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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
PROLER INTERNATIONAL CORP.
(Name of Subject Company)
PROLER INTERNATIONAL CORP.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Including Associated Rights)
(Title of Class of Securities)
743396-10-3
(CUSIP Number of Class of Securities)
BRUCE W. WILKINSON
CHIEF EXECUTIVE OFFICER
PROLER INTERNATIONAL CORP.
4265 SAN FELIPE
SUITE 900
HOUSTON, TEXAS 77027
(713) 627-3737
(Name, address and telephone number of person authorized to
receive notice and communications on behalf of the person(s) filing statement)
COPIES TO:
GEOFFREY K. WALKER
KATHLEEN M. KOPP
MAYOR, DAY, CALDWELL & KEETON, L.L.P.
700 LOUISIANA
HOUSTON, TEXAS 77002
(713) 225-7000
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*This Solicitation/Recommendation Statement on Schedule 14D-9 relates to an
offer for all outstanding shares of common stock of Proler International Corp.
by a wholly owned subsidiary of Schnitzer Steel Industries, Inc.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Proler International Corp., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 4265 San Felipe, Suite 900, Houston, Texas 77027. The
title of the class of equity securities to which this statement relates is the
common stock, par value $1.00 per share, of the Company (the "Common Stock" or
the "Shares") including the associated Stock Rights (the "Rights") to
purchase Shares pursuant to a Rights Agreement, dated as of February 28, 1996,
between the Company and KeyCorp Shareholder Services, Inc., as Rights Agent.
Unless the context otherwise requires, all references herein to the Shares
include the associated Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by PIC Acquisition Corporation,
a Delaware corporation ("Purchaser"), a wholly owned subsidiary of Schnitzer
Steel Industries, Inc., an Oregon corporation ("Schnitzer"), disclosed in a
Tender Offer Statement on Schedule 14D-1, dated September 20, 1996 (the
"Schedule 14D-1") and filed with the Securities and Exchange Commission (the
"Commission"), to acquire all of the outstanding Shares, at a price of $7.50
per Share (the "Offer Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated September
20, 1996 (the "Offer to Purchase"), and the related letter of transmittal
(which together with the Offer to Purchase constitute the "Offer" and are
contained within the Schedule 14D-1).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 15, 1996 (the "Merger Agreement"), among the Company,
Schnitzer and Purchaser. The Merger Agreement provides, among other things,
that, as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, Purchaser will be merged with and into the
Company, and the Company will continue as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is filed herewith as
EXHIBIT 1 and is incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Schnitzer and the Purchaser are located at 3200 NW Yeon Avenue, Portland, Oregon
97210.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b)(i) Certain information with respect to certain contracts, agreements,
arrangements and understandings between the Company and certain of its executive
officers, directors and affiliates is set forth in the attached SCHEDULE I,
which is incorporated herein by reference. In addition, the Merger Agreement
provides for the Company to use its best efforts to obtain the cancellation of
all stock options, vested and unvested, outstanding under the Company's 1988
Stock Option Plan as amended (the "1988 Plan") with an exercise price less
than the amount of the Offer Price in exchange for a payment to the optionee of
an amount per option share equal to the difference between the exercise price
for such share and the amount of the Offer Price. In accordance with the 1988
Plan and the Company's 1994 Non-Employee Director Stock Option Plan (the "1994
Plan"), a holder of any options outstanding as of the time of the Merger will
be entitled to receive, upon exercise of such options in accordance with the
1988 Plan or the 1994 Plan, as the case may be, an amount equal to the Offer
Price such holder would have been entitled to receive in the Merger if he had
been the holder of the Shares that he would otherwise have received upon
exercise of the options, and will have no right to receive any stock of the
Company upon such exercise. The Company has also agreed to use its best efforts
to obtain the cancellation of all unvested rights to receive in the future
Shares pursuant to Proler's 1993 Incentive Compensation Plan (the "1993 Plan")
in exchange for payment to the holders of such rights of an amount per share
equal to the amount of the Offer Price.
For additional information regarding the Company's outstanding stock
options under the 1988 Plan and the 1994 Plan and outstanding rights to receive
Shares under the 1993 Plan, see SCHEDULE I.
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(b)(ii) Since June 30, 1996, Bruce Wilkinson has been serving as interim
President and Chief Executive Officer of the Company at a monthly salary of
$20,000. Mr. Wilkinson has no written employment or severance agreement with the
Company. In addition to salary, the Board of Directors may in its discretion
determine to award Mr. Wilkinson a bonus not to exceed 50% of his annualized
salary in connection with his performance as interim President and Chief
Executive Officer, including consummation of the transactions contemplated by
the Merger Agreement.
The Company has entered into a separation arrangement with Michael Loy, the
Company's Vice President -- Finance and Chief Financial Officer, amending a
previous agreement and providing for the termination of his employment by the
Company effective October 31, 1996. Mr. Loy will be entitled to receive his
salary through that date, plus severance payments equal to four months' salary,
accrued vacation and other employee benefits, the unvested portion of his
outstanding award under the Company's 1993 Incentive Compensation Plan due
January 31, 1997 and Company-paid health benefits through February 28, 1997. Mr.
Loy would also be eligible for a bonus equal to four months' salary in the event
that prior to his termination Mr. Loy assists in effecting a sale of the
Company's joint venture interests or all or a majority of the Company that
occurs prior to January 31, 1997. In the event Mr. Loy voluntarily terminates
his employment prior to October 31, 1996 he would remain entitled to the
severance benefits described above but would no longer be eligible for a bonus.
The Company has entered into an arrangement with David Juengel, the
Company's Vice President -- Treasurer, providing for severance payments equal to
four months' salary in the event that Mr. Juengel's employment is terminated as
a result of a sale of all or part of the Company or otherwise without cause.
Such severance payments are subject to mitigation by any compensation received
by Mr. Juengel from other employment. The Company has also agreed to consider a
bonus payment to Mr. Juengel not to exceed 30% of his annual salary in the event
that Mr. Juengel assists in the consummation prior to January 31, 1997 of
certain compensable events including a sale or merger of the Company or a sale
of its joint venture interests. Any such bonus would be recommended in the
discretion of the Company's President and Chief Executive Officer based on Mr.
Juengel's performance and would be subject to approval by the Board of
Directors.
The Company has entered into an arrangement with Dennis Caputo, the
Company's Vice President -- Environmental and Safety Compliance, providing for
severance payments equal to four months' salary in the event that Mr. Caputo's
employment is terminated as a result of a sale of all or part of the Company or
otherwise without cause. Such severance payments are subject to mitigation by
any compensation received by Mr. Caputo from other employment. The Company has
also agreed to consider a bonus payment to Mr. Caputo not to exceed 40% of his
annual salary in the event that Mr. Caputo assists in the consummation prior to
January 31, 1997 of certain compensable events including a sale or merger of the
Company or a sale of its joint venture interests. Any such bonus would be
recommended in the discretion of the Company's President and Chief Executive
Officer based on Mr. Caputo's performance and would be subject to approval by
the Board of Directors.
THE MERGER AGREEMENT
The purpose of the Offer and the Merger is to enable Schnitzer to acquire
control of, and the entire equity interest in, the Company. In the Merger
Agreement, the Purchaser and the Company have agreed to effect the Merger in
accordance with the provisions of the Merger Agreement as promptly as
practicable following consummation of the Offer. Set forth below is a summary of
the material provisions of the Merger Agreement, a copy of which is filed
herewith as EXHIBIT 1. The following summary is qualified in its entirety by
reference to the Merger Agreement.
THE OFFER. In the Merger Agreement, the Purchaser has agreed, subject to
certain conditions, to commence a cash tender offer to purchase all of the
Shares (including the associated Rights) for $7.50 per Share (the "Offer
Price"). The Merger Agreement provides that, without the consent of the
Company, the Purchaser will not (a) decrease the Offer Price, (b) change the
form of consideration payable in the Offer, (c) decrease the number of Shares
sought in the Offer, (d) add to or modify the conditions set forth in ANNEX A to
the Merger Agreement (the "Offer Conditions") or (e) otherwise amend the Offer
in any
2
manner adverse to the holders of Shares. Notwithstanding the foregoing, the
Purchaser may, without the consent of the Company, (a) extend the Offer for an
aggregate total of twenty-five (25) business days from the original expiration
date if any of the conditions to the Purchaser's obligation to purchase the
Shares shall not be satisfied or waived, (b) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Commission
and (c) extend the Offer for no more than five (5) business days beyond the
original expiration date in the event that the Offer conditions have been
satisfied but less than ninety percent (90%) of the Shares have been tendered
pursuant to the Offer.
THE MERGER. The Merger Agreement provides that, following the satisfaction
or waiver of the conditions set forth therein, the Purchaser will be merged with
and into the Company, with the Company continuing as the Surviving Corporation,
and each then-outstanding Share (other than Shares held in the treasury of the
Company, Shares owned by Schnitzer, the Purchaser or any other subsidiary of
Schnitzer or of the Company, or Shares held by stockholders who properly
exercise their dissenters' rights under the Delaware General Corporation Law
(the "DGCL")) will be converted into the right to the Offer Price in cash,
without interest. Except in the case of a "short-form" merger as described
below, under the DGCL the approval of the Company's Board of Directors and the
affirmative vote of holders of a majority of the outstanding Shares (including
any Shares owned by the Purchaser) will be required to approve the Merger.
The Merger Agreement provides that the Company will, if required by
applicable law, call and hold a special meeting of its stockholders as soon as
practicable following the consummation of the Offer for the purpose of approving
the Merger contemplated thereby and prepare and file with the Commission under
the Exchange Act a proxy statement with respect to the meeting of stockholders
described above (the "Proxy Statement"). The Company has agreed in the Merger
Agreement to use its best efforts to respond to any comments of the Commission
or its staff and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the staff, and to keep Schnitzer informed of all its
correspondence with the Commission with respect to the Proxy Statement. Pursuant
to the Merger Agreement, the Company, through its Board of Directors, will
recommend to its stockholders that the Merger Agreement be approved.
The DGCL also provides that if a parent company owns at least 90% of each
class of stock of a subsidiary, the parent company can effect a "short-form"
merger with that subsidiary without a stockholder vote. Accordingly, if, as a
result of the Offer or otherwise, the Purchaser acquires or controls the voting
power of at least 90% of the outstanding Shares, the Purchaser will be able, and
intends, to effect the Merger without a stockholder vote.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
representations and warranties by the Company with respect to, among other
things, its organization, its capitalization, its authority to enter into the
Merger Agreement, its filings with the Commission and its financial statements,
the absence of certain changes in its business, the information supplied by the
Company in connection with the Offer, the Company's employee benefit plans and
other compensation arrangements, the absence of certain litigation with respect
to the Company, compliance by the Company with applicable law, including
environmental laws, execution of an amendment to the Rights Agreement (as more
fully described below) to render it inapplicable to the Offer and the Merger,
tax matters relating to the Company, the inapplicability of state anti-takeover
statutes, including Section 203 of the DGCL, and intellectual property matters.
The Merger Agreement also contains representations and warranties by
Schnitzer with respect to, among other things, the organization of Purchaser and
Schnitzer, their authority to enter into the Merger Agreement, the absence of
certain litigation with respect to Schnitzer or the Purchaser, the information
supplied by them in connection with the Offer and their ability to purchase the
Shares.
COVENANTS OF THE COMPANY. In the Merger Agreement, the Company has agreed,
until the effectiveness of the Merger, (a) to use its commercially reasonable
best efforts to, and to cause each direct or indirect subsidiary of the Company,
each of the Company's joint ventures (Hugo Neu-Proler Company, Prolerized New
England Company, and Prolerized Schiabo-Neu Company, in each case together with
such joint venture's subsidiaries and any other entity used in connection with
its business) and any other entity in which Proler or any subsidiary has any
ownership interest (each, including the Company, a "Proler
3
Entity") to, (i) keep the business and organization of each Proler Entity intact
and (ii) carry on the business of each Proler Entity in its usual manner; (b)
that, without the prior written consent of Schnitzer, (i) it will not declare,
pay or set aside for payment any dividend or other distribution of money or
property in respect of its capital stock, (ii) it will not issue any shares of
its capital stock, or issue or sell any securities convertible into, or
exchangeable for, or options, warrants to purchase, or rights to subscribe to,
any shares of its capital stock or subdivide or in any way reclassify any shares
of its capital stock, or repurchase, reacquire, cancel, or redeem any such
shares and (iii) it will use commercially reasonable best efforts to ensure that
(A) it, and each Proler Entity, preserves and maintains in the ordinary course
of business its assets, property and rights and that no Proler Entity will
encumber any of its material assets other than in connection with certain
existing credit arrangements and (B) it, and each Proler Entity, will pay all
debts when due in the usual course of business; (c) that it will, and the
Company will use its commercially reasonable best efforts to ensure that each
Proler Entity will, comply in all material respects with all applicable laws;
(d) except as disclosed to Schnitzer and Purchaser that it will, and the Company
will use its commercially reasonable best efforts to ensure that each Proler
Entity will, maintain its insurance; (e) that it will not incur additional debt,
incur or increase any obligation or liability, except in the ordinary and usual
course of its business; and (f) that it will not make any payment to discharge
or satisfy any lien or encumbrance or pay any obligation or liability (fixed or
contingent) other than current liabilities or payments under its revolving
credit facility made in the ordinary course of business and consistent with past
practices.
The Company has further agreed that, until the effectiveness of the Merger,
it will not and, without prior consultation with Schnitzer, will not take action
to cause any Proler Entity to: (a) acquire any assets other than assets acquired
in the ordinary and usual course of its business and consistent with past
practices; (b) purchase or otherwise acquire, or agree to purchase or otherwise
acquire, any debt or equity securities of any person other than equity
securities issued by a money market fund registered as an investment company
under the Investment Company Act of 1940; (c) enter into any transaction or
contract or make any commitment to do the same, except as disclosed to Schnitzer
and Purchaser in the Merger Agreement, or in the ordinary and usual course of
business except as expressly contemplated or when not requiring the payment in
any case of an amount in excess of $25,000 annually; (d) except as disclosed to
Schnitzer and Purchaser, increase the wages, salaries, compensation, pension, or
other benefits payable, or to become payable by it, to any of its officers,
employees, or agents, including without limitation any bonus payments or
severance or termination pay, other than increases in wages and salaries
required by employment arrangements existing on the execution date of the Merger
Agreement or otherwise in the ordinary and usual course of its business; (e)
implement or agree to any implementation of or amendment or supplement to any
employee profit sharing, stock option, stock purchase, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation, or any other employee benefit plan or arrangement; or (f)
change its accounting methods, policies or practices. In addition, the Company
(a) will, and will use its commercially reasonable best efforts to cause each
Proler Entity to, when the consent of any third party to the transactions
contemplated by the Merger Agreement is required under the terms of any contract
to which any Proler Entity is a party or by which it is bound, use its
commercially reasonable best efforts to obtain such consent; (b) will, and will
use its commercially reasonable best efforts to cause each Proler Entity to,
maintain its books and records in accordance with past practices; (c) will, and
will use its commercially reasonable best efforts to cause each Proler Entity
to, pay and discharge all taxes, assessments, governmental charges, and levies
imposed upon it, its income or profits, or upon any property belonging to it,
and in all cases before the date on which penalties attach thereto; and (d) will
not amend its Certificate of Incorporation or Bylaws.
PROHIBITION ON SOLICITATION. Pursuant to the Merger Agreement, the Company
has agreed that the Company and its officers, directors, employees,
representatives and agents will cease any discussions or negotiations with any
parties with respect to any Takeover Proposal (as defined below) and, unless the
Merger Agreement has been terminated in accordance with its terms and provided
that neither Schnitzer nor Purchaser is in material violation of the Merger
Agreement, but in any event subject to the provisions described in the next
paragraph, the Company will not authorize or permit any officer, director or
employee
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of, or any investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of its subsidiaries to (a)
solicit, initiate, encourage or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal or (b) participate in any discussions
or negotiations regarding any Takeover Proposal.
The Merger Agreement provides that, notwithstanding the foregoing, if at
any time prior to the acceptance for payment of Shares pursuant to the Offer,
the Board of Directors of the Company determines in good faith, after
consultation with counsel, that it is necessary to do so in order to comply with
its fiduciary duties to the Company's stockholders under applicable law, the
Company may, in response to an unsolicited Takeover Proposal and subject to the
Company's undertakings to advise Schnitzer thereof as described below, (a)
furnish information with respect to the Company to any person pursuant to a
confidentiality agreement in substantially the same form as that entered into
between the Company and Schnitzer and (b) participate in negotiations regarding
such Takeover Proposal.
The Merger Agreement provides further that, unless the Merger Agreement has
been terminated in accordance with its terms and provided that neither Schnitzer
nor Purchaser is in material violation of the Merger Agreement, but in any event
subject to the provisions described in the next paragraph, neither the Board of
Directors of the Company nor any committee thereof will (a) withdraw or modify
or propose to withdraw or modify, in a manner adverse to Schnitzer, the approval
or recommendation by such Board of Directors or such committee of the Offer, the
Merger Agreement or the Merger, (b) approve or recommend, or propose to approve
or recommend, any Takeover Proposal or (c) cause the Company to enter into any
agreement with respect to any Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the time of
acceptance for payment of Shares in the Offer the Board of Directors of the
Company determines in good faith, after consultation with counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Merger Agreement provides that the Board
of Directors of the Company may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement and the Merger, approve or
recommend a Superior Proposal (as defined below), or cause the Company to enter
into an agreement with respect to a Superior Proposal, but in each case only at
a time that is after the second business day following Schnitzer's receipt of
written notice advising Schnitzer that the Board of Directors of the Company has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal.
Pursuant to the Merger Agreement, and in addition to the obligations of the
Company described above, the Company has agreed that (a) it will immediately
advise Schnitzer orally and in writing of any request for information or of any
Takeover Proposal, or any inquiry with respect to or which could lead to any
Takeover Proposal, the material terms and conditions of such request, Takeover
Proposal or inquiry and the identity of the person making such request, Takeover
Proposal or inquiry, (b) it will keep Schnitzer fully informed of the status and
details (including amendments or proposed amendments) of any such request,
Takeover Proposal or inquiry and (c) it will concurrently with entering into an
agreement with respect to any Takeover Proposal, pay, or cause to be paid, to
Schnitzer certain Expenses and the Termination Fee (each as defined and
discussed more fully below).
The Merger Agreement does not prohibit the Company from making any
disclosure to the Company's stockholders if, in the opinion of the Board of
Directors of the Company after consultation with counsel, failure to so disclose
would be inconsistent with its fiduciary duties to the Company's stockholders
under applicable law, except that neither the Company nor its Board of Directors
nor any committee thereof may (other than as described above) withdraw or
modify, or propose to withdraw or modify, its position with respect to the Offer
or the Merger or approve or recommend, or propose to approve or recommend, a
Takeover Proposal.
The term "Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of a
substantial amount of assets of the Company or any other Proler Entity or of
more than 20% of any class of equity securities of the Company or any other
Proler Entity, or any tender offer or exchange offer that if consummated would
result in any person beneficially
5
owning 20% or more of any class of equity securities of the Company or any other
Proler Entity, any merger, consolidation, business combination, sale of
substantially all the assets, recapitalization (other than the transactions
contemplated by the Merger Agreement), or any other transactions the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Offer or the Merger or which would reasonably be
expected to dilute materially the benefits to Schnitzer of the transactions
contemplated by the Merger Agreement. The term "Superior Proposal" means any
bona fide Takeover Proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company determines in its
good faith judgment (after consultation with J.C. Bradford & Co., LLC ("J.C.
Bradford") or another financial advisor of nationally recognized reputation) to
be more favorable to the Company's stockholders than the Offer and the Merger.
ACCESS TO INFORMATION. Pursuant to the Merger Agreement, from the date of
the Merger Agreement to the effectiveness of the Merger Proler will provide, and
cause each Proler Entity to provide, to Schnitzer and its authorized agents,
access to each Proler Entity's physical assets, facilities, financial
information, production records, contracts and other corporate records and
documents during normal working hours, and Schnitzer will be allowed to meet
with each Proler Entity's management personnel, employees, and any outside
consultants of the Proler Entities, including auditors and accountants,
investment and other bankers, tax and financial advisors, and environmental
consultants.
COMMERCIALLY REASONABLE BEST EFFORTS. Subject to the terms and conditions
of the Merger Agreement and to the fiduciary duties of the Board of Directors of
the Company, each party will use its commercially reasonable best efforts to
effect the transactions contemplated by the Merger Agreement and to fulfill the
conditions to the obligations of the parties set forth in the Merger Agreement.
The parties have agreed further that no party will take any action inconsistent
with its obligations under the Merger Agreement or that could hinder or delay
the consummation of the transactions contemplated by the Merger Agreement.
THE RIGHTS AGREEMENT. The Company has agreed in the Merger Agreement that
it will not redeem the Rights, amend the Rights Agreement (other than to delay
the Distribution Date or to render the Rights inapplicable to the Offer and the
Merger) or terminate the Rights Agreement prior to the effectiveness of the
Merger unless required to do so by order of a court of competent jurisdiction.
BOARD OF DIRECTORS. The Merger Agreement provides that, upon the
Purchaser's acceptance for payment and payment for Shares pursuant to the Offer,
the Purchaser will be entitled to designate a number (rounded up to the nearest
whole number) of directors on the Company's Board of Directors that is equal to
the product of the total number of directors on the Company's Board of Directors
multiplied by the percentage that the aggregate number of Shares beneficially
owned by Purchaser and its affiliates bears to the number of Shares outstanding.
The Company will promptly, at the request of Schnitzer, either increase the size
of the Company's Board of Directors and/or obtain the resignations of such
number of its current directors as is necessary to enable the Purchaser's
designees to be elected to the Company's Board of Directors as provided above.
The Company has agreed to take all actions required by Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder in order to fulfill its obligation to
elect the Purchaser's designees as directors. The attached SCHEDULE I fulfills
the Company's obligations in this regard.
Following the election or appointment of the Purchaser's designated
directors, the affirmative vote of a majority of the directors then in office
who are not designees of the Purchaser will be required in connection with any
action with respect to the Merger Agreement or the transactions contemplated
therein.
INDEMNIFICATION AND INSURANCE. In the Merger Agreement, Schnitzer and the
Purchaser have agreed to indemnify the current directors of the Company to the
full extent provided in the Certificate of Incorporation or Bylaws of the
Company. Pursuant to the Merger Agreement, Schnitzer will cause the Company for
a period of six (6) years from the effectiveness of the Merger to maintain in
effect the Company's current directors' liability insurance covering those
persons who are currently covered by the
6
Company's directors' liability insurance policy (provided that the Company may
substitute therefor the policies of at least the same coverage containing terms
and conditions substantially equivalent).
GOVERNMENT CONSENTS. The parties have agreed in the Merger Agreement (a)
to pursue early termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"), (b) to file the
premerger notification and report forms as required under the HSR Act within
five (5) days after execution of the Merger Agreement and (c) to file all
requests for all other approvals or waivers that may be required from
governmental entities in connection with the transactions contemplated by the
Merger Agreement.
CONDITIONS TO MERGER. The respective obligation of each party to the
Merger Agreement to effect the Merger shall be subject to the satisfaction,
prior to the closing of the transactions contemplated by the Merger Agreement,
of the following conditions: (a) all required authorizations, consents and
approvals of all governmental agencies and authorities shall have been obtained
and the waiting period under the HSR Act will have expired or been terminated
early; (b) if necessary under applicable law, the Merger shall have been
approved at a duly convened meeting of the Company's stockholders by the holders
of at least a majority of the Shares of the Company; (c) no law, statute, rule,
regulation, decree, order, injunction or ruling by any governmental entity that
remains in effect prohibits, restrains, enjoins or restricts the consummation of
the Merger; (d) no action, suit or other proceeding has been overtly threatened
or is pending against any party to prohibit, restrain, enjoin, restrict or
otherwise prevent the consummation of the Offer or the Merger; and (e) the
Purchaser shall have previously accepted (or shall have been required to accept)
for payment and paid for Shares pursuant to the Offer.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the effective time of the Merger (a) by mutual consent of Schnitzer, Purchaser
and the Company; (b) by either Schnitzer or the Company if (A) clearance under
the HSR Act is not received within 120 days after the filing of the premerger
notification and report forms or (B) any governmental entity has promulgated or
issued a law, statute, rule, regulation, decree, order, injunction, or ruling or
taken any other action restraining, enjoining, restricting or otherwise
prohibiting the Offer or the Merger that has become final and nonappealable or
(C) the Offer is terminated or expires in accordance with its terms as the
result of failure of any of the Offer Conditions without Purchaser having
purchased any Shares pursuant to the Offer except that this right to terminate
is not available to any party whose failure to perform any of its covenants or
agreements under the Merger Agreement results in the failure of any condition;
(c) by Schnitzer, if not then in default, upon written notice to the Company if
(A) the Company breaches in any material respect any of its representations or
warranties or defaults in the observance or performance of any of its covenants
or agreements, except for breaches or defaults which, individually or in the
aggregate, would not have a material adverse effect or materially impair the
ability of the parties to consummate the transactions contemplated by the Merger
Agreement, (B) the Board of Directors of the Company or any committee thereof
has withdrawn or modified in a manner adverse to Schnitzer or Purchaser its
approval or recommendation of the Merger or the Merger Agreement or approved or
recommended any Takeover Proposal or (C) the Company has entered into a
definitive agreement with respect to any Superior Proposal; or (d) by the
Company, if not then in default, upon written notice to Schnitzer (A) if
Schnitzer breaches in any material respect any of its representations or
warranties or defaults in the observance or performance of any of its covenants
or agreements, except for breaches or defaults which, individually or in the
aggregate, would not have a material adverse effect or materially impair the
ability of the parties to consummate the transactions contemplated by the Merger
Agreement, or (B) in connection with the Company entering into a definitive
agreement with respect to a Superior Proposal, provided the Company has complied
with all the requirements in connection therewith and that it makes simultaneous
payment of certain Expenses and the Termination Fee (each as defined below).
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any party thereto except as described under "Fees and Expenses" below
and except that termination will not relieve any party from liability for any
breach thereof before termination.
7
FEES AND EXPENSES. The Merger Agreement provides that, except as provided
in the following paragraph, all fees and expenses incurred in connection with
the Offer, the Merger, the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such fees or expenses, whether or
not the Offer or the Merger is consummated.
Under the Merger Agreement the Company will pay, or cause to be paid, to
Schnitzer the sum of (a) all of Schnitzer's out-of-pocket fees and expenses
incurred or paid by or on behalf of Schnitzer in connection with the Merger or
the consummation of any of the transactions contemplated by the Merger
Agreement, including all HSR Act filing fees, fees and expenses of counsel,
commercial banks, investment banking firms, accountants, experts, environmental
consultants and other consultants to Schnitzer ("Expenses"), up to an amount
not to exceed $1,000,000 and (b) $2,000,000 (the "Termination Fee") upon
demand if (i) Schnitzer terminates the Merger Agreement in accordance with the
provisions described in clause (c)(B) or (c)(C) under the heading
"Termination" above or (ii) the Company terminates the Merger Agreement in
accordance with the provisions described in clause (d)(B) under the heading
"Termination" above. In addition, the Company will pay, or cause to be paid,
to Schnitzer, the Expenses up to a maximum amount of $1,000,000 upon demand if
(i) the Offer is not consummated solely by reason of the nonsatisfaction of one
of the Offer Conditions and (ii) it was within the power of the Company by its
action or inaction to avoid the nonsatisfaction of such condition and (iii) the
Merger Agreement was not terminated by the Company pursuant to the provisions
described in clause (d)(A) under the heading "Termination" above, and (iv)
within twelve (12) months after termination of the Merger Agreement the Company
consummates (or enters into a definitive agreement with respect to and
subsequently consummates) a Takeover Proposal that was made before the
termination of the Merger Agreement.
