiduciary duties to stockholders under
applicable law, subject to paying a $42.25 million termination fee.
(vi) The strategic fit between the companies, and the expected favorable
impact on the Company's employees and other constituencies.
(vii) The likelihood that the Offer and the Merger will be consummated,
including a consideration of all the conditions to the Offer.
The foregoing discussion of factors considered by the Board is not meant to
be exhaustive but includes the material factors considered by the Board in
approving the Merger Agreement and the transactions contemplated thereby and
in recommending that stockholders and Warrant holders tender their Securities
pursuant to the Offer. The Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered. In addition, individual members of the Board may have given
different weights to different factors.
THE FULL TEXT OF THE MERRILL LYNCH OPINION IS ATTACHED AS ANNEX B HERETO.
STOCKHOLDERS AND WARRANT HOLDERS ARE URGED TO AND SHOULD READ SUCH OPINION IN
ITS ENTIRETY. SUCH OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF
THE BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT AND IS DIRECTED ONLY TO THE FAIRNESS OF
THE CONSIDERATION TO BE RECEIVED PURSUANT TO THE MERGER AGREEMENT BY
STOCKHOLDERS AND WARRANT HOLDERS IN THE OFFER AND THE MERGER. SUCH OPINION
DOES NOT CONSTITUTE A RECOMMENDATION AS TO WHETHER OR NOT ANY STOCKHOLDER OR
WARRANT HOLDER SHOULD TENDER HIS, HER OR ITS SECURITIES IN THE OFFER OR
WHETHER ANY STOCKHOLDER SHOULD SEEK APPRAISAL RIGHTS IN CONNECTION WITH THE
MERGER.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Merrill Lynch Engagement. The Company has retained Merrill Lynch to
render financial advisory services to the Company with respect to the Offer,
the Merger and matters arising in connection therewith. Pursuant to a letter
agreement dated August 6, 1999, the Company has agreed to pay Merrill Lynch a
fee of approximately $6.7 million, payable upon consummation of the Offer.
The Company has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including reasonable fees and expenses of counsel, and
to indemnify Merrill Lynch and certain related persons against certain
liabilities in connection with their engagement including liabilities under
the federal securities laws.
Except as described above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any other person to make
solicitations or recommendations to security holders on its behalf with
respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Other than as described in the next paragraph, there have been no
transactions in the Securities during the past 60 days by the Company or, to
the best knowledge of the Company, by any executive officer, director,
affiliate or subsidiary of the Company.
The Company, in accordance with its long-standing stock repurchase program,
purchased 128,600 Shares and 4,000 Warrants during July 1999 in the open
market at an average price of $38.07 per Share and $56.44 per Warrant. Such
purchases were halted on July 30, 1999 when, after their initial due
diligence, representatives of the Purchaser indicated their willingness to
meet the Company's $50 per Share price demand.
(b) Each of Roger J. Campbell, William J. Caso, Thomas S. Hoelle, James W.
Langham, Harry M. Philip and William E. Roberts, each of whom is an officer of
the Company, is a party to the Tender Agreement, pursuant to which each such
person has agreed to tender all of his Securities into the Offer upon the
terms and subject to the conditions set forth in the Tender Agreement. See
Item 3(b) of this Schedule 14D-9, which is incorporated by reference into this
Item 6(b).
To the best of the Company's knowledge, each of the Company's other
executive officers and directors intends to tender all Securities over which
he has sole dispositive power into the Offer except if such tender would
subject such person to liability under Section 16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiations in response to the Offer which relate to or would result
in (i) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described in Item 3(b) and Item 4 of this Schedule 14D-9,
which Items are hereby incorporated by reference into this Item 7(b), there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to or would result in one or
more of the matters referred to in paragraph (a) of this Item 7, except that
the Board of Directors of the Company has adopted resolutions (i) approving
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, determining that the Offer and the Merger are fair to,
and in the best interests of, the Company's stockholders and Warrant holders
and recommending that stockholders and Warrant holders accept the Offer and
tender their
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Securities pursuant to the Offer; and (ii) exempting Parent and Purchaser from
the operation of Section 203 of the DGCL as a result of their entering into
the Merger Agreement and the Tender Agreement.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Reference is made to the Information Statement Pursuant to Section 14(f) of
the Exchange Act and Rule l4f-1 thereunder, which is attached as Annex A and
filed as an Exhibit hereto and is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
Exhibit 1 Form of Offer to Purchase, dated September 3, 1999 (incorporated
by reference to Exhibit (a)(1) to the Schedule 14D-1).*
Exhibit 2 Form of Letter of Transmittal to Tender Shares of Common Stock
(incorporated by reference to Exhibit (a)(2) to the Schedule
14D-1).*
Exhibit 3 Form of Letter of Transmittal to Tender Warrants to purchase
Common Stock (incorporated by reference to Exhibit (a)(3) to the
Schedule 14D-1).*
Exhibit 4 Letter to Stockholders of the Company, dated September 3, 1999.*
Exhibit 5 Opinion of Merrill Lynch dated September 2, 1999. (Annex B to the
Schedule 14D-9).*
Exhibit 6 Agreement and Plan of Merger, dated as of September 2, 1999,
among Parent, Purchaser and the Company (incorporated by
reference to Exhibit (c)(1) of the Schedule 14D-1).
Exhibit 7 Tender Agreement, dated as of September 2, 1999, among Parent,
Purchaser and certain stockholders of the Company (incorporated
by reference to Exhibit (c)(3) of the Schedule 14D-1).
Exhibit 8 Confidentiality Agreement, dated July 8, 1999 between Parent,
Dyckerhoff, Inc. and the Company (incorporated by reference to
Exhibit (c)(2) to the Schedule 14D-1).
Exhibit 9 Joint Press Release, dated September 2, 1999 (incorporated by
reference to Exhibit (a)(8) to the Schedule 14D-1).
Exhibit 10 Information Statement Pursuant to Section 14(f) of the Exchange
Act and Rule l4f-1 thereunder (Annex A to the Schedule 14D-9).*
Exhibit 11 Second Amended and Restated Employment Agreement, dated as of May
1, 1998, between David W. Wallace and the Company (incorporated
by reference to Exhibit 10.5 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
Exhibit 12 Second Amended and Restated Employment Agreement, dated as of May
1, 1998, between William M. Troutman and the Company
(incorporated by reference to Exhibit 10.6 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
Exhibit 13 Form of "Change of Control" Agreement for certain executive
officers of the Company (incorporated by reference to Exhibit
10.10 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30 1998).
Exhibit 14 Form of Amendment to the Form of "Change of Control" Agreement
for certain executives officers of the Company.
Exhibit 15 Amendment to Second Amended and Restated Employment Agreement,
dated as of September 1, 1999, between William M. Troutman and
the Company.
</TABLE>
- --------
* Included with Schedule 14D-9 mailed to stockholders and Warrant holders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: September 3, 1999
LONE STAR INDUSTRIES, INC.
/s/ William M. Troutman
By: _________________________________
Name: William M. Troutman
Title: President and Chief
Executive Officer
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ANNEX A
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND RULE 14F-1 PROMULGATED THEREUNDER
----------------
GENERAL
This Information Statement is being mailed on or about September 3, 1999 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (as
amended from time to time, the "Schedule 14D-9") of Lone Star Industries, Inc.
(the "Company"). Capitalized terms used herein and not otherwise defined have
the respective meanings set forth in the Schedule 14D-9. You are receiving
this Information Statement in connection with the possible election of persons
designated by Purchaser (the "Purchaser Designees") to the Board. The Merger
Agreement requires the Company, upon the acceptance for payment of and payment
for any Securities by Purchaser pursuant to the Offer and upon request of
Purchaser, to take certain action to cause the Purchaser Designees to be
elected to the Board.
The Offer commenced on September 3, 1999 and is scheduled to expire at 12:00
midnight, New York City time, on October 1, 1999, unless extended upon the
terms set forth in the Offer to Purchase.
The information contained in this Information Statement concerning Parent
and Purchaser has been furnished to the Company by Parent. The Company assumes
no responsibility for the accuracy or completeness of such information.
THIS INFORMATION STATEMENT IS REQUIRED BY SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
INFORMATION REGARDING THE SHARES
The Shares constitute the only class of voting securities of the Company
outstanding. As of September 1, 1999, there were 19,297,418 Shares
outstanding. Each Share is entitled to one vote.
DESIGNATION OF DIRECTORS BY PURCHASER
The Merger Agreement provides that, immediately upon the acceptance for
payment of and payment for any Securities by Purchaser pursuant to the Offer,
Purchaser shall be entitled to designate such number of directors, rounded up
to the next whole number, on the Board equal to the product of (i) the total
number of directors on the Board (after giving effect to the increase in the
size of the Board pursuant to this paragraph) and (ii) the percentage that the
number of votes represented by Shares beneficially owned by Purchaser and its
affiliates (including Shares so accepted for payment and purchased and any
Warrants so accepted for payment and purchased and converted by Purchaser into
Shares) bears to the total number of votes represented by Shares then
outstanding. The Company has agreed, upon the request of Parent, to use its
best efforts promptly either to increase the size of the Board or to secure
the resignations of such number of its incumbent directors, or both, as is
necessary to enable persons designated by Parent to be elected or appointed to
the Board and shall take all actions available to the Company to cause such
designees to be so elected or appointed. The Company has also agreed, if
requested by Parent, to take all action necessary to cause persons designated
by Parent to constitute at least the same percentage (rounded up to the next
whole number) as is on the Board of (a) each committee (or similar body) of
the Board, (b) each board of directors (or similar body) of each subsidiary of
the Company and (c) each committee (or similar body) of each such board. From
and after the time that the Parent Designees
A-1
<PAGE>
constitute a majority of the Board, any amendment or termination of the Merger
Agreement by the Company, any extension of the time for the performance of any
of the obligations of Parent or Purchaser thereunder, any waiver of any
material condition to the Company's obligations thereunder or any of the
Company's rights thereunder or other material action by the Company
thereunder, may be effected only by the action of a majority of those
directors of the Company then in office who were directors on the date of the
Merger Agreement and who are not officers or affiliates of the Company, Parent
or any of their respective subsidiaries.
It is expected that the Purchaser Designees will assume office promptly
following the purchase by Purchaser of a majority of the outstanding Shares on
a fully diluted basis pursuant to the terms of the Offer, which purchase
cannot be earlier than October 1, 1999, and that, upon assuming office, the
Purchaser Designees together with the continuing directors of the Company will
thereafter constitute the entire Board.
