<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 2, 1998
IMPERIAL HOLLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 001-10307 74-0704500
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
ONE IMPERIAL SQUARE, SUITE 200, P.O. BOX 9
SUGAR LAND, TEXAS 77487
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES
AND ZIP CODE
(281) 491-9181
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
------------------------------
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<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 2, 1998, Imperial Holly Corporation (the "Company") acquired
all the outstanding common stock of DSLT Inc., a Michigan corporation ("DSLT").
The acquisition was structured as the merger (the "Merger") of IHK Acquisition
Corp., a Michigan corporation ("IHK Sub") and a wholly owned subsidiary of the
Company, with and into DSLT. In the Merger, the name of DSLT was changed to
Diamond Crystal Holdings, Inc. The Merger was effected pursuant to the Agreement
and Plan of Merger (the "Merger Agreement"), dated as of September 4, 1998, as
amended by an amendment dated as of October 22, 1998, among the Company, IHK Sub
and DSLT. Consideration for the acquisition consisted of $79.6 million cash and
4,972,000 shares of common stock, without par value, of the Company ("Company
Common Stock"). The Company retains an option for 45 days to repurchase all or
part of the Company Common Stock at a price of $7.00 per share, plus interest.
The Merger consideration is subject to final adjustments based on an acquisition
date balance sheet of DSLT. The purchase price was determined based on an arms
length negotiations. In connection with the Merger, DSLT distributed to its
shareholders certain operations, consisting primarily of real estate ventures,
which the Company did not wish to acquire.
The financing for the cash portion of the Merger consideration came from
borrowing under the Company's existing revolving credit agreement.
DSLT conducts its business principally through its Diamond Crystal
Specialty Foods, Inc. subsidiary, which produces nutritional dry mixes, sauces,
seasonings, drink mixes and desserts for distribution to the healthcare and food
service industries. The Company intends to operate DSLT together with Dixie
Crystal Brands, Inc., the Company's subsidiary which supplies sugar and non-
sugar products to the food service industry.
There were no material relationships between the Company and DSLT prior to
the consummation of the Merger.
Attached as Exhibit 99.1 and incorporated herein by reference is a press
release by the Company announcing the consummation of the Merger.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The audited consolidated financial statements of DSLT as of March 31, 1998
and 1997 and for the fiscal years then ended, required pursuant to item 7 of
this form are included in Exhibit 99.3 hereto.
The unaudited condensed consolidated financial statements of DSLT as of and
for the three months ended June 30, 1998 and 1997, required pursuant to item 7
of this form are included as Exhibit 99.4 hereto.
(b) PRO FORM FINANCIAL INFORMATION
The unaudited pro forma combined condensed financial statements of the
Company and DSLT as of June 30, 1998, for the year ended March 31, 1997, for the
six months ended September 30, 1997 and for the nine months ended June 30, 1998
are included as Exhibit 99.5 hereto.
(c) EXHIBITS
Exhibit 23.1 -Consent of PricewaterhouseCoopers LLP
Exhibit 99.1 -Press Release issued by Imperial Holly Corporation
on November 2, 1998.
Exhibit 99.2 -Agreement and Plan of Merger, dated September 4, 1998,
as amended by amendment dated as of October 22, 1998,
among Imperial Holly Corporation, IHK Acquisition
Corp. and DSLT Inc.
Exhibit 99.3 -Audited Consolidated Financial Statements of
DSLT Inc. as of March 31, 1998 and 1997 and for
the fiscal years then ended.
Exhibit 99.4 -Unaudited Condensed Consolidated Financial
Statements of DSLT as of and for the three months
ended June 30, 1998 and 1997.
Exhibit 99.5 -Pro Forma Combined Condensed Financial Statements
of Imperial Holly Corporation and DSLT, Inc. as of
June 30, 1998, for the year ended March 31, 1997, for
the six months ended September 30, 1997 and for the
nine months ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IMPERIAL HOLLY COIRPORATION
Date: November 13, 1998 By: MARY L. BURKE
---------------------------
Mary L. Burke
Managing Director and
Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-30328, No. 33-41769, No. 33-68896 and No.
333-16393) of Imperial Holly Corporation of our report dated July 20, 1998
relating to the financial statements of DSLT Inc. which appears in the Current
Report on Form 8-K of Imperial Holly Corporation dated November 12, 1998.
PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
November 12, 1998
<PAGE>
EXHIBIT 99.1
IMPERIAL HOLLY CORPORATION COMPLETES ACQUISITION OF
DIAMOND CRYSTAL SPECIALTY FOODS, INC.
Sugar Land, Texas - November 3, 1998 - Imperial Holly Corporation (AMEX:
IHK) announced today that it has completed the acquisition of Diamond Crystal
Specialty Foods, Inc., a major supplier to the foodservice and healthcare
industries headquartered in Wilmington, Massachusetts. Consideration for the
acquisition consisted of $79.6 million cash, 4,972,060 shares of Imperial Holly
common stock and the assumption of $28.5 million of indebtedness. Imperial
Holly retains an option for 45 days to repurchase the common stock at a price of
$7.00 per share. The purchase price is subject to final adjustments based on an
acquisition date balance sheet of Diamond Crystal.
The completion of the Diamond Crystal acquisition, as well as the purchase
of Wholesome Foods in September, represents an important step in Imperial
Holly's strategy of increasing its participation in the higher margin, higher
growth sectors of the foodservice industry, and utilizing Imperial Holly's
marketing and distribution capabilities to move into the closely allied food
ingredient segments. Over 33% of Diamond Crystal's sales are to the healthcare
industry with the remainder divided between the foodservice distributors, chain
restaurants and cafeterias. Diamond Crystal's operations, which produce
nutritional dry mixes, sauces, seasonings, drink mixes and deserts, will be
combined with Imperial Holly's Dixie Crystals Brands, a major supplier of sugar
and non-sugar products to the food service industry. Wholesome Foods, which
produces organic sugar and related products, has been merged with Imperial
Holly's specialty sugars group.
Imperial Holly Corporation is the largest processor and marketer of refined
sugar in the United States, marketing under the Imperial brand in the southwest,
the Dixie Crystals brand in the southeast, the Spreckels brand in California,
the Pioneer brand in Michigan and the Holly brand in the midwest/west.
The statements regarding future market prices, operating results and
integration activities and the other statements which are not historical facts
contained in this release are forward-looking statements that involve risks,
uncertainties and assumptions, including, but not limited to, market factors,
the effect of weather and economic conditions, farm and trade policy, the
available supply of sugar, available quantity and quality of sugar beets and
other factors detailed in the Company's Securities and Exchange Commission
filings. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
(####)
<PAGE>
EXHIBIT 99.2
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
IMPERIAL HOLLY CORPORATION
IHK ACQUISITION CORP.
and
DSLT INC.