AMENDMENT. The Merger Agreement may not be amended except by written
agreement of the parties thereto.
ASSIGNMENT. The Merger Agreement may not be assigned by any party without
the prior written consent of each of the Company and Schnitzer, which consent
will not unreasonably be withheld.
The foregoing description of the Merger Agreement is qualified in its
entirety by reference to the text of the Merger Agreement, which has been filed
as EXHIBIT 1 to the Company's Statement on Schedule 14D-9 filed with the
Commission. Such Exhibit should be available for inspection at the Commission's
office of 450 Fifth Street, N.W., Washington, D.C. 20549, and copies should be
obtainable, upon payment of the Commission's customary charges, by writing to
the Commission at that address.
OPERATIONS FOLLOWING CONSUMMATION OF THE OFFER
The Company has been advised by Schnitzer that, following consummation of
the Offer, Schnitzer intends to consolidate management of the Company at
Schnitzer's headquarters in Portland, Oregon and to undertake a review of the
business and operations of the Company and the Proler Entities and that, based
on such review, Schnitzer is likely to propose changes in the Company's assets
(including dispositions of certain assets), business, corporate structure,
capitalization, management and dividend policy.
APPRAISAL RIGHTS
Holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, holders of Shares at the effective time
of the Merger will have certain rights pursuant to the provisions of Section 262
of the DGCL ("Section 262") to dissent and demand appraisal of their Shares.
Under Section 262, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the proposed Merger) and to receive payment of
such fair value in cash, together with a fair rate of interest, if any. Any such
judicial determination of the fair value of Shares could be based upon factors
other than, or in addition to, the price per Share to be paid in the Merger or
the market value of the Shares. The value so determined could be more or less
than the price per Share to be paid in the Merger. The foregoing summary of
Section 262 does not purport to be complete and is qualified in its entirety by
reference to Section 262.
8
GOING PRIVATE TRANSACTIONS
The Commission has adopted Rule 13e-3 under the Securities Exchange Act of
1934 (the "Exchange Act"), which is applicable to certain "going private"
transactions and which may under certain circumstances be applicable to the
Merger. However, Rule 13e-3 would be inapplicable if (a) the Shares are
deregistered under the Exchange Act prior to the Merger or (b) such Merger is
consummated within one year after the purchase of the Shares pursuant to the
Offer and such Merger provided for stockholders to receive cash for their Shares
in an amount at least equal to the Offer Price. If applicable, Rule 13e-3
requires, among other things, that certain financial information concerning the
fairness of the proposed transaction and the consideration offered to minority
stockholders in such transaction be filed with the Commission and disclosed to
stockholders prior to the consummation of the Merger.
CONFIDENTIALITY AGREEMENT
Schnitzer and the Company entered into the confidentiality agreement, dated
June 11, 1996 (the "Confidentiality Agreement"), a copy of which is filed as
EXHIBIT 2 hereto and incorporated herein by reference. Pursuant to the
Confidentiality Agreement, Schnitzer agreed, among other things, that they would
keep confidential certain information ("Evaluation Material") furnished to it
concerning the Company, its subsidiaries and joint venture operations and that
Schnitzer would use the Evaluation Material solely for the purpose of evaluating
a business transaction with the Company and would not use it in any way directly
or indirectly detrimental to the Company, its subsidiaries and joint venture
operations.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting of the Board of Directors of the Company held on September 15,
1996, the Board of Directors, based upon and subject to the terms and conditions
set forth in the Merger Agreement, unanimously approved and adopted the Merger
Agreement, the Merger and the Offer, and recommended that the stockholders of
the Company accept the Offer, tender their Shares to the Purchaser pursuant to
the Offer and, if required by the DGCL, approve and adopt the transactions
contemplated by the Merger Agreement.
A press release announcing the Offer, the Merger and the Merger Agreement
was released jointly by the Company and Schnitzer on September 16, 1996 and is
filed herewith as EXHIBIT 3 and is incorporated herein by reference.
BACKGROUND; REASONS FOR THE BOARD'S RECOMMENDATION.
BACKGROUND. The Company's principal business, the purchase, sale and
processing of scrap metals, is conducted primarily through fifty percent or
less-owned incorporated and unincorporated joint operations ("joint
operations"), which primarily make export sales. In addition, through its
wholly owned subsidiary Proler Recycling, Inc. ("Proler Recycling"), the
Company operates three plants that collectively sell precipitation iron, low
residual steel, copper, tin and specialty chemicals in the domestic market.
Another wholly owned subsidiary, Proler Environmental Services, Inc. ("Proler
Environmental"), has been engaged in efforts to develop and market its patented
gasification technology.
In general, the Company's joint operations are structured so that policy
decisions require the unanimous consent of the participants. As a result, the
Company's control over the joint operations is limited and must be exercised in
concert with its partners in those operations. The Company regularly makes
advances to the joint operations, primarily for the purchase of inventory and
for operating costs, and receives periodic distributions, primarily from the
sales proceeds of export shipments.
Proler Recycling's plants are located in Coolidge, Arizona; Lathrop,
California; and Seattle, Washington. In November 1995, Proler Recycling
substantially completed construction of new plant facilities in Coolidge at a
cost of approximately $9 million. The new facilities, combined with the existing
plant operations, are designed to recover copper, tin and other metals and
chemicals derived from the manufacture of electronic printed circuit boards.
Proler Recycling experienced a series of construction delays, cost
9
overruns and start-up and operational problems at the new facilities, resulting
in operating losses during the fiscal year ended January 31, 1996 ("Fiscal
1996") that have continued in the current fiscal year.
Proler Environmental received a United States Patent on its gasification
technology process in June 1995. This gasification technology uses a thermal
conversion process to recycle hydrocarbon and cellulose-based waste to produce a
synthesis gas suitable for sale to industrial users and utilities. In the fourth
quarter of Fiscal 1996, Proler Environmental wrote-off its $4.0 million
investment in its Houston gasification plant.
On February 2, 1996, the Board of Directors met and, among other things,
discussed the Company's strategic alternatives with respect to its businesses.
The Board of Directors recommended that management engage an investment banking
firm to advise the Company on matters to enhance stockholder value.
Effective February 28, 1996, the Company was reorganized into a "holding
company" structure, with the Company owning all of the assets previously owned
by its predecessor corporation and conducting all of the business previously
conducted by its predecessor through newly-formed, wholly-owned subsidiaries of
the Company. The reorganization was effected by a merger conducted pursuant to
the DGCL. The holding company structure was intended to enhance the Company's
flexibility in managing, operating and financing its venture operations and
wholly-owned businesses. This was intended, in turn, to facilitate
implementation of the Company's five-year business plan (currently in its fourth
year), with the goals of restructuring, selling or otherwise disposing of
certain underperforming and unproductive assets, and supplementing the Company's
core commodity metals business by investing in technologies that profit from
processing and recycling waste and secondary materials.
On March 21, 1996, the Board of Directors met and, among other things,
determined that it would be in the best interests of the Company and its
stockholders for the Company to take an active approach in pursuing
opportunities with other companies. The Board of Directors and management of the
Company interviewed a number of investment banking firms as potential resources
to assist the Company with these efforts.
On April 12, 1996, the Company engaged J.C. Bradford as the Company's
financial advisor in evaluating strategic alternatives for the Company,
including the possible sale of the Company by way of a merger, a sale of all or
a portion of the assets or stock of the Company or otherwise. On the same date,
the Company also engaged Chase Securities Inc. ("Chase Securities") to render
financial advisory services to the Company in connection with the development of
a long-range financial strategy to maximize stockholder value, which might
involve the sale of all or a substantial portion of the assets or equity
securities of the Company to another party.
On April 16, 1996, the Company issued a press release reporting a
consolidated net loss of $9,044,000, or $1.92 per share, for Fiscal 1996 and a
consolidated net loss of $10,880,000, or $2.31 per share, for the fourth quarter
of Fiscal 1996. These results reflected, among other things, charges related to
the write-down of capital costs attributable to Proler Environmental's
gasification plant, continuing operating losses at Proler Recycling's Coolidge,
Arizona plant and a $2.7 million pretax loss from joint operations during the
Fiscal 1996 fourth quarter. The April 16, 1996 press release also stated that
the Company had engaged J.C. Bradford and Chase Securities and indicated that
potential transactions to enhance stockholder value could involve one, two or
all of the Company's businesses.
On April 29, 1996, Robert W. Philip, the President of Schnitzer, and Barry
Rosen, the Vice President -- Finance and Treasurer of Schnitzer, contacted Chase
Securities and expressed interest in a possible purchase of the Company's joint
operations interests.
On April 30, 1996, representatives of J.C. Bradford, Chase Securities and
the Company, including the then-president and chief executive officer of the
Company, Steven F. Gilliland, met with representatives of Hugo Neu Corporation
("HNC"). HNC owns the interests not owned by the Company in each of the joint
operations, except for a one-third interest owned by a third party in certain of
the Company's joint operations. The representatives of HNC at the April 30, 1996
meeting included HNC's chief executive officer. On May 6, 1996, the Company's
Board of Directors met with representatives of J.C. Bradford and Chase
Securities. J.C. Bradford and Chase Securities, as well as Mr. Gilliland,
recommended that the
10
Company commence immediate negotiations with HNC regarding a potential sale of
the Company's joint operations interests while simultaneously testing the
interest of third parties, including Schnitzer, in the joint operations
interests and investigating the feasibility of financing alternatives.
J.C. Bradford and Chase Securities, in consultation with the Company,
prepared a list of potential third-party buyers of the Company's joint
operations interests and, between May 18 and June 19, 1996, contacted forty-two
potential buyers, including domestic and international companies. Where
considered appropriate by the Company's financial advisors, these potential
buyers were also advised that, as indicated in the Company's April 16 press
release, the Company would consider proposals for all of the Company. Of the
forty-two potential buyers contacted, twenty requested a package of public
information regarding the Company and were given bid instructions. The
preliminary bid date was set for July 10, 1996. J.C. Bradford and Chase
Securities also investigated the feasibility of financing alternatives for the
Company and advised the Company that such alternatives would involve significant
dilution for the Company's existing stockholders.
On May 29, 1996, the Company announced the addition of two new board
members, Roman E. Boruta (former chief executive officer of Purolater Products
Company and previously president of Reed Tool Company, a subsidiary of Baker
International Corp.) and Bruce W. Wilkinson (former chief executive officer of
CRSS Inc.).
On June 13, 1996, Proler reported a consolidated net loss of $2,615,000, or
$0.55 per share, for the three months ended April 30, 1996. The loss reflected a
pretax loss from joint operations of $243,000, as well as continuing problems
with the Coolidge, Arizona operations of Proler Recycling. The Company also
stated that continued accumulation of excess inventories at the joint ventures
had resulted in an increase in the Company's bank debt to finance these
inventories.
On June 14, 1996, Schnitzer executed a confidentiality agreement with the
Company dated as of June 11, 1996.
On June 24, 1996, Mr. Gilliland resigned as president, chief executive
officer and a director of the Company to accept a position with an electric
utility company. Mr. Gilliland's resignation was unexpected. The Company
announced Mr. Gilliland's resignation on June 24, 1996 and also announced its
determination to adjourn the Company's annual meeting of stockholders, which had
been scheduled for June 25, 1996, to July 16, 1996. On July 1, 1996, the Company
announced the appointment of Mr. Wilkinson to serve as interim president and
chief executive officer of the Company until a permanent president and chief
executive officer could be selected. From June 27 to July 5, 1996, prospective
acquirors were advised that, due to the unexpected resignation of Mr. Gilliland,
the preliminary bid date was postponed until July 24, 1996.
On June 25, 1996, the Company's Board of Directors assessed and discussed
the status of efforts to develop interest in a purchase of all or a part of the
Company's assets or equity. At that meeting, J.C. Bradford and Chase Securities
confirmed their advice that any financing alternatives available to the Company
would be extremely dilutive to the Company's existing stockholders.
On July 10, 1996, representatives of J.C. Bradford and Chase Securities met
with representatives of HNC to encourage HNC to submit an offer to purchase the
Company's joint operations interests.
Following the Company's annual meeting of stockholders on July 16, 1996,
the Company issued a press release on July 17, 1996 announcing the election of
directors. The press release also stated the Company's concern regarding its
liquidity position as a result of continued build-up of inventory by the joint
operations, which had resulted in an increase in working capital requirements at
the joint operations and strained the Company's financial resources. The July
17, 1996 press release also stated that the Company's outstanding bank debt was
approximately $26 million as of July 15, 1996 and that the Company's combined
commitment level for revolving credit facilities was $28 million, reducing to
$17.5 million on August 31, 1996. The Company further stated that it had advised
its bank that the Company did not expect to be able to meet the August 31, 1996
step-down to $17.5 million. Stating that there could be no assurance that the
bank would amend the Company's credit facilities, the Company
11
disclosed that it was negotiating with its bank and continuing to work with its
investment bankers to address strategic alternatives to enhance stockholder
value, including exploring the raising of additional capital and the possible
sale of the Company's interests in the joint operations. The Company also stated
that its liquidity problems reflected continuing problems at Proler's Coolidge,
Arizona plant and indicated that the Company was working to resolve the problems
and would reassess those operations within the next sixty days. Finally, the
Company announced its intention to dramatically reduce all costs, both labor and
expense, and to cut corporate overhead, as well as to defer all discretionary
expenditures on the development of the Proler Environmental gasification
project.
On July 22, 1996, Mr. Wilkinson received a call from Mr. Philip of
Schnitzer expressing interest in a possible transaction.
On July 24, 1996, no bids for the Company's joint operations interests were
received from prospective third-party acquirors in response to the preliminary
bid due-date established by J.C. Bradford and Chase Securities. On that date,
Mr. Wilkinson telephoned Mr. Philip and the two men reached a tentative
understanding to meet in person or have another phone conversation.
On July 29, 1996, HNC submitted a proposal to acquire the Company's
interests in the joint operations. The HNC proposal contemplated a purchase
price for the Company's joint operations interests equal to the remainder of (a)
the book value of the Company's interests, minus (b) the net amount of certain
inventory-related adjustments, minus (c) $10 million. The HNC proposal also
contemplated that $15 million of the purchase price would be paid in the form of
a nonnegotiable, 15-year promissory note from a newly formed entity bearing
interest at 6% per annum with annual principal payments of $500,000 commencing
at the end of the sixth year, with the remaining $10.5 million of principal due
at the end of the fifteenth year and with interest and principal payments
subject to certain offsets. In addition, the HNC proposal required that the
Company indemnify HNC and the newly formed entity against the Company's
percentage share of all liabilities (including contingent and unknown
liabilities of all kinds, and expressly including all environmental liabilities)
not reflected in the calculation of the book value of the Company's joint
operations interests.
On July 31, 1996, Mr. Wilkinson and Herman Proler, chairman of the board of
the Company, conducted an extended telephone conference with representatives of
Schnitzer, including Mr. Philip, Mr. Rosen, Leonard Schnitzer, chairman of
Schnitzer's Board of Directors, Gary Schnitzer, Schnitzer's Vice
President -- California Scrap Operations, and Anton Pardini, general counsel of
Schnitzer. During this conversation, the parties explored, among many topics,
the potential benefits to both companies of a merger.
On August 1, 1996, Mr. Wilkinson sent a letter to HNC requesting
clarification of the inventory-related adjustment provisions of HNC's July 29,
1996 proposal. A response from HNC was received on August 7, 1996. The Company's
management analyzed the HNC proposal and determined that net cash proceeds to
the Company after repayment of bank debt would be in the range of $18 million,
or approximately $3.81 per share. The Company's management also determined that
the balance of the purchase price, represented by the proposed 15-year
nonnegotiable note, would have a value to the Company and its stockholders that
would be substantially less than the $15 million face amount of the note.
On August 8, 1996, after negotiation and execution of a confidentiality
agreement, Mr. Wilkinson, Mr. Proler, Michael Loy, the chief financial officer
of the Company, and a representative of Chase Securities met at the Company's
offices with representatives of a steel company ("Other Steel Company")
regarding the Other Steel Company's potential interest in the acquisition of
Proler. The Other Steel Company representatives indicated that they would review
data and respond "within a few weeks". No proposal from the Other Steel
Company was received by the Company or its financial advisors.
On August 9, 1996, representatives of the Company and its financial
advisors met at the Company's offices with representatives of Schnitzer, who
expressed interest in the acquisition of the Company and pledged to respond
shortly with a specific proposal regarding their interest.
On August 12, 1996, after consultations with J.C. Bradford and Chase
Securities, Mr. Wilkinson communicated in detail with the Company's Board of
Directors regarding the Company's analysis of
12
HNC's July 29 proposal and polled the Board members to confirm their concurrence
with the Company's rejection of the HNC proposal.
On August 14, 1996, Mr. Wilkinson sent a letter to HNC rejecting HNC's July
29, 1996 proposal to acquire the Company's joint operations interests. Mr.
Wilkinson's letter cited, among other factors, the facts that the HNC offer was
not an all-cash offer and that the proposed indemnities and rights of offset
would not be in the best interests of the stockholders of the Company.
On August 15, 1996, Mr. Philip and Mr. Rosen advised Mr. Wilkinson that
Schnitzer was considering a cash tender offer to acquire all of the stock of the
Company. Mr. Philip and Mr. Rosen also described the due diligence that
Schnitzer would pursue as well as Schnitzer's evaluation process and
methodology. Mr. Wilkinson advised Schnitzer that, if Schnitzer were to propose
a value in a range that Mr. Wilkinson could support, Mr. Wilkinson would take a
written offer to the Company's Board of Directors.
On August 20, 1996, Schnitzer submitted a written proposal to the Company
to acquire all of the Company's outstanding shares of common stock for $7.00 per
Share (Proler's Common Stock closed at $3.75 per share on August 20, 1996, up
$0.125 from the previous day's close). After consulting with the Company's
financial advisors and members of the Company's Board of Directors, Mr.
Wilkinson telephoned Mr. Rosen on August 21, 1996 and stated, among other
things, reasons why the Company was worth more than the $7.00 per Share amount
that Schnitzer had offered on August 20, 1996. Mr. Wilkinson also informed Mr.
Rosen that Schnitzer would be expected to assume approximately $2.5 to $3.0
million more in liabilities (primarily consisting of deferred compensation
liabilities) than had been contemplated in Schnitzer's August 20, 1996 letter.
On August 22, 1996, Schnitzer communicated to Mr. Wilkinson in a telephone
conversation its agreement to increase its offer to $7.50 per share and to
assume the additional deferred compensation liabilities identified by Mr.
Wilkinson on August 21. Mr. Wilkinson communicated this offer to the Board of
Directors and polled the members of the Board of Directors to obtain their
preliminary consensus on proceeding with discussions with Schnitzer.
Representatives of the Company and Schnitzer thereafter commenced a due
diligence investigation process, and legal counsel for the two companies began
negotiating and drafting documents for a potential definitive agreement.
On August 29, 1996, the Board of Directors of the Company met and discussed
the Schnitzer proposal in detail with the Company's investment bankers. The
Board of Directors also discussed the continuing operational problems at Proler
Recycling's Coolidge, Arizona plant, as well as management's progress in
renegotiating the Company's bank credit agreement.
On August 30, 1996, a third party (the "Financing Source") wrote a letter
to Mr. Proler expressing the Financing Source's interest in making an investment
in the Company. At the Company's request, on September 5, 1996, Chase Securities
wrote to the Financing Source requesting additional information regarding the
proposed investment. The Financing Source subsequently requested a meeting with
the Company's senior management, which was arranged for September 13, 1996.
On September 6, 1996, Mr. Wilkinson and the chief executive officer of HNC
spoke by telephone. HNC's chief executive officer inquired whether, in light of
the Company's August 14, 1996 letter rejecting HNC's July 29, 1996 proposal,
HNC's proposal was regarded by the Company as "dead". Mr. Wilkinson reiterated
the concerns expressed in the Company's August 14, 1996 letter and advised HNC
that an all-cash proposal would be appropriate and would be considered.
On September 10, 1996, a draft of the proposed Merger Agreement was
distributed to the Board of Directors of the Company. On September 12, 1996, the
Board of Directors of the Company met with the Company's legal counsel and
representatives of J.C. Bradford and Chase Securities and conducted a thorough
discussion of the proposed Merger Agreement and other relevant issues. After an
extended meeting, Mr. Wilkinson and counsel telephoned representatives of
Schnitzer and its counsel to conduct further negotiations regarding certain
provisions of Schnitzer's proposed Merger Agreement that were not acceptable to
the Company's Board of Directors. These negotiations involved, among other
matters, the amount of the Termination Fee and the maximum amount of Expenses
for payment of which the Company
13
could be responsible, as well as the circumstances under which such amounts
could become payable by the Company. After discussion and negotiation, these
matters were resolved and the Merger Agreement was finalized on the terms
incorporated in the final form of Merger Agreement subsequently approved and
executed by the Company.
On September 13, 1996, pursuant to arrangements previously made, Mr.
Wilkinson, Mr. Proler and a representative of Chase Securities met with
representatives of the Financing Source in person and by telephone to discuss
the parameters within which the Financing Source was interested in making an
investment in the Company. The Financing Source indicated an interest in
acquiring control of the Company in exchange for a cash investment in the
Company. The Financing Source also indicated that it desired that the Company
enter into an agreement to deal exclusively with the Financing Source during a
period of time while the Financing Source conducted a due diligence
investigation of the Company and to agree to pay a "break-up fee" to the
Financing Source in the event the Company pursued an alternative transaction.
On September 13, 1996, the Company and its bank entered into an amendment
to the Company's revolving credit facilities under which the combined commitment
level was fixed at $28 million through January 31, 1997, when the line of credit
will terminate.
On September 15, 1996, the Company's Board of Directors met with legal
counsel and representatives of J.C. Bradford and Chase Securities. The Board of
Directors considered at length the detailed terms and provisions of the proposed
Merger Agreement, as revised subsequent to the Board of Directors' meeting on
September 12, 1996. In addition, the Board of Directors received detailed
written and oral presentations from J.C. Bradford and Chase Securities. The
Board of Directors also received written "fairness" opinions (described more
fully below) from each of J.C. Bradford and Chase Securities with regard to the
$7.50 consideration to be received by stockholders of the Company pursuant to
the Offer and the Merger as contemplated by the Merger Agreement. The Board of
Directors also received reports regarding the Company's business, financial
condition and results of operations from Mr. Wilkinson and Mr. Loy, including a
review of the Company's proposed press release and report on Form 10-Q
concerning the Company's second fiscal quarter ended July 31, 1996. The Board of
Directors approved the Merger Agreement, and the Merger Agreement was then
executed and delivered by the parties.
On September 16, 1996, prior to the commencement of trading of Shares on
the New York Stock Exchange, the Company and Schnitzer issued a joint press
release announcing the execution of the Merger Agreement and the terms of the
Offer and the Merger. Also on September 16, 1996, the Company issued a press
release reporting a consolidated net loss of $13,945,000, or $2.96 per share,
for the second quarter ended July 31, 1996. The net loss included a $9.3 million
write-down of Proler Recycling's new plant in Coolidge, Arizona, based on the
Company's revised estimates of the future profitability of this facility. The
Company expressed its belief that, even if the ongoing operational difficulties
are addressed, the facility would not reach marginal profitability until at
least January 1997. The net loss also reflected a charge of approximately $1.4
million for costs associated with the suspension of development of Proler
Environmental's gasification project in connection with the Company's deferral
of discretionary expenditures on this project.
REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE BOARD. In approving
the Merger, the Offer and the Merger Agreement and recommending that all
stockholders tender their Shares pursuant to the Offer, the Board of Directors
considered a number of factors, including, without limitation:
1. the financial and other terms and conditions of the Offer, the
Merger and Merger Agreement;
2. the ability of Schnitzer to finance an all-cash, all-Shares
transaction and the absence of any financing condition;
3. the extensive "due diligence" investigation already conducted by
Schnitzer regarding the Company, Schnitzer's knowledge regarding the
Company's industry and the fact that the Offer is not subject to any "due
diligence" condition;
14
4. the oral and written presentations of J.C. Bradford and Chase
Securities at the September 15, 1996 Board of Directors' meeting and the
written opinions of J.C. Bradford and Chase Securities (the "Opinions"),
each of which was to the effect that, as of the date of the Opinion and
based upon and subject to certain matters stated therein, the consideration
to be received by the holders of Shares in the Offer and the Merger is
fair, from a financial point of view, to such holders. The full text of the
Opinions, which set forth the assumptions made, general procedures
followed, matters considered and limitations on the review undertaken by
J.C. Bradford and Chase Securities, are included herewith and are attached
hereto as EXHIBIT 5 and EXHIBIT 6, and such Opinions are incorporated
herein by reference. Stockholders are urged to read the Opinions carefully
in their entirety;
5. the possible alternatives to the Offer and the Merger, including,
without limitation, seeking to sell less than all of the Company's stock or
assets, seeking equity financing for the Company and continuing to operate
the Company as an independent entity and the risks associated therewith and
the results of the efforts by the Company and the financial advisors to
explore such alternatives;
6. the familiarity of the Board of Directors with the business,
results of operations, properties, prospects and financial condition of the
Company and the nature and status of its businesses and the industry in
which the Company operates;
7. the significant extent to which the Company's value, and its
ability to realize value for the Company's stockholders, are concentrated
in joint operations over which the Company's control is limited and which
have (historically and particularly in recent months) required substantial
advances of funds from the Company, primarily for the purchase of inventory
and for operating costs;
8. the uncertainties regarding the Company's ability to financially
support continuing development of, and to realize value for the Company's
stockholders from, Proler Environmental's gasification technology and from
Proler Recycling's operations;
9. the fact that the Merger Agreement, which prohibits the Company,
its subsidiaries and their respective officers, directors, employees,
representatives, agents or affiliates from initiating, soliciting or
encouraging any potential Takeover Proposal (as defined in the Merger
Agreement), does permit the Company to furnish non-public information to,
and participate in discussions and negotiations with, any person or entity
that makes an unsolicited inquiry, offer or proposal relating to a Takeover
Proposal after the date of the Merger Agreement, if the Board of Directors,
after consultation with its financial advisors and based upon the advice of
counsel and subject to the Company's obligation to advise and keep
Schnitzer informed of any such Takeover Proposal, determines that it is
necessary to do so in the exercise of its fiduciary duties;
10. the fact that in the event that the Board decided to accept a
Superior Proposal (as defined in the Merger Agreement) of a third party,
the Board may terminate the Merger Agreement and pay Schnitzer the
Termination Fee of $2 million plus Expenses not in excess of $1 million
relating to the transactions contemplated by the Merger Agreement. The
Board, after considering, among other things, data presented by J.C.