As of the date of this Information Statement, Purchaser has not determined
who will be the Purchaser Designees. However, the Purchaser Designees will be
selected from among the persons listed in Schedule I attached hereto. Schedule
I also includes certain information with respect to each of the Purchaser
Designees.
CURRENT DIRECTORS OF THE COMPANY
The members of the Board are classified into three classes, one of which is
elected at each annual meeting of stockholders to hold office for a three-year
term and until successors of such class have been elected and qualified. The
names of the current directors of the Company, their ages, and certain other
information about them are set forth below.
Term to Expire 2000 (Class I)
Arthur B. Newman, 55, has been a director since 1994 and is a member of the
Audit Committee of the Board. Since May 1991, he has been a senior managing
director of The Blackstone Group L.L.C., a private investment banking firm.
Mr. Newman is a director of Toys "R" Us, Inc.
Allen E. Puckett, 80, has been a director since 1976 and is Chairman of the
Audit Committee of the Board. Since April 1987, he has been Chairman Emeritus
of Hughes Aircraft Company, a manufacturer of aerospace and missile systems,
data processing systems and industrial electronics equipment. From 1978 to
1987, he was Chairman of the Board and Chief Executive Officer of Hughes
Aircraft Company. Dr. Puckett is also a director of the University of Southern
California, the Museum of Flying and the Center for Russian and Eurasian
Studies.
David W. Wallace, 75, has been a director since 1970 and has served as
Chairman of the Board since January 1991. He is also Chairman of the Executive
Committee of the Board. Mr. Wallace is a director of The Northstar Mutual
Funds, a family of mutual funds, and The Emigrant Savings Bank.
Term to Expire 2001 (Class II)
James E. Bacon, 68, has been a director since 1992 and is a member of the
Executive, Audit and Compensation and Stock Option Committees of the Board. He
is a private investor and consultant. From 1986 to 1990, he was Executive Vice
President and a Director of United States Trust Company, a bank holding
company, and a Trustee of United States Trust Company of New York. Mr. Bacon
is a trustee of the funds advised by Nuveen Institutional Advisory Corp.
William M. Troutman, 59, has been a director since 1992 and is a member of
the Executive Committee of the Board. Since 1986, he has been President and,
since May 1997, Chief Executive Officer of the Company.
Term to Expire 2002 (Class III)
Theodore F. Brophy, 76, has been a director since 1992 and is a member of
the Executive and Audit Committees of the Board. He has been a consultant and
director of various companies. Until May 1988,
A-2
<PAGE>
Mr. Brophy was Chairman and Chief Executive Officer of GTE Corporation, a
telecommunications company. In 1988, he was Chairman, United States Delegation
to the World Administrative Conference on Space Communications.
Robert G. Schwartz, 71, has been a director since 1994 and is a member of
the Executive and Compensation and Stock Option Committees of the Board. Mr.
Schwartz retired as Chairman of the Board of Directors, President and Chief
Executive Officer of the Metropolitan Life Insurance Company in 1993, having
held these positions since 1989. He has continued as a director of the
Metropolitan Life Insurance Company, and is also a director of COMSAT
Corporation, Lowe's Companies, Inc., Mobil Corporation, Potlatch Corporation
and The Reader's Digest Association, Inc., and a member of the Board of
Trustees of the Consolidated Edison Company of New York. Mr. Schwartz is a
member of the Business Council, a Trustee of the Committee for Economic
Development and a director of the Horatio Alger Association of Distinguished
Americans, Inc.
Jack R. Wentworth, 71, has been a director since 1992 and is Chairman of the
Compensation and Stock Option Committee of the Board. From 1984 to 1993, he
was Dean of the Graduate School of Business, and is Arthur M. Weimer Professor
Emeritus of Business Administration at Indiana University. Professor Wentworth
is also a director of Kimball International, Inc. and Market Facts, Inc.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Office and Year in which Individual First Became an Executive Officer
---- --- ---------------------------------------------------------------------
<S> <C> <C>
David W. Wallace........ 75 Chairman of the Board (1991)
William M. Troutman..... 59 President and Chief Executive Officer (1983)
Roger J. Campbell....... 63 Vice President--Cement Operations (1986)
William J. Caso......... 55 Vice President--Taxes and Insurance (1994)
Thomas S. Hoelle........ 47 Vice President--General Manager, Slag Operations
(1994)
Gerald F. Hyde, Jr...... 56 Vice President--Personnel and Labor Relations
(1983)
James W. Langham........ 39 Vice President, General Counsel and Secretary
(1995)
Harry M. Philip......... 50 Vice President--Cement Manufacturing (1994)
Michael W. Puckett...... 54 Vice President--Cement Sales and Concrete
Operations (1985)
William E. Roberts...... 59 Vice President, Chief Financial Officer, Controller
and Treasurer (1988)
</TABLE>
All of the executive officers' terms of office continue until the next
annual meeting of the Company's stockholders and until their successors have
been elected and qualified. All of the executive officers have been employed
by the Company as an officer or in an executive capacity for more than five
years, except for Mr. Langham, who for more than five years prior to joining
the Company was an attorney in New York City.
MEETINGS OF THE BOARD OF DIRECTORS
Five meetings of the Board, two meetings of the Audit Committee and three
meetings of the Compensation and Stock Option Committee were held during the
fiscal year ended December 31, 1998. Each director attended at least 75% of
the aggregate number of meetings of the Board and committees on which he
served.
DIRECTORS' COMPENSATION AND CONSULTING ARRANGEMENTS
All directors, other than Messrs. Wallace and Troutman, are compensated for
their services pursuant to the Company's Voluntary Deferred Compensation Plan
for Non-Employee Directors (the "Plan"). Under the Plan,
A-3
<PAGE>
non-employee directors receive an annual retainer fee of 800 shares of common
stock, subject to adjustment in certain circumstances, and $10,000 in cash.
These retainer fees are paid quarterly in arrears. The Plan permits non-
employee directors to defer all or a part of the cash portion of their annual
retainer fee in an interest-bearing account (an "Interest Account"). Interest
is credited to the Interest Account at the prime rate, compounded monthly. The
Plan also permits participants to defer receipt of all or a part of the common
stock portion of their annual retainer fee in a stock equivalent account (the
"Phantom Share Account"). The Phantom Share Account contains phantom units,
each of which is equivalent in value to a share of common stock. Phantom units
are credited with dividends which are reinvested in additional phantom units.
In addition to these annual retainers, non-employee directors receive $1,000
for each board and board committee meeting attended and $2,500 annually for
any board committee they chair. Each of the Directors, except for Messrs.
Wallace and Troutman, is entitled to receive these benefits after his
resignation following consummation of the Offer.
Non-employee directors also are provided $100,000 of life insurance, and if
they leave service as a director after having served a minimum of five years,
are entitled to continued life insurance and they (or their estates) are
entitled to annual payments of $15,000 for 10 years after the date they leave
service (the "Director Deferred Compensation"). Having served as a director
for more than five years prior to becoming an employee of the Company, Mr.
Wallace is entitled to the Director Deferred Compensation and the continuation
of his life insurance. Each of the Directors, except for Mr. Troutman, is
entitled to receive these benefits after his resignation following
consummation of the Offer.
The Company's Directors Stock Option Plan provides for the grant to non-
employee directors of options to purchase up to 100,000 shares of common
stock, subject to adjustment under certain circumstances. Under this plan,
each non-employee director annually is granted a ten-year option to purchase
2,000 shares of common stock at an exercise price equal to the fair market
value of a share of common stock on the date of grant. All such options vest
six months from the date of grant. The plan is administered by the Board and
expires on March 10, 2004.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has standing Audit, Compensation and Stock Option and Executive
Committees.
The Audit Committee currently consists of Messrs. Bacon, Brophy, Newman and
Puckett. The Audit Committee recommends the principal auditors of the Company,
consults with the principal auditors with regard to the plan of audit, reviews
the report of audit and the accompanying management letter, consults with the
principal auditors with regard to the adequacy of internal controls, and
consults with the Company's internal auditor on these matters.
The Compensation and Stock Option Committee currently consists of Messrs.
Bacon, Schwartz and Wentworth. The Compensation and Stock Option Committee
approves compensation arrangements for senior management, approves and
recommends to the Board the adoption of any compensation plans in which
officers and directors are eligible to participate, and grants stock options
and other benefits under these plans.
The Executive Committee currently consists of Messrs. Bacon, Brophy,
Troutman, Schwartz and Wallace. The Executive Committee is empowered to
exercise all of the authority of the Board, except that it does not have the
power to rescind any action previously taken by the Board or to take certain
actions enumerated in the Company's by-laws (such as amending the Company's
certificate of incorporation, changing the Company's dividend policy or
adopting an agreement of merger or consolidation).
The Company has no Nominating Committee or other committee of the Board
performing a similar function.
A-4
<PAGE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
General Philosophy
The Company's general philosophy for the compensation of its executives is
based on the premise that levels and types of compensation should be
established to support the Company's business strategy and long-term
development and to enhance stockholder value. Such compensation must also be
competitive with that offered by comparable companies in order to attract,
retain and reward executives capable of achieving those objectives.
When the Compensation and Stock Option Committee considers executive
compensation it is guided by the experience of the executive involved, future
initiatives for and challenges to the Company, the executive's expected
contribution to the Company's performance and compensation arrangements in
businesses similar to that of the Company. The Committee believes that a
significant portion of a senior executive's compensation should be dependent
on value created for the stockholders. Performance bonuses as well as options
and other stock ownership programs are excellent vehicles to accomplish this
by tying an executive's interests directly to the stockholders' interests.
If appropriate in the judgment of the Committee, recommendations of a
compensation consulting firm are sought in connection with the determination
of executive compensation. The Committee considers annually the compensation
of the Company executives and held two meetings in 1998.
Base Salary
In 1998, the base salaries of the named executive officers were increased
four percent. In setting these salaries, the Committee remains cognizant of
the Company's continuing efforts to manage costs, the cyclical nature of the
Company's business and the need to recognize the contribution of these
individuals. The Company anticipates that it will continue to emphasize
incentive compensation rather than change salary structures significantly. In
setting salaries no particular formulas or measures were used.
Bonuses
The Company has an Executive Incentive Plan. This Plan provides for bonuses
to be paid in an amount equal to certain percentages of salary determined from
formulas tied to various earnings benchmarks. The maximum bonus under the plan
is 100% of base salary. All such benchmarks were exceeded in 1998, and each of
the Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") received the maximum
bonus.