Dated as of September 4, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I THE MERGER............................................................. 2
Section 1.01 Merger................................................................. 2
Section 1.02 Effective Time......................................................... 2
Section 1.03 Legal Effect........................................................... 2
Section 1.04 Name................................................................... 2
Section 1.05 Other Actions.......................................................... 2
ARTICLE II CORPORATE GOVERNANCE................................................... 2
Section 2.01 Articles of Incorporation and Bylaws................................... 2
Section 2.02 Directors and Officers................................................. 3
ARTICLE III CONVERSION OF AND PAYMENT FOR SHARES................................... 3
Section 3.01 Conversion............................................................. 3
Section 3.02 Merger Price; Merger Consideration..................................... 3
Section 3.03 Payment; Exchange of Certificates...................................... 4
Section 3.04 No Fractional Shares................................................... 5
Section 3.05 Adjustment of Exchange Ratio........................................... 5
Section 3.06 Dissenting Shareholders................................................ 5
Section 3.07 Adjustments to Merger Price............................................ 6
Section 3.08 Closing Payment and Post-Closing Merger Price Adjustments.............. 7
Section 3.09 Repurchase Option...................................................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DSLT.................................10
Section 4.01 Organization; Power; Qualification.....................................10
Section 4.02 Authority; Power.......................................................10
Section 4.03 No Violation...........................................................10
Section 4.04 Capital Structure of DSLT and Related Matters..........................11
Section 4.05 Financial Statements...................................................11
Section 4.06 Absence of Certain Changes.............................................13
Section 4.07 Actions Pending........................................................14
Section 4.08 Outstanding Debt and Related Matters...................................14
Section 4.09 Title to Properties....................................................14
Section 4.10 Taxes..................................................................15
Section 4.11 Agreements and Other Matters; No Conflict..............................16
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.12 Employee Benefit Plans.................................................16
Section 4.13 Insurance..............................................................19
Section 4.14 Collective Bargaining Agreements, Employment Agreements
and Benefit Plans......................................................19
Section 4.15 Intellectual Property..................................................20
Section 4.16 Environmental Matters..................................................20
Section 4.17 General Compliance with Laws...........................................22
Section 4.18 Governmental Consents..................................................22
Section 4.19 Minute Books and Stock Record Books....................................22
Section 4.20 Directors and Officers.................................................22
Section 4.21 Brokers' or Finders' Fees..............................................22
Section 4.22 Disclosure.............................................................22
Section 4.23 Opinion of Financial Advisor...........................................23
Section 4.24 Customers and Suppliers................................................23
Section 4.25 Vote Required..........................................................23
Section 4.26 Excluded Assets........................................................23
Section 4.27 Irrevocable Proxies....................................................23
Section 4.28 Representations and Warranties as of the Date of this Agreement........23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SUB AND PARENT.......................24
Section 5.01 Organization; Power; Qualification.....................................24
Section 5.02 Authority; Power.......................................................24
Section 5.03 No Violation...........................................................24
Section 5.04 Capital Structure of Parent and Related Matters;
Common Stock to be Issued..............................................24
Section 5.05 No Financing Contingency...............................................25
Section 5.06 Absence of Certain Changes.............................................25
Section 5.07 Actions Pending........................................................25
Section 5.08 Outstanding Debt and Related Matters...................................25
Section 5.09 Agreements and Other Matters; No Conflict..............................26
Section 5.10 Employee Benefit Plans.................................................26
Section 5.11 General Compliance with Laws...........................................26
Section 5.12 Governmental Consents..................................................26
Section 5.13 Brokers' or Finders' Fees..............................................26
Section 5.14 Disclosure.............................................................27
Section 5.15 Representations and Warranties as of the Date of this Agreement........27
ARTICLE VI PRE-CLOSING COVENANTS OF DSLT..........................................28
Section 6.01 Maintenance of Corporate Status........................................28
Section 6.02 Operation of Business..................................................28
Section 6.03 Maintenance of Assets and Properties...................................28
</TABLE>
ii
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<TABLE>
<S> <C> <C>
Section 6.04 Maintenance of Records and Compliance with Laws........................28
Section 6.05 Governing Documents....................................................28
Section 6.06 No Change in Capitalization............................................29
Section 6.07 Dividends and Other Payments...........................................29
Section 6.08 Access; Cooperation....................................................29
Section 6.09 Loans or Contingent Liabilities........................................29
Section 6.10 Performance of Obligations Under Agreements............................30
Section 6.11 Fire or Casualty.......................................................30
Section 6.12 Additional Notices.....................................................30
Section 6.13 Shareholders Meeting; Informational Materials..........................30
Section 6.14 Other Offers...........................................................31
Section 6.15 Changes to Representations and Warranties in Article IV................31
Section 6.16 Governmental Approvals.................................................31
Section 6.17 No Acquisitions........................................................31
Section 6.18 No Dispositions........................................................32
Section 6.19 No Dissolution, Etc....................................................32
Section 6.20 Certain Employee Matters...............................................32
Section 6.21 Notification of Certain Occurrences....................................32
Section 6.22 Taxes..................................................................32
ARTICLE VII PRE-CLOSING COVENANTS OF SUB AND PARENT................................32
Section 7.01 Maintenance of Corporate Status........................................32
Section 7.02 Access; Cooperation....................................................33
Section 7.03 Shareholders Meeting; Informational Materials..........................33
Section 7.04 Changes to Representations and Warranties in Article V.................33
Section 7.05 Governmental Approvals.................................................33
Section 7.06 Bank Waivers...........................................................33
ARTICLE VIII OTHER MATTERS..........................................................34
Section 8.01 CIC Agreements; SAR Plans; Retiree Benefits............................34
Section 8.02 Employee Severance Payments............................................34
Section 8.03 Matters Regarding IRBs.................................................35
Section 8.04 Existing Bonus Plans...................................................35
Section 8.05 Post-Closing Taxes.....................................................35
Section 8.06 Indemnity..............................................................35
Section 8.07 Payment of Certain Fees and Expenses...................................36
Section 8.08 Registration of Parent Common Stock....................................36
Section 8.09 Listing Application....................................................39
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF SUB
AND PARENT.............................................................39
Section 9.01 Deliveries by DSLT.....................................................39
Section 9.02 Representations and Warranties of DSLT.................................39
Section 9.03 Compliance.............................................................39
Section 9.04 Compliance Certificate.................................................39
Section 9.05 DSLT Counsel Opinion...................................................39
Section 9.06 Legal Proceedings......................................................39
Section 9.07 Governmental Approvals.................................................40