Bradford and Chase Securities, did not believe that such termination
provision would be a significant deterrent to a higher offer by a third
party interested in acquiring the Company;
11. the belief of the Board of Directors of the Company that the
terms of Merger Agreement should not unduly discourage other third parties
from making bona fide proposals subsequent to the execution and public
announcement of the Merger Agreement and that, if any such proposals were
made, the Company, in the exercise of its fiduciary duties, could determine
to provide information to and engage in negotiations with any such third
party; and
12. the regulatory approvals required to consummate the Merger,
including, among others, antitrust approvals, and the prospects for
receiving such approvals.
The Board of Directors of the Company did not assign relative weights to
these and other factors that were considered or determine that any factor was of
particular importance. Rather, the Board of Directors
15
viewed its position and recommendation as being on the totality of the
information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company and J.C. Bradford entered into an agreement dated April 22,
1996 to confirm the engagement of J.C. Bradford effective April 12, 1996 to
serve as the Company's financial advisor in evaluating strategic alternatives
for the Company and, if determined by the Company, in negotiations regarding the
possible sale of the Company by way of a merger, a sale of all or a portion of
the assets of stock of the Company or otherwise (a "Transaction"). For its
services, the Company agreed to pay J.C. Bradford a nonrefundable fee of
$30,000, an additional nonrefundable fee of $50,000 in connection with J.C.
Bradford's rendering of a written opinion regarding the fairness to stockholders
of the Company of consideration to be received in a Transaction and a fee equal
to 1.0% of the "aggregate consideration" of such Transaction. For this
purpose, such aggregate consideration with respect to the transactions
contemplated by the Merger Agreement will include the total amount received by
the Company's stockholders calculated on a fully-diluted basis and will also
include the principal amount of any debt of the Company which is assumed by the
Purchaser. The Company also agreed to reimburse J.C. Bradford for expenses
reasonably and actually incurred in connection with services rendered as
financial advisor to the Company, not to exceed $25,000 without the prior
written approval of the Company. The Company also agreed to indemnify J.C.
Bradford against certain liabilities incurred in connection with its services,
including liabilities under federal securities laws.
The Company and Chase Securities entered into an agreement dated April 12,
1996 pursuant to which Chase Securities agreed to render financial advisory
services to the Company in connection with the development of a long-range
financial strategy to maximize stockholder value, which might involve the sale
of all or a substantial portion of the assets or equity securities of the
Company to another party (a "Sale Transaction"). For its services as financial
advisor, the Company agreed to pay Chase Securities a non-refundable fee of
$30,000 and a fee equal to 1.0% of the "Aggregate Consideration" in a Sale
Transaction, payable upon consummation of such Sale Transaction. For this
purpose, such Aggregate Consideration with respect to the transactions
contemplated by the Merger Agreement will include the amount of cash payable to
the stockholders of the Company and will also include the amounts of any
indebtedness assumed by the Buyer. The Company also agreed to reimburse Chase
Securities for certain expenses reasonably incurred in connection with its
engagement, not to exceed $25,000 without the prior written approval of the
Company. The Company also agreed to indemnify Chase Securities against certain
liabilities incurred in connection with its services, including liabilities
under federal securities laws.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been affected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company, other than options
granted to the Company's non-employee directors pursuant to the Company's 1994
Non-Employee Director Stock Option Plan.
(b) The Company's directors have confirmed their intentions to tender
shares, if any, held by them in the Offer. The Company does not know the extent
to which its executive officers plan to tender pursuant to the Offer or hold any
Shares beneficially owned by them, nor does the Company know of any current
intention by its executive officers or directors to otherwise dispose of such
Shares.
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 negotiation in response to the Offer which is related 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.
16
(b) Except as described in Item 3(b) and Item 4, 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.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ------------------ ------------------------------------------------------------------------------------------------
<S> <C> <C>
Exhibit 1 -- Agreement and Plan of Merger dated as of September 15, 1996 among Schnitzer Steel Industries,
Inc., Proler International Corp. and PIC Acquisition Corporation.
Exhibit 2 -- Confidentiality Agreement dated June 11, 1996 between Proler International Corp. and Schnitzer
Steel Industries, Inc.
Exhibit 3 -- Letter to Stockholders of Proler International Corp. dated September 20, 1996.*
Exhibit 4 -- Press Release issued by Proler International Corp. dated September 16, 1996.
Exhibit 5 -- Opinion, dated September 15, 1996, of J. C. Bradford & Co., LLC*
Exhibit 6 -- Opinion, dated September 15, 1996, of Chase Securities Inc.*
</TABLE>
- ------------
* Included in copies mailed to stockholders of the Company.
17
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.
PROLER INTERNATIONAL CORP.
By: BRUCE W. WILKINSON
/s/ BRUCE W. WILKINSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: September 20, 1996
18
SCHEDULE I
PROLER INTERNATIONAL CORP.
P.O. BOX 286
HOUSTON, TEXAS 77001
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being provided to the stockholders of Proler
International Corp. (the "Company") pursuant to Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14f-1 thereunder in connection with an Agreement and Plan of Merger (the
"Merger Agreement") entered into September 15, 1996 by and among the Company,
Schnitzer Steel Industries, Inc., a Delaware corporation ("Schnitzer"), and
PIC Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of Schnitzer (the "Purchaser").
Pursuant to the Merger Agreement, the Purchaser is making a cash tender
offer (the "Offer") to purchase all of the outstanding common stock, $1.00 par
value per share, of the Company ("Common Stock"), and the associated stock
rights (the "Rights") issued pursuant to the Rights Agreement dated as of
February 28, 1996 between the Company and KeyCorp Shareholder Services, Inc. (as
amended effective September 15, 1996, the "Rights Agreement"), for $7.50 per
share, net to the seller in cash, as described in the Purchaser's Offer to
Purchase dated September 20, 1996 and related Letter of Transmittal (which Offer
to Purchase and related Letter of Transmittal together constitute the "Offer
Documents"). The Offer will expire October 18, 1996, unless extended. The Offer
is conditioned upon, among other things, there being validly tendered prior to
the expiration date and not withdrawn a number of shares of Common Stock and
associated Rights (such shares and associated Rights herein called "Shares")
which, when added to Shares already owned by Purchaser or Schnitzer, constitutes
at least a majority of the Shares outstanding on a fully diluted basis. The
Merger Agreement also provides for the merger (the "Merger") of the Purchaser
with and into the Company as soon as practicable after consummation of the
Offer. Following the consummation of the Merger (the "Effective Time"), the
Company will be the surviving corporation (the "Surviving Corporation") and a
wholly owned subsidiary of Schnitzer, the sole stockholder of the Purchaser. In
the Merger, each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or by Schnitzer, the
Purchaser, or any indirect or direct wholly owned subsidiary of Schnitzer or the
Company, all of which will be canceled, and other than Shares, if any, held by
stockholders who have perfected rights as dissenting stockholders under Delaware
law) will be converted into the right to receive cash in an amount of $7.50
without interest.
Pursuant to Section 1.3 of the Merger Agreement, promptly after the
consummation of the Offer, the Purchaser will be entitled, subject to compliance
with Section 14(f) of the Exchange Act, to designate that number (rounded up to
the next greatest whole number) of directors to the Company's board of directors
(the "Board of Directors") that is equal to the product of the total number of
directors on the Board of Directors multiplied by the percentage that the
aggregate number of shares of Common Stock beneficially owned by the Purchaser
or any affiliate of Purchaser bears to the number of shares of Common Stock
outstanding. The Company will, upon Purchaser's request, increase the size of
the Board of Directors and exercise its best efforts to secure the resignations
of such number of directors as necessary to enable the Purchaser's designees to
be elected to the Board of Directors. The Company will also cause each committee
of the Board of Directors, the board of directors of each subsidiary of the
Company, and each committee of
I-1
such board to include the Purchaser's designees constituting the same percentage
of each such committee or board as Purchaser's designees are of the Board of
Directors. Following the time that Purchaser's designees constitute a majority
of the Board of Directors, any action on the part of the Company with respect to
the Merger Agreement or any of the transactions contemplated thereby will
require the vote of a majority of the members of the Board of Directors who are
not designees of Purchaser.
The terms of the Merger Agreement, a summary of the events leading up to
the execution of the Merger Agreement and Offer, and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer. This Information Statement
is being delivered to holders of Shares contemporaneously with the Purchaser's
Offer materials and the Company's Schedule 14D-9, dated September 20, 1996, to
which this Information Statement is attached as Schedule I. Certain other
documents (including the Merger Agreement) were filed with the Securities and
Exchange Commission as exhibits to the Schedule 14D-9 and as exhibits to the
Tender Offer Statement on Schedule 14D-1 of the Purchaser and Schnitzer (the
"Schedule 14D-1").
No action is required by the stockholders of the Company in connection with
the election of the Purchaser's designees to the Board of Directors. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended, requires the
mailing to the Company's stockholders of the information set forth in this
Information Statement prior to a change in the majority of the Company's
directors otherwise than at a meeting of the Company's stockholders.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
The Common Stock (together with the associated Rights) is the only
outstanding class of equity securities of the Company. As of September 13, 1996,
the Company had 4,717,356 Shares outstanding. Each Share is entitled to one vote
on all matters submitted to a vote of the stockholders of the Company.
PRINCIPAL STOCKHOLDERS
The following table contains certain information, as of September 13, 1996,
as to (i) each holder of Shares known to the Company (through statements filed
with the Securities and Exchange Commission (the "Commission") pursuant to
Sections 13(d) or 13(g) of the Exchange Act) to be the beneficial owner of more
than 5% of the Common Stock; (ii) each current director of the Company; (iii)
the executive officers named in the Summary Compensation Table set forth in this
Information Statement (with the exception of Steven F. Gilliland, who resigned
as officer and director on June 24, 1996); and (iv) all current directors and
executive officers as a group. Unless otherwise noted, the persons listed below
have sole voting and investment power with respect to the shares held in their
names.
AMOUNT AND PERCENTAGE
NATURE OF OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES
- ------------------------------------- ------------- ------------
Herman Proler........................ 451,367(2) 9.46%
Harvey Alter......................... 4,000(3) *
Richard B. Mayor..................... 5,500(4) *
John J. McKenna...................... 6,000(5) *
Roman E. Boruta...................... -- --
Bruce W. Wilkinson................... -- --
Dennis Caputo........................ 19,694(6) *
David Juengel........................ 7,316(7) *
Ian Linton........................... 10,039(8) *
Michael Loy.......................... 32,640(9) *
(TABLE CONTINUED ON FOLLOWING PAGE)
I-2
AMOUNT AND PERCENTAGE
NATURE OF OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES
- ------------------------------------- ------------- ------------
Pioneering Management Corporation.... 468,000(10) 9.92%
60 State Street
Boston, Massachusetts 02114
Tweedy, Browne Company L.P. ......... 458,923(11) 9.73%
52 Vanderbilt Avenue
New York, New York 10017
Billie Fay Proler.................... 257,409(12) 5.46%
2929 Buffalo Speedway
Houston, Texas 77098
David S. Lurie....................... 256,779(13) 5.44%
5847 San Felipe, Ste. 600
Houston, Texas 77057
Dimensional Fund Advisors............ 241,000(14) 5.11%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
All officers and directors as a group
(15 persons)....................... 559,431(15) 11.58%
- ------------
* Less than one percent.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security). In addition, for
purposes of this table, a person is deemed, as of any date, to have
"beneficial ownership" of any security that such person has the right to
acquire within sixty days after such date.
(2) Includes 395,919 shares held of record by Mr. Proler, 3,181 shares
allocated to Mr. Proler pursuant to the Company's 401(k) Plan as to which
Mr. Proler does not have voting power, and 52,267 shares subject to
currently exercisable options. Excluded are 300 shares held by the wife of
Herman Proler, the beneficial ownership of which he disclaims.
(3) Includes 1,000 shares held of record by Dr. Alter and 3,000 shares subject
to currently exercisable options.
(4) Includes 2,500 shares held of record by Mr. Mayor and 3,000 shares subject
to currently exercisable options.
(5) Includes 3,000 shares held of record by Mr. McKenna and 3,000 shares
subject to currently exercisable options.
(6) Includes 4,312 shares held of record by Mr. Caputo, 1,340 shares allocated
to Mr. Caputo pursuant to the Company's 401(k) Plan as to which Mr. Caputo
does not have voting power, and 14,042 shares subject to currently
exercisable options. Does not include 655 shares of restricted stock
awarded to Mr. Caputo pursuant to the Company's 1993 Incentive Compensation
Plan and subject to vesting as described below.
(7) Includes 758 shares held of record by Mr. Juengel, 808 shares allocated to
Mr. Juengel pursuant to the Company's 401(k) Plan as to which Mr. Juengel
does not have voting power, and 5,750 shares subject to currently
exercisable options. Does not include 278 shares of restricted stock
awarded to Mr. Juengel pursuant to the Company's 1993 Incentive
Compensation Plan and subject to vesting as described below.
(8) Includes 1,612 shares held of record by Mr. Linton, 427 shares allocated to
Mr. Linton pursuant to the Company's 401(k) Plan as to which Mr. Linton
does not have voting power, and 8,000 shares subject to currently
exercisable options. Does not include 655 shares of restricted stock
awarded to Mr. Linton pursuant to the Company's 1993 Incentive Compensation
Plan and subject to vesting as described below.
(NOTES CONTINUED ON FOLLOWING PAGE)
I-3
(9) Includes 16,640 shares held of record by Mr. Loy and 16,000 shares subject
to currently exercisable options. Does not include 819 shares of restricted
stock awarded to Mr. Loy pursuant to the Company's 1993 Incentive
Compensation Plan and subject to vesting as described below.
(10) This information is derived from a Schedule 13G dated January 26, 1996
filed by Pioneering Management Corporation ("Pioneering"). Pioneering has
sole dispositive and shared voting power with respect to these shares.
(11) This information is derived from an Amendment Number 3 to a Schedule 13D
dated February 6, 1996 filed by Tweedy, Browne Company L.P. ("TBC") and
Amendment No. 2 to a Schedule 13D filed by Vanderbilt Partners, L.P.
("Vanderbilt") also dated February 6, 1996. The general partners of TBC
are Christopher H. Browne, William H. Browne and John D. Spears, who are
also general partners in Vanderbilt. Of the 458,923 shares shown, 453,923
shares (the "TBC Shares") are held in the accounts of various customers
of TBC as to which TBC has shared dispositive power. TBC has sole power to
vote 415,897 of the TBC Shares and no power to vote 38,026 of the TBC
Shares. 5,000 shares are held by Vanderbilt, which has sole voting and
dispositive power with respect to such shares. Each of TBC and Vanderbilt
disclaim beneficial ownership of shares held by the other and of shares
held in TBC's customer accounts.
(12) Of the shares shown above as beneficially owned by Mrs. Billie Fay Proler,
630 shares are held of record by Mrs. Proler, 84,420 shares are held by
Mrs. Proler and David S. Lurie as trustees for the benefit of Mrs. Proler,
and 172,359 shares are held by Mrs. Proler and Mr. Lurie as trustees of the
Trust under the Will of Israel Proler, Deceased (the "Trust"). Mrs.
Proler and Mr. Lurie share the power to vote and dispose of shares held in
trust for the benefit of Mrs. Proler and as trustees of the Trust.
(13) As described in note 12 above, the shares held by Mr. Lurie are held in his
capacity as a Trustee for the benefit of Mrs. Proler and as a Trustee of
the Trust.
(14) This information is derived from a Schedule 13G dated February 7, 1996
filed by Dimensional Fund Advisors, Inc. ("Dimensional"), a registered
investment advisor. Dimensional is deemed to have beneficial ownership of
241,000 shares of Company stock as of December 31, 1995, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
(15) Includes 114,679 shares subject to immediately exercisable options and
9,255 shares allocated to officers under the Company's 401(k) Plan,
including those shares discussed in notes 4 through 12 above. Does not
include a total of 2,735 shares of restricted stock awarded to officers
under the Company's 1993 Incentive Compensation Plan and subject to
vesting, including those discussed in notes 6 through 9 above.
CHANGES IN CONTROL
To the knowledge of the Company, no change in control of the Company has
occurred since the beginning of its last fiscal year. However, upon successful
completion of the Offer, the Purchaser will have acquired at least a majority of
the outstanding Shares and will effectively control the Company. Pursuant to the
Merger Agreement, the Purchaser will have paid $7.50 per share in cash for all
shares purchased in the Offer and will thereupon consummate the Merger and
Schnitzer will acquire the entire equity interest in the Company.
I-4
DIRECTORS AND EXECUTIVE OFFICERS
GENERALLY
The Board of Directors is currently composed of six directors, elected for
staggered three-year terms and serving until their successors are elected and
have qualified or until their earlier death, resignation or removal.
CURRENT DIRECTORS
HERMAN PROLER is Chairman of the Board of the Company. Prior to October
1995, Mr. Proler had also served as Chief Executive Officer of the Company.
BRUCE W. WILKINSON is the interim President and Chief Executive Officer of
the Company. Mr. Wilkinson is the former Chairman and Chief Executive Officer of
CRSS Inc., a Houston-based, independent power and industrial energy company and
had been with CRSS since 1978. He served as President and CEO from 1982 through
1989 and as Chairman and CEO from 1989 through 1995.
Mr. Wilkinson is also a director of NorAm Energy Corp.
HARVEY ALTER has been Association Manager, Resources Policy Department of
the U.S. Chamber of Commerce since 1979. He is an Adjunct Professor, University
of Maryland University College Graduate School of Management and Technology. Dr.
Alter is a director of the National Institute for Urban Wildlife and of wTe
Corporation. He also is a member of the Solid Waste Committee of Keep America
Beautiful. Dr. Alter has served on the State of Maryland's Task Force on Solid
Waste and in 1989 was appointed Chairman of the Governor's Advisory Council on
Recycling. He has been a member of two federal advisory committees on aspects of
solid waste regulation.
ROMAN E. BORUTA has served in a number of chief executive and other
executive operations management positions. He was Chairman of the Board,
President and Chief Executive Officer of Purolator Products Company from 1990 to
1994 and President and Chief Executive Officer of Donlee Technologies, Inc. from
1988 to 1990. Mr. Boruta also served as President of the Applied Systems
Division of York International from 1987 to 1988. He was President of Reed Tool
Company, a subsidiary of Baker International Corp., from 1979 to 1987 where he
had previously served as Vice President of Manufacturing from 1977 to 1979. Mr.
Boruta was also Vice President and General Manager of Clark Equipment Company
from 1973 to 1977 and had previously been its Vice President of Manufacturing
from 1967 to 1973. Mr. Boruta is currently an independent management consultant
in Houston, Texas. Mr. Boruta is also a director of American Central Gas
Company.
RICHARD B. MAYOR has been a partner at Mayor, Day, Caldwell & Keeton,
L.L.P., a Houston-based law firm, since its formation in 1982. Mayor, Day,
Caldwell & Keeton is retained by the Company. Mr. Mayor is also a director of
American Oncology Resources, Inc.
JOHN J. MCKENNA has been Chairman and Chief Executive Officer of McKenna &
Company, a Houston-based investment banking firm, since its formation in October
1989. From June 1986 to September 1989, Mr. McKenna was managing director and
head of the Houston investment banking office of Lehman Brothers. Commencing
August 1996, Mr. McKenna has been a Managing Director in the Corporate Finance
Group of Price Waterhouse LLP.
I-5
The following table provides certain information with respect to the
current directors.
<TABLE>
<CAPTION>
DIRECTOR
OF POSITION AND OFFICES
COMPANY OR PRESENTLY HELD WITH COMPANY
TERM WILL PREDECESSOR (AND PRESENT PRINCIPAL
NAME AGE EXPIRE SINCE* OCCUPATION IF DIFFERENT)
- ---------------------------------------- --- --------- ---------- -------------------------------
<S> <C> <C> <C> <C>
Herman Proler........................... 68 1999 1948 Director, Chairman of the Board
Bruce W. Wilkinson...................... 52 1999 1996 Director, interim President and
Chief Executive Officer (former
Chairman and Chief Executive
Officer of CRSS Inc.)
Harvey Alter............................ 64 1999 1993 Director (Association Manager,
Resources Policy Department of
the U.S. Chamber of Commerce)
Roman E. Boruta......................... 66 1997 1996 Director (Management
Consultant)
Richard B. Mayor........................ 62 1998 1985 Director (Partner, Mayor, Day,
Caldwell & Keeton, L.L.P.)
John J. McKenna......................... 47 1997 1992 Director (Chairman and Chief
Executive Officer of McKenna &
Company)
</TABLE>
- ------------
* The Company is the successor to Proler International Corp., a Delaware
corporation (the "Predecessor") as a result of a restructuring of the
Predecessor into a "holding company" structure effective
February 28, 1996. Each of the directors, other than Messrs. Boruta and
Wilkinson, served as a director of the Predecessor from the date indicated.
THE PURCHASER'S DESIGNEES
The Purchaser has designated four persons (the "Designees") to be elected
as members of the Board of Directors pursuant to the terms of the Merger
Agreement. Thirty-three shares of the Company's Common Stock are held by the
Leonard Schnitzer Family Trust of which Leonard Schnitzer serves as trustee.
Except for such shares, none of the Designees owns any shares of the Company's
Common Stock beneficially or of record. Set forth below for each Designee is his
or her age, principal occupations during at least the last five years, and other
directorships held of reporting companies. The following information concerning
the Designees is based upon data provided by the Purchaser.
LEONARD SCHNITZER, 71, has been the Chief Executive Officer of Schnitzer
since August 1973, and became Chairman of the Board in March 1991. He is a
director of Schnitzer.
ROBERT W. PHILIP, 48, has been President of Schnitzer since March 1991. He
had been Vice President of Schnitzer since 1984 with responsibility for
Schnitzer's Metra Steel division from 1984 to the time of its sale in July 1990.
He is a director of Schnitzer.
KENNETH M. NOVACK, 49, has been Executive Vice President of Schnitzer and
President of Schnitzer Investment Corp. and certain other affiliated Schnitzer
companies since May 1991. From 1981 until April 1991, he was a partner in the
law firm of Ball, Janik & Novack. He is a director of Schnitzer.
DORI SCHNITZER, 42, has been Secretary of Schnitzer since June 1987 and
became a director in March 1991. She also served as corporate counsel of
Schnitzer from October 1987 to May 1991 when she became Vice President of Lasco
Shipping Co.
STANDING COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established and maintains an Audit Committee and
a Compensation Committee. The Audit Committee reviews with the Company's
independent auditors the plan, scope and results of the annual audit and the
procedures for and results of internal controls. The Audit Committee met once
during the year ended January 31, 1996. The members of the Audit Committee are
Dr. Alter and Mr. Boruta. The Compensation Committee reviews and recommends
compensation arrangements for key
I-6
management personnel, including the Chairman and the President and Chief
Executive Officer of the Company. The Compensation Committee met twice during
the year ended January 31, 1996. The members of the Compensation Committee are
Dr. Alter (Chairman), Mr. McKenna, and Mr. Boruta. The members of the
Compensation Committee also administer the 1988 Stock Option Plan and the 1993
Incentive Compensation Plan. Mr. Boruta joined the Audit Committee and
Compensation Committee in May 1996. The Board of Directors does not have a
nominating committee. Mr. McKenna, who served as a Chairman of the Audit
Committee, resigned from the committee in August 1996.
MEETINGS OF THE BOARD OF DIRECTORS
During the Company's fiscal year ended January 31, 1996, the Board of
Directors held six meetings. During such fiscal year each director attended all
of the meetings of the Board of Directors and all of the meetings of the
committees of which he was a member.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a quarterly payment
of $3,750, plus $1,000 for each Board of Directors' meeting attended. In
addition, committee chairmen receive $1,500 and other committee members receive
$1,000 for each committee meeting attended.
Each of Messrs. Boruta, McKenna, Alter and Mayor was granted options to
purchase 1,000 shares of Common Stock at an exercise price of $7.00 per share
under the 1994 Non-Employee Director Stock Option Plan on June 25, 1996. In
addition, each person who is a non-employee director of the Company on the date
of each annual meeting of stockholders through 1998 will receive options to
purchase an additional 1,000 shares of Common Stock on each such date, for an
exercise price equal to the market value of Common Stock on such date.
EXECUTIVE OFFICERS
The following table sets forth the name and age of each executive officer
of the Company, all positions and offices held by each person named and the
period during which each person named has served as an officer of the Company.
Unless otherwise stated below, each person has held such positions and offices
for more than the past five years:
<TABLE>
<CAPTION>
SERVED
AS AN
OFFICER OF
NAME AGE POSITION AND OFFICES HELD COMPANY SINCE
- ---------------------------------------- --- ---------------------------------------- -------------
<S> <C> <C> <C>
Herman Proler........................... 68 Chairman of the Board, Director(1) 1948
Bruce W. Wilkinson...................... 52 President and Chief Executive Officer, 1996
Director(2)
Norman G. Bishop........................ 65 Vice President -- Technical(3) 1993
Harold B. Burnham....................... 51 Vice President(4) 1995
Dennis L. Caputo........................ 49 Vice President -- Environmental and 1989
Safety Compliance(5)
David A. Juengel........................ 36 Vice President, Treasurer and Assistant 1991
Secretary(6)
Ian A. Linton........................... 36 Vice President -- Western Operations(7) 1991
Michael F. Loy.......................... 51 Vice President -- Finance, Chief 1992
Financial Officer and Secretary(8)
Kurt Smalberg........................... 61 Vice President -- Scrap Operations(9) 1995
Joy S. Thakur........................... 30 Vice President(10) 1995
</TABLE>
(NOTES ON FOLLOWING PAGE)
I-7
- ------------
(1) Mr. Proler has been Chairman of the Board since 1985. From 1985 until
October 5, 1995, Mr. Proler also served as Chief Executive Officer of the
Company.
(2) Mr. Wilkinson joined the company as a Director in May 1996, and has been
interim President and Chief Executive Officer of the Company since July 31,
1996. Mr. Wilkinson was the Chief Executive Officer of CRSS Inc. for more
than five years through 1995.
(3) Mr. Bishop joined the Company on February 13, 1989, and served as Vice
President of Proler Environmental. He was elected Vice
President -- Technical of the Company on April 12, 1993. Prior to February
13, 1989, Mr. Bishop was Vice President of Zia Technology, Inc. for seven
years.
(4) Mr. Burnham joined the Company on June 12, 1995 as Vice President. Prior to
his employment with Proler, he was employed as Director of Sales for
Gilbert Commonwealth in 1994. He served as Director, Business Development
in the Power Division of CRS Sirrine Engineers, Inc. from 1987 to 1994.
(5) Mr. Caputo joined the Company on June 8, 1989 as Vice
President -- Environmental and Safety Compliance. Prior to his employment
with the Company, Mr. Caputo was principal with ENSR Consulting and
Engineering.
(6) Mr. Juengel joined the Company on September 23, 1988 as Tax Manager. He was
elected Assistant Vice President of Finance and Accounting on September 11,
1991 and was promoted to Vice President, Treasurer and Assistant Secretary
on December 8, 1992. Prior to his employment with the Company, Mr. Juengel
was employed as a Tax Manager by Ernst & Young and Coopers & Lybrand.
(7) Mr. Linton joined the Company on May 20, 1991. He was elected Vice
President -- Refining on June 12, 1991 and was promoted to Vice
President -- Western Operations on December 8, 1992. Prior to his
employment with the Company, Mr. Linton was employed as Group Manager of
Capper Pass & Son Limited, North Humberside, England.