Stock Options
The Company has two option plans, and under the first plan implemented in
1994, all 1,400,000 shares have been granted and as of August 31, 1999 all but
238,500 of the options have been exercised. The second option plan was
approved by the board of directors and stockholders in 1996 and covers options
to purchase, and/or stock appreciation rights that may be exercised with
respect to, 3,000,000 shares of common stock. No grants of options or SARs
have been or will be made, and the Committee has not made any determination of
which executives and managers will receive grants, or the amounts of the
grants.
General
The Committee believes that the Company has an appropriate and competitive
compensation program comprised of a sound base salary structure combined with
effective long- and short-term incentives.
No member of the Committee is a former or current executive officer or
employee of the Company or of any of its subsidiaries.
James E. Bacon
Robert G. Schwartz
Jack R. Wentworth, Chairman
A-5
<PAGE>
The following compensation information for the period ending December 31,
1998 has not been updated to reflect the effect of subsequent events,
including, but not limited to, the Merger Agreement.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Named Executive Officers for the most recent three fiscal years.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------------- --------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
--- --- --- --- --- --- --- --- ---
Securities
Other Annual Restricted Underlying All Other
Compensation Stock Options/ LTIP Compensation
Name and Principal Position Year Salary Bonus (1) (2) Award(s) SARs Payouts (3)
- --------------------------- ---- -------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Wallace........ 1998 $213,500 $210,000 $ 28,071
Chairman of the Board 1997 204,166 200,000 27,019
1996 170,833 75,000 465,489
William M. Troutman..... 1998 406,667 400,000 -- -- -- -- 19,630
President and Chief 1997 382,788 350,000 -- -- -- -- 88,134
Executive Officer 1996 306,250 137,500 -- -- -- -- 477,948
Roger J. Campbell....... 1998 193,167 190,000 -- -- -- -- 13,686
Vice President -- 1997 187,083 185,000 -- -- -- -- 13,660
Cement Operations 1996 176,250 85,000 -- -- -- -- 65,909
Michael W. Puckett...... 1998 183,000 180,000 -- -- -- -- 11,842
Vice President--Cement 1997 177,083 175,000 -- -- -- -- 12,231
Sales and Concrete
Operations 1996 166,250 80,000 -- -- -- -- 33,339
William E. Roberts...... 1998 188,083 185,000 -- -- -- -- 10,833
Vice President, Chief 1997 179,166 175,000 -- -- -- -- 10,319
Financial Officer,
Controller 1996 166,250 80,000 -- -- -- -- 384,282
and Treasurer
</TABLE>
- --------
(1) Bonuses under the Company's Executive Incentive Plan are paid during the
first quarter of the year following the year for which the bonuses are
earned.
(2) Perquisites and other personal benefits were less than either $50,000 or
10% of the total annual salary and bonus for 1996, 1997 and 1998 for each
of the named executive officers.
(3) Other compensation in 1996 consisted principally of (i) a one-time
nonrecurring payment by Rosebud Holdings, Inc., the Company's liquidating
subsidiary, under the Rosebud Incentive Plan, which was established with
the approval of the Company's creditors and the bankruptcy court in
connection with the Company's emergence from bankruptcy in 1994; (ii) one-
time premium payments to insurance companies for fully paid policies
covering litigation costs, if any, that may arise in connection with
enforcing change of control agreements previously entered into with
executives as described below; and (iii) in the case of Messrs. Wallace
and Troutman, one-time premium payments to insurance companies for fully
paid policies covering the costs of certain retiree medical and life
insurance benefits previously granted to the executives as described below
in the event that the Company fails to provide such benefits following a
change of control, together with payments to Messrs. Wallace and Troutman
for the taxes paid on the noncash compensation represented by these
premiums. Additional components of Other Compensation include (a) Company
contributions under the Savings Plan for Salaried Employees; (b) Company
contributions under the Employees Stock Purchase Plan; (c) group term life
insurance premiums; and (d) in 1997, relocation costs reimbursed to Mr.
Troutman.
OPTION GRANTS DURING LAST FISCAL YEAR
No stock options or stock appreciation rights were granted during the fiscal
year ended December 31, 1998.
A-6
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
exercised in the fiscal year ended December 31, 1998, including the "value
realized" upon exercise (the difference between the exercise price of the
shares acquired and the market value at the date of exercise), and the value
of the unexercised "in-the-money" options held at December 31, 1998 (the
difference between the exercise price of all such options held and the market
value of the shares covered by such options at December 31, 1998).
<TABLE>
<CAPTION>
Numbers of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options Held at Options Held at
Acquired December 31, 1998 December 31, 1998 ($) (1)
on Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Wallace........ -- -- -- -- -- --
William M. Troutman..... -- -- 100,000 -- 2,912,250 --
Roger J. Campbell....... -- -- -- -- -- --
Michael W. Puckett...... -- -- -- -- -- --
William E. Roberts...... 1,600 43,800 41,400 -- 1,205,670 --
</TABLE>
- --------
(1) The closing price of a share of common stock on the New York Stock
Exchange for the last trading day of 1998 was $36.81.
PENSION ARRANGEMENTS
The following table shows the estimated annual benefit payable upon
retirement to persons in specified compensation and years of credited service
classifications under the Company's Salaried Employees' Pension Plan and
Supplemental Executive Retirement Plan ("SERP"):
<TABLE>
<CAPTION>
Estimated Annual Pension Benefit Payable at Normal Retirement
Assuming the Following Years of Credited Service
Average Annual ---------------------------------------------------------------
Compensation 10 15 20 25 30 35
- -------------- ------------------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 17,700 $ 26,500 $ 35,300 $ 44,100 $ 53,000 $ 62,200
150,000 21,700 32,500 43,300 54,200 65,000 76,200
175,000 25,700 38,500 51,400 64,200 77,000 90,300
200,000 29,700 44,500 59,400 74,200 89,100 104,300
250,000 37,700 56,600 75,500 94,300 113,200 132,400
300,000 45,800 68,600 91,500 114,400 137,300 160,500
350,000 53,800 80,700 107,600 134,500 161,300 188,600
400,000 61,800 92,700 123,600 154,500 185,400 216,700
</TABLE>
The compensation covered by the qualified plan includes base pay, subject to
ERISA limitations of $228,860 for 1992, $235,840 for 1993, and $150,000 for
1994 through 1996 and $160,000 for 1997 and later years. The compensation
covered by the supplemental executive retirement plan includes base pay plus
bonuses with no limitation.
The years of credited service for David W. Wallace, William M. Troutman,
Roger J. Campbell, Michael W. Puckett and William E. Roberts are 8, 16, 13, 29
and 24, respectively. Mr. Troutman is not a participant in the supplemental
executive retirement plan.
The qualified plan benefits are payable for the lifetime of the individuals,
while the supplemental benefits are payable as a lump sum. The benefits shown
are payable without reduction at age 62 or later, and are not subject to any
deductions or offsets. However, ERISA currently limits benefits payable at age
65 to $118,800 for 1994, $120,000 for 1995 and 1996, $125,000 for 1997 and
$130,000 for 1998.
A-7
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of David W. Wallace and
William M. Troutman. Pursuant to their respective agreements, Mr. Wallace is
Chairman of the Company at an annual salary of approximately $227,000, and Mr.
Troutman is President and Chief Executive Officer of the Company at an annual
salary of approximately $433,000. The initial term of each of these employment
agreements runs through June 30, 2000 and, thereafter, renews for successive
two-year terms unless terminated at the end of the then current term by either
the Company or the executive on at least six months prior notice (in which
case, if terminated by the Company, the executive receives one year's salary
as severance pay and receives medical and certain other benefits during this
one-year period). Upon a "change in control", as defined in their agreements,
each of Messrs. Wallace and Troutman may terminate his employment and receive
severance pay equal to two and one-half years' salary and receive medical and
certain other benefits during this severance period. These termination
payments will be "grossed up" to reimburse the executive for any excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code"). The consummation of the Offer will constitute a "change in control"
under the employment agreements of Messrs. Wallace and Troutman and each of
Messrs. Wallace and Troutman has indicated his intention to terminate his
employment following consummation of the Offer. Upon consummation of the
Offer, the Company will be obligated to fund certain grantor trusts and will
purchase an annuity to fulfill its financial obligations under the agreements.
After the termination of his employment following consummation of the Offer,
Mr. Troutman will be entitled to receive annual retirement payments of
$430,903 commencing 30 months after such termination. These payments will be
reduced by the sum of the annual retirement benefits paid to him pursuant to
the Salaried Employees Pension Plan. These payments will be paid under an
annuity purchased by the Company in 1989 and another annuity which the Company
will be required to purchase shortly after the consummation of the Offer. Upon
his death, the retirement benefits will be paid to his spouse until her death.
Mr. Troutman's employment agreement was amended on September 1, 1999 to
provide clarification as to the calculation of his annual retirement payments.
The amendment is filed as an Exhibit to Schedule 14D-9.
Upon retirement, Messrs. Wallace and Troutman, and their respective spouses,
will be entitled to full payment for certain medical services and expenses
pursuant to agreements between each of them and the Company. These medical
benefit payments are to be reduced by an annual deductible per insured of
$1,000 prior to age 65 and $750 thereafter, with benefit payments coordinated
with medicare and with a lifetime benefit limit to each person of $1.0
million. Upon retirement, the Company also will provide Messrs. Wallace and
Troutman retiree life insurance on the same basis as that presently in effect
for the Company's salaried retirees.
The Company has entered into change of control agreements with each of its
executive officers other than Messrs. Wallace and Troutman (the "COC
Agreements"). The consummation of the Offer will constitute a "change of
control" under the COC Agreements. Pursuant to the COC Agreements, in the
event his employment is not continued on a substantially equivalent basis for
a year following a change of control, or if for any reason he or the Company
terminates his employment during a thirty-day period commencing on the first
anniversary of the change of control, the officer is entitled to severance pay
equal to two and one-half years' base salary and to medical and certain other
benefits for this two and one-half year period. From and after a change of
control, the Company is required to provide these executives (if they are
eligible after taking into consideration the two and one-half year termination
period) retiree life insurance and medical benefits at least as favorable as
under the Company's current executive retiree medical insurance and retiree
life insurance program.
Upon consummation of the Offer, the Named Executive Officers also are
entitled to a bonus equal to 100% of their then base salary under the
Company's Executive Incentive Plan and, except for Mr. Troutman, to certain
pension benefits under the SERP. The termination payments under the COC
Agreements will be "grossed up" to reimburse the executive for any excise tax
imposed by Section 4999 of the Code.