Section 9.08 DSLT Shareholder Approval..............................................40
Section 9.09 Bank Waivers...........................................................40
Section 9.10 No Material Adverse Change.............................................40
ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF DSLT............................40
Section 10.01 Deliveries by Sub and Parent...........................................40
Section 10.02 Representations and Warranties of Sub and Parent.......................40
Section 10.03 Compliance.............................................................41
Section 10.04 Compliance Certificate.................................................41
Section 10.05 Sub and Parent Counsel Opinion.........................................41
Section 10.06 Legal Proceedings......................................................41
Section 10.07 Governmental Approvals.................................................41
Section 10.08 Parent Shareholder Approval............................................41
Section 10.09 Bank Waivers...........................................................41
Section 10.10 Parent Share Value.....................................................41
ARTICLE XI CLOSING................................................................41
Section 11.01 Closing Date...........................................................41
Section 11.02 Deliveries by DSLT.....................................................42
Section 11.03 Deliveries by Sub and Parent...........................................42
ARTICLE XII TERMINATION............................................................42
Section 12.01 Events of Termination..................................................42
Section 12.02 Effect of Termination..................................................43
ARTICLE XIIA ESCROW AND INDEMNIFICATION.............................................44
Section 12A.01 Escrow Amount..........................................................44
Section 12A.02 Escrow Distributions...................................................44
</TABLE>
iv
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<TABLE>
<S> <C> <C>
Section 12A.03 Indemnification........................................................44
Section 12A.04 Third Party Claims.....................................................45
Section 12A.05 Indemnity Claims Procedure.............................................46
Section 12A.06 Limitation; Sole Remedy................................................47
Section 12A.07 Indemnification of Shareholders' Representative; Successor
Shareholders' Representative...........................................47
Section 12A.08 Interest and Dividends.................................................47
ARTICLE XIII MISCELLANEOUS..........................................................48
Section 13.01 Representations and Warranties; Exclusive Remedy.......................48
Section 13.02 Assignability..........................................................48
Section 13.03 Counterparts...........................................................48
Section 13.04 Best Efforts; Cooperation..............................................48
Section 13.05 Expenses...............................................................49
Section 13.06 Index and Captions; Rules of Construction..............................49
Section 13.07 Notices................................................................49
Section 13.08 Entire Agreement.......................................................50
Section 13.09 Governing Law..........................................................50
Section 13.10 Public Announcements...................................................50
Section 13.11 Waiver of Compliance; Modifications....................................51
Section 13.12 Other Persons..........................................................51
ARTICLE XIV DEFINITIONS............................................................51
</TABLE>
SCHEDULES
- ---------
Schedule 4.03 Conflicts
Schedule 4.04 DSLT Subsidiaries
Schedule 4.05(A) DSLT Audited Financial Statements
Schedule 4.05(B) DSLT Unaudited Financial Statements
Schedule 4.05(C) DCSFI Audited Financial Statements
Schedule 4.05(D) DCSFI Unaudited Financial Statements
Schedule 4.05(E) DSLT Descriptive Memo March 31, 1998 Balance Sheet
Schedule 4.06 Material Changes
Schedule 4.07 Litigation
Schedule 4.08 Existing Debt
Schedule 4.09 Real Property
Schedule 4.10 Taxes
Schedule 4.11 Material Contracts
Schedule 4.12 Employee Benefit Plans
Schedule 4.13 Insurance Policies
v
<PAGE>
Schedule 4.14 Labor Contracts
Schedule 4.15 Intellectual Property
Schedule 4.16 Environmental Matters
Schedule 4.20 Existing Directors and Officers
Schedule 5.04(a) Rights to Purchase Capital Stock
Schedule 5.06 Material Changes
Schedule 5.07 Litigation
Schedule 5.08 Existing Debt
Schedule 5.09 Material Contracts
Schedule 8.01 Retiree Health Care Policy
Schedule 8.02 Employee Severance Policy
EXHIBITS
- --------
Exhibit 9.05 DSLT Counsel Opinion
Exhibit 10.05 Sub and Parent Counsel Opinion
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of September 4,
1998, is among IMPERIAL HOLLY CORPORATION, a Texas corporation ("Parent"), IHK
ACQUISITION CORP., a Michigan corporation ("Sub"), and DSLT INC., a Michigan
corporation ("DSLT").
RECITALS
Sub has been formed solely to effectuate the transactions contemplated by
this Agreement, and the authorized capital stock of Sub consists of 1,000 common
shares (the "Sub Stock"), all of which are issued and outstanding and owned by
Parent.
The respective Boards of Directors of Parent and Sub deem a merger of Sub
with and into DSLT pursuant to the terms hereof (the "Merger") desirable and in
the best interests of their respective companies.
Parent does not desire to obtain the Real Estate Group and the Excluded
Assets, and prior to the Merger DSLT will distribute or otherwise segregate for
the benefit of its shareholders the Real Estate Group and the Excluded Assets.
The Board of Directors of DSLT deems the Merger desirable and in the best
interests of DSLT.
The respective Boards of Directors of Parent and Sub have, by resolutions
duly adopted, approved this Agreement, and Parent as the sole shareholder of Sub
has approved this Agreement.
The Board of Directors of DSLT has, by resolutions duly adopted, approved
this Agreement and directed that it be submitted to a vote of the DSLT
shareholders.
Holders of at least a majority of the outstanding shares of DSLT Common
Stock have delivered irrevocable proxies to approve the Merger.
Article XIV lists certain defined terms used in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, representations, and warranties contained in this Agreement, and for
the purpose of prescribing the terms of the Merger, the manner and the basis of
converting the shares of capital stock of Sub and DSLT, and such other
provisions as are deemed necessary or desirable, the parties hereto agree as
follows:
<PAGE>
ARTICLE I.
THE MERGER
Section 1.01. Merger. Upon the terms and subject to the satisfaction of
the conditions precedent contained in this Agreement, Sub shall be merged with
and into DSLT, which shall be the surviving corporation. The Merger shall be
effected pursuant to the provisions of and with the effect provided in the MBCA.
Upon the consummation of the Merger, the separate existence of Sub shall cease,
the corporate existence of DSLT shall continue unaffected and unimpaired by the
Merger, and Sub and DSLT shall be a single corporation.
Section 1.02. Effective Time. If (a) all of the conditions precedent to
the Merger set forth in Article IX and Article X are satisfied or waived, and
(b) this Agreement is not terminated prior to the Closing as permitted by its
provisions, then as soon as practicable following the Closing, DSLT and Sub
shall cause a Certificate of Merger conforming to the requirements of the MBCA
to be filed with the Corporation, Securities and Land Development Bureau of the
State of Michigan Department of Consumer and Industry Services in the manner
provided under the MBCA. The Merger shall become effective as of 5:00 p.m.,
Detroit time, on the date the Certificate of Merger is filed or such other time
as DSLT and Sub may agree (the "Effective Time").
Section 1.03. Legal Effect. At and after the Effective Time, DSLT shall
possess all of the rights, privileges, immunities, powers, and franchises of Sub
and DSLT, and shall be subject to and shall assume all of the duties and
liabilities of Sub and DSLT in accordance with the MBCA.
Section 1.04. Name. As of the Effective Time, the name of DSLT shall be
changed to Diamond Crystal Holdings, Inc.
Section 1.05. Other Actions. DSLT, Sub and Parent, respectively, shall
take all such action as may be reasonably necessary or appropriate in order to
effectuate the transactions contemplated by this Agreement. If any further
action is necessary or desirable after the Effective Time to carry out the
purposes of this Agreement, the officers and directors of DSLT and Parent shall
have the authority to take that action.
ARTICLE II.
CORPORATE GOVERNANCE
Section 2.01. Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of Sub as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation and Bylaws, respectively, of DSLT at
and following the Effective Time until amended or repealed as provided by
applicable law.
2
<PAGE>
Section 2.02. Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall become the directors of DSLT immediately
following the Effective Time, and the officers of DSLT and its Subsidiaries
immediately prior to the Effective Time shall remain the officers of DSLT and
its Subsidiaries immediately following the Effective Time, in each case to serve
until their successors shall have been elected or appointed and qualified in the
manner provided in the Articles of Incorporation and Bylaws of DSLT, or until
they resign or are removed, or as otherwise provided by applicable law.