(8) Mr. Loy joined the Company on August 1, 1992 as Vice President -- Finance
and Chief Financial Officer and on December 8, 1992 was elected to the
additional position of secretary of the Company. Prior to joining the
Company, Mr. Loy served from 1989 to 1992 as Director and President of MFL
Consulting Group, Inc. From 1987 to 1989, he served as Director, Vice
President and Chief Financial Officer of Cabot Energy Corporation.
(9) Mr. Smalberg joined the Company on October 15, 1995, as Vice
President -- Scrap Operations. Prior to his employment with the Company,
Mr. Smalberg was a private investor from October 1994 to October 1995,
Senior Vice President of Hugo Neu Corporation from October 1990 to
September 1994 and President of the Steel Can Recycling Institute from
August 1988 to September 1990.
(10) Mr. Thakur joined the Company on May 30, 1995, as Vice President. He was
previously employed as Manager of Project Development for Gas Energy, Inc.
in New York, from 1994 to 1995, and in a variety of financial positions
with CRSS Inc. from 1987 to 1994.
The term of office of each of the other officers extends until the next
annual meeting of directors or until his successor has been duly elected and
qualified.
I-8
COMPENSATION SUMMARY
The following tables set forth (i) the aggregate amount of remuneration
paid by the Company for the three fiscal years ended January 31, 1994, 1995 and
1996 to the Chief Executive Officer, the Company's four most highly compensated
officers in addition to the Chief Executive Officer, and (ii) the fiscal
year-end value of all stock options held by such individuals. No stock options
were exercised by any of such individuals during the fiscal year ended January
31, 1996.
Steven F. Gilliland resigned as President and Chief Executive Officer of
the Company on June 24, 1996. On July 31, 1996, Bruce Wilkinson was appointed
interim President and Chief Executive Officer at a monthly salary of $20,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
-------------------------------------------------------------------------------------
(#) OF
ANNUAL COMPENSATION RESTRICTED SECURITIES ALL OTHER
FISCAL --------------------------------- STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARD(1) OPTIONS (2)
- ------------------------------------- ------- ---------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herman Proler........................ 1996 $ 318,718(3) $ 0 $ 275,937(4) $ 0 0 $ 22,127(5)
Chairman 1995 388,636 0 280,882(4) 0 0 25,016(5)
1994 300,000 0 277,888(4) 0 10,000 26,248(5)
Steven F. Gilliland(6)............... 1996 $ 197,728 $ 0 $ 0 $ 0 65,000 $ 0
President and Chief 1995 -- -- -- -- -- --
Executive Officer 1994 -- -- -- -- -- --
Michael Loy.......................... 1996 $ 150,000 $ 0 $ 1,380(7) $ 0 0 $ 1,474
Vice President -- 1995 150,000 45,000 1,633(7) 0 0 1,450
Finance 1994 131,251 56,250 1,415(7) 29,815 6,000 1,449
Dennis Caputo........................ 1996 $ 125,000 $ 0 $ 3,641(7) $ 0 2,000 $ 1,474
Vice President -- 1995 125,000 40,000 3,509(7) 0 0 1,474
Environmental and 1994 125,001 45,000 1,904(7) 23,850 6,000 1,449
Safety Compliance
Ian Linton........................... 1996 $ 115,000 $ 0 $ 341(7) $ 0 3,000 $ 5,382(8)
Vice President -- 1995 115,000 40,000 2,366(7) 0 0 9,829(8)
Western Operations 1994 92,500 45,000 276(7) 23,850 6,000 784
David Juengel........................ 1996 $ 85,000 $ 0 $ 3,271(7) $ 0 0 $ 1,315
Vice President 1995 85,000 25,500 2,249(7) 0 0 1,474
and Treasurer 1994 82,702 19,125 975(7) 10,137 3,000 1,449
</TABLE>
- ------------
(1) Represents the value as of March 11, 1994 of shares of restricted stock
awarded on that date as a portion of the participant's bonus for fiscal 1994
pursuant to the Company's Incentive Compensation Plan. The number of shares
awarded to Messrs. Loy, Caputo, Linton and Juengel were 2,459, 1,967, 1,967
and 836, respectively. Each share award vests one-third each year over the
three-year period beginning January 31, 1995. As of January 31, 1996, the
value of the aggregate restricted stock held by Messrs. Loy, Caputo, Linton
and Juengel (exclusive of shares that vested on such date) was $6,962,
$5,568, $5,568 and $2,363, respectively, based on the $8.50 per share
closing price of the Common Stock on the New York Stock Exchange on such
date. No dividends will be paid on the unvested shares of restricted stock.
No other shares of restricted stock are held by such individuals.
(2) Except as otherwise noted, represents the Company's matching 401(k)
contribution for such officer.
(3) Mr. Proler served as the Company's Chief Executive Officer until October 5,
1995, when Mr. Gilliland assumed this position. Mr. Proler continues to
serve as Chairman of the Board at a salary of $100,000 per year.
(4) Represents payments to Mr. Proler of $937, $5,882, and $2,884, for fiscal
1996, 1995, and 1994, respectively, under the Company's medical
reimbursement arrangement for executive officers (which
(NOTES CONTINUED ON FOLLOWING PAGE)
I-9
plan was terminated effective January 31, 1996) and $275,000, $275,000 and
$275,004 for fiscal 1996, 1995 and 1994, respectively, in payments under Mr.
Proler's deferred compensation arrangement described below.
(5) The spouse of Mr. Proler is a party to a split dollar insurance agreement
with the Company pursuant to which she has obtained an insurance policy on
his life in the amount of $1,000,000. The Company paid annual premiums on
this policy in the amount of $34,182 for each of fiscal 1996, 1995 and 1994.
Mrs. Proler paid the economic benefit to the Company on this policy in the
amounts of $12,055, $10,640, and $9,383 for fiscal 1996, 1995 and 1994,
respectively. The amounts shown represent the net cost to the Company. Upon
the death of Mr. Proler, the beneficiary named by his spouse is entitled to
receive a portion of the benefits under the policy, and the Company will
receive the cash surrender value of the policy. The balance of the amounts
shown represent the Company's matching 401(k) contributions for Mr. Proler
of none, $1,474, and $1,449 for fiscal 1996, 1995 and 1994, respectively.
(6) Mr. Gilliland joined the Company on February 8, 1995 as President and Chief
Operating Officer, and became Chief Executive Officer on October 5, 1995 at
a per annum compensation level of $200,000. Mr. Gilliland resigned as an
officer and director of the Company on June 24, 1996.
(7) Represents payments under the Company's medical reimbursement arrangement
for executive officers. This plan was terminated effective January 31, 1996.
(8) Includes payments in fiscal 1995 by the Company of $8,895 for legal fees
regarding Mr. Linton's permanent residency in the United States and in
fiscal 1996 $4,400 for tax equalization of these legal fees. The balance of
the amount represents Company matching on 401(k) contributions of $982 and
$934 for fiscal 1996 and 1995.
The foregoing table does not include fringe benefits which in the aggregate
do not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
for the named executive officer.
OPTION GRANTS
The following table sets forth certain information as of January 31, 1996,
and for the fiscal year then ended, with respect to stock options granted to the
executive officers named in the Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---------------------------------------- ----------- ------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Gilliland........................ 65,000 75.58% $7.00 02/07/05 $ 286,147 $ 725,153
Dennis Caputo........................... 2,000 2.33% 7.88 04/25/05 9,911 25,117
Ian Linton.............................. 3,000 3.49% 7.88 04/25/05 14,867 37,676
</TABLE>
I-10
OPTION EXERCISES
The executive officers named in the Summary Compensation Table did not
exercise any stock options during the 1995 fiscal year ended January 31, 1996.
The following table sets forth the number of shares covered by unexercisable
stock options as of January 31, 1996, and the value of "in the money" options
held by such executive officer on January 31, 1996.
JANUARY 31, 1996 FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END*
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Herman Proler........................... 52,267 3,333 $ 3,334 $ 1,666
Steven Gilliland........................ 43,333 21,667 65,000 32,500
Michael Loy............................. 16,000 2,000 39,500 1,000
Dennis Caputo........................... 14,042 3,333 2,417 1,833
Ian Linton.............................. 8,000 4,000 2,625 2,250
David Juengel........................... 5,750 1,000 1,000 500
</TABLE>
- ------------
* Based on the $8.50 per share closing price of the Common Stock on the New York
Stock Exchange on January 31, 1996.
REMUNERATION AGREEMENTS AND OTHER ARRANGEMENTS
The Company has entered into a deferred compensation agreement with Herman
Proler, amended as of December 31, 1989, under which he is entitled to receive
monthly payments of $22,917 for a ten-year period commencing with the month
following his attainment of age 65, regardless of whether he is actively
employed by the Company. Pursuant to this agreement such monthly payments began
in January 1993. In the event of Mr. Proler's death, his designated beneficiary
or, in the absence of a designated beneficiary, his spouse or the executor or
administrator of his estate, would be entitled to receive such monthly payments.
In no event may benefits otherwise payable to Mr. Proler under these
deferred compensation agreements described above exceed the lesser of (i) 299%
of their respective "base amounts" as defined and used in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) the maximum
amount of additional compensation respectively payable to him without resulting
in the denial of any Federal income tax deduction by the Company for such
payments under Section 280G or Section 4999 of the Code.
The Company has also entered into a deferred compensation agreement with
Norman Bishop effective April 16, 1993 under which Mr. Bishop will receive a
monthly payment beginning on the later of the
May 1, 1998 or the first day of the month following his retirement from the
Company, and continuing for ten years. Such monthly payments will be $1,181 if
Mr. Bishop is continuously employed by the Company through April 16, 1996,
$2,361 if he is so employed through April 16, 1997, and $3,542 if he is so
employed through April 16, 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors presented the
following report on executive compensation in connection with the Company's 1996
annual meeting of stockholders. This report describes the components of the
Company's compensation to its executive officers and the basis on which
compensation was determined for the Chief Executive Officer and other executive
officers of the Company for the fiscal year ended January 31, 1996. Since this
report was presented, Steven F. Gilliland resigned as President and Chief
Executive Officer of the Company on June 24, 1996. Bruce Wilkinson was appointed
interim President and Chief Executive Officer at a monthly salary of $20,000. In
addition, the Executive Deferred Compensation Plan for key employees described
below was terminated in August 1996 with respect to participants not currently
receiving benefits.
I-11
The members of the Compensation Committee for the fiscal year ended January
31, 1996 were Dr. Alter (Chairman) and Mr. McKenna. The Compensation Committee's
duties include recommending compensation for the Chairman of the Board and for
the President and Chief Executive Officer of the Company and reviewing and
approving recommendations made by management regarding compensation for other
executive officers. Recommendations of the Compensation Committee are subject to
the approval of the Board of Directors of the Company. Members of the
Compensation Committee also administer the Company's 1988 Stock Option Plan and
the Company's 1993 Incentive Compensation Plan.
The executive officers of the Company for the fiscal year ended January 31,
1996 consisted of Herman Proler, Chief Executive Officer until October 1995;
Steven F. Gilliland, President and Chief Executive Officer since February 1995
and October 1995, respectively; Norman Bishop, Vice President -- Technical;
Harold Burnham, Vice President; Dennis Caputo, Vice President -- Environmental
and Safety Compliance; David A. Juengel, Vice President and Treasurer; Ian
Linton, Vice President -- Western Operations; Michael F. Loy, Vice
President -- Finance, Chief Financial Officer and Secretary; Kurt Smalberg, Vice
President -- Scrap Operations; and Joy S. Thakur, Vice President.
In conducting its review and recommendations with respect to executive
compensation, the Compensation Committee considers the following general
objectives:
o Attracting and retaining key executives for the Company.
o Basing incentive compensation opportunities on the Company's
performance.
o Coordinating its recommendations with the Company's annual and
long-term objectives and strategies.
EXECUTIVE OFFICER COMPENSATION
The three principal components of the Company's compensation for executive
officers and key employees are base salary, annual bonuses and stock option
grants. The Compensation Committee believes it is essential that the Company be
able to attract and retain qualified individuals for positions of substantial
responsibility by offering a total compensation package that is competitive in
the industry. Factors taken into account in determining base salary levels
include the Company's financial performance, competitive market conditions and
individual officer duties, responsibilities, current performance, future
potential and tenure with the Company. To that end, the Compensation Committee
has a general policy of targeting base salaries for key executives at the median
level of the competitive market for such executives. In determining competitive
market salaries, comparisons are made to durable goods manufacturing companies,
which include steel and metal manufacturing companies, supplemented by available
information on comparable companies. In view of the Company's financial results
for fiscal 1996, the Committee did not consider salary increases or bonuses for
executive officers appropriate and none have been awarded for 1996.
The Company's executive officers have historically received cash bonuses
determined near the Company's fiscal year end. Under the Company's 1993
Incentive Compensation Plan key employees of the Company have the opportunity to
earn annual bonus awards based on their achievement of performance goals set by
the Compensation Committee. The Compensation Committee attempts to emphasize
quantitative measures of performance whenever possible and focuses on management
activities intended to lead to greater profitability for the Company.
Performance goals are to be determined for each participant on an individual
basis and consist of specific job assignments or financial or operational
performance objectives for the fiscal year. A participant's overall performance
and contribution to the Company may also be considered in determining a portion
of any award. The Compensation Committee believes that the 1993 Incentive
Compensation Plan should incorporate specific operating profit expectations
where appropriate. For example, based on performance goals and criteria under
the plan for the fiscal year ended January 31, 1996, no incentive award could
have been earned by the Chief Executive Officer unless the Company had positive
pretax income for fiscal 1996, as reflected in the financial statements of the
Company for such year after such award had been expensed. As noted above, no
bonuses have been awarded for fiscal 1996.
I-12
Under the 1993 Incentive Compensation Plan, a portion of any bonus may be
payable in restricted shares of Common Stock, valued at the closing price of
Common Stock on the New York Stock Exchange the first day of the fiscal year to
which the award pertains. The percentage of awards to be paid in cash and in
stock may be varied by the Compensation Committee from time to time provided
that the portion payable in stock may not exceed fifty percent of the award.
The 1988 Stock Option Plan is maintained by the Company to provide
executive officers and key employees with additional incentive to promote the
financial success of the Company as reflected by increased value of the
Company's Common Stock. During fiscal 1996, options to purchase an aggregate of
86,000 shares of Common Stock were granted under this plan. The number of shares
granted to Messrs. Gilliland, Smalberg, Burnham and Thakur, the four officers
who joined the Company in fiscal 1996, were 65,000, 10,000, 5,000 and 1,000,
respectively. The options granted to Messrs. Linton and Caputo were 3,000 and
2,000, respectively.
The executive officers of the Company, other than Mr. Proler, Mr. Gilliland
and Mr. Bishop, are also entitled to participate in the Company's Executive
Deferred Compensation Plan for key employees. In general, participants under
this plan who are employed continuously by the Company until age 65 (or who
become permanently disabled while employed by the Company) are entitled to
receive a monthly retirement benefit beginning on the later of their retirement
from the Company or age 65. The benefit is based on a percentage of their
monthly salary on entry into the plan plus a percentage of their bonus for the
previously taxable year of the Company. The Chief Executive Officer of the
Company determines the employees who will participate in the Plan and the
effective date of their participation. Mr. Proler, Mr. Gilliland and
Mr. Bishop participate in the separate deferred compensation arrangements
discussed above.
The Company had in effect a medical reimbursement arrangement with its
executive officers under which the Company paid medical expenses incurred by
such individuals that were not covered by the regular medical insurance
maintained by the Company. This plan was terminated for expenses incurred by the
executive officers after February 1, 1996.
Executive officers of the Company are also entitled to participate in the
Company's Tax Deferred Savings and Retirement 401(k) Plan on the same basis as
other employees of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Proler served as Chief Executive Officer of the Company until October
5, 1995, when Mr. Gilliland assumed this position. Mr. Proler continues as
Chairman of the Board of the Company and his annual base salary was adjusted to
$100,000 in view of his change in responsibilities. In determining Mr. Proler's
salary, the Committee considered a study of compensation for executives with
similar responsibilities in comparable companies prepared by a compensation
consultant. In addition to his current salary, Mr. Proler also receives monthly
payments under the deferred compensation arrangement discussed above.
Mr. Gilliland joined the Company as President and Chief Operating Officer
in February, 1995 with an annual base salary of $200,000, which was determined
in accordance with the policy for such base salaries described above. No salary
increase was awarded to Mr. Gilliland on his promotion to Chief Executive
Officer. In 1996, no salary increases or bonuses have been granted to any
executive officer, including
Mr. Gilliland, in consideration of the Company's financial results for fiscal
1996.
Section 162(m) of the Code limits the deductibility by publicly-held
companies of compensation in excess of $1,000,000 paid to the chief executive
officer and each of the four additional highest-paid executive officers of the
Company. In the past the compensation levels of the Company's executives have
not exceeded this limit and the Company does not anticipate that they will do so
in the foreseeable future.
I-13
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive
officers, Directors and persons who beneficially own more than 10% of the Common
Stock to file initial reports of ownership and reports of changes in ownership
with the SEC. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms filed by such persons. Based
solely on the Company's review of such forms furnished to the Company and
written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and 10% beneficial owners were complied with.
I-14
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the S&P 500 Index and to the S&P Steel Index. The graph assumes that the
amount of the investment in the Company's Common Stock and each index was $100
on the last trading day in fiscal 1991. The Company's primary business is the
buying, processing for recycling and selling of ferrous and other scrap metals,
and there is no industry index for this business or group of public companies
engaged in the business that would constitute a peer group for the Company. The
Company is classified with steel companies under the industry group listings for
companies required to file annual reports with the Securities and Exchange
Commission, by the New York Stock Exchange and by other industry indices, and
considers the S&P Steel Index to be an appropriate published index for purposes
of the performance graph comparison.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Proler International Corp. 100 82.34 85.92 138.43 65.63 81.15
S&P 500 Index ............ 100 122.69 135.67 153.14 153.96 213.48
S&P Steel Index .......... 100 122.62 172.26 225.75 186.10 201.09
I-15
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AMONG
SCHNITZER STEEL INDUSTRIES, INC.,
PROLER INTERNATIONAL CORP.,
AND
PIC ACQUISITION CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER made as of September 15, 1996 (the
"Agreement") is among Schnitzer Steel Industries, Inc., an Oregon corporation
("Schnitzer"), Proler International Corp., a Delaware corporation ("Proler"),
and PIC Acquisition Corporation, a Delaware corporation ("Sub").
RECITALS
A. Sub is a direct, wholly-owned subsidiary of Schnitzer, formed solely
for the purposes of the transactions contemplated by this Agreement.
B. The Boards of Directors of Schnitzer, Sub, and Proler have determined
that it is advisable and in the best interests of their respective stockholders
to enter into a business combination as described in this Agreement.
C. In furtherance of such combination it is proposed that (i) Sub conduct
a cash tender offer pursuant to the terms and conditions of this Agreement for
all of the outstanding shares of Common Stock, $1.00 par value per share, of
Proler (each, a "Share," and collectively, the "Shares") and the associated
Stock Rights (the "Rights") issued pursuant to the Rights Agreement dated as of
February 28, 1996 between Proler and KeyCorp Shareholder Services, Inc. (the
"Rights Agreement") (such cash tender offer, as described in more detail in
Article 1 below, the "Offer"), and (ii) that upon consummation of the Offer, Sub
merge with and into Proler pursuant to the applicable provisions of the Delaware
General Corporation Law (the "DGCL") and the terms and conditions of this
Agreement (such merger, as described in more detail in Article below, the
"Merger").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained in this Agreement,
the parties agree as follows:
ARTICLE 1
THE OFFER
1.1 THE OFFER.
(a) Provided that this Agreement has not been terminated in
accordance with Article of this Agreement and subject to the conditions
and events set forth in ANNEX A to this Agreement (the "Offer
Conditions"), as promptly as practicable but in no event later than five
(5) business days after the execution date of this Agreement, Sub will
commence (within the meaning of Rule 14d-2(a) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) a cash tender offer
to purchase all of the Shares (and the associated Rights) for $7.50 per
Share (and associated Right), net to the seller in cash (less any required
withholding of taxes) (as such may be increased by Sub from time to time,
the "Offer Price"). The terms of the Offer will provide that, subject to
Sub's right to extend the Offer pursuant to Section (b) below, the Offer
will expire on the date that is twenty (20) business days from the date
the Offer is commenced (such date, or the date through which the Offer may
be extended pursuant to Section (b) below, the "Expiration Date").
(b) Sub may in its sole discretion increase the Offer Price,
but Sub may not without the prior written consent of Proler, (i) decrease
the Offer Price, (ii) change the form of consideration payable in the
Offer, (iii) decrease the number of Shares sought pursuant to the Offer,
(iv) add to or modify the Offer Conditions or (v) otherwise amend the
Offer in any manner adverse to Proler's stockholders. Notwithstanding the
foregoing, Sub may, without Proler's consent (x) extend the Offer for an
aggregate total of not more than twenty-five (25) business days from the
original Expiration Date contemplated by Section (a), if at such original
Expiration Date any of the Offer Conditions have not been satisfied or
waived; (y) extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange
Commission (the "SEC"); or (z) extend the Offer for no more than five (5)
business days beyond the original Expiration Date contemplated by Section
(a) in the event that the Offer Conditions have been satisfied but less
than ninety percent (90%) of the Shares have been tendered pursuant to the
Offer.
(c) On the date the Offer is commenced, Sub will file with the
SEC a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to
the Offer. The Schedule 14D-1 will contain as an exhibit or incorporate by
reference the Offer to Purchase (or portions thereof) and form of the
related letter of transmittal and summary advertisement to be used in
connection with the Offer (the Schedule 14D-1 and such other documents,
together with any supplements thereto or amendments thereof, being
referred to herein collectively as the "Offer Documents"). Proler will
provide to Sub in writing all information regarding Proler necessary for
the preparation of the Offer Documents, and Proler and its counsel will be
given a reasonable opportunity to review and comment on the Offer
Documents before they are filed with the SEC and distributed to Proler's
stockholders. Sub will provide to Proler and its counsel any comments that
Sub receives (directly or through its counsel) from the SEC or its staff
with respect to the Offer Documents promptly after receiving such
comments. Sub and Proler will each promptly correct any information
provided by it for use in the Offer Documents if and to the extent that it
has become false or misleading in any material respect, and Sub will
promptly amend and supplement the Offer Documents if and to the extent
that they have become false or misleading in any material respect and will
promptly cause the Offer Documents as so amended and supplemented to be
filed with the SEC and to be
2
disseminated to Proler's stockholders, in each case as and to the extent
required by applicable federal securities laws.
(d) Subject only to the Offer Conditions, in accordance with
the terms of the Offer, Sub will, and Schnitzer will cause Sub to, accept
for payment all Shares validly tendered and not withdrawn (the "Tendered
Shares") as soon as legally permissible after commencement of the Offer,
and pay for all Tendered Shares as promptly as practicable thereafter.
Schnitzer will provide or cause to be provided to Sub on a timely basis
the funds necessary to accept for payment, and pay for, any Shares that
Sub becomes obligated to accept for payment, and pay for, pursuant to the
Offer.
1.2 ACTIONS BY PROLER.
(a) Proler hereby consents to the Offer and represents and
warrants that its Board of Directors (the "Proler Board"), at a meeting
duly called and held on September 15, 1996 unanimously has (i) determined
that this Agreement and the transactions contemplated hereby, including
the Offer, are fair to and in the best interests of Proler's stockholders,
(ii) approved this Agreement and the transactions contemplated hereby,
including the Offer, and (iii) resolved to recommend that the stockholders
of Proler accept the Offer, tender their Shares to Sub and, if required by
applicable law, approve the transactions contemplated hereby. Proler has
been advised by each of its directors that each such person intends to
tender all Shares, if any, that he or she owns pursuant to the Offer.
Proler further represents and warrants that J.C. Bradford & Co. has
delivered to the Proler Board its written opinion dated September 15, 1996
to the effect that, as of the date of such opinion, the amount of the
Offer Price and the Merger Consideration (as defined in Section below) are
fair to Proler's stockholders from a financial point of view. J.C.
Bradford & Co. has agreed to permit the inclusion of its fairness opinion
in the Offer Documents and the Schedule 14D-9 referred to below and the
Proxy Statement referred to in Section (b), and Proler consents to the
inclusion in the Offer Documents of the recommendations of the Proler
Board described in this Section .
(b) As soon as practicable following Sub's filing of the
Schedule 14D-1, Proler will file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 pertaining to the
Offer (together with any amendments or supplements thereto, the "Schedule
14D-9") containing the Proler Board's recommendation described in Section
(a) and will promptly disseminate the Schedule 14D-9 to Proler's
stockholders. Sub and its counsel will be given a reasonable opportunity
to review and comment on the Schedule 14D-9 before it is filed with the
SEC and disseminated to Proler's stockholders. Proler will provide to Sub
and its counsel any comments that Proler receives (directly or through its
counsel) from the SEC or its staff with respect to the Schedule 14D-9
promptly after receiving such comments.
3
(c) Proler will promptly furnish Sub with mailing labels,
security position listings and any available listing or computer files
containing the names and addresses of the record holders of the Shares as
of a recent date and furnish Sub with such additional information and
assistance (including, without limitation, updated lists of stockholders,
mailing labels and lists of securities positions) as Sub or its agents may
reasonably request for the purpose of communicating the Offer to the
record and beneficial holders of Shares. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the
Merger, Schnitzer and Sub and their agents will hold in confidence the
information contained in any such labels, listings, and files, will use
such information only in connection with the Offer and the Merger, and if
this Agreement is terminated, will upon Proler's request deliver and will
use their best efforts to cause their agents to deliver to Proler all
copies of and any extracts or summaries from such information then in
their possession and control.
1.3 DESIGNATION OF DIRECTORS OF PROLER FOLLOWING COMPLETION OF OFFER.
(a) Promptly upon Sub's consummation of the Offer, Sub will be
entitled, subject to compliance with Section 14(f) of the Exchange Act, to
designate that number (rounded up to the next greatest whole number) of
directors on the Proler Board that is equal to the product of the total
number of directors on the Proler Board multiplied by the percentage that
the aggregate number of Shares beneficially owned by Sub or any affiliate
of Sub (including for purposes of this Section such Shares as are accepted
for payment pursuant to the Offer but excluding Shares held by any Proler
Entity (as that term is defined in the introduction to Article 3 below))
bears to the number of Shares outstanding. Proler will cause (i) each
committee of the Proler Board, (ii) the board of directors of each
subsidiary of Proler, and (iii) each committee of such board to include
persons designated by Sub constituting the same percentage of each such
committee or board as Sub's designees are of the Proler Board. Proler
will, upon request by Sub, promptly increase the size of the Proler Board
or exercise its best efforts to secure the resignations of such number of
directors as is necessary to enable Sub designees to be elected to the
Proler Board and to cause Sub's designees to be so elected. Nothing in
this Section will require Proler to elect any person a director if such
election would violate applicable law. After the time that Sub's designees
constitute a majority of the Proler Board, any action on the part of
Proler with respect to this Agreement or any of the transactions
contemplated hereby will require the vote of a majority of the directors
who are not designees of Sub.