A-8
<PAGE>
The COC Agreements have been recently amended to provide clarification that:
(i) the termination date of the COC Agreements will not affect benefits or
other obligations on the part of the Company arising from a change in control
prior to such date and (ii) if the Company's pension plans are terminated or
canceled after September 1, 1999 certain obligations to make payments in
respect of the severance period under such plans will be calculated as if such
termination or cancelation did not occur. The amendment to the COC agreements
is filed as an Exhibit to Schedule 14D-9.
In connection with the Offer and the Merger, Mr. Troutman has agreed to
remain on the Board for one year beginning on the Effective Date of the
Merger. Mr. Troutman will be obligated to attend four meetings of the Board
and he will receive a payment of $2,000 per meeting as well as reimbursement
of his out-of-pocket expenses. The agreement also provides for indemnification
of Mr. Troutman as a director of the Company to the full extent permissible by
law.
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities file reports of
ownership and changes in ownership with the SEC. Officers, directors, and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based on a review of
the reports, during the fiscal year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its officers, directors, and greater than
10% beneficial owners were complied with.
A-9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of common stock at September 1, 1999 provided to the Company by (a)
each stockholder known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of common stock, (b) each director, (c)
each executive officer named in the Summary Compensation Table, and (d) all
directors and executive officers as a group. The addresses of Messrs. Bacon,
Brophy, Newman, A. Puckett, Schwartz, Troutman, Wallace, Wentworth, Campbell,
M. Puckett and Roberts are c/o Lone Star Industries, Inc., 300 First Stamford
Place, Stamford, CT 06912-0014.
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percentage of
Name and Address of Beneficial Owners Ownership Ownership(1)
- ------------------------------------- -------------------- -------------
<S> <C> <C>
FMR Corp. and Affiliates
82 Devonshire Street
Boston, Massachusetts 02109............... 2,868,400(2) 14.9%
James E. Bacon............................. 16,198(3) *
Theodore F. Brophy......................... 18,000(3) *
Arthur B. Newman........................... 22,000(3) *
Allen E. Puckett........................... 14,798(3) *
Robert G. Schwartz......................... 20,000(3) *
William M. Troutman........................ 112,362(4) *
David W. Wallace........................... 1,383,142(5) 7.2
Jack R. Wentworth.......................... 12,266(3) *
Roger J. Campbell.......................... 3,826 *
Michael W. Puckett......................... 5,362 *
William E. Roberts......................... 81,458(3) *
All directors and executive officers as a
group (16 persons)........................ 1,827,816(6) 9.5
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of common stock.
(1) Applicable percentage ownership is based on 19,297,418 shares of Common
Stock outstanding as of September 1, 1999. The percentage of outstanding
shares of common stock calculation assumes for each beneficial owner that
all of the options and warrants that are exercisable within 60 days of
September 1, 1999 beneficially owned by such person or entity are
exercised in full by such beneficial owner and that no other options or
warrants are exercised by any other stockholders. No numbers in this table
reflect purchases of Common Stock through the Company's Employee Stock
Purchase Plan during 1999.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. ("FMR"), as investment advisor to various
investment companies and as sub-advisor to a trust, beneficially owns an
aggregate of 1,583,400 of these shares. A bank subsidiary of FMR
beneficially owns 1,241,400 of these shares as a result of its serving as
investment manager for certain institutional accounts. Members of a
family, including Edward C. Johnson 3d, the Chairman of FMR, and Abigail
Johnson, a director of FMR, through their stockholdings and a voting
agreement, may be deemed a controlling group with respect to FMR. A former
subsidiary of FMR, Fidelity International Limited ("FIL"), of which Mr.
Johnson and members of his family are significant stockholders,
beneficially owns 131,800 shares, of which 88,200 are included in the
foregoing numbers as beneficially held by FMR. FMR and FIL are of the view
that they are not acting as a "group" for purposes of Section 13(d) under
the Securities Exchange Act of 1934. The information contained herein is
derived from a Schedule 13G dated February 1, 1999.
(3) Includes shares of common stock which the directors and executive officers
had the right to acquire through the exercise of warrants held by them as
follows: James E. Bacon--166 shares; Allen E. Puckett--826 shares; William
M. Troutman--1,076 shares; Jack R. Wentworth--66 shares; Also includes
shares of common stock underlying exercisable options, as follows: James
E. Bacon--12,000 shares; Theodore F. Brophy--12,000 shares; Arthur B.
Newman--12,000 shares; Allen E. Puckett--12,000 shares; Robert G.
Schwartz--12,000 shares; William M. Troutman--100,000 shares; Jack R.
Wentworth--12,000 shares; and William E. Roberts--38,500 shares.
A-10
<PAGE>
(4) Excludes 200 shares of common stock held by Mr. Troutman's son, as to
which shares he disclaims beneficial ownership.
(5) Excludes 197,196 shares of common stock held by Mr. Wallace's wife.
Includes 1,234,000 shares of common stock held by The Robert R. Young
Foundation, a charitable foundation (the "Foundation"). Mr. Wallace is an
officer and trustee of the Foundation, but has no pecuniary interest in,
and receives no compensation, expense reimbursement or other monies from,
the Foundation. He disclaims beneficial ownership of all shares held by
his wife and the Foundation.
(6) Includes or excludes, as the case may be, shares of common stock as
indicated in the preceding footnotes. With respect to the executive
officers not named above, (i) includes 26 shares of common stock issuable
upon exercise of warrants and 100,000 shares of common stock underlying
exercisable options and (ii) excludes an aggregate of 1,002 shares of
common stock, and warrants to purchase 10 shares, held by the wives of two
such officers, as to which shares beneficial ownership is disclaimed by
such officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Metropolitan Life Insurance Company and its affiliate,
Metropolitan Insurance and Annuity Company (together, "Met Life") are parties
to a registration rights agreement pursuant to which the Company has
registered Company securities held by Met Life. Pursuant to this agreement,
the Company is obligated to pay all expenses incident to the registration,
offering and sale of the securities offered to the public, other than
underwriting commissions, and to indemnify these parties against certain civil
liabilities, including liabilities under the Securities Act of 1933. In late
1998, Met Life sold in an underwritten public offering 4.6 million shares of
the Company's common stock, resulting in Met Life's no longer being a five
percent stockholder. Expenses from such offering paid by the Company
approximated $350,000. In connection with the offering, the Company purchased
from Met Life 135,000 warrants to purchase 270,000 shares of common stock at a
price per warrant of $46.97, which price was below the then trading price of
the warrants and was calculated so as to result in Met Life's receiving the
amount which it would have received, net of underwriting discounts, if it had
exercised the warrants and sold the stock in the offering.
On August 28, 1998, the Company purchased 800,000 shares of common stock
from J. Allan Mactier, a five percent stockholder, at a price of $32.875 per
share, a price which reflected the then trading price of the common stock.
Met Life provides various services in connection with the Company's
sponsorship and administration of its salaried and hourly employee 401(k)
savings plans and holds the $50 million principal amount of the Company's
7.31% Senior Notes due 2007.
A-11
<PAGE>
SCHEDULE I
As of the date of this Information Statement, the Purchaser has not
determined who will be the Purchaser Designees. However, such Purchaser
Designees will be selected from the following list of directors and executive
officers of Parent or its affiliates promptly upon the purchase by the
Purchaser of a majority of the outstanding Securities on a fully diluted basis
pursuant to the Offer. The information contained herein concerning Parent and
its directors and executive officers and those of its affiliates has been
furnished by Parent and the Purchaser. The Company assumes no responsibility
for the accuracy or completeness of such information.
The name, present principal occupation or employment and five-year
employment history of each of the persons is set forth below. Except as noted,
none of the persons listed below owns any Securities or has engaged in any
transactions with respect to Securities during the past 60 days. During the
last five years, none of the persons listed below has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) nor
was such person a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction, and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of,
or prohibiting activities subject to, federal or state securities laws or
finding any violation or such laws. None of the persons listed below (i) is
currently a director of, or holds any position with, the Company, (ii) has a
familial relationship with any of the directors or executive officers of the
Company or (iii) based on information provided to the Company by Parent, to
the best of Parent's knowledge, beneficially owns any securities (or rights to
acquire any securities) of the Company. The Company has been advised by Parent
that, to the best of Parent's knowledge, none of the persons listed below has
been involved in any transaction with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"Commission" or "SEC"), except as may be disclosed herein or in the Schedule
14D-9. All of the individuals listed below are citizens of Germany, except for
Mr. Pardo, who is a citizen of the United States, and Mr. Bravard, who is a
citizen of France. The business address of each such person is Dyckerhoff AG,
Biebricher, Sta(Beta)e 69, 65203 Wiesbaden, Germany, except for Mr. Pardo whose
business address is Dyckerhoff, Inc., Ten Post Office Square South, Boston,
Massachusetts 02109.
S-1
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Name Age and Five-Year Employment History
- ---- --- ------------------------------------------------
<S> <C> <C>
Alexander Rontgen.......... 41 Managing Director of Dyckerhoff Zement
International GmbH since 1999; Area Manager of
ABB AG from 1998 to 1999; Managing Director of
ABB PK Pvt. Ltd. from 1995 to 1998; Manager of
Business Development of ABB AG from 1993 to 1994
Philipp Magel.............. 62 Member of Board of Managing Directors of
Dyckerhoff AG since 1992; Director of
Dyckerhoff, Inc. since 1992.
Peter Steiner.............. 40 Member of Board of Managing Directors of
Dyckerhoff AG since 1998; former Member of the
Board of Managing Directors of SUBA Bau AG.
Felix Pardo................ 62 Director of Dyckerhoff, Inc. since 1997;
Chairman of Dyckerhoff, Inc. since 1998;
President and Chief Executive Officer of Phillip
Services Inc. in 1998; President and Chief
Executive Officer of Ruhr-American Coal Corp.
from 1992 to 1998; Director of Glens Falls
Cement Co., Inc. since 1996.
Joel Bravard............... 45 Director of Dyckerhoff, Inc. since 1997; Member
of the Board of Managing Directors of Dyckerhoff
Zement International GmbH since 1997; Director
of Ciments Francais from 1994 to 1997.
</TABLE>
Any other officer of Parent or Purchaser listed in Schedule I to the Offer
to Purchase dated September 3, 1999, filed as an exhibit to the Tender Offer
Statement on Schedule 14D-1 of Parent and Purchaser may also be designated by
Purchaser as a Purchaser Designee.