ARTICLE III.
CONVERSION OF AND PAYMENT FOR SHARES
Section 3.01. Conversion. At the Effective Time, each share of Sub Stock
which shall be outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and exchanged for one (1) share of DSLT Common Stock, and all
certificates formerly representing shares of capital stock of Sub shall be
deemed canceled and of no further effect.
Section 3.02. Merger Price; Merger Consideration.
(a) (i) Except as provided in subparagraphs (ii) or (iii) below, the
merger price shall be One Hundred Twenty Million Dollars ($120,000,000) ("Merger
Price"), subject to adjustment as provided in Sections 3.07 and 3.08.
(ii) Parent may elect, by delivery of written notice to DSLT (the
"All Cash Election Notice") not later than five (5) Business Days prior to the
Closing Date, to cause the Merger Consideration as described in Section 3.02(b)
to be delivered in all cash rather than in a combination of cash and Parent
Common Stock. In the event Parent timely delivers to DSLT the All Cash Election
Notice, then, notwithstanding the provisions of subparagraph (i) above, the
Merger Price shall be One Hundred Fifteen Million Dollars ($115,000,000),
subject to adjustment as provided in Sections 3.07 and 3.08. Upon DSLT's
receipt of a timely All Cash Election Notice, Parent's election to cause the
Merger Consideration to be delivered in all cash shall be irrevocable.
(iii) In the event that Parent or its assignee timely exercises the
Repurchase Option as set forth in Section 3.09, the Merger Price shall be
modified as provided in Section 3.09.
(b) At the Effective Time, each share of DSLT Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of DSLT
Common Stock (i) held in DSLT's treasury or (ii) held by Dissenting Stockholders
(as defined in Section 3.06)) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
the Merger Consideration, subject to pro rata withholding of Merger
Consideration to be held in escrow pursuant to Section 12A.01 and subject to
adjustment as set forth in Sections 3.07 and 3.08. In the absence of timely
delivery of the All Cash Election
3
<PAGE>
Notice, the Merger Consideration shall consist of (x) the applicable Cash
Consideration plus (y) the Share Consideration. In the event Parent timely
delivers to DSLT the All Cash Election Notice, the Merger Consideration shall
consist only of the applicable Cash Consideration. The Merger Consideration is
to be paid in the manner provided in Section 3.03. After the Effective Time, the
holder of a certificate formerly representing shares of DSLT Stock shall have no
rights with respect to such shares of capital stock other than as provided by
this Article III or the laws of the State of Michigan.
Section 3.03. Payment; Exchange of Certificates. (a) At or before the
Effective Time, Sub shall deposit by wire transfer of immediately available
Federal funds, and Parent shall cause Sub to make such deposit, with Parent's
transfer agent for Parent Common Stock, or another Person mutually agreed-upon
by Parent and DSLT (the "Disbursing Agent"), an amount of cash sufficient to
provide all funds necessary to make the cash payments required by Section 3.02
to holders of DSLT Common Stock, such amount to be held and disbursed by the
Disbursing Agent pursuant to an agreement which shall, inter alia, provide that
such funds shall be disbursed to the shareholders of DSLT in accordance with
written instructions to be provided to the Disbursing Agent as set forth in
Section 3.03(b).
(b) At or as soon as practicable after the Effective Time, Parent or the
Disbursing Agent will send to the holders of DSLT Stock (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
DSLT stock certificates in exchange for the Merger Consideration. Upon
surrender of a DSLT stock certificate to Parent for exchange, together with a
duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, the holder of such DSLT stock certificate shall
be entitled to receive in exchange therefor (x) cash, without interest, plus (y)
(if applicable due to the absence of DSLT's timely receipt of the All Cash
Election Notice) a certificate representing the number of whole shares of Parent
Common Stock that such holder has the right to receive pursuant to the
provisions of Section 3.02, less that holder's pro rata portion of Merger
Consideration to be held in escrow pursuant to Section 12A.01, and the DSLT
stock certificate so surrendered shall be canceled. The certificates
representing such shares of Parent Common Stock not subject to the Escrow shall
be held by the Shareholders' Representative until the expiration of the
Repurchase Option (as defined in Section 3.09) or the closing of the exercise
thereof. Until surrendered as contemplated by this Section, each DSLT stock
certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive the Merger Consideration (and cash in lieu of any
fractional share of Parent Common Stock). If any DSLT stock certificate shall
have been lost, stolen, or destroyed, Parent may, in its discretion and as a
condition precedent to issuing any Merger Consideration, require the owner of
such lost, stolen, or destroyed DSLT stock certificate to provide an appropriate
affidavit as indemnity against any claim that may be made against Parent with
respect to such DSLT stock certificate. No dividends or other distributions
declared or made with respect to Parent's Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered DSLT stock
certificate with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of any fractional share shall be paid to
any such holder, until such holder surrenders such DSLT stock certificate in
accordance with this Section (at which time such holder shall be entitled to
receive all such dividends and distributions and such cash payment).
4
<PAGE>
Section 3.04. No Fractional Shares. No fractional shares of Parent
Common Stock will be issued in connection with the Merger and no certificate
therefor will be issued. In lieu of such fractional shares, any holder of DSLT
Common Stock who would otherwise receive a fractional share of Parent Common
Stock shall, upon surrender of the certificate or certificates representing DSLT
Common Stock, be paid an amount in cash (without interest) determined by
multiplying such fraction by the Parent Share Value as of the Closing Date.
Parent will, subject to any applicable statute of limitation or abandoned
property or similar law, pay to such holders, upon surrender of their DSLT stock
certificates, the cash value of such fractions so determined, without interest.
Section 3.05. Adjustment of Exchange Ratio. If, between the date of this
Agreement and the Effective Time, the outstanding Parent Common Stock shall have
been changed into a greater or lesser number of shares of Parent Common Stock or
into a different security by reason of a reclassification, stock split, stock
combination, stock dividend or other recapitalization or similar transaction,
the Share Consideration to be issued hereunder shall be correspondingly
adjusted.
Section 3.06. Dissenting Stockholders. (a) Notwithstanding any provision
of this Agreement to the contrary, shares of DSLT Common Stock that are
outstanding immediately prior to the Effective Time and that are held by
stockholders who (i) shall have filed with DSLT, prior to or at the meeting of
stockholders of DSLT at which this Agreement will be submitted to a vote, a
written objection to the Merger, (ii) shall have not voted in favor of the
Merger and (iii) shall have demanded properly in writing the fair value for such
shares of DSLT Common Stock in accordance with Chapter 7 of the MBCA
("Dissenting Stockholders"), shall not be converted into or represent the right
to receive Merger Consideration including cash for any fractional shares of
Parent Common Stock in accordance with Sections 3.02 and 3.04 but shall become
the right to receive payment of the fair value of such shares of DSLT Common
Stock in accordance with the provisions of Chapter 7 of the MBCA, provided,
however, that any Dissenting Stockholder who shall have failed to comply with
the requirements of Chapter 7 of the MBCA shall be conclusively presumed to have
consented to the Merger and shall be bound by the terms thereof and the shares
of DSLT Common Stock held by such Dissenting Stockholder shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration and cash for
fractional shares of Parent Common Stock, if any, in accordance with Sections
3.02 and 3.04, without any interest thereon, upon surrender in the manner
provided in Section 3.03 of the certificate(s) that formerly evidenced such DSLT
Common Stock. The right of a Dissenting Stockholder to be paid the fair value
of his or her shares pursuant to Chapter 7 of the MBCA shall cease if and at
such time DSLT shall abandon the Merger. Any payments to Dissenting
Stockholders (x) if paid at or prior to the Closing, shall be paid by DSLT out
of its own funds and no funds will be supplied, directly or indirectly, by
Parent for payment to Dissenting Stockholders, nor will Parent directly or
indirectly (including through Sub) reimburse DSLT for any payments to Dissenting
Stockholders, or (y) if paid after the Closing, shall be paid out of the Escrow.