(b) Subject to applicable law, Proler will promptly take all
action necessary pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder in order to fulfill its obligations under
this Section and will include in the Schedule 14D-9 disseminated to
stockholders promptly after the commencement of the Offer (or an amendment
thereof or an information statement pursuant to Rule 14f-1 if Sub has not
theretofore designated directors) such information with respect to Proler
and
4
its officers and directors as is required under Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section . Schnitzer
and Sub will supply to Proler and be solely responsible for any
information with respect to itself and its nominees, officers, directors
and affiliates required by Section 14(f) and Rule 14f-1.
ARTICLE 2
THE MERGER
2.1 THE MERGER. Pursuant to the DGCL, and subject to and in accordance
with the terms and conditions of this Agreement, Sub will be merged with and
into Proler as soon as practicable following the satisfaction or waiver of the
conditions set forth in Article of this Agreement.
2.2 STOCKHOLDERS' MEETING; PROXY STATEMENT.
(a) If required by applicable law in order to consummate the
Merger, Proler will, in accordance with Delaware law and Proler's
Certificate of Incorporation and Bylaws, call and hold a special meeting
of its stockholders (the "Stockholders' Meeting") as soon as practicable
following the date on which the Offer is consummated for the purpose of
approving the Merger. Subject to Section , the Proler Board will recommend
to its stockholders that the Merger be approved, and Proler will use its
reasonable best efforts to solicit from its stockholders proxies in favor
of the approval of the Merger ("Stockholder Approval"), and will take all
other action necessary or advisable to secure the vote or consent of
stockholders required by Delaware law to obtain such consents.
(b) Proler will, as soon as practicable following the
consummation of the Offer, prepare and file a preliminary Proxy Statement
to solicit Stockholder Approval (the "Proxy Statement") with the SEC and
will use its best efforts to respond to any comments of the SEC or its
staff and to cause the Proxy Statement, as finalized, to be mailed to
Proler's stockholders as promptly as practicable after responding to all
such comments to the satisfaction of the staff. Sub and Schnitzer will
provide to Proler in writing all information regarding Sub and Schnitzer
necessary for the preparation of the Proxy Statement. Proler will notify
Schnitzer promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will
supply Schnitzer with copies of all correspondence between Proler or any
of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to the Proxy Statement or the Merger. If at any
time before the Stockholders' Meeting there occurs any event that should
be set forth in an amendment or supplement to the Proxy Statement, Proler
will promptly prepare and mail to its stockholders such an amendment or
supplement. Proler will not mail any Proxy Statement, or any amendment or
supplement thereto, to which Schnitzer reasonably objects. The Proxy
Statement will
5
include the Proler Board's recommendation that Proler's stockholders grant
proxies to approve the Merger; provided, however, that such recommendation
may be withdrawn, modified, or amended if and to the extent the Proler
Board determines, in good faith after consultation with outside legal
counsel, that a failure to do so would be contrary to its fiduciary
obligations.
2.3 MERGER WITHOUT STOCKHOLDERS' MEETING. Notwithstanding any other
provision in this Agreement, if Schnitzer, Sub, or any affiliate of either of
them beneficially owns at least 90% of the outstanding Shares, the parties agree
to take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the Expiration Date, but in no event
later than ten business days thereafter, without a meeting of stockholders of
Proler in accordance with Section 253 of the Delaware General Corporation Law.
2.4 EFFECTIVE TIME. As soon as practicable after satisfaction or waiver of
all of the conditions to the Merger set forth in Article of this Agreement, a
Certificate of Merger or Certificate of Ownership and Merger, as the case may
be, prepared in accordance with the applicable provisions of the DGCL (the
"Certificate of Merger") will be executed and filed with the Secretary of State
of the State of Delaware. The Merger will be effective on the date and at the
time (the "Effective Time") when the Certificate of Merger or Certificate of
Ownership and Merger, as the case may be, has been accepted for filing by the
Secretary of State of the State of Delaware.
2.5 EFFECT OF MERGER. At the Effective Time, Sub will be merged with and
into Proler in the manner and with the effect provided by the DGCL, the separate
corporate existence of Sub will cease and thereupon Sub and Proler will be a
single corporation (the "Surviving Corporation") and will continue to be
governed by the laws of the State of Delaware.
2.6 CERTIFICATE OF INCORPORATION, ETC. In addition to the effects
identified in Section :
2.6.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Proler as in effect at the Effective Time will be
the Certificate of Incorporation and Bylaws of the Surviving Corporation, until
each has been duly amended (subject to Section ) in accordance with the terms
thereof and of the DGCL;
2.6.2 DIRECTORS. The directors of Sub at the Effective Time will be
the directors of the Surviving Corporation, until their respective successors
have been duly elected or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws; and
2.6.3 OFFICERS. The officers of Sub at the Effective Time will be
the officers of the Surviving Corporation and will hold office from the
Effective Time in accordance with the Bylaws of the Surviving Corporation.
6
2.7 EFFECT OF MERGER ON CAPITAL STOCK OF CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES. The manner and basis of canceling or converting shares
of Proler or Sub will be as follows:
2.7.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any of the
Shares or any shares of capital stock of Sub:
2.7.1.1 CAPITAL STOCK OF SUB. Each issued and outstanding
share of capital stock of Sub will be converted into and become one fully paid
and nonassessable share of Proler Common Stock.
2.7.1.2 CANCELLATION OF TREASURY STOCK AND SCHNITZER OWNED
STOCK. Each Share (and associated Right) that is owned by Proler or by any
subsidiary of Proler and each Share (and associated Right) that is owned by
Schnitzer, Sub, or any other subsidiary of Schnitzer will automatically be
canceled and retired and will cease to exist, and no consideration will be
delivered in exchange therefor.
2.7.1.3 CONVERSION OF PROLER SHARES. Subject to Section , each
Share (and associated Right) issued and outstanding (other than shares to be
canceled in accordance with Section ) will be converted into the right to
receive from the Surviving Corporation in cash, without interest, the Offer
Price (such amount referred to in connection with the Merger as the "Merger
Consideration"). As of the Effective Time, all such Shares (and associated
Rights) will no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and each holder of a certificate representing
any such Shares (and Rights) will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration, without interest.
2.7.1.4 SHARES OF DISSENTING STOCKHOLDERS. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding Shares
(and associated Rights) held by any stockholder (a "Dissenting Stockholder") who
has not voted such Shares in favor of or consented to the Merger and who
complies with all the provisions of Section 262 of the DGCL concerning the right
of holders of Shares to dissent from the Merger and require appraisal of their
Shares ("Dissenting Shares") will not be converted as described in Section but
will become the right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to the laws of the State of
Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws
his or her demand for appraisal or fails to perfect or otherwise loses his or
her right of appraisal, in any case pursuant to DGCL, his or her Shares will be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration. Proler will give Schnitzer (i) prompt notice of any
demands for appraisal of Shares received by Proler and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands. Proler will not, without the prior written consent of Schnitzer,
make any payment with respect to, or settle, offer to settle, or otherwise
negotiate, any such demands.
7
2.7.1.5 WITHHOLDING TAX. The right of any stockholder to
receive the Merger Consideration will be subject to and reduced by the amount of
any required tax withholding obligation.
2.7.2 EXCHANGE OF CERTIFICATES.
2.7.2.1 PAYING AGENT. Before the Effective Time, Schnitzer and
Proler will designate a mutually acceptable bank or trust company to act as
paying agent in the Merger (the "Paying Agent"), and, from time to time on,
before or after the Effective Time, Schnitzer will make available, or cause the
Surviving Corporation to make available, to the Paying Agent funds in amounts
and at the times necessary for the payment of the Merger Consideration upon
surrender of certificates representing Shares as part of the Merger pursuant to
Section , it being understood that any and all interest earned on funds made
available to the Paying Agent pursuant to this Agreement will be turned over to
Schnitzer.
2.7.2.2 EXCHANGE PROCEDURE. As soon as reasonably practicable
after the Effective Time, the Paying Agent will mail to each holder of record of
a certificate or certificates that immediately before the Effective Time
represented Shares (the "Certificates"), (i) a notice (advising the holders that
the Merger has become effective) and a letter of transmittal in customary and
appropriate form (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by Schnitzer, together with such letter of
transmittal, properly completed and duly executed, and such other customary
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate will be entitled to receive in exchange therefor the amount of cash
into which the Shares theretofore represented by such Certificate have been
converted pursuant to Section , and the Certificate so surrendered will be
canceled. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of Proler, payment may be made to a Person
(as defined in Section below) other than the Person in whose name the
Certificate so surrendered is registered, if such Certificate is properly
endorsed or otherwise is in proper form for transfer and the Person requesting
such payment pays any transfer or other taxes required by reason of the payment
to a Person other than the registered holder of such Certificate or establishes
to the satisfaction of the Surviving Corporation that such tax has been paid or
is not applicable. Until surrendered as contemplated by this Section , each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the amount of cash, without
interest, into which the Shares theretofore represented by such Certificate will
have been converted pursuant to Section . No interest will be paid or will
accrue on the cash payable upon the surrender of any Certificate.
2.7.2.3 NO FURTHER OWNERSHIP RIGHTS IN PROLER COMMON STOCK.
All cash paid upon the surrender of Certificates in accordance with the terms of
Section will be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore
8
represented by such Certificates. At the Effective Time, the stock transfer
books of Proler will be closed, and there will be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the Shares
that were outstanding immediately before the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Paying Agent for any reason, they will be canceled and exchanged as provided in
Section .
2.7.2.4 NO LIABILITY. None of Schnitzer, Sub, Proler, or the
Paying Agent will be liable to any Person in respect of any cash delivered to a
public official pursuant to any applicable abandoned property, escheat, or
similar law. As used in this Agreement, the term "Person" means any individual,
corporation, general partnership, limited partnership, limited liability
company, joint venture, trust, cooperative or other association, Governmental
Entity (as defined in Section (b) below), or any other organization.
2.7.2.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. In the event
that any Certificate will have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the Person claiming such Certificate to be lost,
stolen, or destroyed, Proler will issue in exchange for such lost, stolen, or
destroyed Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this Agreement; PROVIDED, HOWEVER, that Proler
may, in its sole discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed Certificate to
give Proler a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made against Proler with respect to the certificate
alleged to have been lost, stolen, or destroyed.
2.8 CONVERSION OF PROLER STOCK OPTIONS; RESTRICTED STOCK. Before the
Effective Time, Proler will use its best efforts to obtain the cancellation of
all stock options, vested and unvested, outstanding under Proler's 1988 Stock
Option Plan as amended (the "1988 Plan") with an exercise price less than the
amount of the Merger Consideration in exchange for a payment to the optionee of
an amount per option share equal to the difference between the exercise price
for such share and the amount of the Merger Consideration. In accordance with
the 1988 Plan and Proler's 1994 Non-Employee Director Stock Option Plan (the
"1994 Plan"), a holder of any options outstanding as of the Effective Time will
be entitled to receive, upon exercise of such options in accordance with the
1988 Plan or the 1994 Plan, as the case may be, an amount equal to the Merger
Consideration such holder would have been entitled to receive in the Merger if
he had been the holder of the shares of Common Stock that he would otherwise
have received upon exercise of the options, and will have no right to receive
any stock of Proler upon such exercise. Before the Effective Time, Proler will
use its best efforts to obtain the cancellation of all unvested rights to
receive in the future shares of Common Stock pursuant to Proler's 1993 Incentive
Compensation Plan in exchange for payment to the holders of such rights of an
amount per share equal to the amount of the Merger Consideration.
2.9 CLOSING. Unless this Agreement has been terminated and the
transactions contemplated by it have been abandoned pursuant to Article , the
closing of the Merger (the "Closing") will take place at the offices of Stoel
Rives LLP, 900 SW Fifth Avenue, Suite 2300,
9
Portland, Oregon 97204, at 10:00 a.m. on the date when the last of the
conditions set forth in Article hereof (other than conditions that by their
terms are to occur at Closing) will have been fulfilled or waived or on such
other date as Schnitzer and Proler may agree (the "Closing Date").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In this Agreement, any reference to any event, change, effect or agreement
being "material" with respect to any entity or group of entities means any
material event, change, effect or agreement related to the condition (financial
or otherwise), properties, assets, liabilities, businesses, operations or
results of operations of such entity or group of entities taken as a whole. The
term "Material Adverse Effect" used in connection with a party or any of such
party's subsidiaries or joint ventures means any event, change or effect that is
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, businesses, operations or results of operations of such
party, its subsidiaries and joint ventures taken as a whole, provided that a
Material Adverse Effect will not include any adverse effect resulting from
general economic conditions. As used in this Agreement, the term "Proler Entity"
(and collectively, the "Proler Entities") means (i) Proler, (ii) Hugo Neu Proler
Company together with each of its subsidiaries and any other entity used in
connection with its business in which Proler or any Proler subsidiary has an
interest, (iii) Prolerized New England Company, together with Proleride
Transport Systems, Inc. and any other entity used in connection with the
business of Prolerized New England Company in which Proler or any Proler
subsidiary has an interest, (iv) Prolerized- Schiabo Neu Company together with
each of its subsidiaries and any other entity used in connection with its
business in which Proler or a Proler subsidiary has an interest, (v) Proler's
wholly-owned direct or indirect subsidiaries and (vi) any other entity in which
Proler or any subsidiary has an ownership interest through a joint venture or
other enterprise. The entities described in clauses (ii), (iii) and (iv) of the
preceding sentence are hereinafter referred to as the "Joint Ventures." For
purposes of this Agreement, "to the knowledge of Proler" or words of similar
import mean actual knowledge of any executive officer of Proler.
3.1 PROLER'S REPRESENTATIONS AND WARRANTIES. Proler represents and
warrants to Schnitzer and Sub as follows:
3.1.1 CORPORATE EXISTENCE AND AUTHORITY. Proler is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware. Proler has the full corporate power and authority to enter
into this Agreement and carry out its terms. Except for the approval of its
stockholders, if required, Proler has taken all corporate action necessary to
authorize the execution, delivery, and performance of this Agreement. This
Agreement has been duly and validly executed and delivered by Proler and is
binding upon and enforceable against Proler in accordance with its terms, except
as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization, or other laws of general application relating to or
affecting the rights of creditors and except as enforceability may be
10
limited by principles of equity governing specific performance, injunctive
relief, or other equitable remedies.
3.1.2 NO ADVERSE CONSEQUENCES. Except as set forth on SCHEDULE
3.1.2, neither the execution and delivery of this Agreement by Proler nor the
consummation of the transactions contemplated by this Agreement will:
(a) violate or conflict with any provision of Proler's
certificate of incorporation or bylaws;
(b) violate any law, judgment, order, injunction, decree,
rule, regulation, or ruling of any court, legislature, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency (a "Governmental Entity") applicable to any
Proler Entity, except as such would not have a Material Adverse Effect,
individually or in the aggregate;
(c) either alone or with the giving of notice or the passage
of time or both, conflict with, constitute grounds for termination or
acceleration of, result in the breach of the terms, conditions, or
provisions of, result in the loss of any benefit to any Proler Entity
under, or constitute a default under any agreement, instrument, license,
or permit to which any Proler Entity is a party or by which any Proler
Entity is bound, except as such would not have a Material Adverse Effect,
individually or in the aggregate; or
(d) require any notices to or consent of any third party,
including without limitation any Governmental Entity.
3.1.3 CAPITALIZATION. Proler has authorized capital stock consisting
of 15,000,000 shares of Proler Common Stock, of which 4,717,356 shares were
outstanding on September 15, 1996 and 500,000 shares of preferred stock, par
value $1.00, none of which is outstanding. Proler has 6,057 shares of Common
Stock in treasury as of the execution date of this Agreement. Options to
purchase 140,845 shares were outstanding on September 15, 1996 under grants made
pursuant to the 1988 Plan and the 1994 Plan (collectively, the "Proler Stock
Plans"). All of the outstanding shares of capital stock of Proler have been duly
authorized and are validly issued, fully paid, and nonassessable, and no shares
were issued in violation of preemptive or similar rights of any stockholder or
in violation of any applicable securities laws. Except as set forth above, there
are no shares of capital stock of Proler authorized, issued, or outstanding,
and, except for options granted pursuant to the Proler Stock Plans and the
Rights, there are no preemptive rights or any outstanding subscriptions,
options, warrants, rights, convertible securities, or other agreements or
commitments of Proler of any character relating to the issued or unissued
capital stock or other securities of Proler. There are no outstanding
obligations of Proler to repurchase, redeem, or otherwise acquire any of the
Shares.
11
3.1.4 SUBSIDIARIES AND JOINT VENTURES. Except as disclosed on
SCHEDULE 3.1.4, Proler has no subsidiaries and owns no stock or other interest
in any other corporation or in any partnership or limited liability company, or
other venture or entity. Each subsidiary of Proler and each joint enterprise in
which Proler has an interest is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation or formation.
3.1.5 SEC REPORTS AND FINANCIAL STATEMENTS. Proler has filed with
the SEC, and has made available to Schnitzer true and complete copies of, all
forms, reports, schedules, statements, and other documents required to be filed
by it since December 31, 1994 under the Exchange Act or the Securities Act of
1933 (the "Securities Act") (each of such forms, reports, schedules, statements,
and other documents, to the extent filed and publicly available before the date
of this Agreement, other than preliminary filings, is referred to as a "Proler
SEC Document"). Each Proler SEC Document, at the time filed, (a) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of all Proler Entities included in the Proler SEC Documents comply as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of
the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of Proler and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
3.1.6 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by any Proler Entity specifically for inclusion or incorporation by
reference in (i) the Offer Documents; (ii) the Schedule 14D-9; (iii) the
information to be filed by Proler in connection with the Offer pursuant to Rule
14f-1 promulgated under the Exchange Act (the "Information Statement") or (iv)
the Proxy Statement will, in the case of the Offer Documents, the Schedule
14D-9, and the Information Statement, at the respective times the Offer
Documents, the Schedule 14D-9, and the Information Statement are filed with the
SEC or first published, sent, or given to Proler's stockholders, or, in the case
of the Proxy Statement, at the time the Proxy Statement is first mailed to
Proler's stockholders or at the time of the Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation or warranty is made by Proler with respect to statements
made or incorporated by reference therein based on information supplied by
Schnitzer or Sub in writing specifically for inclusion or incorporation by
reference therein. The Schedule 14D-9, the Information Statement, and the Proxy
Statement
12
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.
3.1.7 LEGAL PROCEEDINGS. Except as disclosed in SCHEDULE 3.1.7,
there is neither pending nor, to the knowledge of Proler, threatened by or
against any Proler Entity any legal action, claim, arbitration, investigation,
or administrative proceeding before any Governmental Entity that could (i) have
a Material Adverse Effect on the parties following the Closing; or (ii) enjoin
or restrict the right or ability of Proler to perform its obligations under this
Agreement and, to the knowledge of Proler, there is no basis for any such claim,
litigation, proceeding, or investigation.
3.1.8 CONTRACTS AND ARRANGEMENTS. SCHEDULE 3.1.8, which is organized
by type of agreement, contains a complete and accurate list of all agreements of
the following types to which any Proler Entity is a party or by which it is
bound and which are material to the Proler Entities (the "Contracts"):
(a) any mortgage, note, or other instrument or agreement
relating to the borrowing of money or the incurrence of indebtedness by
Proler or Proler's guaranty of any obligation for the borrowing of money;
(b) contracts, agreements, purchase orders, or acknowledgment
forms for the purchase, sale, lease or other disposition of any Proler
Entity's equipment, products, materials, or capital assets, or for the
performance of services;
(c) contracts or agreements for the joint performance of work
or services and all other joint venture agreements;
(d) contracts or agreements with agents, brokers, consignees,
sales representatives, or distributors relating to the sale of any Proler
Entity's products or services;
(e) contracts or agreements relating to the employment or
compensation of any Proler Entity's officers, directors, or employees,
including without limitation any collective bargaining agreements;
(f) any other contract, instrument, agreement, or obligation
not described in any other section of this Agreement to which any Proler
Entity is a party or by which it is bound and which contains material
unfulfilled obligations of any Proler Entity.
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3.1.9 REAL PROPERTY; MATERIAL ASSETS.
(a) SCHEDULE 3.1.9 contains a list of (i) all real property
owned by any Proler Entity and (ii) all other assets owned by any Proler
Entity having an original cost of more than $5,000 (together, the
"Material Properties and Assets"). Except as set forth in SCHEDULE 3.1.9,
each Proler Entity has good and marketable title to all of its respective
Material Properties and Assets subject to no encumbrance, lien, charge, or
other restriction (including, without limitation, any restriction or
transfer) of any kind or character and there is no condition, restriction,
or reservation affecting the title to or utility of any of the Material
Properties and Assets, other than (i) such imperfections or irregularities
of title, encumbrances, claims, liens, charges or other conditions,
restrictions or reservations as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties, (ii) statutory
liens securing payments (including taxes) not yet due and (iii) such
imperfections or irregularities of title, encumbrances, claims, liens,
charges or other conditions, restrictions or reservations as do not have a
Material Adverse Effect on the Proler Entities.
(b) Except as does not hot have a Material Adverse Effect with
regard to buildings and improvements listed on SCHEDULE 3.1.9, (i) there
are no structural or nonstructural defects of a material character, (ii)
such buildings and improvements are not in violation of the requirements
of any Governmental Entity, and all necessary final certificates of
occupancy have been issued for such buildings and improvements, (iii) all
licenses and permits required by Governmental Entities have been issued
for such buildings and improvements and the operations conducted in
connection with them, (iv) the current use of the buildings and
improvements does not violate such licenses and permits, (v) all such
licenses and permits have been paid, and (vi) the remainder of the
Material Properties and Assets are in good working order and condition,
ordinary wear and tear excepted, and are useable in the ordinary course of
business.
3.1.10 LEASES. SCHEDULE 3.1.10 contains a list of all material
leases with terms in excess of one year to which any Proler Entity is a party
(the "Leases"). Except as does not have a Material Adverse Effect, each Proler
Entity enjoys undisturbed possession to each leasehold interest it holds under
the Leases.
3.1.11 STATUS OF CONTRACTS AND LEASES.
(a) Each of the Contracts and Leases is valid, binding, and
enforceable by the applicable Proler Entity in accordance with its terms
and is in full force and effect, except as enforceability may be limited
or affected by applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by principles of
equity governing specific performance, injunctive relief or other
equitable remedies. There is no existing default or violation by any
Proler Entity under any Contract or Lease and no
14
event has occurred which (whether with or without notice, lapse of time,
or both) would constitute a default of any Proler Entity under any
Contract or Lease, except for such defaults as would not have a Material
Adverse Effect.
(b) Proler is not aware of any default by any other party to
any Contract or Lease or of any event which (whether with or without
notice, lapse of time, or both) would constitute a default by any other
party with respect to obligations of that party under any Contract or
Lease, except for such defaults as would not have a Material Adverse
Effect.
3.1.12 COMPLIANCE WITH LAWS. Except for those whose absence would
not have a Material Adverse Effect, each Proler Entity possesses all
governmental and other licenses, certificates, consents, permits, and other
authorizations of Governmental Entities (collectively, "Licenses") legally
required to carry on its business as now conducted. No material violation exists
in respect of, and no proceeding is pending or to Proler's knowledge threatened
to revoke or limit, any such License. Except as disclosed in the Proler SEC
Documents, the businesses of the Proler Entities are not being conducted in
violation of any laws, rules, regulations, ordinances, codes, judgments, orders,
writs, or decrees applicable to its business where such violation would have a
Material Adverse Effect. Except as set forth on SCHEDULE 3.1.12 or disclosed in
the Proler SEC Documents, there have been no violations of such laws, rules,
regulations, ordinances, codes, judgments, orders, writs, and decrees since
December 31, 1990 where such violation would have a Material Adverse Effect.
3.1.13 ENVIRONMENTAL MATTERS.
3.1.13.1 DEFINITIONS. As used in this Agreement,
"Environmental Law" means any federal, state, or local statute, regulation, or
ordinance pertaining to the protection of human health or the environment and
any applicable orders, judgments, decrees, permits, licenses, or other
authorizations or mandates under such laws. "Hazardous Substance" means any
hazardous, toxic, radioactive, or infectious substance, material, or waste as
defined, listed, or regulated under any Environmental Law, and includes without
limitation petroleum oil and its fractions. "Contamination" means the existence
(actual or reasonably suspected) in the environment of a Hazardous Substance, if
the existence or suspected existence of such Hazardous Substance requires any
investigatory, remedial, removal, or other response action under any
Environmental Law, if such response action legally could be required by any
Governmental Entity.
3.1.13.2 ENVIRONMENTAL COMPLIANCE. Except as set forth in
SCHEDULE 3.1.13:
(a) Each Proler Entity possesses all material governmental and
other Licenses it is required to carry under any Environmental Law for its
business as now conducted. No material violation exists in respect of, and
no proceeding is pending or threatened to revoke or limit, any such
License. Each Proler Entity is operating its
15
business in material compliance with all Environmental Laws. No incident
regarding environmental matters has occurred in connection with the
business of any Proler Entity that was required to be reported to a
Governmental Entity under any Environmental Law that was not so reported,
except where the failure to report would not have a Material Adverse
Effect.
(b) No real property currently or previously owned, leased, or
occupied by any Proler Entity is or during Proler's ownership or
occupation was used as a hazardous waste treatment, storage, or disposal
facility within the meaning of Subtitle C of the Resource Conservation and
Recovery Act ("RCRA") or any comparable state Environmental Law. No real
property currently owned, leased, or occupied by any Proler Entity and to
Proler's knowledge no real property previously owned, leased, or occupied
by any Proler Entity is listed on the National Priority List or the
Comprehensive Environmental Response, Compensation and Liability
Information System list compiled by the Environmental Protection Agency or
any comparable listing compiled by any state or local Governmental Entity
having jurisdiction over environmental matters.
(c) No Proler Entity has received notice from any Governmental
Entity or other Person that it has been named as a responsible or
potentially responsible party with respect to any site listed on the lists
described in paragraph (b) above or that it otherwise is potentially
liable for Contamination under any Environmental Law.
(d) Except as would not have a Material Adverse Effect, no
portion of any property currently owned, leased, or occupied by any Proler
Entity is Contaminated. Except as would not have a Material Adverse
Effect, with respect to property previously owned, leased, or occupied by
any Proler Entity, no Contamination occurred during any Proler Entity's
ownership, lease, or occupancy.
3.1.14 TAX MATTERS.
3.1.14.1 RETURNS. Each Proler Entity has filed on a timely
basis all federal, state, foreign, and other returns, reports, forms,
declarations, and information returns required to be filed by it with respect to
Taxes (as defined below) that relate to the business, results of operations,
financial condition, properties, or assets of the Proler Entities (collectively,
the "Proler Returns") and has paid on a timely basis all Taxes shown to be due
on the Proler Returns. Except as detailed on SCHEDULE 3.1.14, no Proler Entity
is part of an affiliated group of corporations that files or has the privilege
of filing consolidated tax returns pursuant to Section 1501 of the Internal
Revenue Code of 1986, as amended (the "Code") or any similar provisions of
state, local, or foreign law, and no Proler Entity is a party to any tax-sharing
or tax-allocation agreement. No extensions of time have been requested for
Proler Returns that have not been filed except as set forth on SCHEDULE 3.1.14.