S-2
<PAGE>
ANNEX B
[LOGO OF MERRILL LYNCH LETTER HEAD APPEARS HERE]
September 2, 1999
Board of Directors
Lone Star Industries, Inc.
300 First Stamford Place
Stamford, CT 06912
Members of the Board of Directors:
Lone Star Industries, Inc. (the "Company"), Dyckerhoff AG (the "Acquiror")
and Level Acquisition Corp., a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and Plan
of Merger (the "Agreement") pursuant to which (i) the Acquiror and the
Acquisition Sub would commence a tender offer (the "Tender Offer") for all
outstanding shares of the Company's common stock, par value $1.00 per share
(the "Company Shares") for $50.00 per share, net to the seller in cash, and all
outstanding warrants (the "Warrants", each such Warrant representing the right
to purchase two Company Shares and, together with the Company Shares, the
"Company Securities") issued pursuant to the warrant agreement, dated as of
April 13, 1994, between the Company and Chemical Bank, as Warrant Agent (the
"Warrant Agreement"), at $81.25 per Warrant, net to the seller in cash and (ii)
Acquisition Sub would be merged with the Company in a merger (the "Merger"), in
which each Company Share not acquired in the Tender Offer, other than Company
Shares held in treasury or held by the Acquiror or any affiliate of the
Acquiror or as to which dissenter's rights have been perfected, would be
converted into the right to receive $50.00 per Company Share in cash. The
Tender Offer and the Merger, taken together, are referred to as the
"Transaction." Warrants not tendered pursuant to the Tender Offer will be
unaffected by the Merger and, upon their subsequent exercise, the holders
thereof will receive two shares of common stock in the surviving corporation,
except that if Acquisition Sub is the surviving corporation in the Merger,
then, upon subsequent exercise of the Warrants, the holders thereof will
receive $100.00 per Warrant in cash.
You have asked us whether, in our opinion, the proposed cash consideration to
be received by the holders of the Company Securities pursuant to the
Transaction is fair from a financial point of view to such holders, other than
the Acquiror and its affiliates.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company furnished to us by the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in
clauses 1 and 2 above;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
B-1
<PAGE>
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the financial terms of the Warrant Agreement;
(9) Reviewed a draft dated August 30, 1999 of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With
respect to the financial forecast information furnished to or discussed with
us by the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company. We
have also assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services which is
contingent upon the consummation of the Transaction. In addition, the Company
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have in the past, provided financial advisory and financing
services to the Company and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares and other
securities of the Company, as well as securities of the Acquiror for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder or warrantholder as to whether such
shareholder or warrantholder should tender any Company Shares or Warrants
pursuant to the Tender Offer.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the cash consideration to be received by the holders of
the Company Securities pursuant to the Transaction is fair from a financial
point of view to the holders of such Securities, other than the Acquiror and
its affiliates.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated
B-2
<PAGE>
[LOGO OF LONE STAR INDUSTRIES, INC.
APPEARS HERE]
September 3, 1999
Dear Stockholder:
We are pleased to inform you that on September 2, 1999, the Company entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Dyckerhoff
Aktiengesellschaft (the "Parent") and Level Acquisition Corp. (the
"Purchaser"), an indirect wholly owned subsidiary of Parent. Pursuant to the
Merger Agreement, Purchaser has commenced a cash tender offer (the "Offer")
for all of the outstanding shares of the Company's Common Stock (together with
the associated Rights) (the "Shares") for $50.00 per Share and for all of the
outstanding Common Stock Purchase Warrants (the "Warrants") for $81.25 per
Warrant. The Merger Agreement provides that, subject to satisfaction of
certain conditions, the Offer is to be followed by a merger (the "Merger") in
which any remaining Shares will be converted into the right to receive $50.00
per Share in cash (the "Merger Consideration") and any remaining Warrants will
be unaffected by the Merger, except that, the Company is not the surviving
corporation, then each Warrant holder will have the right to obtain the Merger
Consideration upon exercise of each Warrant.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE OFFER AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND WARRANT HOLDERS AND
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS AND WARRANT HOLDERS ACCEPT THE
OFFER AND TENDER THEIR SECURITIES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that has been filed with the Securities and Exchange Commission. Among other
things, the Board of Directors considered the opinion of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, dated September 2, 1999 (a copy of which
is included with the Schedule 14D-9), to the effect that, as of such date, and
based upon and subject to the various considerations set forth in such
opinion, the consideration to be received by holders of Shares and Warrants in
the Offer and the Merger is fair from a financial point of view to such
holders.
Accompanying this letter and the Schedule 14D-9 is the Offer to Purchase and
related materials, including Letters of Transmittal to be used for tendering
your securities. These documents describe the terms and conditions of the
Offer and provide instructions regarding how to tender your securities. We
urge you to read the enclosed material carefully.
Sincerely,
David W. Wallace
/s/ David W. Wallace
Chairman of the Board
/s/ William M. Troutman
William M. Troutman
President and Chief Executive
Officer
<PAGE>
ANNEX B
[LOGO OF MERRILL LYNCH LETTER HEAD APPEARS HERE]
September 2, 1999
Board of Directors
Lone Star Industries, Inc.
300 First Stamford Place
Stamford, CT 06912
Members of the Board of Directors:
Lone Star Industries, Inc. (the "Company"), Dyckerhoff AG (the "Acquiror")
and Level Acquisition Corp., a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and Plan
of Merger (the "Agreement") pursuant to which (i) the Acquiror and the
Acquisition Sub would commence a tender offer (the "Tender Offer") for all
outstanding shares of the Company's common stock, par value $1.00 per share
(the "Company Shares") for $50.00 per share, net to the seller in cash, and all
outstanding warrants (the "Warrants", each such Warrant representing the right
to purchase two Company Shares and, together with the Company Shares, the
"Company Securities") issued pursuant to the warrant agreement, dated as of
April 13, 1994, between the Company and Chemical Bank, as Warrant Agent (the
"Warrant Agreement"), at $81.25 per Warrant, net to the seller in cash and (ii)
Acquisition Sub would be merged with the Company in a merger (the "Merger"), in
which each Company Share not acquired in the Tender Offer, other than Company
Shares held in treasury or held by the Acquiror or any affiliate of the
Acquiror or as to which dissenter's rights have been perfected, would be
converted into the right to receive $50.00 per Company Share in cash. The
Tender Offer and the Merger, taken together, are referred to as the
"Transaction." Warrants not tendered pursuant to the Tender Offer will be
unaffected by the Merger and, upon their subsequent exercise, the holders
thereof will receive two shares of common stock in the surviving corporation,
except that if Acquisition Sub is the surviving corporation in the Merger,
then, upon subsequent exercise of the Warrants, the holders thereof will
receive $100.00 per Warrant in cash.
You have asked us whether, in our opinion, the proposed cash consideration to
be received by the holders of the Company Securities pursuant to the
Transaction is fair from a financial point of view to such holders, other than
the Acquiror and its affiliates.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company furnished to us by the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in
clauses 1 and 2 above;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
B-1
<PAGE>
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the financial terms of the Warrant Agreement;
(9) Reviewed a draft dated August 30, 1999 of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With
respect to the financial forecast information furnished to or discussed with
us by the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company. We
have also assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services which is
contingent upon the consummation of the Transaction. In addition, the Company
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have in the past, provided financial advisory and financing
services to the Company and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares and other
securities of the Company, as well as securities of the Acquiror for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder or warrantholder as to whether such
shareholder or warrantholder should tender any Company Shares or Warrants
pursuant to the Tender Offer.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the cash consideration to be received by the holders of
the Company Securities pursuant to the Transaction is fair from a financial
point of view to the holders of such Securities, other than the Acquiror and
its affiliates.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated
B-2
<PAGE>
ANNEX A
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND RULE 14F-1 PROMULGATED THEREUNDER
----------------
GENERAL
This Information Statement is being mailed on or about September 3, 1999 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (as
amended from time to time, the "Schedule 14D-9") of Lone Star Industries, Inc.
(the "Company"). Capitalized terms used herein and not otherwise defined have
the respective meanings set forth in the Schedule 14D-9. You are receiving
this Information Statement in connection with the possible election of persons
designated by Purchaser (the "Purchaser Designees") to the Board. The Merger
Agreement requires the Company, upon the acceptance for payment of and payment
for any Securities by Purchaser pursuant to the Offer and upon request of
Purchaser, to take certain action to cause the Purchaser Designees to be
elected to the Board.
The Offer commenced on September 3, 1999 and is scheduled to expire at 12:00
midnight, New York City time, on October 1, 1999, unless extended upon the
terms set forth in the Offer to Purchase.
The information contained in this Information Statement concerning Parent
and Purchaser has been furnished to the Company by Parent. The Company assumes
no responsibility for the accuracy or completeness of such information.
THIS INFORMATION STATEMENT IS REQUIRED BY SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
INFORMATION REGARDING THE SHARES
The Shares constitute the only class of voting securities of the Company
outstanding. As of September 1, 1999, there were 19,297,418 Shares
outstanding. Each Share is entitled to one vote.
DESIGNATION OF DIRECTORS BY PURCHASER
The Merger Agreement provides that, immediately upon the acceptance for
payment of and payment for any Securities by Purchaser pursuant to the Offer,
Purchaser shall be entitled to designate such number of directors, rounded up
to the next whole number, on the Board equal to the product of (i) the total
number of directors on the Board (after giving effect to the increase in the
size of the Board pursuant to this paragraph) and (ii) the percentage that the
number of votes represented by Shares beneficially owned by Purchaser and its
affiliates (including Shares so accepted for payment and purchased and any
Warrants so accepted for payment and purchased and converted by Purchaser into
Shares) bears to the total number of votes represented by Shares then
outstanding. The Company has agreed, upon the request of Parent, to use its
best efforts promptly either to increase the size of the Board or to secure
the resignations of such number of its incumbent directors, or both, as is
necessary to enable persons designated by Parent to be elected or appointed to
the Board and shall take all actions available to the Company to cause such
designees to be so elected or appointed. The Company has also agreed, if
requested by Parent, to take all action necessary to cause persons designated
by Parent to constitute at least the same percentage (rounded up to the next
whole number) as is on the Board of (a) each committee (or similar body) of
the Board, (b) each board of directors (or similar body) of each subsidiary of
the Company and (c) each committee (or similar body) of each such board. From
and after the time that the Parent Designees
A-1
<PAGE>
constitute a majority of the Board, any amendment or termination of the Merger
Agreement by the Company, any extension of the time for the performance of any
of the obligations of Parent or Purchaser thereunder, any waiver of any
material condition to the Company's obligations thereunder or any of the
Company's rights thereunder or other material action by the Company
thereunder, may be effected only by the action of a majority of those
directors of the Company then in office who were directors on the date of the
Merger Agreement and who are not officers or affiliates of the Company, Parent
or any of their respective subsidiaries.