(b) DSLT shall give Parent (i) prompt notice and copies of any written
objections to this Agreement received by DSLT, any demands for fair value of
shares of DSLT Common
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Stock or other instruments served pursuant to the MBCA and received by DSLT and
withdrawals of such demands and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for fair value under the
MBCA.
Section 3.07. Adjustments to Merger Price. The Merger Price will be
adjusted on a dollar for dollar basis based upon the following calculations (the
result of all such calculations combined being the "Adjusted Merger Price"):
(a) Postemployment Health Obligation. The Merger Price will be
reduced by $1,450,000, in consideration for Parent's agreement to cause DSLT (as
the surviving corporation) to continue to administer DSLT's postemployment
health obligations as provided in Section 8.01;
(b) Changes to DSLT Closing Balance Sheet. To reflect differences
between specified items on the DSLT Descriptive Memo Marcha31, 1998 Balance
Sheet and the DSLT Closing Balance Sheet, with all relevant amounts being
determined in a manner consistent with that used in preparing the DSLT
Descriptive Memo Marcha31, 1998 Balance Sheet (as adjusted for final audit
adjustments) and in accordance with generally accepted accounting principles
applied in a manner consistent with DSLT's historical polices and practices, the
Merger Price will be:
(i) reduced by the amount of any decrease or increased by the
amount of any increase in Working Capital from $8,495,000;
(ii) reduced by the amount of any increase or increased by the
amount of any decrease in Long-Term Debt from $22,943,000;
(iii) reduced by the amount of any increase or increased by the
amount of any decrease in Deferred Compensation Liability from $700,000, net of
any changes in related long-term deferred taxes from $273,000;
(iv) reduced by the amount of any increase or increased by the
amount of any decrease in Stock Appreciation Rights Liabilities from $8,799,000,
net of any changes in related long-term deferred taxes from $3,091,000;
(c) Certain Closing Payments. With respect to certain amounts to be
paid in connection with the Closing or which will be required to be paid on a
post-closing basis as a result of the Merger, but without duplication of the
effect of any adjustments described in subparagaphs (a) or (b) above:
(i) the Merger Price will be reduced by the amount of any bonus
payments required to be made to DCSFI executives under paragraphs 3(a) and/or
3(d) of the CIC Agreements, in each case net of the applicable Tax Adjustment
(provided that a tax deduction is not prohibited under Section 280G of the
Code);
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(ii) the Merger Price will be reduced by fifty percent (50%) of the
amount of any payment required to be made to Ronald M. Tarantino under paragraph
3(e) of the CIC Agreement pertaining to Mr. Tarantino, net of the applicable Tax
Adjustment (provided that a tax deduction is not prohibited under Section 280G
of the Code);
(iii) in connection with the exercise of SAR's as a result of the
Merger, the Merger Price will be reduced by the amount of any payments in
respect of SAR's to the extent that such payments in the aggregate exceed the
amount of the Stock Appreciation Rights Liabilities, net of related long-term
deferred taxes, reflected on the DSLT Descriptive Memo March 31, 1998 Balance
Sheet, in each case net of the applicable Tax Adjustment (provided that a tax
deduction is not prohibited under Section 280G of the Code).
The parties acknowledge that at the time of preparation of the estimated
preliminary closing balance sheet required under Section 3.08(a), certain
accruals for SAR payments and bonus payments required to be made to certain
DCSFI executives under their CIC Agreements will not be determinable with
certainty because such accruals are dependant upon factors then unknown (such as
Parent's possible subsequent election of the Repurchase Option or possible
subsequent distributions from the Escrow). Such accruals on the estimated
preliminary closing balance sheet required under Section 3.08(a) shall be
prepared with the presumptions (i) that Parent or its assignee will timely
exercise the Repurchase Option and (ii) that no portion of the Escrow will be
distributed to the DSLT Stockholders. At the time of preparation of the Closing
Balance Sheet required under Section 3.08(b), the parties will know whether or
not Parent or its assignee timely exercised the Repurchase Option. The accruals
described above on the Closing Balance Sheet shall be prepared with the
presumption that no portion of the Escrow will be distributed to DSLT
Stockholders. The parties acknowledge and agree that the foregoing presumptions
are for the sole purpose of establishing an estimated Closing Payment prior to
the Closing and an Adjusted Merger Price. To the extent that either or both of
such presumptions subsequently become inaccurate, in whole or in part, thereby
requiring additional payments that were not accrued for purposes of calculating
the Closing Payment and resulting in a Merger Price Overpayment as defined in
Section 12A.01, then DSLT (as the surviving corporation), upon termination of
the Escrow, shall make such additional payments and shall be reimbursed therefor
(net of the applicable Tax Adjustment) from the Escrow in the manner described
in Section 12A.02 prior to distribution of the remaining balance of the Escrow
to the DSLT Stockholders as described in Section 12A.03.
The Merger Price will not be reduced by any payments described in Section
8.07, whether paid on a pre-closing basis prior to the Effective Time or on a
post-closing basis after the Effective Time. Further, except as expressly set
forth above in this Section 3.07, the Merger Price will not be reduced by any
payments required to be made to DCSFI executives under the CIC Agreements.
Section 3.08. Closing Payment and Post-Closing Merger Price Adjustments.
(a) Not later than five (5) Business Days prior to the Effective Time, DSLT will
prepare and deliver to Parent, using and based upon the best information
available to DSLT as of the end of the prior calendar month as adjusted for any
material changes of which DSLT is aware prior to the date of delivery, a
preliminary closing balance sheet and supporting information estimating the
Adjusted
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Merger Price after giving effect to all Merger Price adjustments set forth in
Section 3.07 that are anticipated either prior to the Effective Time or in
connection with the Closing and that can be calculated or reasonably estimated.
Sub will deliver to the Disbursing Agent, for delivery to the DSLT Stockholders
(subject to pro rata withholding of the Merger Price to be held in escrow
pursuant to Section 12A.01), Merger Consideration equal to, at the sole
discretion and election of Parent, either (i) the estimated Adjusted Merger
Price delivered in accordance with this Section 3.08 or (ii) the Merger Price as
adjusted for any items described in subparagraphs (a), (c)(i) and (c)(ii) of
Section 3.07 as then known or as estimated in the manner set forth in Section
3.07 (the "Closing Payment").