Except as set forth on SCHEDULE 3.1.14, no Proler Entity has received any notice
of audit and there are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for such Taxes for
16
any period. All Proler Returns filed are complete and accurate in all material
respects. Proler has provided Schnitzer with complete and accurate copies of
Proler Returns for each of Proler's fiscal years 1991 through 1995 and the Forms
1139 related to any loss or credit or carryback claim for those years.
3.1.14.2 TAXES PAID OR RESERVED. The reserves for taxes
reflected in the current balance sheet most recently filed as part of a Proler
SEC Document are adequate for payment of Taxes in respect of periods ending on
or before the Closing Date. All reserves for Taxes have been determined in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and with prior periods. All Taxes that any
Proler Entity has been required to collect or withhold have been collected or
withheld and, to the extent required, have been paid to the proper taxing
authority except where the failure to do so would not have a Material Adverse
Effect. No Proler Entity has elected to be treated as a consenting corporation
pursuant to Section 341(f) of the Code.
3.1.14.3 LOSS CARRYFORWARDS; INVESTMENT TAX CREDIT
CARRYFORWARDS. SCHEDULE 3.1.14 contains a complete and accurate list of net
operating loss ("NOL") carryforwards and investment tax credit ("ITC")
carryforwards available to Proler or one or more other Proler Entities for
federal income tax purposes that originated in taxable years set forth in
SCHEDULE 3.1.14.
3.1.14.4 DEFINITION. As used in this Agreement, the term
"Taxes" means all federal, state, local, or foreign taxes, charges, fees,
levies, or other assessments, including without limitation all net income, gross
income, gross receipts, premium, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, estimated severance,
stamp, occupation, property, or other taxes, fees, assessments, or charges of
any kind whatsoever, together with any interest and any penalties (including
penalties for failure to file in accordance with applicable information
reporting requirements), and additions to tax.
3.1.15 EMPLOYEES AND LABOR RELATIONS MATTERS. Except as set forth
on SCHEDULE 3.1.15 or as provided in this Agreement:
(a) To the knowledge of Proler, no Proler Entity employee or
executive designated by Schnitzer as a key employee and listed as such on
SCHEDULE 3.1.15 has any plans to terminate employment with the Proler
Entity that employs him or her;
(b) The Proler Entities have complied in all material respects
with all labor and employment laws, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining, and the payment
of social security and other taxes, except where the failure to comply
would not have a Material Adverse Effect;
(c) There is no unfair labor practice charge, complaint,
representation petition, or other action against any Proler Entity pending
or to Proler's knowledge
17
threatened before the National Labor Relations Board or any other
Governmental Entity and no Proler Entity is subject to any order to
bargain by the National Labor Relations Board;
(d) There is no labor strike, request for representation,
slowdown, or work stoppage actually occurring, pending, or to Proler's
knowledge threatened against any Proler Entity;
(e) To Proler's knowledge no questions concerning
representation have been raised or are threatened with respect to
employees of any Proler Entity;
(f) No grievance that might have a material adverse effect on
any Proler Entity and no arbitration proceeding arising out of or under
any collective bargaining agreement is pending and to Proler's knowledge
no basis exists for any such grievance or arbitration proceeding; and
(g) To Proler's knowledge no employee of any Proler Entity is
subject to any noncompetition, nondisclosure, confidentiality, employment,
consulting, or similar agreements with Persons other than a Proler Entity
relating to the present business activities of the Proler Entities.
3.1.16 EMPLOYEE BENEFITS. SCHEDULE 3.1.16 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive,
life insurance, health and disability insurance, hospitalization, and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established, maintained, or
contributed to by any Proler Entity, and complete and accurate copies of all
those plans or arrangements have been provided to Schnitzer. The employee
pension benefit plans (within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) established and
maintained by Proler Entities that are subject to ERISA are listed separately as
ERISA Plans on SCHEDULE 3.1.16 (the "ERISA Plans"). The ERISA Plans (to the
knowledge of Proler with respect to the ERISA Plans of the Joint Ventures)
comply in all material respects with the applicable requirements of ERISA and
any other applicable laws and regulations. With respect to ERISA Plans intended
to qualify under Section 401(a) of the Code, each applicable Proler Entity has
received from the Internal Revenue Service a favorable determination for each of
the ERISA Plans and their related trusts that each of the ERISA Plans is
qualified and the related trust is tax-exempt under Section 501(a) of the Code.
There has been no event subsequent to that determination that has adversely
affected the tax qualified status of the ERISA Plans (to the knowledge of Proler
with respect to the ERISA Plans of the Joint Ventures) or the exemption of the
related trusts other than changes in the Code that are not effective as of the
Closing Date. No "accumulated funding deficiency" as defined in Section
302(a)(2) of ERISA or Section 412(a) of the Code exists, or has existed, with
respect to any of the ERISA Plans. The present value of all accrued benefits
under each of the funded ERISA Plans does not exceed by more than $1,000,000 the
value of such ERISA Plan's assets, less all
18
liabilities other than those attributable to accrued benefits. None of the
Proler Entities nor a controlled group of corporations of which any Proler
Entity is a member have any "potential withdrawal liability," as defined in
Section 4201 of ERISA. None of the ERISA Plans (to the knowledge of Proler with
respect to the ERISA Plans of the Joint Ventures), its related trusts or any
trustee, investment manager or administrator thereof has engaged in a nonexempt
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code. To the knowledge of Proler, there are not and have not
been any excess deferrals or excess contributions under any ERISA Plan that have
not been corrected. Each ERISA Plan is and has been operated and administered in
all material respects in conformance with the requirements of all applicable
laws and regulations, whether or not the ERISA Plan documents have been amended
to reflect such requirements. Except as set forth in SCHEDULE 3.1.16, no Proler
Entity has any obligation of any kind (whether under the terms of the ERISA
Plans or under any understanding with employees) to make payments under, or to
pay contributions to, any plan, agreement, or other arrangement for deferred
compensation of employees, whether or not tax qualified, including, without
limitation, a single employer tax qualified plan, a tax qualified plan of a
controlled group of corporations, a multi-employer pension plan, a nonqualified
deferred compensation plan, an individual employment or compensation agreement,
or a commitment to provide medical benefits to retirees.
3.1.17 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.1.17, since July 31, 1996, there has not been:
(a) Any event, occurrence, development, or state of
circumstances or facts which could reasonably be expected to result in a
Material Adverse Effect on the business, results of operations, financial
position, assets, or properties of the Proler Entities;
(b) Any damage, destruction, or casualty loss, whether insured
against or not, to the assets or properties of the Proler Entities that
would result in a Material Adverse Effect;
(c) Any increase in the rate or terms of compensation payable
or to become payable by Proler to its directors, officers, or key
employees; any increase in the rate or terms of any bonus, insurance,
pension, or other employee benefit plan, payment, or arrangement made to,
for or with any such directors, officers, or key employees; any special
bonus or remuneration paid; or any written employment contract executed or
amended;
(d) Any amendment to Proler's Certificate of Incorporation or
Bylaws or any entry into any material agreement, commitment, or
transaction (including, without limitation, any borrowing, capital
expenditure or capital financing or any amendment, modification, or
termination of any existing agreement, commitment, or transaction) by the
Proler Entities, except agreements, commitments, or transactions in the
ordinary
19
course of business and consistent with past practices or as expressly
contemplated in this Agreement;
(e) Any direct or indirect declaration, setting aside, or
payment of any dividend or other distribution (whether in cash, stock,
property, or any combination thereof) in respect of the common stock of
Proler, or any direct or indirect repurchase, redemption, or other
acquisition by Proler of any shares of its stock;
(f) Any issuance or sale of any stock of Proler (other than
issuances pursuant to the exercise of options outstanding on April 30,
1996) or any issuance or granting of any option, warrant, or right to
purchase any stock of Proler (other than options granted under the Proler
Stock Plans on or before August 22, 1996) or any commitment to do any of
the foregoing;
(g) Any conduct of business that is outside the ordinary
course of business or not substantially in the manner that the Proler
Entities have previously conducted its business;
(h) Any material purchase or other acquisition of property by
any Proler Entity, any sale, lease, or other disposition of property by
any Proler Entity, or any expenditure by any Proler Entity, except in the
ordinary course of business;
(i) Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of
operations, financial condition, or prospects of the Proler Entities; or
(j) Any encumbrance or consent to encumbrance of any material
property or assets of the Proler Entities except in the ordinary course of
business and except for the types of encumbrances listed in Section
3.1.19.
3.1.18 UNDISCLOSED LIABILITIES. Except for liabilities or
obligations described in the Proler SEC Documents, SCHEDULE 3.1.18, or in
another Schedule to this Agreement, neither the Proler Entities nor any of the
property of the Proler Entities are subject to any material liability or
obligation, whether absolute, contingent, known, or unknown, that was not
included or adequately reserved against in the financial statements contained in
the Proler SEC Documents.
3.1.19 INSURANCE. All material property (fire and extended coverage
perils), business interruption, public liability, workers' compensation,
directors' and officers' liability, and other insurance policies and fidelity
and surety bonds of any Proler Entity in Proler's possession are identified on
SCHEDULE 3.1.19(the "Policies"), and all such Policies are currently in full
force and effect. Copies of the Policies have been provided to Schnitzer. To
Proler's knowledge, there are no disputes with insurers under the Policies, and
all premiums due and payable thereto have been paid. To Proler's knowledge,
there are no pending or threatened
20
cancellations or nonrenewals or premium increases with respect to any of the
Policies, and each Proler Entity is in compliance with all material conditions
contained in its Policies.
3.1.20 INTELLECTUAL PROPERTY.
(a) The term "Intellectual Property Assets" means
collectively:
(i) all registered and unregistered trademarks, service
marks, and applications (collectively, "Marks");
(ii) all patents and patent applications (collectively,
"Patents");
(iii) all copyrights in both published works and
unpublished works that are material to any Proler Entity's
businesses (collectively, "Copyrights"); and
(iv) all trade secrets used in the conduct of the
businesses of the Proler Entities. SCHEDULE 3.1.20 contains a list
and summary description of all Marks, Patents and Copyrights.
(b) Each Proler Entity owns, has the right to use, sell,
license, dispose of, and to bring actions for the misappropriation of all
of Intellectual Property Assets, material to the conduct of its business
without any conflict with or infringement of the rights of others, free
and clear of all liens, charges, encumbrances, or other restrictions of
any kind.
(c) SCHEDULE 3.1.20 contains a list of all material agreements
relating to the Intellectual Property Assets material to the conduct of
its business to which any Proler Entity is a party.
(d) To Proler's knowledge, no Intellectual Property Asset
material to the conduct of business of any Proler Entity is infringed or
has been challenged.
(e) There is no action, suit, proceeding, judgment, order, or
writ pending or to Proler's knowledge, threatened against any Proler
Entity contesting the validity, ownership, or right to use, sell, license,
dispose of, or to bring actions for the misappropriation of the
Intellectual Property Assets material to the conduct of its business.
3.1.21 GUARANTIES; POWERS OF ATTORNEY. Except as set forth on
SCHEDULE 3.1.21, no Proler Entity is a guarantor or otherwise liable for any
liability or material obligation (including without limitation any indebtedness)
of any other Person. To Proler's knowledge, there are no outstanding powers of
attorney executed on behalf of any Proler Entity.
21
3.1.22 BROKERS. No broker, investment banker, financial advisor, or
other Person, other than J.C. Bradford & Co. and Chase Securities, Inc., the
fees and expenses of which will be paid by Proler, is entitled to any broker's,
finder's, financial advisor's, or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Proler. Proler has provided Schnitzer true and correct
copies of all agreements between any Proler Entity and each of J.C. Bradford &
Co. and Chase Securities, Inc.
3.1.23 RIGHTS AGREEMENT. Proler has provided Schnitzer with a
complete and correct copy of the Rights Agreement, including all amendments and
exhibits thereto. The amendment to the Rights Agreement attached to this
Agreement as Annex B has been duly authorized by the Board of Directors of
Proler and has been duly executed by Proler, and, accordingly, the execution of
this Agreement, the announcement or making of the Offer, the acquisition of
Shares pursuant to the Offer, and the Merger and the other transactions
contemplated in this Agreement will not cause the Rights to become exercisable
or result in either Schnitzer or Sub or any of their Affiliates being considered
to be an "Acquiring Person" (as defined in the Rights Agreement) or the
occurrence of a "Distribution Date", a "Section 11(a)(ii) Event" or a "Section
13 Event" (as such terms are defined in the Rights Agreement).
3.1.24 STATE TAKEOVER STATUTES AND OTHER TAKEOVER PROVISIONS. The
Board of Directors of Proler has approved the Offer, the Merger, and this
Agreement and such approval is sufficient to render inapplicable to the Offer,
the Merger, and this Agreement and the transactions contemplated by this
Agreement the provisions of Section 203 of the DGCL and the provisions of
Article Fifteenth of Proler's Certificate of Incorporation. To the best of
Proler's knowledge, no other state takeover statute or similar statute or
regulation applies or purports to apply to the Offer, the Merger, this
Agreement, or any of the transactions contemplated by this Agreement.
3.1.25 DEFERRED COMPENSATION OBLIGATIONS. Proler's aggregate
discounted (at 9%) deferred compensation obligations, both vested and unvested,
to all current and former employees of any Proler Entity, net of related
insurance benefits, is (or, as of the consummation of the Offer and as of the
Effective Time, will be) not more than $1,650,000.
3.1.26 DISCLOSURE. None of representations and warranties made by
Proler in this Agreement contains any untrue statement of a material fact or
omits a material fact necessary to make each statement contained therein not
misleading. To Proler's knowledge, neither Proler nor any responsible officer or
director of Proler has intentionally concealed any fact known by such Person to
have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer relations, employee relations, or
business prospects of any Proler Entity.
3.2 SCHNITZER'S REPRESENTATIONS AND WARRANTIES. Schnitzer represents and
warrants to Proler as follows:
22
3.2.1 CORPORATE EXISTENCE AND AUTHORITY. Schnitzer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Oregon. Schnitzer has the full corporate power and authority to enter
into this Agreement and carry out its terms. Schnitzer has taken all corporate
action necessary to authorize the execution, delivery, and performance of this
Agreement. This Agreement has been duly and validly executed and delivered by
Schnitzer and is binding upon and enforceable against Schnitzer in accordance
with its terms, except as enforceability may be limited or affected by
applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting the rights of creditors and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief, or other equitable remedies.
3.2.2 CORPORATE EXISTENCE AND AUTHORITY OF SUB. Sub is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware. Sub has the full corporate power and authority to enter into
this Agreement and carry out its terms. Sub has taken all corporate action
necessary to authorize the execution, delivery, and performance of this
Agreement. This Agreement has been duly and validly executed and delivered by
Sub and is binding upon and enforceable against Sub in accordance with its
terms, except as enforceability may be limited or affected by applicable
bankruptcy, insolvency, reorganization, or other laws of general application
relating to or affecting the rights of creditors and except as enforceability
may be limited by rules of law governing specific performance, injunctive
relief, or other equitable remedies. All of the issued and outstanding voting
capital stock of Sub is owned by Schnitzer.
3.2.3 NO ADVERSE CONSEQUENCES. Neither the execution and delivery
of this Agreement by Schnitzer and by Sub nor the consummation of the
transactions contemplated by this Agreement will:
(a) violate or conflict with any provision of Schnitzer's
Articles of Incorporation or Bylaws or Sub's certificate of incorporation
or bylaws;
(b) violate any law, judgment, order, injunction, decree,
rule, regulation, or ruling of any Governmental Entity applicable to
Schnitzer or Sub, except such as would not have a Material Adverse Effect,
individually or in the aggregate;
(c) either alone or with the giving of notice or the passage
of time or both, conflict with, constitute grounds for termination or
acceleration of, result in the breach of the terms conditions or
provisions of, result in the loss of any benefit to Schnitzer under, or
constitute a default under any agreement, instruction, license, or permit
to which Schnitzer or Sub is a party or by which it is bound, except such
as would not have a Material Adverse Effect, individually or in the
aggregate; or
(d) except as to HSR Act (as defined in Section below)
compliance, require any notices to or consent of any third party,
including without limitation any Governmental Entity.
23
3.2.4 LEGAL PROCEEDINGS. There is neither pending nor, to the
knowledge of Schnitzer or Sub, threatened by or against Schnitzer or Sub any
legal action, claim, arbitration, investigation, or administrative proceeding
before any Governmental Entity that could enjoin or restrict either Schnitzer's
or Sub's right or ability to perform its obligations under this Agreement and,
to the knowledge of Schnitzer, there is no basis for any such claim, litigation,
proceeding or investigation.
3.2.5 BROKERS. No broker, investment banker, financial advisor, or
other Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Schnitzer.
3.2.6 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Schnitzer or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement or Schedule 14D-9 will, at the time they are
first filed with the SEC, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by
Schnitzer or Sub with respect to statements made or information supplied by
Proler in writing specifically for inclusion or incorporation by reference
therein.
3.2.7 FINANCIAL CAPABILITY. As of the date hereof, Schnitzer has
sufficient financial resources to consummate the transactions contemplated by
this Agreement. None of Sub's or Schnitzer's obligations pursuant to this
Agreement are subject to Schnitzer's or Sub's obtaining or securing any
financing or credit support for the transactions contemplated hereby.
ARTICLE 4
COVENANTS
4.1 CONTINUATION OF BUSINESS. From and after the execution date of this
Agreement until Closing, Proler will use its commercially reasonable best
efforts to, and to cause each Proler Entity other than Proler, to: (i) keep the
business and organization of each Proler Entity intact until the Closing; and
(ii) carry on the business of each Proler Entity in its usual manner until
Closing. Without limiting the generality of the foregoing, except as expressly
provided to the contrary in this Agreement or with the prior written consent of
Schnitzer, until the Closing, Proler agrees that:
(a) Proler will not declare, pay, or set aside for payment any
dividend or other distribution of money or property in respect of its
capital stock;
(b) Proler will not issue any shares of its capital stock
(except upon the valid exercise of currently outstanding Options under the
Proler Stock Plans), or issue or sell any securities convertible into, or
exchangeable for, or options, warrants to
24
purchase, or rights to subscribe to, any shares of its capital stock or
subdivide or in any way reclassify any shares of its capital stock, or
repurchase, reacquire, cancel, or redeem any such shares;
(c) Proler will use its commercially reasonable best efforts
to ensure that (i) the assets, property and rights now owned by each
Proler Entity will be used, preserved, and maintained, as far as
practicable, in the ordinary course of business, to the same extent and in
the same condition as said assets, property, and rights are on the date of
this Agreement, and no unusual or novel methods of manufacture, purchase,
sale, management, or operation of said properties or business or
accumulation, disposition, or valuation of inventory will be made or
instituted; (ii) no Proler Entity will encumber any of its material assets
other than in connection with Proler's credit arrangements with Texas
Commerce Bank, N.A. or make any material commitments relating to such
assets, property, or business, except in the ordinary course of its
business. Proler will use its commercially reasonable best efforts to
ensure that each Proler Entity will pay all debts when due in the usual
course of business;
(d) Proler will, and Proler will use its commercially
reasonable best efforts to ensure that each Proler Entity will, comply in
all material respects with all statutes, laws, ordinances, rules, and
regulations applicable to it in the ordinary course of business;
(e) Proler will, and Proler will use its commercially
reasonable best efforts to ensure that each Proler Entity will, use its
commercially reasonable best efforts to keep or cause to be kept the
Policies (or substantial equivalents) in such amounts duly in force until
the Closing Date and will give Schnitzer notice of any material change in
the Policies;
(f) Proler will not incur additional debt (including without
limitation obligations under leases for real or personal property whether
or not required to be capitalized under generally accepted accounting
principles), incur or increase any obligation or liability (fixed,
contingent, or other, including without limitation liabilities as a
guarantor or otherwise with respect to obligations of others) except in
the ordinary and usual course of its business and consistent with past
practices, forgive or release any material debt or claim, give any waiver
of any right of material value, or voluntarily suffer any extraordinary
loss;
(g) Proler will not make any payment to discharge or satisfy
any lien or encumbrance or pay any obligation or liability (fixed or
contingent) other than (i) current liabilities (including the current
portion of any long-term liabilities) included in the financial statements
contained in the Proler SEC Documents and (ii) current liabilities
incurred or maturing in the ordinary course of business since the date of
the current balance sheet most recently filed as part of a Proler SEC
Document or
25
(iii) payments under its revolving credit facility with Texas Commerce
Bank, N.A. made in the ordinary course of business and consistent with
past practices;
(h) Proler will not, and without prior consultation with
Schnitzer Proler will take no action to, cause any Proler Entity to
acquire any assets other than assets acquired in the ordinary and usual
course of its business and consistent with past practices;
(i) Proler will not, and without prior consultation with
Schnitzer Proler will take no action to cause any Proler Entity to,
purchase or otherwise acquire, or agree to purchase or otherwise acquire,
any debt or equity securities of any Person other than equity securities
issued by a money market fund registered as an investment company under
the Investment Company Act of 1940;
(j) Proler will not, and without prior consultation with
Schnitzer Proler will take no action to cause any Proler Entity to, enter
into any transaction or contract or make any commitment to do the same,
except (i) as set forth on SCHEDULE 4.1, or (ii) in the ordinary and usual
course of business and not requiring the payment in any case of an amount
in excess of $25,000 annually;
(k) Except as set forth on SCHEDULE 4.1, Proler will not, and
without prior consultation with Schnitzer Proler will take no action to
cause any Proler Entity to, increase the wages, salaries, compensation,
pension, or other benefits payable, or to become payable by it, to any of
its officers, employees, or agents, including without limitation any bonus
payments or severance or termination pay, other than increases in wages
and salaries required by employment arrangements existing on the execution
date of this Agreement or otherwise in the ordinary and usual course of
its business;
(l) Proler will not, and without prior consultation with
Schnitzer Proler will take no action to cause any Proler Entity to,
implement or agree to any implementation of or amendment or supplement to
any employee profit sharing, stock option, stock purchase, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation, or any other employee benefit plan or arrangement;
(m) Proler will not, and without prior consultation with
Schnitzer Proler will take no action to cause any Proler Entity to, change
its accounting methods, policies or practices;
(n) When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any Contract
to which any Proler Entity is a party or by which it is bound, Proler will
use its commercially reasonable best efforts to, and to cause any affected
Proler Entity to use its commercially
26
reasonable best efforts to, obtain such consent on terms and conditions
not materially less favorable than those in effect on the execution date
of this Agreement;
(o) Proler will, and will use its commercially reasonable best
efforts to cause each Proler Entity to, maintain its books and records in
accordance with past practices;
(p) Proler will, and will use its commercially reasonable best
efforts to cause each Proler Entity to, pay and discharge all taxes,
assessments, governmental charges, and levies imposed upon it, its income
or profits, or upon any property belonging to it, in all cases before the
date on which penalties attach thereto; and
(q) Proler will not amend its Certificate of Incorporation or
Bylaws.
4.2 NO SOLICITATION.
4.2.1 Proler and its officers, directors, employees,
representatives, and agents will immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Takeover
Proposal (as defined below). Unless this Agreement has been terminated in
accordance with its terms, and provided that neither Schnitzer nor Sub is in
material violation of this Agreement, Proler will not authorize or permit any of
its officers, directors, or employees or any investment banker, financial
advisor, attorney, accountant, or other representative retained by it or any
subsidiary to (i) solicit, initiate, or encourage (including by way of
furnishing non-public information about the Proler Entities), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(ii) participate in any discussions or negotiations regarding any Takeover
Proposal; PROVIDED, HOWEVER, that, if at any time before the acceptance for
payment of Shares pursuant to the Offer, the Board of Directors of Proler
determines in good faith, after consultation with counsel, that it is necessary
to do so in order to comply with its fiduciary duties to Proler's stockholders
under applicable law, Proler may, in response to an unsolicited Takeover
Proposal, and subject to compliance with Section , (x) furnish information with
respect to Proler to any Person pursuant to a confidentiality agreement in
substantially the same form entered into between Proler and Schnitzer and (y)
participate in discussions and negotiations regarding such Takeover Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any director or executive
officer of Proler or any other Proler Entity or any investment banker, financial
advisor, attorney, accountant, or other representative of Proler or any other
Proler Entity will be deemed to be a breach of this Section by Proler. For
purposes of this Agreement, "Takeover Proposal" means any inquiry, proposal, or
offer from any Person relating to any direct or indirect acquisition or purchase
of a substantial amount of assets of Proler or any other Proler Entity or of
over 20 percent of any class of equity securities of Proler or any other Proler
Entity, any tender offer or exchange offer that if consummated would result in
any Person beneficially owning 20 percent or more of any class of equity
securities of Proler or any other Proler Entity, any merger, consolidation,
business combination, sale of substantially
27
all the assets, recapitalization, liquidation, dissolution or similar
transaction involving Proler or any other Proler Entity, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent, or materially delay the Offer or the Merger or that could reasonably be
expected to dilute materially the benefits to Schnitzer of the transactions
contemplated by this Agreement.
4.2.2 Except as set forth in this Section , and unless this
Agreement has been terminated in accordance with its terms, and provided that
neither Schnitzer nor Sub is in material violation of this Agreement, neither
the Board of Directors of Proler nor any committee thereof will (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Schnitzer, the
approval or recommendation by such Board of Directors or such committee of the
Offer, this Agreement, or the Merger; (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal; or (iii) cause Proler to enter into
any agreement with respect to any Takeover Proposal. Notwithstanding the
foregoing, in the event that before the time of acceptance for payment of Shares
in the Offer the Board of Directors of Proler determines in good faith, after
consultation with counsel, that it is necessary to do so in order to comply with
its fiduciary duties to Proler's stockholders under applicable law, the Board of
Directors of Proler may withdraw or modify its approval or recommendation of the
Offer, this Agreement, and the Merger, approve or recommend a Superior Proposal
(as defined below), or cause Proler to enter into an agreement with respect to a
Superior Proposal, but in each case only at a time that is after the second
business day following Schnitzer's receipt of written notice (a "Notice of
Superior Proposal") advising Schnitzer that the Board of Directors of Proler has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the Person making such Superior Proposal.
In addition, if Proler proposes to enter into an agreement with respect to any
Takeover Proposal, it will concurrently with entering into such an agreement
pay, or cause to be paid, to Schnitzer the Expenses and the Termination Fee (as
such terms are defined in Section ). For purposes of this Agreement, a "Superior
Proposal" means any bona fide Takeover Proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than 50
percent of the shares of Proler Common Stock then outstanding or all or
substantially all the assets of Proler and otherwise on terms which the Board of
Directors of Proler determines in its good faith judgment (after consultation
with J.C. Bradford & Co. or another financial advisor of nationally recognized
reputation) to be more favorable to Proler's stockholders than the Offer and the
Merger.
4.2.3 In addition to the obligations of Proler set forth in Sections
4.2.1 and 4.2.3, Proler will immediately advise Schnitzer orally and in writing
of any request for information or of any Takeover Proposal, or any inquiry with
respect to or that could lead to any Takeover Proposal, the material terms and
conditions of such request, Takeover Proposal, or inquiry and the identity of
the Person making such request, Takeover Proposal, or inquiry. Proler will keep
Schnitzer fully informed of the status and details (including amendments or
proposed amendments) of any such request, Takeover Proposal or inquiry.