It is expected that the Purchaser Designees will assume office promptly
following the purchase by Purchaser of a majority of the outstanding Shares on
a fully diluted basis pursuant to the terms of the Offer, which purchase
cannot be earlier than October 1, 1999, and that, upon assuming office, the
Purchaser Designees together with the continuing directors of the Company will
thereafter constitute the entire Board.
As of the date of this Information Statement, Purchaser has not determined
who will be the Purchaser Designees. However, the Purchaser Designees will be
selected from among the persons listed in Schedule I attached hereto. Schedule
I also includes certain information with respect to each of the Purchaser
Designees.
CURRENT DIRECTORS OF THE COMPANY
The members of the Board are classified into three classes, one of which is
elected at each annual meeting of stockholders to hold office for a three-year
term and until successors of such class have been elected and qualified. The
names of the current directors of the Company, their ages, and certain other
information about them are set forth below.
Term to Expire 2000 (Class I)
Arthur B. Newman, 55, has been a director since 1994 and is a member of the
Audit Committee of the Board. Since May 1991, he has been a senior managing
director of The Blackstone Group L.L.C., a private investment banking firm.
Mr. Newman is a director of Toys "R" Us, Inc.
Allen E. Puckett, 80, has been a director since 1976 and is Chairman of the
Audit Committee of the Board. Since April 1987, he has been Chairman Emeritus
of Hughes Aircraft Company, a manufacturer of aerospace and missile systems,
data processing systems and industrial electronics equipment. From 1978 to
1987, he was Chairman of the Board and Chief Executive Officer of Hughes
Aircraft Company. Dr. Puckett is also a director of the University of Southern
California, the Museum of Flying and the Center for Russian and Eurasian
Studies.
David W. Wallace, 75, has been a director since 1970 and has served as
Chairman of the Board since January 1991. He is also Chairman of the Executive
Committee of the Board. Mr. Wallace is a director of The Northstar Mutual
Funds, a family of mutual funds, and The Emigrant Savings Bank.
Term to Expire 2001 (Class II)
James E. Bacon, 68, has been a director since 1992 and is a member of the
Executive, Audit and Compensation and Stock Option Committees of the Board. He
is a private investor and consultant. From 1986 to 1990, he was Executive Vice
President and a Director of United States Trust Company, a bank holding
company, and a Trustee of United States Trust Company of New York. Mr. Bacon
is a trustee of the funds advised by Nuveen Institutional Advisory Corp.
William M. Troutman, 59, has been a director since 1992 and is a member of
the Executive Committee of the Board. Since 1986, he has been President and,
since May 1997, Chief Executive Officer of the Company.
Term to Expire 2002 (Class III)
Theodore F. Brophy, 76, has been a director since 1992 and is a member of
the Executive and Audit Committees of the Board. He has been a consultant and
director of various companies. Until May 1988,
A-2
<PAGE>
Mr. Brophy was Chairman and Chief Executive Officer of GTE Corporation, a
telecommunications company. In 1988, he was Chairman, United States Delegation
to the World Administrative Conference on Space Communications.
Robert G. Schwartz, 71, has been a director since 1994 and is a member of
the Executive and Compensation and Stock Option Committees of the Board. Mr.
Schwartz retired as Chairman of the Board of Directors, President and Chief
Executive Officer of the Metropolitan Life Insurance Company in 1993, having
held these positions since 1989. He has continued as a director of the
Metropolitan Life Insurance Company, and is also a director of COMSAT
Corporation, Lowe's Companies, Inc., Mobil Corporation, Potlatch Corporation
and The Reader's Digest Association, Inc., and a member of the Board of
Trustees of the Consolidated Edison Company of New York. Mr. Schwartz is a
member of the Business Council, a Trustee of the Committee for Economic
Development and a director of the Horatio Alger Association of Distinguished
Americans, Inc.
Jack R. Wentworth, 71, has been a director since 1992 and is Chairman of the
Compensation and Stock Option Committee of the Board. From 1984 to 1993, he
was Dean of the Graduate School of Business, and is Arthur M. Weimer Professor
Emeritus of Business Administration at Indiana University. Professor Wentworth
is also a director of Kimball International, Inc. and Market Facts, Inc.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Office and Year in which Individual First Became an Executive Officer
---- --- ---------------------------------------------------------------------
<S> <C> <C>
David W. Wallace........ 75 Chairman of the Board (1991)
William M. Troutman..... 59 President and Chief Executive Officer (1983)
Roger J. Campbell....... 63 Vice President--Cement Operations (1986)
William J. Caso......... 55 Vice President--Taxes and Insurance (1994)
Thomas S. Hoelle........ 47 Vice President--General Manager, Slag Operations
(1994)
Gerald F. Hyde, Jr...... 56 Vice President--Personnel and Labor Relations
(1983)
James W. Langham........ 39 Vice President, General Counsel and Secretary
(1995)
Harry M. Philip......... 50 Vice President--Cement Manufacturing (1994)
Michael W. Puckett...... 54 Vice President--Cement Sales and Concrete
Operations (1985)
William E. Roberts...... 59 Vice President, Chief Financial Officer, Controller
and Treasurer (1988)
</TABLE>
All of the executive officers' terms of office continue until the next
annual meeting of the Company's stockholders and until their successors have
been elected and qualified. All of the executive officers have been employed
by the Company as an officer or in an executive capacity for more than five
years, except for Mr. Langham, who for more than five years prior to joining
the Company was an attorney in New York City.
MEETINGS OF THE BOARD OF DIRECTORS
Five meetings of the Board, two meetings of the Audit Committee and three
meetings of the Compensation and Stock Option Committee were held during the
fiscal year ended December 31, 1998. Each director attended at least 75% of
the aggregate number of meetings of the Board and committees on which he
served.
DIRECTORS' COMPENSATION AND CONSULTING ARRANGEMENTS
All directors, other than Messrs. Wallace and Troutman, are compensated for
their services pursuant to the Company's Voluntary Deferred Compensation Plan
for Non-Employee Directors (the "Plan"). Under the Plan,
A-3
<PAGE>
non-employee directors receive an annual retainer fee of 800 shares of common
stock, subject to adjustment in certain circumstances, and $10,000 in cash.
These retainer fees are paid quarterly in arrears. The Plan permits non-
employee directors to defer all or a part of the cash portion of their annual
retainer fee in an interest-bearing account (an "Interest Account"). Interest
is credited to the Interest Account at the prime rate, compounded monthly. The
Plan also permits participants to defer receipt of all or a part of the common
stock portion of their annual retainer fee in a stock equivalent account (the
"Phantom Share Account"). The Phantom Share Account contains phantom units,
each of which is equivalent in value to a share of common stock. Phantom units
are credited with dividends which are reinvested in additional phantom units.
In addition to these annual retainers, non-employee directors receive $1,000
for each board and board committee meeting attended and $2,500 annually for
any board committee they chair. Each of the Directors, except for Messrs.
Wallace and Troutman, is entitled to receive these benefits after his
resignation following consummation of the Offer.
Non-employee directors also are provided $100,000 of life insurance, and if
they leave service as a director after having served a minimum of five years,
are entitled to continued life insurance and they (or their estates) are
entitled to annual payments of $15,000 for 10 years after the date they leave
service (the "Director Deferred Compensation"). Having served as a director
for more than five years prior to becoming an employee of the Company, Mr.
Wallace is entitled to the Director Deferred Compensation and the continuation
of his life insurance. Each of the Directors, except for Mr. Troutman, is
entitled to receive these benefits after his resignation following
consummation of the Offer.
The Company's Directors Stock Option Plan provides for the grant to non-
employee directors of options to purchase up to 100,000 shares of common
stock, subject to adjustment under certain circumstances. Under this plan,
each non-employee director annually is granted a ten-year option to purchase
2,000 shares of common stock at an exercise price equal to the fair market
value of a share of common stock on the date of grant. All such options vest
six months from the date of grant. The plan is administered by the Board and
expires on March 10, 2004.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has standing Audit, Compensation and Stock Option and Executive
Committees.
The Audit Committee currently consists of Messrs. Bacon, Brophy, Newman and
Puckett. The Audit Committee recommends the principal auditors of the Company,
consults with the principal auditors with regard to the plan of audit, reviews
the report of audit and the accompanying management letter, consults with the
principal auditors with regard to the adequacy of internal controls, and
consults with the Company's internal auditor on these matters.
The Compensation and Stock Option Committee currently consists of Messrs.
Bacon, Schwartz and Wentworth. The Compensation and Stock Option Committee
approves compensation arrangements for senior management, approves and
recommends to the Board the adoption of any compensation plans in which
officers and directors are eligible to participate, and grants stock options
and other benefits under these plans.
The Executive Committee currently consists of Messrs. Bacon, Brophy,
Troutman, Schwartz and Wallace. The Executive Committee is empowered to
exercise all of the authority of the Board, except that it does not have the
power to rescind any action previously taken by the Board or to take certain
actions enumerated in the Company's by-laws (such as amending the Company's
certificate of incorporation, changing the Company's dividend policy or
adopting an agreement of merger or consolidation).
The Company has no Nominating Committee or other committee of the Board
performing a similar function.
A-4
<PAGE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
General Philosophy
The Company's general philosophy for the compensation of its executives is
based on the premise that levels and types of compensation should be
established to support the Company's business strategy and long-term
development and to enhance stockholder value. Such compensation must also be
competitive with that offered by comparable companies in order to attract,
retain and reward executives capable of achieving those objectives.
When the Compensation and Stock Option Committee considers executive
compensation it is guided by the experience of the executive involved, future
initiatives for and challenges to the Company, the executive's expected
contribution to the Company's performance and compensation arrangements in
businesses similar to that of the Company. The Committee believes that a
significant portion of a senior executive's compensation should be dependent
on value created for the stockholders. Performance bonuses as well as options
and other stock ownership programs are excellent vehicles to accomplish this
by tying an executive's interests directly to the stockholders' interests.