(b) Parent or DSLT as the surviving corporation, or an accounting firm
(other than Arthur Andersen LLP) retained by Parent or DSLT as the surviving
corporation, shall be responsible, working in conjunction with the Shareholders'
Representative and his accountants and consultants, for the preparation of the
DSLT Closing Balance Sheet and a statement setting forth the final calculation
of the Adjusted Merger Price, which shall be delivered to the Shareholders'
Representative not earlier than the 50th day following the Closing Date nor
later than the 120th day following the Closing Date. The DSLT Closing Balance
Sheet and the resulting calculation of the Adjusted Merger Price will be
prepared as of the Closing Date and giving effect to the Merger. Parent will
make available to the Shareholders' Representative and his accountants and
consultants information which is in the possession of Parent or DSLT and which
may be reasonably required by the Shareholders' Representative to assist in the
preparation of the DSLT Closing Balance Sheet and to verify whether the DSLT
Closing Balance Sheet and the Adjusted Merger Price are correct. Parent shall
reimburse the Shareholders' Representative for any reasonable fees or expenses
of his accountants and consultants incurred in connection with their assistance
in the preparation of the DSLT Closing Balance Sheet, subject to the maximum
amount described in Section 8.07. Not later than the 30th day following receipt
of the DSLT Closing Balance Sheet, the Shareholders' Representative will deliver
to Parent a written statement containing any changes that the Shareholders'
Representative proposes be made to the DSLT Closing Balance Sheet; provided,
however, that in the event the Shareholders' Representative fails to provide
Parent with such written statement during such 30-day period, the Shareholders'
Representative shall be deemed to have agreed with the DSLT Closing Balance
Sheet and the Adjusted Merger Price as provided. The parties shall undertake to
work together in good faith to agree on the final statement of the Adjusted
Merger Price no later than 180 days after the Closing Date. In the event that
the parties cannot reach agreement within such period of time, either party may
refer the remaining matters in dispute to Arthur Andersen LLP, or such other
nationally-recognized independent accounting firm as may be accepted by the
Shareholders' Representative and Parent, for review and final determination. If
neither party makes such referral within 30 days, the original DSLT Closing
Balance Sheet, with such changes as were agreeable to the parties, shall become
final and binding. The accounting firm will conduct the arbitration proceedings
in Houston, Texas, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, to the extent such rules do not conflict with
the terms of this Section 3.08. The accounting firm's determination will be
made within 30 days after submission of the matters in dispute and will be final
and binding on both parties, without right of appeal, and may be enforced by
appropriate judicial or other proceedings. In determining the proper amount of
any adjustment to the Merger Price, the accounting firm will not increase the
Merger Price more than the increase proposed by the
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Shareholders' Representative nor decrease the Merger Price more than the
decrease proposed by Parent or DSLT, as applicable. The accounting firm will
act as an expert for the limited purpose of determining the specific disputed
matters submitted by either party and may not award damages or penalties to
either party with respect to any matter. The DSLT Stockholders and Parent will
each bear their own legal fees and other costs of presenting their case. The
DSLT Stockholders and Parent will each bear one-half of the costs and expenses
of the accounting firm. Within 10 days after the earlier of (i) the expiration
of Parent's 30-day review period without delivery of any written report or (ii)
the date on which the parties or the accounting firm, as applicable, finally
determines the disputed matters, DSLT (as the surviving corporation) will pay to
the DSLT Stockholders the amount by which the Adjusted Merger Price exceeds the
Closing Payment or the DSLT Stockholders will pay to DSLT the amount by which
the Closing Payment exceeds the Adjusted Merger Price, as applicable. Any post-
closing payment pursuant to this Section 3.08 will bear interest from the
Closing Date to the date of payment at the Agreed Interest Rate.
(c) All payments to be made under this Section 3.08 to the DSLT
Stockholders will be made in the proportion of cash and Parent Common Stock
calculated in the same manner as set forth in Section 3.02 (except that such
payments will be in all cash in the event of Parent's timely delivery of the All
Cash Election Notice or timely exercise of the Repurchase Option), which will be
deposited with the Disbursing Agent for pro rata distribution to the DSLT
Stockholders. All payments to be made under Section 3.08(b) to DSLT (as the
surviving corporation) will be paid from the Escrow, either in cash or in Parent
Common Stock valued at the Parent Share Value as of the date of distribution
from the Escrow, as the case may be.
Section 3.09. Repurchase Option. If Parent does not timely deliver an All
Cash Election Notice, Parent shall have the option (the "Repurchase Option"),
exercisable by written notice delivered to the Shareholders' Representative (the
"Repurchase Notice") on or before the close of business on the 45th day after
the Closing Date (or, if such 45th day is not a Business Day, the close of
business on the next succeeding Business Day), to purchase all shares of Parent
Common Stock issued pursuant to the Merger, including the shares initially
placed in the Escrow pursuant to Section 12A.01 (collectively, the "Repurchased
Shares"), for cash in an amount (the "Repurchase Price") equal to the sum of (i)
the excess of (x) one-third of the Closing Payment less the amount of cash paid
in lieu of fractional shares under Section 3.04 over (y) Five Million Dollars
($5,000,000), plus (ii) interest on such excess at the Agreed Interest Rate from
the Closing Date to the date of repurchase of the Repurchased Shares. The
Repurchase Option, and the right to Repurchase the Repurchased Shares, may be
assigned by Parent to any other Person, provided that Parent provides prompt
written notice of any such assignment to the Shareholders' Representative. Upon
timely exercise of the Repurchase Option, the closing of the repurchase of the
Repurchased Shares shall occur on the third Business Day after receipt by the
Shareholders' Representative of the Repurchase Notice, at the offices of Parent
or such other place and time as Parent and the Shareholders' Representative may
agree. The Repurchase Price shall be paid or caused to be paid by Parent or its
assignee by wire transfer in immediately available funds to the Disbursing Agent
for distribution to the DSLT Stockholders in the same proportion as under
Section 3.03, subject to pro rata withholding of a portion thereof to be held in
escrow pursuant to Section 12A.01. The Repurchased Shares shall be delivered to,
or upon the order of, Parent or its assignee against such payment of the
Repurchase Price. Upon closing of the Repurchase Option,
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(A) the Merger Price, the Adjusted Merger Price and any calculations or
adjustments that are dependent upon the Merger Price or the Adjusted Merger
Price (including, without limitation, the Escrow Amount calculated under Section
12A.01) shall be based upon the sum of cash portion of the original Merger Price
plus the amount obtained under clause (i) of the first sentence of this Section
3.09, disregarding the aggregate value originally assigned to the Repurchased
Shares; and (B) thereafter the Escrow shall consist of all cash as described in
Section 12A.01.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF DSLT
Subject to Section 13.01, DSLT represents and warrants to Sub and Parent
that:
Section 4.01. Organization; Power; Qualification. Each of DSLT and its
Subsidiaries is a corporation duly incorporated, validly existing, and in good
standing under the laws of its state of incorporation. Each of DSLT and its
Subsidiaries has all requisite corporate power and authority and all material
governmental licenses, authorizations, consents and approvals to own, lease, and
operate its properties and to carry on its business or businesses as now being
conducted. Each of DSLT and its Subsidiaries is duly qualified as a foreign
corporation and is in good standing to do business in every jurisdiction in
which such qualification is necessary because of the nature of the properties
owned, leased, or operated by it or the nature of the businesses conducted by
it, except for such jurisdictions in which, in the aggregate, failure to so
qualify would not have a Material Adverse Effect on DSLT and its Subsidiaries.