28
4.2.4 Nothing contained in Section will prohibit Proler from making
any disclosure to Proler's stockholders if, in the opinion of the Board of
Directors of Proler, after consultation with counsel, failure so to disclose
would be inconsistent with its fiduciary duties to Proler's stockholders under
applicable law; PROVIDED, HOWEVER, neither Proler nor its Board of Directors nor
any committee thereof will (except as permitted by Section ), withdraw or
modify, or propose to withdraw or modify, its position with respect to the Offer
or the Merger or approve or recommend, or propose to approve or recommend, a
Takeover Proposal.
4.3 DUE DILIGENCE. For the period up to and including the Closing Date,
Proler will provide, and cause each Proler Entity other than Proler to provide,
to Schnitzer and its authorized agents access to all of each Proler Entity's
physical assets, facilities, financial information, production records,
contracts and other corporate records and documents as Schnitzer deems necessary
to conduct its due diligence into each Proler Entity's business operations.
Schnitzer will have reasonable access during normal working hours to all Proler
Entity's premises, properties, and facilities and will be allowed to meet with
each Proler Entity's management personnel, employees, and any outside
consultants of the Proler Entities, including without limitation auditors and
accountants, investment and other bankers, tax and financial advisors, and
environmental consultants. No later than 10 days after the execution date of
this Agreement, Proler will provide to Schnitzer copies of all documents listed
or referred to in any Schedule to this Agreement. In addition, Proler will
exercise its best efforts to make available to Schnitzer any items and materials
reasonably requested by Schnitzer in connection with its due diligence efforts.
No investigation by Schnitzer or any of its authorized representatives pursuant
to this Section will effect any representation, warranty, or closing condition
of any party to this Agreement.
4.4 HART SCOTT RODINO. Each of Proler and Schnitzer will within five days
after executing this Agreement prepare and file with the Federal Trade
Commission (the "FTC") and the Department of Justice (the "DOJ") the premerger
notification form required under the Hart Scott Rodino Antitrust Improvements
Act (the "HSR Act") and a request for early termination of the waiting period.
The parties will further (i) discuss with each other any comments the reviewing
party may have; (ii) cooperate with each other in connection with such filings,
which cooperation will include, but not be limited to, furnishing the other with
such information or documents as may be reasonably required in connection with
such filings; (iii) promptly file after any request by the FTC or the DOJ any
appropriate information or documents so requested by the FTC or the DOJ; and
(iv) notify each other of any other communications with the FTC or the DOJ that
relate to the transactions contemplated by this Agreement and, to the extent
appropriate, permit the other to participate in any conferences with the FTC or
the DOJ. The parties will use best efforts to accelerate and obtain HSR Act
clearance. Each of Proler and Schnitzer will pay its own expenses in connection
with the preparation of the premerger notification form. The parties will each
pay one-half of the filing fee required by the HSR Act and one-half of the fees
of any experts or advisers mutually retained to assist the parties to obtain HSR
Act clearance.
29
4.5 OTHER GOVERNMENT CONSENTS. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
Governmental Entities any requests for approval or waiver (in addition to those
specifically described above), if any, that are required from Governmental
Entities in connection with the transactions contemplated by this Agreement, and
the parties will diligently and expeditiously prosecute and cooperate fully in
the prosecution of such requests for approval or waiver and all proceedings
necessary to secure such approvals and waivers.
4.6 COMMERCIALLY REASONABLE BEST EFFORTS; NO INCONSISTENT ACTION. Subject
to the terms and conditions hereof, and to the fiduciary duties of the Proler
Board under applicable law as advised by counsel, each party will use its
commercially reasonable best efforts to effect the transactions contemplated by
this Agreement and to fulfill the conditions to the obligations of the opposing
parties set forth in Article of this Agreement. No party will take any action
inconsistent with its obligations under this Agreement or that could hinder or
delay the consummation of the transactions contemplated by this Agreement,
except that nothing in this Section will limit the rights of the parties under
Article of this Agreement.
4.7 CHANGED CIRCUMSTANCES. Each of Proler and Schnitzer will notify the
other party promptly of any fact or occurrence between the date of this
Agreement and the Closing Date of which it becomes aware which makes any of its
(or its subsidiary's) representations contained in this Agreement untrue or
causes any breach of its (or its subsidiary's) obligations under this Agreement.
4.8 FEES AND EXPENSES.
4.8.1 Except as provided below in Section , all fees and expenses
incurred in connection with the Offer and Merger, this Agreement, and the
transactions contemplated by this Agreement will be paid by the party incurring
such fees or expenses, whether or not the Merger is consummated.
4.8.2 Proler will pay, or cause to be paid, in same day funds to
Schnitzer the sum of (i) Schnitzer's Expenses (as defined below) up to a maximum
amount of $1,000,000 and (ii) $2,000,000 (the "Termination Fee") upon demand if
(x) Schnitzer terminates this Agreement under Section ; or (y) Proler terminates
this Agreement pursuant to Section . In addition, Proler will pay, or cause to
be paid, in same day funds to Schnitzer, Schnitzer's Expenses (to the extent not
otherwise payable pursuant to the preceding sentence) up to a maximum amount of
$1,000,000 upon demand if (A) the Offer is not consummated solely by reason of
the nonsatisfaction of one of the Offer Conditions set forth in Section 2 of
Annex A and (B) it was within the power of Proler by its action or inaction to
avoid the nonsatisfaction of such Offer Condition and (C) the Agreement was not
terminated by Proler pursuant to Section and (D) within twelve (12) months after
termination of this Agreement Proler consummates (or enters into a definitive
agreement with respect to and subsequently consummates) a Takeover Proposal that
was made before the termination of this Agreement. "Expenses" means documented
out-of-pocket fees and expenses incurred or paid by or on behalf
30
of Schnitzer in connection with the Merger or the consummation of any of the
transactions contemplated by this Agreement, including without limitation all
HSR Act filing fees, fees and expenses of counsel, commercial banks, investment
banking firms, accountants, experts, environmental consultants, and other
consultants to Schnitzer.
4.9 RIGHTS AGREEMENT. Except as provided in Section , Proler will not
redeem the Rights or amend (other than to delay the Distribution Date (as
defined in the Rights Agreement) or to render the Rights inapplicable to the
Merger) or terminate the Rights Agreement before the Effective Time unless
required to do so by order of a court of competent jurisdiction.
4.10 PRESS RELEASES. No press releases or other public announcements
concerning the transactions contemplated by this Agreement may be made by any of
the parties without the prior written consent of each of the other parties,
which consent will not be unreasonably withheld; PROVIDED, HOWEVER, that nothing
in this provision will prevent a party from making such releases or
announcements as are necessary for a party to satisfy its legal obligations or
the requirements of the New York Stock Exchange or NASDAQ NMS, but in any such
case the affected party will promptly notify the other parties.
4.11 INDEMNIFICATION AND INSURANCE.
4.11.1 After the Effective Time, Proler will (and Schnitzer will as
long as it controls Proler) indemnify and hold harmless each of the current
directors of Proler (the "Indemnified Parties") in their capacities as directors
or officers to the full extent provided in Proler's Certificate of Incorporation
and Bylaws.
4.11.2 Proler will not amend, and Schnitzer will not (as long as it
controls Proler) authorize or permit the amendment of, provisions of Proler's
Certificate of Incorporation or Bylaws providing for indemnification (as in
effect as of the date of this Agreement) in any manner adverse to the
Indemnified Parties for a period of six (6) years from and after the date of
this Agreement; provided, however, that such indemnification is subject to any
limitation imposed from time to time under applicable law.
4.11.3 For six (6) years after the Closing, Proler will (and for so
long as it controls Proler, Schnitzer will cause Proler to) maintain policies of
officers' and directors' liability insurance maintained by Proler as of the date
of this Agreement (provided that Proler may substitute therefor policies of at
least the same coverage containing terms and conditions substantially
equivalent) with respect to the acts or omissions occurring before the Closing,
including but not limited to the transactions contemplated by this Agreement,
covering each of the Indemnified Parties currently covered by Proler's officers'
and directors' liability insurance policy, or who become covered by such policy
before the Closing.
4.11.4 Any determination to be made as to whether any Indemnified
Party has met any standard of conduct imposed by law or by Proler's Certificate
of Incorporation or
31
Bylaws will be made by legal counsel reasonably acceptable to such Indemnified
Party and Schnitzer, retained at Proler's expense.
4.11.5 In the event any Indemnified Party is or becomes involved in
any capacity in any action, proceeding, or investigation for which he has a
claim for indemnification against Proler (including, without limitation, the
transactions contemplated by this Agreement), Proler will, and Schnitzer will
(as long as it controls Proler) cause Proler to, pay as incurred such
Indemnified Party's legal and other expenses actually and reasonably incurred in
connection therewith upon receipt of an understanding by or on behalf of such
Indemnified Party to repay such amount if it is ultimately determined that he is
not entitled to be indemnified by Proler.
4.11.6 The obligations pursuant to this Section will survive the
Merger and will continue in full force and effect for a period of six (6) years
from the Effective Time, provided that as to any claim for indemnification
asserted pursuant to this Section during such six-year period, such obligations
will remain in full force and effect until the final disposition of such claim.
4.11.7 This Section is intended to benefit the Indemnified Parties,
their heirs, executors, and personal representatives and is binding on
successors and assigns of Sub, Schnitzer and Proler.
ARTICLE 5
CONDITIONS TO THE PARTIES' OBLIGATIONS
TO CONSUMMATE THE MERGER
5.1 MUTUAL CONDITIONS. The obligations of each party to consummate the
Merger are subject to the following conditions:
5.1.1 GOVERNMENTAL AUTHORIZATIONS. Each of the parties will have
obtained all authorizations, consents, and approvals of all governmental
agencies and authorities required to be obtained in order to permit consummation
of the transactions contemplated by this Agreement, in a form satisfactory to
each of Proler, Sub, and Schnitzer in its reasonable discretion, and the waiting
period under the HSR Act will have expired or been terminated early.
5.1.2 PROLER STOCKHOLDER APPROVAL. If necessary to approve the
Merger under applicable law, at a duly called and held Stockholders' Meeting,
acting in accordance with applicable provisions of DGCL and the Certificate of
Incorporation and Bylaws of Proler, the holders of at least a majority of the
issued and outstanding Shares of Proler Common Stock will have given Stockholder
Approval.
5.1.3 NO PROHIBITIONS. There has not been promulgated or issued a
law, statute, rule, regulation, decree, order, injunction or ruling by any
Governmental Entity that remains in effect and prohibits, restrains, enjoins or
restricts the consummation of the Merger.
32
5.1.4 NO SUITS. No action, suit or other proceeding has been overtly
threatened or is pending against any party to this Agreement to prohibit,
restrain, enjoin, restrict or otherwise prevent the consummation of the
transactions contemplated by this Agreement.
5.1.5 CONSUMMATION OF OFFER. Sub has purchased Shares pursuant to
the Offer; PROVIDED that this condition will be deemed satisfied if Sub fails to
purchase Shares pursuant to the Offer in violation of the terms of this
Agreement.
ARTICLE 6
TERMINATION
6.1 TERMINATION BY SCHNITZER AND/OR PROLER. This Agreement may be
terminated without further liability at any time before the Closing Date:
6.1.1 MUTUAL CONSENT. By mutual consent of Schnitzer, Sub, and
Proler; or
6.1.2 DELAY IN HSR CLEARANCE. By either Schnitzer or Proler, if
clearance under the HSR Act is not received within 120 days after the filing of
the premerger notification and report form.
6.1.3 INJUNCTION OR RESTRAINT. By either Schnitzer or Proler, if any
Governmental Entity has promulgated or issued a law, statute, rule, regulation,
decree, order, injunction, or ruling or taken any other action prohibiting,
restraining, enjoining, restricting or otherwise prohibiting the Offer or the
Merger that has become final and nonappealable.
6.1.4 FAILURE OF OFFER. By Schnitzer or Proler if the Offer is
terminated or expires in accordance with its terms as the result of the failure
of any of the Offer Conditions without Sub having purchased any Shares pursuant
to the Offer; provided, however, that the right to terminate under this Section
is not available to any party whose failure to perform any of its covenants or
agreements under this Agreement results in the failure of any condition.
6.2 TERMINATION BY SCHNITZER. Schnitzer, if not then in default, may
terminate this Agreement at any time before the Closing Date upon written notice
to Proler of the occurrence of any of the following:
6.2.1 BREACH BY PROLER. If Proler breaches in any material respect
any of its representations or warranties or defaults in the observance or
performance of any of its covenants or agreements under this Agreement, except
for breaches or defaults which, individually or in the aggregate, would not have
a Material Adverse Effect with respect to Proler or Schnitzer or materially
impair the ability of the parties to consummate the transactions contemplated by
this Agreement.
33
6.2.2 WITHDRAWAL OF PROLER BOARD APPROVAL. If (i) the Board of
Directors of Proler or any committee thereof has withdrawn or modified in a
manner adverse to Schnitzer or Sub its approval or recommendation of the Merger
or this Agreement, or approved or recommended any Takeover Proposal, or (ii)
Proler has entered into a definitive agreement with respect to any Superior
Proposal in accordance with Section of this Agreement.
6.3 TERMINATION BY PROLER. Proler, if not then in default, may terminate
this Agreement at any time before the Closing Date upon written notice to
Schnitzer of the occurrence of any of the following:
6.3.1 BREACH BY SCHNITZER. A breach by Schnitzer in any material
respect of any of its representations or warranties or a default in the
observance or performance of any of its covenants or agreements under this
Agreement, except for breaches or defaults which, individually or in the
aggregate, would not have a Material Adverse Effect with respect to Proler or
Schnitzer or materially impair the ability of the parties to consummate the
transactions contemplated by this Agreement.
6.3.2 PERMITTED TAKEOVER AGREEMENT. In connection with Proler
entering into a definitive agreement in accordance with Section , PROVIDED it
has complied with all provisions thereof, including the notice provisions
therein, and that it makes simultaneous payment of the Expenses and the
Termination Fee.
6.4 PROCEDURE; EFFECT OF TERMINATION. If either Schnitzer or Proler elects
to terminate this Agreement pursuant to this Article , the terminating party
will promptly give written notice thereof to the other party. In the event of
termination pursuant to this Article , the parties will be released from all
liabilities and obligations under this Agreement, other than the obligations
under Section and liability for damages to the extent arising from a breach of
this Agreement before termination. The Confidentiality Agreement dated June 11,
1996 between Proler and Schnitzer (the "Confidentiality Agreement") is and will
remain until the Effective Time in full force and effect and will survive any
termination of this Agreement.
ARTICLE 7
GENERAL PROVISIONS
7.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. This Section will
not limit any covenant or agreement of the parties that by its terms
contemplates performance after the Effective Time of the Merger.
7.2 FURTHER ACTION. Proler, Sub, and Schnitzer will execute any documents
and take any additional action reasonably required to fully implement this
Agreement.
34
7.3 ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement
contain the entire agreement and understanding among Proler, Sub, and Schnitzer
regarding the subject matter hereof and thereof and supersede and replace all
prior or contemporaneous negotiations, representations, or agreements, written
or oral.
7.4 ASSIGNMENT. This Agreement may not be assigned by any party without
the prior written consent of each of Proler and Schnitzer, which consent will
not unreasonably be withheld.
7.5 BINDING EFFECT; NO THIRD PARTY BENEFIT. This Agreement will inure to
the benefit of and be binding upon each of the parties and their respective
successors and assigns, subject to the restrictions on assignment contained in
Section . Nothing express or implied in this Agreement is intended or will be
construed to confer upon or give to any Person other than the parties to this
Agreement any rights or remedies under or by reason of this Agreement or any
transaction contemplated by it, except with respect to Section .
7.6 WAIVER. Failure of any party at any time to require performance of any
provision of this Agreement will not limit such party's right to enforce such
provision, nor will any waiver of any breach of any provision of this Agreement
constitute a waiver of any succeeding breach of such provision or a waiver of
such provision itself. Any waiver of any provision of this Agreement will be
effective only if set forth in writing and signed by the party to be bound.
7.7 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the state of Delaware.
7.8 SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any Person or circumstance is to any extent held to be
invalid or unenforceable, the remainder of this Agreement and the application of
such term or provision to Persons or circumstances other than those as to which
it is held invalid or unenforceable will not be affected thereby, and each term
or provision of this Agreement will be valid and enforceable to the fullest
extent permitted by law.
7.9 TIME OF ESSENCE. Proler, Sub, and Schnitzer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every term,
condition, obligation, and provision of this Agreement.
7.10 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which will be deemed an original, but all of which taken together will
constitute one and the same instrument, binding on the parties. If this
Agreement is executed in counterparts, each party will transmit by facsimile a
copy of the signed counterpart upon execution and will cause an executed
original counterpart to be transmitted by courier service to the other parties.
7.11 AMENDMENTS. This Agreement may not be modified or amended except by
the written agreement of Proler, Sub, and Schnitzer. This Agreement may not be
terminated other
35
than pursuant to Article except by the written agreement of Proler, Sub, and
Schnitzer. A party may waive one or more of its rights under this Agreement only
in a written instrument signed by the party.
7.12 AUTHORITY. The person executing this Agreement on behalf of each
party warrants that she/he has the authority to execute this Agreement and to so
bind that party as provided in this Agreement.
7.13 NOTICES. All notices or other communications required or permitted
under this Agreement must be in writing and must be personally delivered, sent
by registered or certified mail, postage prepaid, return receipt requested, or
sent by facsimile. Any notice, if mailed, will be deemed given when received;
any notice, if transmitted by facsimile, will be deemed given when transmitted
and electronically confirmed. Notices will be given to the following Persons:
To Schnitzer: Schnitzer Steel Industries, Inc.
3200 NW Yeon Avenue
Portland, OR 97210
Attention: Robert W. Philip
Facsimile No.: (503) 323-2793
With a copy to: The Schnitzer Group
3200 NW Yeon Avenue
Portland, OR 97210
Attention: Anton U. Pardini
Facsimile No.: (503) 299-2277
To Proler: Proler International Corp.
4265 San Felipe, Suite 900
Houston, TX 77027
Attention: Bruce W. Wilkinson
Facsimile No.: (713) 627-2737
With a copy to: Kathleen M. Kopp
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, TX 77002
Facsimile No.: (713) 225-7047
36
ARTICLE 8
DEFINITIONS
The following terms are defined in this Agreement in the
sections identified below:
TERM DEFINITION SECTION
"1988 Plan" 2.8
"1994 Plan" 2.8
"Agreement" Preamble
"Certificate of Merger" 2.4
"Certificates" 2.7.2.2
"Closing" and "Closing Date" 2.9
"Code" 3.1.14
"Confidentiality Agreement" 6.4
"Contamination" 3.1.13.1
"Contracts" 3.1.8
"Copyrights" 3.1.20
"DGCL" Recitals
"Dissenting Stockholder" 2.7.1.4
"Dissenting Shares" 2.7.1.4
"DOJ" 4.4
"Effective Time" 2.4
"Environmental Law" 3.1.13.1
"ERISA" 3.1.16
37
"ERISA Plans" 3.1.16
"Exchange Act" 1.1(a)
"Expenses" 4.8.2
"Expiration Date" 1.1(d)
"FTC" 4.4
"Governmental Entity" 3.1.2(b)
"Hazardous Substance" 3.1.13.1
"HSR Act" 4.4
"ITC" 3.1.14.3
"Indemnified Parties" 4.11.1
"Information Statement" 3.1.6
"Intellectual Property Assets" 3.1.20
"Leases" 3.1.10
"Licenses" 3.1.12
"Marks" 3.1.20
"Material Adverse Effect" Introduction to Article 3
"Material Properties and Assets" 3.1.9
"Merger" Recitals
"Merger Consideration" 2.7.1.3
"NOL" 3.1.14.3
"Notice of Superior Proposal" 4.2.2
38
"Offer" Recitals
"Offer Conditions" 1.1(a)
"Offer Documents" 1.1(c)
"Offer Price" 1.1(a)
"Patents" 3.1.20
"Paying Agent" 2.7.2.1
"Person" 2.7.2.4
"Policies" 3.1.19
"Proler" Preamble
"Proler Board" 1.2(a)
"Proler Entity," "Proler Entities" Introduction to Article 3
"Proler Returns" 3.1.14
"Proler SEC Documents" 3.1.5
"Proler Stock Plans" 3.1.3
"Proxy Statement" 2.2(b)
"RCRA" 3.1.13.2(b)
"Rights" Recitals
"Rights Agreement" Recitals
"Schedule 14D-1" 1.1(c)
"Schedule 14D-9" 1.2(a)
"Schnitzer" Preamble
39
"SEC" 1.1(c)
"Securities Act" 3.1.5
"Share," "Shares" 2.7.1
"Stockholder Approval" 2.2(a)
"Stockholders' Meeting" 2.2(a)
"Sub" Preamble
"Superior Proposal" 4.2.2
"Surviving Corporation" 2.5
"Taxes" 3.1.14.4
"Takeover Proposal" 4.2.1
"Tendered Shares" 1.1(d)
"Termination Fee" 4.8.2
40
IN WITNESS WHEREOF, the parties have executed this Agreement, effective
the day and year first written above.
SCHNITZER STEEL PROLER INTERNATIONAL CORP.
INDUSTRIES, INC.
By:/s/ ROBERT W. PHILIP By:/s/ Herman Proler
(Signature) (Signature)
Name: Robert W. Philip Name: Herman Proler
Title: President Title: Chairman of the Board
PIC ACQUISITION CORPORATION
By:/s/ ROBERT W. PHILIP
(Signature)
Name: Robert W. Philip
Title: President
41
ANNEX A
OFFER CONDITIONS
1. DEFINED TERMS. Unless otherwise defined in this Annex A, capitalized
terms that appear in this Annex A to the Agreement and Plan of Merger among
Schnitzer Steel Industries, Inc., Proler International Corp., and PIC
Acquisition Corporation have the meanings assigned in the Agreement.
2. OFFER CONDITIONS. Notwithstanding any other provision of the Offer, the
obligation of Sub to accept for payment, and pay for, any Tendered Shares will
be subject only to the conditions (the "Offer Conditions," any or all of which
(except for (i) and (ii)) may be waived by Sub, in whole or in part, at any time
and from time to time) that:
(i) this Agreement has not been terminated;
(ii) the number of validly Tendered Shares immediately before the
Expiration Date that have not been withdrawn, when added to the
Shares already owned by Schnitzer or Sub, constitutes a majority of
the then-outstanding Shares (determined on a fully diluted basis);
(iii) there has not occurred (v) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange
or in the U.S. over-the-counter market, (w) a declaration of a
banking moratorium or any general suspension of payments in respect
of banks in the United States, (x) any material limitation (whether
or not mandatory) imposed by any governmental authority on the
extension of credit by banks or other financial institutions in the
United States, (y) commencement of war or armed hostilities between
the United States and any foreign power or any insurrection or armed
conflict involving the United States which makes it impracticable to
conclude the acquisition of Proler, or (z) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof;
(iv) the applicable waiting period under the HSR Act has expired or been
terminated before the Expiration Date;
(v) no statute, rule, regulation, judgment, order, decree, ruling,
injunction or other action has been entered, promulgated or enforced
by any Governmental Entity, and no action, proceeding or claim by
any Governmental Entity that has a reasonable likelihood of success
has been instituted, that purports, seeks, or threatens to (x)
challenge, prohibit, restrain, enjoin or restrict in a material
manner the purchase and sale of any Tendered Shares or the
consummation of the Merger as contemplated by this Agreement, (y)
impose material adverse terms or conditions (not set forth herein)
upon the purchase and sale of any Tendered
ANNEX A - Page 1
Shares or the consummation of the Merger as contemplated by this
Agreement, (z) prohibit or materially limit or seek to prohibit or
materially limit the ownership or operation by Schnitzer or Sub of
all or a material portion of the business or assets of Proler and
its subsidiaries, taken as a whole, or compel or seek to compel
Schnitzer or Sub to dispose of or to hold separate all or a material
portion of the business or assets of Proler and its subsidiaries,
taken as a whole;
(vi) except as to matters disclosed in the Proler SEC Documents or
included in the Schedules to this Agreement, there has been no
change resulting in a Material Adverse Effect (or any development
that, insofar as reasonably can be foreseen, is reasonably likely to
result in any Material Adverse Effect) to Proler;
(vii) (x) neither the Board of Directors of Proler nor any committee
thereof has withdrawn or modified in a manner adverse to Schnitzer
or Sub its approval or recommendation of the Offer, the Merger or
this Agreement, or approved or recommended any Takeover Proposal and
(y) Proler has not entered into any agreement with respect to any
Superior Proposal in accordance with Section of this Agreement;
(viii)all representations and warranties of Proler are true and correct,
in each case as if such representation or warranty was made as of
such time on or after the date of this Agreement, except (x) for
those representations and warranties which address matters only as
of a particular date (which must remain true and correct as of such
date) and (y) for breaches of representations and warranties which,
individually or in the aggregate, would not have a Material Adverse
Effect with respect to Proler or Schnitzer or materially impair the
ability of the parties to consummate the transactions contemplated
by this Agreement;
(ix) Proler has not failed to perform any obligation or to comply with
any agreement or covenant of Proler to be performed or complied with
by it under this Agreement prior to consummation of the Offer,
except for such nonperformance or failure of compliance which,
individually or in the aggregate, would not have a Material Adverse
Effect with respect to Proler or Schnitzer or materially impair the
ability of the parties to consummate the transactions contemplated
by this Agreement.
Schnitzer and Sub will not be required to consummate the Offer in the event any
of the foregoing conditions have not been satisfied, and such failure, in the
reasonable judgment of Schnitzer and Sub, in any case and regardless of the
circumstances (other than a breach by Schnitzer or Sub of the Agreement) causing
the failure of such condition(s) makes it inadvisable to proceed with the Offer
or its consummation.
ANNEX A - Page 2
ANNEX B
AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT, dated as of September 15, 1996, is between PROLER
INTERNATIONAL CORP., a Delaware corporation (the "Company"), and KEYCORP
SHAREHOLDER SERVICES, INC. (the "Rights Agent").
RECITALS
A. Proler and the Rights Agent are parties to a Rights Agreement dated
as of February 28, 1996 (the "Rights Agreement").
B. Schnitzer Steel Industries, Inc., an Oregon corporation ("Schnitzer),
PIC Acquisition Corporation, a Delaware corporation ("Sub"), and the Company
have entered into an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Sub will commence an offer (the "Offer") to purchase all
outstanding shares of common stock of the Company and, following consummation of
the amended offer, the Company will merge with and into Sub (the "Merger"). The
Board of Directors of the Company has approved the Merger Agreement, the Offer
and the Merger.
C. Pursuant to Section 26 of the Rights Agreement, the Board of Directors
of the Company has determined that an amendment to the Rights Agreement as set
forth herein is necessary and desirable to reflect the foregoing and the Company
and the Rights Agent desire to evidence such amendment in writing.
Accordingly, the parties agree as follows:
1. AMENDMENT OF SECTION 1(A). Section 1(a) of the Rights Agreement is
amended to add the following sentence at the end thereof
"Notwithstanding anything in this Rights Agreement to the contrary,
neither Schnitzer nor Sub shall be deemed to be an Acquiring Person solely
by virtue of (i) the announcement or making of the Offer (as defined in
the Merger Agreement), (ii) the acquisition of Common Stock pursuant to
the Offer and the Merger (as defined in the Merger Agreement), (iii) the
execution of the Merger Agreement or (iv) the consummation of the other
transactions contemplated in the Merger Agreement."