If appropriate in the judgment of the Committee, recommendations of a
compensation consulting firm are sought in connection with the determination
of executive compensation. The Committee considers annually the compensation
of the Company executives and held two meetings in 1998.
Base Salary
In 1998, the base salaries of the named executive officers were increased
four percent. In setting these salaries, the Committee remains cognizant of
the Company's continuing efforts to manage costs, the cyclical nature of the
Company's business and the need to recognize the contribution of these
individuals. The Company anticipates that it will continue to emphasize
incentive compensation rather than change salary structures significantly. In
setting salaries no particular formulas or measures were used.
Bonuses
The Company has an Executive Incentive Plan. This Plan provides for bonuses
to be paid in an amount equal to certain percentages of salary determined from
formulas tied to various earnings benchmarks. The maximum bonus under the plan
is 100% of base salary. All such benchmarks were exceeded in 1998, and each of
the Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") received the maximum
bonus.
Stock Options
The Company has two option plans, and under the first plan implemented in
1994, all 1,400,000 shares have been granted and as of August 31, 1999 all but
238,500 of the options have been exercised. The second option plan was
approved by the board of directors and stockholders in 1996 and covers options
to purchase, and/or stock appreciation rights that may be exercised with
respect to, 3,000,000 shares of common stock. No grants of options or SARs
have been or will be made, and the Committee has not made any determination of
which executives and managers will receive grants, or the amounts of the
grants.
General
The Committee believes that the Company has an appropriate and competitive
compensation program comprised of a sound base salary structure combined with
effective long- and short-term incentives.
No member of the Committee is a former or current executive officer or
employee of the Company or of any of its subsidiaries.
James E. Bacon
Robert G. Schwartz
Jack R. Wentworth, Chairman
A-5
<PAGE>
The following compensation information for the period ending December 31,
1998 has not been updated to reflect the effect of subsequent events,
including, but not limited to, the Merger Agreement.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Named Executive Officers for the most recent three fiscal years.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------------- --------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
--- --- --- --- --- --- --- --- ---
Securities
Other Annual Restricted Underlying All Other
Compensation Stock Options/ LTIP Compensation
Name and Principal Position Year Salary Bonus (1) (2) Award(s) SARs Payouts (3)
- --------------------------- ---- -------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Wallace........ 1998 $213,500 $210,000 $ 28,071
Chairman of the Board 1997 204,166 200,000 27,019
1996 170,833 75,000 465,489
William M. Troutman..... 1998 406,667 400,000 -- -- -- -- 19,630
President and Chief 1997 382,788 350,000 -- -- -- -- 88,134
Executive Officer 1996 306,250 137,500 -- -- -- -- 477,948
Roger J. Campbell....... 1998 193,167 190,000 -- -- -- -- 13,686
Vice President -- 1997 187,083 185,000 -- -- -- -- 13,660
Cement Operations 1996 176,250 85,000 -- -- -- -- 65,909
Michael W. Puckett...... 1998 183,000 180,000 -- -- -- -- 11,842
Vice President--Cement 1997 177,083 175,000 -- -- -- -- 12,231
Sales and Concrete
Operations 1996 166,250 80,000 -- -- -- -- 33,339
William E. Roberts...... 1998 188,083 185,000 -- -- -- -- 10,833
Vice President, Chief 1997 179,166 175,000 -- -- -- -- 10,319
Financial Officer,
Controller 1996 166,250 80,000 -- -- -- -- 384,282
and Treasurer
</TABLE>
- --------
(1) Bonuses under the Company's Executive Incentive Plan are paid during the
first quarter of the year following the year for which the bonuses are
earned.
(2) Perquisites and other personal benefits were less than either $50,000 or
10% of the total annual salary and bonus for 1996, 1997 and 1998 for each
of the named executive officers.
(3) Other compensation in 1996 consisted principally of (i) a one-time
nonrecurring payment by Rosebud Holdings, Inc., the Company's liquidating
subsidiary, under the Rosebud Incentive Plan, which was established with
the approval of the Company's creditors and the bankruptcy court in
connection with the Company's emergence from bankruptcy in 1994; (ii) one-
time premium payments to insurance companies for fully paid policies
covering litigation costs, if any, that may arise in connection with
enforcing change of control agreements previously entered into with
executives as described below; and (iii) in the case of Messrs. Wallace
and Troutman, one-time premium payments to insurance companies for fully
paid policies covering the costs of certain retiree medical and life
insurance benefits previously granted to the executives as described below
in the event that the Company fails to provide such benefits following a
change of control, together with payments to Messrs. Wallace and Troutman
for the taxes paid on the noncash compensation represented by these
premiums. Additional components of Other Compensation include (a) Company
contributions under the Savings Plan for Salaried Employees; (b) Company
contributions under the Employees Stock Purchase Plan; (c) group term life
insurance premiums; and (d) in 1997, relocation costs reimbursed to Mr.
Troutman.
OPTION GRANTS DURING LAST FISCAL YEAR
No stock options or stock appreciation rights were granted during the fiscal
year ended December 31, 1998.
A-6
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
exercised in the fiscal year ended December 31, 1998, including the "value
realized" upon exercise (the difference between the exercise price of the
shares acquired and the market value at the date of exercise), and the value
of the unexercised "in-the-money" options held at December 31, 1998 (the
difference between the exercise price of all such options held and the market
value of the shares covered by such options at December 31, 1998).
<TABLE>
<CAPTION>
Numbers of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options Held at Options Held at
Acquired December 31, 1998 December 31, 1998 ($) (1)
on Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Wallace........ -- -- -- -- -- --
William M. Troutman..... -- -- 100,000 -- 2,912,250 --
Roger J. Campbell....... -- -- -- -- -- --
Michael W. Puckett...... -- -- -- -- -- --
William E. Roberts...... 1,600 43,800 41,400 -- 1,205,670 --
</TABLE>
- --------
(1) The closing price of a share of common stock on the New York Stock
Exchange for the last trading day of 1998 was $36.81.
PENSION ARRANGEMENTS
The following table shows the estimated annual benefit payable upon
retirement to persons in specified compensation and years of credited service
classifications under the Company's Salaried Employees' Pension Plan and
Supplemental Executive Retirement Plan ("SERP"):
<TABLE>
<CAPTION>
Estimated Annual Pension Benefit Payable at Normal Retirement
Assuming the Following Years of Credited Service
Average Annual ---------------------------------------------------------------
Compensation 10 15 20 25 30 35
- -------------- ------------------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 17,700 $ 26,500 $ 35,300 $ 44,100 $ 53,000 $ 62,200
150,000 21,700 32,500 43,300 54,200 65,000 76,200
175,000 25,700 38,500 51,400 64,200 77,000 90,300
200,000 29,700 44,500 59,400 74,200 89,100 104,300
250,000 37,700 56,600 75,500 94,300 113,200 132,400
300,000 45,800 68,600 91,500 114,400 137,300 160,500
350,000 53,800 80,700 107,600 134,500 161,300 188,600
400,000 61,800 92,700 123,600 154,500 185,400 216,700
</TABLE>
The compensation covered by the qualified plan includes base pay, subject to
ERISA limitations of $228,860 for 1992, $235,840 for 1993, and $150,000 for
1994 through 1996 and $160,000 for 1997 and later years. The compensation
covered by the supplemental executive retirement plan includes base pay plus
bonuses with no limitation.
The years of credited service for David W. Wallace, William M. Troutman,
Roger J. Campbell, Michael W. Puckett and William E. Roberts are 8, 16, 13, 29
and 24, respectively. Mr. Troutman is not a participant in the supplemental
executive retirement plan.
The qualified plan benefits are payable for the lifetime of the individuals,
while the supplemental benefits are payable as a lump sum. The benefits shown
are payable without reduction at age 62 or later, and are not subject to any
deductions or offsets. However, ERISA currently limits benefits payable at age
65 to $118,800 for 1994, $120,000 for 1995 and 1996, $125,000 for 1997 and
$130,000 for 1998.
A-7
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of David W. Wallace and
William M. Troutman. Pursuant to their respective agreements, Mr. Wallace is
Chairman of the Company at an annual salary of approximately $227,000, and Mr.
Troutman is President and Chief Executive Officer of the Company at an annual
salary of approximately $433,000. The initial term of each of these employment
agreements runs through June 30, 2000 and, thereafter, renews for successive
two-year terms unless terminated at the end of the then current term by either
the Company or the executive on at least six months prior notice (in which
case, if terminated by the Company, the executive receives one year's salary
as severance pay and receives medical and certain other benefits during this
one-year period). Upon a "change in control", as defined in their agreements,
each of Messrs. Wallace and Troutman may terminate his employment and receive
severance pay equal to two and one-half years' salary and receive medical and
certain other benefits during this severance period. These termination
payments will be "grossed up" to reimburse the executive for any excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code"). The consummation of the Offer will constitute a "change in control"
under the employment agreements of Messrs. Wallace and Troutman and each of
Messrs. Wallace and Troutman has indicated his intention to terminate his
employment following consummation of the Offer. Upon consummation of the
Offer, the Company will be obligated to fund certain grantor trusts and will
purchase an annuity to fulfill its financial obligations under the agreements.
After the termination of his employment following consummation of the Offer,
Mr. Troutman will be entitled to receive annual retirement payments of
$430,903 commencing 30 months after such termination. These payments will be
reduced by the sum of the annual retirement benefits paid to him pursuant to
the Salaried Employees Pension Plan. These payments will be paid under an
annuity purchased by the Company in 1989 and another annuity which the Company
will be required to purchase shortly after the consummation of the Offer. Upon
his death, the retirement benefits will be paid to his spouse until her death.
Mr. Troutman's employment agreement was amended on September 1, 1999 to
provide clarification as to the calculation of his annual retirement payments.
The amendment is filed as an Exhibit to Schedule 14D-9.
Upon retirement, Messrs. Wallace and Troutman, and their respective spouses,
will be entitled to full payment for certain medical services and expenses
pursuant to agreements between each of them and the Company. These medical
benefit payments are to be reduced by an annual deductible per insured of
$1,000 prior to age 65 and $750 thereafter, with benefit payments coordinated
with medicare and with a lifetime benefit limit to each person of $1.0
million. Upon retirement, the Company also will provide Messrs. Wallace and
Troutman retiree life insurance on the same basis as that presently in effect
for the Company's salaried retirees.