DSLT has delivered to Sub and Parent complete and correct copies of the Articles
or Certificate of Incorporation and Bylaws of each of DSLT and its Subsidiaries,
as amended to the date hereof.
Section 4.02. Authority; Power. The execution and delivery of this
Agreement by DSLT has been authorized by all necessary corporate action on the
part of DSLT. DSLT has the requisite corporate power and authority to execute
and deliver this Agreement, to consummate the Merger (subject to shareholder
approval as contemplated hereby) and to take any and all other actions required
to be taken by it pursuant to the provisions of this Agreement. This Agreement
constitutes the legal, valid, and binding obligation of DSLT, enforceable
against DSLT in accordance with its terms, except as the enforcement hereof may
be limited by bankruptcy, insolvency, moratorium, or other laws relating to or
limiting creditors' rights generally or by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
Section 4.03. No Violation. Except as contemplated by this Agreement or
as set forth on Schedule 4.03, executing and delivering this Agreement,
consummating the Merger under this Agreement, and complying with the terms of
this Agreement will not conflict with, violate the terms of, constitute a
default under (with or without the giving of notice or lapse of time or both),
or result in any Lien being created upon any of the properties or assets of DSLT
or any of its Subsidiaries pursuant to, their respective Articles or Certificate
of Incorporation or Bylaws, any award of any arbitrator, or any material
agreement, instrument, order, judgment, law, rule, or
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regulation to which DSLT or any of its Subsidiaries is subject or by which the
properties of DSLT or any of its Subsidiaries is otherwise bound.
Section 4.04. Capital Structure of DSLT and Related Matters. (a) The
total authorized capital stock of DSLT consists of 4,000,000 shares of DSLT
Common Stock, of which 1,149,209 shares are issued and outstanding, and 300,000
shares of DSLT Preferred Stock, none of which are issued and outstanding. All
outstanding shares of DSLT Stock have been duly authorized, were validly issued,
and are fully paid and non-assessable. None of the DSLT Stock is entitled to
preemptive rights. DSLT has no outstanding options, warrants, or other rights
of any kind to acquire any shares of capital stock of DSLT, or securities
convertible into or exchangeable for, or which otherwise confer on the holder
thereof any right to acquire any shares of capital stock of DSLT, nor is DSLT
committed to issue any such option, warrant, right, or security.
(b) The capital structure and ownership of DSLT's Subsidiaries is set forth
on Schedule 4.04. All outstanding shares of the capital stock of DSLT's
Subsidiaries have been duly authorized, were validly issued, and are fully paid
and non-assessable. None of the capital stock of DSLT's Subsidiaries is entitled
to preemptive rights. Except for the options to acquire common stock of DCSFI
held by certain officers of DCSFI in connection with the SAR Plans (which
options will terminate or expire at or prior to the Effective Time pursuant to
the SAR Plans), DSLT's Subsidiaries have no outstanding options, warrants, or
other rights of any kind to acquire any shares of their respective capital
stock, or securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire any shares of their respective
capital stock, nor is any of DSLT's Subsidiaries committed to issue any such
option, warrant, right, or security. There are no restrictions on DSLT to vote
the shares of capital stock of the Subsidiaries.
(c) With the exception of a limited number of DSLT Stockholders
collectively holding a proportion of DSLT Common Stock that is not material in
the aggregate, each DSLT Stockholder is either (i) an "accredited investor," as
that term is defined in Regulation D under the Securities Act or (ii) if not
such an "accredited investor," such DSLT Stockholder either alone or with his or
her purchaser representative has such knowledge and experience in financial and
business matters that such DSLT Stockholder is capable of evaluating the merits
and risks of the investment in Parent Common Stock pursuant to the Merger.
Fewer than 35 DSLT Stockholders are not "accredited investors." Each DSLT
Stockholder does not currently intend to dispose of Parent Common Stock to be
issued in the Merger except pursuant to sales under the Registration Statement,
pursuant to the Repurchase Option or as otherwise permitted under the Securities
Act.
Section 4.05. Financial Statements. (a) True and complete copies of the
consolidated balance sheets of DSLT and its Subsidiaries as of March 31, 1998,
and 1997, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the two-year
period ended March 31, 1998, as audited by Price Waterhouse LLP, Detroit,
Michigan (collectively, the "DSLT Audited Financial Statements"), are attached
as Schedule 4.05(A). The unaudited consolidated balance sheets of DSLT and its
Subsidiaries as of June 30, 1998, and the related consolidated statements of
income for the three months then ended (the "DSLT Unaudited Financial
Statements") are attached hereto as Schedule 4.05(B). The
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DSLT Audited Financial Statements and the DSLT Unaudited Financial Statements
(collectively, the "DSLT Financial Statements") (including any related schedules
and/or notes) are true and correct in all material respects (except that the
DSLT Unaudited Financial Statements are subject to changes resulting from audit
and to customary year-end adjustments), have been prepared in accordance with
generally accepted accounting principles that were, except as otherwise stated
therein, consistently followed throughout the periods involved (except that the
DSLT Unaudited Financial Statements do not include statements of cash flows and
statements of changes in shareholders' equity and the notes thereto which might
be required by generally accepted accounting principles), and show all material
liabilities, direct and contingent, required to be shown in accordance with such
principles. The balance sheets included in the DSLT Financial Statements fairly
present in all material respects the financial condition of DSLT and its
Subsidiaries as at the dates thereof, and the consolidated statements of income,
changes in shareholders' equity, and cash flows included therein fairly present
in all material respects the results of the operations and cash flows for the
periods indicated (except that the DSLT Unaudited Financial Statements are
subject to changes resulting from audit and to customary year-end adjustments).
Except for changes related to (i) the Real Estate Group or the Excluded Assets,
(ii) accrued liabilities or payments made in connection with the consummation of
the Merger, (iii) accruals for income taxes based upon a partial year, or (iv)
accruals for SAR payments required as a result of consummation of the Merger,
changes to the DSLT Unaudited Financial Statements resulting from audit or
customary year-end adjustments will not be material.
(b) True and complete copies of the consolidated balance sheets of DCSFI
and its Subsidiaries as of March 31, 1998, and 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the two-year period ended March 31, 1998, as
audited by Price Waterhouse LLP, Detroit, Michigan (collectively, the "DCSFI
Audited Financial Statements"), are attached as Schedule 4.05(C). The unaudited
consolidated balance sheets of DCSFI and its Subsidiaries as of June 30, 1998,
and the related consolidated statements of income and cash flows for the three
months then ended (the "DCSFI Unaudited Financial Statements") are attached
hereto as Schedule 4.05(D). The DCSFI Audited Financial Statements and the
DCSFI Unaudited Financial Statements (collectively, the "DCSFI Financial
Statements") (including any related schedules and/or notes) are true and correct
in all material respects (except that the DCSFI Unaudited Financial Statements
are subject to changes resulting from audit and to customary year-end
adjustments), have been prepared in accordance with generally accepted
accounting principles that were, except as otherwise stated therein,
consistently followed throughout the periods involved (except that the DCSFI
Unaudited Financial Statements do not include statements of changes in
shareholders' equity and the notes thereto which might be required by generally
accepted accounting principles), and show all material liabilities, direct and
contingent, required to be shown in accordance with such principles. The
balance sheets included in the DCSFI Financial Statements fairly present in all
material respects the financial condition of DCSFI and its Subsidiaries as at
the dates thereof, and the consolidated statements of income, changes in
shareholders' equity, and cash flows included therein fairly present in all
material respects the results of the operations and cash flows for the
periods indicated (except that the DCSFI Unaudited Financial Statements are
subject to changes resulting from audit and to customary year-end adjustments).