2. ADDITIONS TO SECTION 1. The following subsections are added to
Section 1 of the Rights Agreement:
ANNEX B - Page 1
"(p) 'Merger Agreement' shall mean the Agreement and Plan of Merger dated
as of September 15, 1996, among Schnitzer, Sub and the Company, as amended
from time to time.
(q) 'Schnitzer' shall mean Schnitzer Steel Industries Inc., an Oregon
corporation."
(r) 'Sub' shall mean PIC Acquisition Corporation, a Delaware corporation,
which is a wholly owned subsidiary of Schnitzer, or any other subsidiary
of Schnitzer that is substituted for Sub pursuant to the Merger
Agreement."
3. AMENDMENT OF SECTION 3(A). Section 3(a) of the Rights Agreement is
amended to add the following sentence at the end thereof
"Notwithstanding anything in this Rights Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred solely as the
result of (i) the announcement or making of the Offer, (ii) the
acquisition of Common Stock pursuant to the Offer and the Merger, (iii)
the execution of the Merger Agreement or (iv) the other transactions
contemplated in the Merger Agreement."
4. AMENDMENT OF SECTION 11(A)(II)(B). Section 11(a)(ii)(B) of the Rights
Agreement is amended and restated to read as follows:
"(B) any Person (other than the Company, any Subsidiary of the Company or
any employee benefit plan of the Company or of any Subsidiary organized,
appointed or established by the Company for or pursuant to the terms of
any such plan) alone or together with its Affiliates and Associates, shall
at any time after the Rights Dividend Declaration Date, become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding, unless the event causing the 30% threshold to be crossed is a
transaction set forth in SECTION 13(a) hereof, is an acquisition of shares
of Common Stock pursuant to the Offer and the Merger, or is an acquisition
of shares of Common Stock pursuant to a tender offer or an exchange offer,
made in the manner prescribed in Section 14(d) of the Exchange Act, for
all outstanding shares of Common Stock (other than shares held by such
Person and its Affiliates) that is, by its terms, held open for not less
than 60 days and either (1) is at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not
officers of the Company, or who are not nominees, representatives,
Affiliates or Associates of the Person making such offer, after receiving
advice from one or more investment banking firms, to be (a) at a price
that is fair to the stockholders (taking into account all factors which
the Board of Directors of the Company deem relevant including, without
limitation, prices which could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize maximum
value) and (b) otherwise in the best interests of the Company and its
stockholders,
ANNEX B - Page 2
or (2) is for cash and (i) causes such Person, together with all
Affiliates and Associates of such Person, to be the Beneficial Owner of
80% or more of the Common Stock then outstanding and (ii) is followed,
within 90 days, by the completion of a merger or other business
combination in which all remaining stockholders of the Company (other than
the Person making such offer) receive cash consideration in a per share
amount at least equal to the highest per share amount paid in connection
with such offer; or"
5. AMENDMENT OF SECTION 13. Section 13 of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary, (i)
the announcement or making of the Offer, (ii) the acquisition of Common
Stock pursuant to the Offer and the Merger, (iii) the execution of the
Merger Agreement or (iv) the consummation of the other transactions
contemplated in the Merger Agreement shall not be deemed to be a Section
13 Event and shall not cause the Rights to be adjusted or exercisable in
accordance with Section 13."
6. EFFECTIVENESS. This Amendment shall be deemed effective as of
September 15, 1996 as if executed on such date. Except as amended hereby, the
Rights Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
7. MISCELLANEOUS. This Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state. This Amendment
may be executed in any number of counterparts, each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. If any provision, covenant
or restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, illegal or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be effected, impaired or invalidated.
ANNEX B - Page 3
EXECUTED as of the date set forth above.
Attest: PROLER INTERNATIONAL CORP.
Name: Name:
Title: Title:
Attest: KEYCORP SHAREHOLDER SERVICES, INC.
Name: Name:
Title: Title:
ANNEX B - Page 4
EXHIBIT 2
[PROLER INTERNATIONAL CORP LETTERHEAD]
June 11, 1996
Schnitzer Steel Industries, Inc.
3200 Northwest Yeon Avenue
Portland, Oregon 97210
Attention: Mr. Robert W. Philip
Dear Gentlemen:
You have advised us of your interest in exploring a possible negotiated
transaction involving you and Proler International Corp. (the "Company"). In
connection with your analysis of a possible negotiated transaction with the
Company, you have requested and/or may request certain oral and written
non-public information concerning the Company, its subsidiaries and joint
operations which may be supplied to you by officers, directors, employees and/or
agents or representatives of the Company (collectively, the "Information"). As a
condition to being furnished with the Information, you agree (and agree to cause
your directors, officers and employees) to treat the Information in accordance
with the following:
1. The Information will be used solely for the purposes of evaluating a
possible transaction between the Company and you and not used in any way
directly or indirectly detrimental to the Company, its subsidiaries or joint
operations. Unless and until you have completed a transaction with the Company
pursuant to a definitive agreement (the "Transaction Agreement"), such
Information will be kept confidential by you and your advisors; provided,
however, that you may disclose the Information or portions thereof to those of
your directors, officers and employees and representatives of your advisors
(collectively, "Representatives") who need to know such Information for the
purpose of evaluating your possible transaction with the Company (it being
understood that you will inform those Representatives of the confidential nature
of the Information and direct them not to disclose the Information to any other
person.) You agree to be responsible for any breach of this Agreement by your
Representatives.
If you are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoenas, civil investigative demands or
similar processes) to disclose any Information supplied to you in the course of
your dealings with the Company or its representatives, you will (i) provide the
Company with prompt notice of such request(s) and the documents requested so
that the Company may seek an appropriate protective order and/or waive your
compliance with the provisions of this Agreement, and (ii) consult with the
Company as to the advisability of the Company taking legally available steps to
resist or narrow such request. If in the absence of a protective order or the
receipt of a waiver hereunder you are nonetheless, in the written opinion of
your legal counsel, compelled to disclose Information concerning the Company,
you may disclose such Information without liability hereunder; provided,
however, that you shall give the Company written notice of such Information as
far in advance of its disclosure as is practicable and shall use reasonable
efforts to obtain, to the greatest extent practicable, an order or other
reliable assurance that confidential treatment will be accorded to such
Information required to be disclosed or produced.
2. The term "Information" does not include any information which (i) is
or hereafter becomes generally available to and known by the public (other than
as a result of an unpermitted disclosure directly or indirectly by you or your
Representatives), (ii) is or becomes available to you on a nonconfidential basis
from a source other than the Company or its advisors, provided that such source
is not at the time of such disclosure bound by a confidentiality agreement with
or other obligation of secrecy to the Company of which you have knowledge or
(iii) has already been or is hereafter independently acquired or developed by
you without violating any confidentiality agreement with or other obligation of
secrecy to the Company.
3. If you do not proceed with a transaction with the Company or if the
Company so requests, you will return promptly to the Company all copies,
extracts or other reproductions in whole or in part of the Information in your
possession or in the possession of your Representatives, and you will destroy
all copies of such memoranda, notes, analyses, compilations, studies or other
documents prepared by you or for your use based on, containing or reflecting any
Information. Such destruction shall, if requested, be certified in writing to
the Company by an authorized officer supervising such destruction.
Notwithstanding the foregoing, you may retain a list of all Information provided
to you by the Company, provided that a copy of such list is delivered to the
Company together with any Information returned to the Company pursuant to this
Agreement.
4. Without the prior written consent of the Company, you will not, and
will direct your Representatives not to, disclose to any person either the fact
that any investigations, discussions or negotiations are taking place concerning
a possible transaction between the Company and you, or that you have requested
or received Information from the Company, or any of the terms, conditions or
other facts with respect to any such possible transaction, including the status
thereof. The term "person" as used throughout this Agreement will be interpreted
broadly to include, without limitation, any corporation, company, partnership or
individual.
5. You understand and acknowledge that the Company is not making any
representation or warranty express or implied, as to the accuracy or
completeness of the Information, and neither the Company nor any of its
directors, officers, employees, stockholders, owners, affiliates,
Representatives or agents will have any liability to you or any other person
resulting from your use of the Information. Only those representations or
warranties that are made to you in the definitive Transaction Agreement when,
as, and if it is executed, and subject to such limitations and restrictions as
may be specified in such Transaction Agreement, will have any legal effect.
6. You agree that until the expiration of two years from the date of
this Agreement, you shall not without the prior written approval of the Company
(i) in any manner acquire, agree to acquire or make any proposal to acquire,
directly or indirectly, any securities, assets or property of the company or any
of its subsidiaries, whether such agreement or proposal is with the Company or
any of its subsidiaries or with a third party, (ii) propose to enter into,
directly or indirectly, any merger or other business combination involving the
Company or any of its subsidiaries, (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
used in the proxy rules of the Securities and Exchange Commission) to vote, or
seek to advise or influence any person with respect to the voting of, any voting
securities of the Company or any of its subsidiaries, (iv) form, join or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 with respect to any voting securities of the
Company or any of its subsidiaries, (v) otherwise act, alone or in concert with
others, to seek to control or influence the management, Board of Directors or
policies of the Company, (vi) disclose any intention, plan or arrangement
inconsistent with the foregoing; or (vii) advise, encourage, provide assistance
(including financial assistance) to or hold discussions with any other person in
connection with any of the foregoing. You also agree during such period not to
(i) request the Company (or its directors, officers, employees or agents),
directly or indirectly to, amend or waive any provision of this paragraph
(including this sentence), or (ii) take any action which might require the
Company to make a public announcement regarding the possibility of a business
combination or merger.
7. You hereby acknowledge that you are aware, and that you have advised
or will advise your directors, officers, employees, agents, advisors and any
other Representatives who are informed as to the matters which are the subject
of this Agreement, that the United States securities laws may prohibit any
person who has material, non-public information concerning the matters which are
the subject of this Agreement from purchasing or selling securities of a company
which may be a party to a transaction of the type contemplated by this Agreement
or from communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell such securities.
8. You also understand and agree that unless and until a definitive
Transaction Agreement has been executed and delivered, no contract or agreement
providing for a transaction with the Company shall be deemed to exist between
you and the Company, and neither the Company nor you will be under any legal
obligation of any kind whatsoever with respect to such transaction by virtue of
this or any written or oral expression thereof, except, in the case of this
Agreement, for the matters specifically agreed to herein. For purposes of this
paragraph, the term "definitive Transaction Agreement" does not include any
executed letter of intent or any other preliminary written agreement, nor does
it include any written or verbal acceptance of an offer or bid made by you.
9. You agree that the Company shall be entitled to equitable relief,
including injunction and specific performance, in the event of any breach of the
provisions of this Agreement, in addition to all other remedies available to the
Company at law or in equity. You also further agree that service of any process,
summons, notice or document by U.S. registered mail to your address set forth
above shall be effective service of process for any action, suit or proceedings
brought against you in any court.
10. You agree that the Company reserves the right, in its sole and
absolute discretion, to reject any or all proposals, to decline to furnish
further Information and to terminate discussions and negotiations with you at
any time. The exercise by the Company of these rights shall not affect the
enforceability of any provision of this Agreement.
11. All notices and communications referred or permitted to be made by
you to the Company pursuant to this Agreement will be made to the Company,
Attention: Mr. Steven F. Gilliland, President, 4265 San Felipe, Suite 900,
Houston, Texas 77027.
12. This Agreement is for the benefit of the Company and will be
governed and construed in accordance with the laws of the State of Texas.
If you agree with the foregoing,please sign this letter and return one
executed copy, which will constitute our agreement with respect to the subject
matter of this letter.
Very truly yours,
PROLER INTERNATIONAL CORP.
By: Steven F. Gilliland,
Steven F. Gilliland, President
Confirmed and Agreed as of the date written above:
By: /s/ Robert W. Philip
Printed Name:Robert W. Philip
Title:President
EXHIBIT 3
[Proler International Corp. Letterhead]
September 20, 1996
Dear Proler Stockholder:
I am pleased to inform you that Proler International Corp. has entered into
an Agreement and Plan of Merger with Schnitzer Steel Industries, Inc. of
Portland, Oregon and a subsidiary of Schnitzer providing for the acquisition of
all of the issued and outstanding shares of Proler Common Stock and associated
Rights at a price of $7.50 per share, net to the stockholder in cash.
Enclosed is an Offer to Purchase and related Letter of Transmittal
reflecting the terms of Schnitzer's tender offer for Proler's Common Stock and
associated Rights. Schnitzer's tender offer is conditioned upon, among other
things, a majority of the total number of shares of Proler Common Stock
outstanding (on a fully diluted basis) being validly tendered and not withdrawn.
The Agreement and Plan of Merger provides that, promptly after consummation of
Schnitzer's tender offer, all Proler shares that are not tendered through the
tender offer will be acquired through a merger at the same price per share as
the tender offer.
Proler's Board of Directors has, in light of and subject to the terms and
conditions set forth in the Agreement and Plan of Merger, determined that the
tender offer and merger are fair to, and in the best interests of, the
stockholders of Proler. Proler's Board of Directors has unanimously approved the
tender offer and the merger and recommends that stockholders ACCEPT the tender
offer and tender their shares.
Attached is a copy of Proler's Schedule 14D-9 relating to the tender offer,
which is being filed today with the Securities and Exchange Commission. This
document should be read carefully. In particular, I call your attention to Item
4, which describes, among other things, matters considered by the Board of
Directors in connection with its unanimous recommendation of the tender offer
and the merger.
Sincerely,
Herman Proler
CHAIRMAN OF THE BOARD OF DIRECTORS
EXHIBIT 4
JOINT NEWS RELEASE
CONTACTS
SCHNITZER STEEL: PROLER:
TOM ZELENKA MICHAEL LOY
(503) 323-2821 (713) 963-5904
FOR IMMEDIATE RELEASE
SCHNITZER STEEL INDUSTRIES, INC. TO ACQUIRE
PROLER INTERNATIONAL CORP. THROUGH CASH TENDER OFFER
PORTLAND, OREGON; HOUSTON, TEXAS: September 16, 1996 - Schnitzer Steel
Industries, Inc. (NASDAQ: SCHN) and Proler International Corp. (NYSE: PS) today
announced the signing of a definitive agreement for the acquisition of Proler by
Schnitzer. The agreement calls for Schnitzer, through a subsidiary, to commence
a cash tender offer for all of the outstanding shares of Proler within five days
at a cash price of $7.50 per share. Upon completion of the tender offer, Proler
will become a wholly owned Schnitzer subsidiary through a cash merger at the
same price per share. Proler has approximately 4.7 million shares outstanding,
making the value of the merger about $35 million.
Schnitzer's tender offer will be conditioned on at least a majority of Proler's
outstanding shares, on a fully diluted basis, being validly tendered and not
withdrawn prior to expiration of the offer. The expiration date of the offer
will be twenty business days following the commencement, unless the offer is
extended. The tender offer and merger are subject to expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and other customary conditions. The tender offer and
merger are not contingent upon financing.
"We are very excited about this transaction," stated Robert Philip, president of
Schnitzer. "This merger continues our strategy to grow the company through
selective, additive acquisitions. Proler, through its joint ventures, is one of
the nation's largest exporters of ferrous scrap. We believe that this
combination of our talents and operations will benefit not only both of the
companies but the scrap industry as well. The Schnitzer and Proler families have
known each other for many years; we are pleased that the Prolers have entrusted
us to carry on their proud tradition of being a leader in scrap recycling."
"We have given this transaction thorough and careful consideration," said Herman
Proler, chairman of the board of Proler, "and the Proler board of directors
shares my belief that it is in the best interest of the Company and the
Company's shareholders. The Schnitzers have always been very good operators, and
we have great respect for their team."
Proler is being advised by J. C. Bradford & Co. and Chase Securities Inc.
Schnitzer operates one of the largest scrap recycling businesses in the Western
United States. The Company supplies ferrous scrap to Asian and domestic steel
producers through its scrap collection, processing and deep water facilities
located in Oakland, California; Portland, Oregon; and Tacoma, Washington. The
Company also operates collection and processing facilities in Eugene, Bend,
White City and Grants Pass, Oregon; and Sacramento and Fresno, California.
Schnitzer's subsidiary, Cascade Steel Rolling Mills, Inc. (Steel Operations),
operates the only vertically integrated mini-mill in the Western United States
which can obtain its entire scrap requirements from its own scrap operations.
Cascade's steel mini-mill in McMinnville, Oregon manufactures rebar, merchant
bar, fence posts, special sections and grape stakes. In addition, Cascade
maintains mill depots in Union City and El Monte, California.
Proler is an environmental services company involved in the recovery and
recycling of scrap metals and industrial wastes to produce high-quality,
commercial products. Through joint ventures, Proler exports ferrous scrap to
predominantly foreign markets from scrap collection, processing and deep water
facilities located in Los Angeles, California; Providence, Rhode Island;
Everett, Massachusetts; and Jersey City, New Jersey. Proler's joint ventures
operate additional scraps collection and processing facilities in Colton,
Lynwood, Irwindale, Pomona and Sun Valley, California; Phoenix, Arizona;
Manchester, New Hampshire; Portland, Maine; and Springfield and Worcester,
Massachusetts.
EXHIBIT 5
[J.C. BRADFORD & Co. LETTERHEAD]
September 15, 1996
Board of Directors
Proler International Corp.
4265 San Felipe, Suite 900
Houston, Texas 77027
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding Common Stock, par value $.0l
per share (together with the associated Stock Rights, the "Shares"), of Proler
International Corp. (the "Company") of the $7.50 per Share in cash proposed to
be received by such holders pursuant to the proposed Agreement and Plan of
Merger, dated September 15, 1996 (the "Merger Agreement"), by and among
Schnitzer Steel Industries, Inc. ("Schnitzer"), PIC Acquisition Corporation, a
wholly owned subsidiary of Schnitzer ("PIC"), and the Company. For purposes of
this opinion, we have assumed that the draft Merger Agreement in the form
previously provided to us will not vary in any material respect from the Merger
Agreement to be signed by the parties thereto.
The Merger Agreement provides for a tender offer (the "Offer") for all
of the Shares pursuant to which PIC will pay $7.50 per Share in cash for each
Share accepted. The Merger Agreement further provides that, following completion
of the Offer, PIC will be merged into the Company (the "Merger") and each
outstanding Share (other than Shares owned by Proler and PIC) will be converted
into the right to receive $7.50 in cash. The terms and conditions of the Offer
and Merger are more fully set forth in the Merger Agreement. Capitalized terms
used but not defined herein have the meanings ascribed to such terms in the
Merger Agreement.
J.C. Bradford & Co., LLC, as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have acted as financial advisor to the Board
of Directors of the Company in connection with the proposed Offer and Merger and
will receive a fee from the Company for our services.
In conducting our analysis and arriving at our opinion, we have
considered such financial and other information as we deemed appropriate
including, among other things, the following: (i) the proposed Merger Agreement,
dated September 15, 1996; (ii) drafts of the Offer
Board of Directors
Proler International Corp.
September 17, 1996
Page 2
Documents; (iii) the historical and current financial position and results of
operations of the Company as set forth in its periodic reports and proxy
materials filed with the Securities and Exchange Commission, (iv) certain
internal operating data and financial analyses and forecasts of the Company for
the fiscal years beginning February 1, 1996 and ending January 31, 1998,
prepared for the Company by its senior management; (v) certain financial and
securities trading data of certain other companies, the securities of which are
publicly traded, that we believed to be comparable to the Company or relevant to
the transaction; (vi) the financial terms of certain other transactions that we
believed to be relevant; (vii) reported price and trading activity for the
Shares; and (viii) such other financial studies, analyses, and investigations as
we deemed appropriate for purposes of our opinion. We also have held discussions
with members of the senior management of the Company regarding the past and
current business operations, financial condition, and future prospects of the
Company.
We have taken into account our assessment of general economic, market,
and financial and other conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the
industries in which the Company operates generally. Our opinion is necessarily
based upon the information made available to us and conditions as they exist and
can be evaluated as of the date hereof.
We have relied upon the accuracy and completeness of all of the
financial and other information reviewed by us for purposes of our opinion and
have not assumed any responsibility for, nor undertaken an independent
verification of, such information. With respect to the internal operating data
and financial analyses and forecasts supplied to us, we have assumed that such
data, analyses, and forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's senior
management as to the recent and likely future performance of the Company.
Accordingly, we express no opinion with respect to such analyses or forecasts or
the assumptions on which they are based. We were not asked to consider and our
opinion does not address the relative merits of the proposed Offer and Merger as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transactions in which the Company might engage.
Furthermore, we have not made an independent evaluation or appraisal of the
assets and liabilities of the Company or any of its subsidiaries or affiliates
and have not been furnished with any such evaluation or appraisal.
The Company is entitled to reproduce this opinion, in whole but not in
part, in the Offer Documents, the Schedule 14D-9, and the Proxy Statement as
required by applicable law or appropriate; provided, that any excerpt from or
reference to this opinion (including any summary thereof) in such documents must
be approved by us in advance in writing. Notwithstanding the foregoing, this
opinion does not constitute a recommendation to any holder of Shares to tender
Board of Directors
Proler International Corp.
September 17, 1996
Page 3
Shares in the Offer or to vote in favor of the Merger. We have advised the Board
of Directors that we do not believe that any person (including a stockholder of
the Company) other than the Board of Directors has the legal right to rely upon
this opinion for any claim arising under state law and that, should any such
claim be brought against us, this assertion will be raised as a defense. In the
absence of governing authority, this assertion will be resolved by the final
adjudication of such issue by a court of competent jurisdiction. Resolution of
this matter under state law, however, will have no effect on the rights and
responsibilities of any person under the federal securities laws.
Based upon and subject to the foregoing, and based upon such other
matters as we consider relevant, it is our opinion that, as of the date hereof,
the $7.50 per Share in cash to be received by the holders of the Shares in the
Offer and the Merger is fair to such holders from a financial point of view.
Very truly yours,
/s/ J. C. Bradford & Co.
EXHIBIT 6
[CHASE SECURITIES INC. LETTERHEAD]
September 15, 1996
Board of Directors
Proler International Corp.
4265 San Felipe, Suite 900
Houston, TX 77027
Members of the Board:
You have informed us that Schnitzer Steel Industries, Inc. ("Parent"),
PIC Acquisition Corporation ("Sub") and Proler International Corp. (the
"Company") propose to enter into an Agreement and Plan of Merger dated as of
September 15, 1996 (the "Merger Agreement"), which provides, among other things,
for the tender offer ("the Offer") by Sub for all the outstanding shares of
Common Stock, par value $1.00 per share (together with the associated Stock
Rights, the "Shares"), of the Company for at least $7.50 per share in cash (the
"Consideration"), to be followed by the merger of Sub with and into the Company
(the "Merger") pursuant to which each then outstanding Share will be converted
into the right to receive an amount equal to the Consideration in cash. The
terms and conditions of the Offer and the Merger are more fully described in the
Merger Agreement, and together, the Offer and the Merger, taken as a whole and
not separately, are referred to herein as the "Transaction." Capitalized terms
not defined herein shall have the same meanings given to them in the Merger
Agreement.
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Shares of the Consideration to be
received by such holders in the Transaction.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft of the Merger Agreement in the form provided to
us and have assumed that the final form of such agreement will
not vary in any regard that is material to our analysis;
(b) reviewed certain publicly available business and financial
information that we deemed relevant to the Company and the
respective industries in which it operates;
Board of Directors
September 17, 1996
Page 2
(c) reviewed certain internal non-public financial and operating data
provided to us by or on behalf of the management of the Company
relating to the Company, including management forecasts and
projections of financial results of the Company through the
fiscal years ending January 31, 1997 and January 31, 1998;
(d) discussed with members of the Company's senior management, the
Company's operations, historical financial statements and future
prospects, as well as such other matters as we deemed necessary
or appropriate;
(e) compared the financial and operating performance of the Company
with publicly available information concerning certain other
companies we deemed comparable and reviewed the relevant
historical stock prices and trading volumes of the Shares and
certain publicly traded securities of such other companies;
(f) reviewed the financial terms of certain recent business
combinations and acquisition transactions we deemed reasonably
comparable to the Transaction and otherwise relevant to our
inquiry,
(g) considered various discussions with third parties with respect to
such third parties' potential interest in the acquisition of all
or part of the Company; and
(h) made such other analyses and examinations as we have deemed
necessary or appropriate.
In rendering this opinion, we assumed and relied upon, without assuming
any responsibility for verification, the accuracy and completeness of all of the
financial and other information provided to, discussed with, or reviewed by or
for us, or publicly available for purposes of this opinion, and have further
relied upon the assurances of management of the Company that they are not aware
of any facts that would make such information inaccurate or misleading. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of the Company, nor have we conducted a physical
inspection of the properties and facilities of the Company. We have assumed that
the financial forecasts and projections prepared by the Company have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Company. We express no view as to such forecasts or
projections or the assumptions on which they were based.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated, and the information made
available to us, as of the date of this letter. We disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
our opinion which may come or be brought to our attention after the date hereof.
Board of Directors
September 17, 1996
Page 3
Our opinion is limited to the fairness, from a financial point of view,
to the holders of Shares of the Consideration to be received by such holders in
the Transaction. We were not asked to consider and our opinion does not address
the relative merits of the proposed Offer and Merger as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transactions in which the Company might engage. Our opinion is
directed to the Board of Directors of the Company, and it does not constitute a
recommendation to any holder of Shares as to (i) whether such holder should
tender Shares in the Offer or (ii) how such holder of Shares should vote with
respect to the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
connection with the Transaction and will receive a fee for our services,
including for rendering this opinion, payment of a significant portion of which
is contingent on the consummation of the Transaction. In addition, the Company
has agreed to indemnify us for certain liabilities arising out of our
engagement. As we have previously advised you, The Chase Manhattan Corporation
and its affiliates, including Texas Commerce Bank and Chase Securities Inc., in
the ordinary course of business, have from time to time provided, and in the
future may continue to provide, commercial and investment banking services to
Parent and the Company, including serving as (i) agent bank under a $100 million
revolving credit facility for Trans-Pacific Shipping Co., an affiliate of the
Parent, (ii) as sole bank for a $10 million revolving credit facility for
Schnitzer Investment Corporation, also an affiliate of the Parent; and (iii) as
sole bank for certain credit facilities extended to the Company. In the ordinary
course of business, we or our affiliates may trade in the debt and equity
securities of Parent and the Company for our own accounts and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of
the date hereof, that the Consideration to be received by the holders of Shares
in the Transaction is fair, from a financial point of view, to such holders.
It is understood that (i) this opinion is for the use and benefit of the
Board of Directors of the Company in connection with its consideration of the
Transaction, and (ii) the Company will not furnish this opinion or any other
material prepared by Chase Securities Inc. to any other person or persons or use
or refer to this opinion for any other purpose without the prior written consent
of Chase Securities Inc.; provided, however, that the Company may publish this
opinion in its entirety in the Offer Documents, Schedule 14D-9 and the Proxy
Statement or in similar
Board of Directors
September 17, 1996
Page 4
documents distributed to its stockholders in connection with the Transaction,
subject to our prior written approval of any summary of, excerpt from or
reference to this opinion.
Very truly yours,
/s/ Chase Securities Inc.
CHASE SECURITIES INC.