The Company has entered into change of control agreements with each of its
executive officers other than Messrs. Wallace and Troutman (the "COC
Agreements"). The consummation of the Offer will constitute a "change of
control" under the COC Agreements. Pursuant to the COC Agreements, in the
event his employment is not continued on a substantially equivalent basis for
a year following a change of control, or if for any reason he or the Company
terminates his employment during a thirty-day period commencing on the first
anniversary of the change of control, the officer is entitled to severance pay
equal to two and one-half years' base salary and to medical and certain other
benefits for this two and one-half year period. From and after a change of
control, the Company is required to provide these executives (if they are
eligible after taking into consideration the two and one-half year termination
period) retiree life insurance and medical benefits at least as favorable as
under the Company's current executive retiree medical insurance and retiree
life insurance program.
Upon consummation of the Offer, the Named Executive Officers also are
entitled to a bonus equal to 100% of their then base salary under the
Company's Executive Incentive Plan and, except for Mr. Troutman, to certain
pension benefits under the SERP. The termination payments under the COC
Agreements will be "grossed up" to reimburse the executive for any excise tax
imposed by Section 4999 of the Code.
A-8
<PAGE>
The COC Agreements have been recently amended to provide clarification that:
(i) the termination date of the COC Agreements will not affect benefits or
other obligations on the part of the Company arising from a change in control
prior to such date and (ii) if the Company's pension plans are terminated or
canceled after September 1, 1999 certain obligations to make payments in
respect of the severance period under such plans will be calculated as if such
termination or cancelation did not occur. The amendment to the COC agreements
is filed as an Exhibit to Schedule 14D-9.
In connection with the Offer and the Merger, Mr. Troutman has agreed to
remain on the Board for one year beginning on the Effective Date of the
Merger. Mr. Troutman will be obligated to attend four meetings of the Board
and he will receive a payment of $2,000 per meeting as well as reimbursement
of his out-of-pocket expenses. The agreement also provides for indemnification
of Mr. Troutman as a director of the Company to the full extent permissible by
law.
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities file reports of
ownership and changes in ownership with the SEC. Officers, directors, and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based on a review of
the reports, during the fiscal year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its officers, directors, and greater than
10% beneficial owners were complied with.
A-9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of common stock at September 1, 1999 provided to the Company by (a)
each stockholder known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of common stock, (b) each director, (c)
each executive officer named in the Summary Compensation Table, and (d) all
directors and executive officers as a group. The addresses of Messrs. Bacon,
Brophy, Newman, A. Puckett, Schwartz, Troutman, Wallace, Wentworth, Campbell,
M. Puckett and Roberts are c/o Lone Star Industries, Inc., 300 First Stamford
Place, Stamford, CT 06912-0014.
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percentage of
Name and Address of Beneficial Owners Ownership Ownership(1)
- ------------------------------------- -------------------- -------------
<S> <C> <C>
FMR Corp. and Affiliates
82 Devonshire Street
Boston, Massachusetts 02109............... 2,868,400(2) 14.9%
James E. Bacon............................. 16,198(3) *
Theodore F. Brophy......................... 18,000(3) *
Arthur B. Newman........................... 22,000(3) *
Allen E. Puckett........................... 14,798(3) *
Robert G. Schwartz......................... 20,000(3) *
William M. Troutman........................ 112,362(4) *
David W. Wallace........................... 1,383,142(5) 7.2
Jack R. Wentworth.......................... 12,266(3) *
Roger J. Campbell.......................... 3,826 *
Michael W. Puckett......................... 5,362 *
William E. Roberts......................... 81,458(3) *
All directors and executive officers as a
group (16 persons)........................ 1,827,816(6) 9.5
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of common stock.
(1) Applicable percentage ownership is based on 19,297,418 shares of Common
Stock outstanding as of September 1, 1999. The percentage of outstanding
shares of common stock calculation assumes for each beneficial owner that
all of the options and warrants that are exercisable within 60 days of
September 1, 1999 beneficially owned by such person or entity are
exercised in full by such beneficial owner and that no other options or
warrants are exercised by any other stockholders. No numbers in this table
reflect purchases of Common Stock through the Company's Employee Stock
Purchase Plan during 1999.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. ("FMR"), as investment advisor to various
investment companies and as sub-advisor to a trust, beneficially owns an
aggregate of 1,583,400 of these shares. A bank subsidiary of FMR
beneficially owns 1,241,400 of these shares as a result of its serving as
investment manager for certain institutional accounts. Members of a
family, including Edward C. Johnson 3d, the Chairman of FMR, and Abigail
Johnson, a director of FMR, through their stockholdings and a voting
agreement, may be deemed a controlling group with respect to FMR. A former
subsidiary of FMR, Fidelity International Limited ("FIL"), of which Mr.
Johnson and members of his family are significant stockholders,
beneficially owns 131,800 shares, of which 88,200 are included in the
foregoing numbers as beneficially held by FMR. FMR and FIL are of the view
that they are not acting as a "group" for purposes of Section 13(d) under
the Securities Exchange Act of 1934. The information contained herein is
derived from a Schedule 13G dated February 1, 1999.
(3) Includes shares of common stock which the directors and executive officers
had the right to acquire through the exercise of warrants held by them as
follows: James E. Bacon--166 shares; Allen E. Puckett--826 shares; William
M. Troutman--1,076 shares; Jack R. Wentworth--66 shares; Also includes
shares of common stock underlying exercisable options, as follows: James
E. Bacon--12,000 shares; Theodore F. Brophy--12,000 shares; Arthur B.
Newman--12,000 shares; Allen E. Puckett--12,000 shares; Robert G.
Schwartz--12,000 shares; William M. Troutman--100,000 shares; Jack R.
Wentworth--12,000 shares; and William E. Roberts--38,500 shares.
A-10
<PAGE>
(4) Excludes 200 shares of common stock held by Mr. Troutman's son, as to
which shares he disclaims beneficial ownership.
(5) Excludes 197,196 shares of common stock held by Mr. Wallace's wife.
Includes 1,234,000 shares of common stock held by The Robert R. Young
Foundation, a charitable foundation (the "Foundation"). Mr. Wallace is an
officer and trustee of the Foundation, but has no pecuniary interest in,
and receives no compensation, expense reimbursement or other monies from,
the Foundation. He disclaims beneficial ownership of all shares held by
his wife and the Foundation.
(6) Includes or excludes, as the case may be, shares of common stock as
indicated in the preceding footnotes. With respect to the executive
officers not named above, (i) includes 26 shares of common stock issuable
upon exercise of warrants and 100,000 shares of common stock underlying
exercisable options and (ii) excludes an aggregate of 1,002 shares of
common stock, and warrants to purchase 10 shares, held by the wives of two
such officers, as to which shares beneficial ownership is disclaimed by
such officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Metropolitan Life Insurance Company and its affiliate,
Metropolitan Insurance and Annuity Company (together, "Met Life") are parties
to a registration rights agreement pursuant to which the Company has
registered Company securities held by Met Life. Pursuant to this agreement,
the Company is obligated to pay all expenses incident to the registration,
offering and sale of the securities offered to the public, other than
underwriting commissions, and to indemnify these parties against certain civil
liabilities, including liabilities under the Securities Act of 1933. In late
1998, Met Life sold in an underwritten public offering 4.6 million shares of
the Company's common stock, resulting in Met Life's no longer being a five
percent stockholder. Expenses from such offering paid by the Company
approximated $350,000. In connection with the offering, the Company purchased
from Met Life 135,000 warrants to purchase 270,000 shares of common stock at a
price per warrant of $46.97, which price was below the then trading price of
the warrants and was calculated so as to result in Met Life's receiving the
amount which it would have received, net of underwriting discounts, if it had
exercised the warrants and sold the stock in the offering.
On August 28, 1998, the Company purchased 800,000 shares of common stock
from J. Allan Mactier, a five percent stockholder, at a price of $32.875 per
share, a price which reflected the then trading price of the common stock.
Met Life provides various services in connection with the Company's
sponsorship and administration of its salaried and hourly employee 401(k)
savings plans and holds the $50 million principal amount of the Company's
7.31% Senior Notes due 2007.
A-11
<PAGE>
EXHIBIT 14
TO: Addressees of Change in Control Agreements, dated
June 1, 1998
Gentlemen:
It has come to the Company's attention that the above-referenced letters
(the "CIC Agreements") may be ambiguous in two respects, and the Company hereby
agrees that the letters therefore are hereby amended as follows:
(i) No termination of the CIC Agreements at their normal termination dates
of July 1, 2001 will affect any payments, benefits or other
obligations on the part of the Company that otherwise would have
arisen thereunder as a result of the termination of your employment
for any reason after a Change in Control (as defined in the CIC
Agreements) occurring prior to July 1, 2001.
(ii) No termination or amendment of the Company's Pension Plan or Special
Executive Retirement Plan ("SERP") after the date hereof shall affect
the Company's obligations under the fourth sentence of the first
paragraph of Section 1 of the CIC Agreements, and in the event of such
termination or amendment, the obligations, under such sentence shall
be calculated as if such Pension Plan and SERP had continued under its
current terms for all periods necessary to make the calculations.
LONE STAR INDUSTRIES, INC.
AGREED AND ACCEPTED: By: /s/ David W. Wallace
-------------------------------
David W. Wallace
- and -
By: /s/ Jack R. Wenthworth
-------------------------------
Jack R. Wentworth
Chairman, Compensation and
Stock Option Committee
<PAGE>
EXHIBIT 15
AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT
This Amendment to the Second Amended and Restated Agreement, dated May 1,
1998, between Lone Star Industries, Inc. and William M. Troutman (the
"Agreement") is entered into as of September 1, 1999.
WHEREAS, the parties hereto acknowledge that certain of the Agreement's
language fails to reflect the parties' intent and the parties mutually desire to
correct such language;
NOW, THEREFORE, for good and valid consideration, the receipt of which is
acknowledged by both parties, the Agreement is hereby amended as follows:
The phrase "Termination Date" in the definitions of "Bonus" and "Salary" in
the Agreement is hereby deleted and, in lieu thereof, is inserted the phrase
"the date on which the Executive ceases to be an employee (which date will not
be deferred even if the Termination Date is to be deferred as a result of the
proviso to Section 1.12)";
IN WITNESS WHEREOF, the parties have duly executed this Amendment,
intending to be legally bound hereby, as of the date hereof.
/s/ William M. Troutman
-------------------------------
William M. Troutman
LONE STAR INDUSTRIES, INC.
By: /s/ David W. Wallace
--------------------------
David W. Wallace
- and -
By: /s/ Jack R. Wentworth
--------------------------
Jack R. Wentworth
Chairman, Compensation and
Stock Option Committee