Except for changes related to (i) accrued liabilities or payments made in
connection with the consummation of the Merger, (ii)
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accruals for income taxes based upon a partial year, or (iii) accruals for SAR
payments required as a result of consummation of the Merger, changes to the
DCSFI Unaudited Financial Statements resulting from audit or customary year-end
adjustments will not be material.
(c) The DSLT Descriptive Memo March 31, 1998 Balance Sheet is attached as
Schedule 4.05(E). Except to the extent adjusted in the DSLT Audited Financial
Statements, the DSLT Descriptive Memo March 31, 1998 Balance Sheet (i) fairly
presents in all material respects the financial condition of DSLT as of the date
thereof on a pro forma basis to reflect all matters in connection with the
distribution of the Real Estate Group and the Excluded Assets and the other
matters described therein, and (ii) is true and correct in all material
respects, based upon financial statements prepared in accordance with generally
accepted accounting principles that were consistently followed (but excluding
notes thereto which may be required by generally accepted accounting principles)
and showing all material liabilities, direct and contingent, required to be
shown in accordance with such principles.
Section 4.06. Absence of Certain Changes. From March 31, 1998, except for
segregating the Real Estate Group and the Excluded Assets and except as set
forth on Schedule 4.06, DSLT and each of its Subsidiaries has conducted their
respective business in the ordinary and usual course and there has not been (a)
any damage, destruction, or other casualty loss (whether or not covered by
insurance) having, or which would reasonably be expected to have, a Material
Adverse Effect on DSLT and its Subsidiaries, (b) except for compensation
increases in the ordinary course of business consistent with past practices, and
except for the matters described in Article VIII, any increase in the
compensation payable or to become payable by DSLT or any of its Subsidiaries to
any of their respective employees or any increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made by DSLT or
any of its Subsidiaries for or with respect to any of their respective
employees, (c) any labor dispute having a Material Adverse Effect on DSLT and
its Subsidiaries, or, to the Knowledge of the Management Executives, any
material activity or proceeding by a labor union or representative thereof to
organize any employees of DSLT or its Subsidiaries, which employees were not
subject to a collective bargaining agreement at March 31, 1998, or any lockouts,
strikes, slowdowns, work stoppages or, to the Knowledge of the Management
Executives, threats thereof by or with respect to any employees of DSLT or its
Subsidiaries, (d) except as contemplated by this Agreement or in the ordinary
course of business, any material obligation or liability incurred by DSLT or any
of its Subsidiaries or any creation or assumption by DSLT or any of its
Subsidiaries of any Lien on any material asset or any loan, advance, or capital
contribution to or material investment in any Person, (e) except as contemplated
by this Agreement or under the SAR Plans, any declaration, setting aside, or
payment of any dividend or other distribution in respect of capital stock of
DSLT or any of its Subsidiaries, any direct or indirect redemption, purchase, or
other acquisition of capital stock of DSLT or any of its Subsidiaries, or
granting or entering into of any option or commitment relating to capital stock
of DSLT or any of its Subsidiaries, (f) except as contemplated by this
Agreement, any payment, discharge, or satisfaction of any material obligation or
liability of DSLT or any of its Subsidiaries, other than in the ordinary course
of business, (g) any sale, transfer, or other disposition of any material
tangible or intangible asset of DSLT or any of its Subsidiaries, other than in
the ordinary course of business, (h) any material change in accounting methods
or practices or tax methods, practices, or elections by DSLT or any of its
Subsidiaries, (i) any
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cancellation of any material debts or claims or, other than in the ordinary
course of business, any termination or waiver of any material rights of DSLT or
any of its Subsidiaries, or (j) except as contemplated by this Agreement, any
agreement entered into by DSLT or any of its Subsidiaries to take any of the
actions specified in the foregoing subsections (a) through (i).
Section 4.07. Actions Pending. Schedule 4.07 lists all actions, suits,
and proceedings pending or, to the Knowledge of the Management Executives,
threatened, and all investigations, to the Knowledge of the Management
Executives, pending or threatened, against DSLT or any of its Subsidiaries, or
any properties or rights of DSLT or any of its Subsidiaries, or which in any
[Amanner challenge or seek to prevent, enjoin, alter, or materially delay the
transactions contemplated by this Agreement, by or before any court, arbitrator,
or administrative or governmental body.
Section 4.08. Outstanding Debt and Related Matters. DSLT and its
Subsidiaries have no outstanding Debt except as set forth on Schedule 4.08
("DSLT Existing Debt"). There exists no material default under the provisions
of any instrument evidencing such Existing Debt or of any agreement relating
thereto, except as listed on Schedule 4.08. Neither DSLT nor any of its
Subsidiaries has guaranteed any obligation of any Person in excess of $100,000
except as set forth on Schedule 4.08.
Section 4.09. Title to Properties. (a) Except with respect to the Real
Estate Group and the Excluded Assets, Schedule 4.09 lists all real property
owned of record or beneficially by DSLT or any of its Subsidiaries and all
leases of real property under which DSLT or any of its Subsidiaries is a lessor
or lessee. Except as set forth on Schedule 4.09 and except with respect to the
Real Estate Group and the Excluded Assets, DSLT or one or more of its
Subsidiaries has good and marketable title to the respective real properties
owned by them, and good title to all of the other respective properties and
assets owned by them, including the properties and assets reflected in the
balance sheet as of March 31, 1998, included in the DSLT Audited Financial
Statements (other than properties and assets disposed of in the ordinary course
of business since that date), subject in the case of real property to the Lien
of current taxes not yet due and payable, any facts which a survey or inspection
would disclose, and all easements, highways, rights-of-way, agreements,
covenants, conditions, encumbrances, restrictions, and limitations apparent or
of public record (none of which will result in a Material Adverse Effect), and
in all cases (including real property) subject to no material Lien of any kind.
All leases listed on Schedule 4.09 are valid and subsisting and are in full
force and effect in all material respects and there is no default by DSLT or, to
the Knowledge of the Management Executives, any other party to such leases, that
could reasonably be expected to have a Material Adverse Effect on DSLT and its
Subsidiaries taken as a whole. DSLT has provided Parent with true and complete
copies, to the extent in the possession of DSLT or its Subsidiaries, of all (i)
surveys and title policies to all real property and (ii) leases, listed on
Schedule 4.09.
(b) There are no pending condemnation or eminent domain proceedings,
moratoriums on zoning, platting, construction, or extension or connection of
utilities, or suits affecting the real property and leases listed on Schedule
4,09, or assessments affecting such real property and leases, or any part
thereof, nor to the Knowledge of the Management Executives have any such
proceedings or assessments been threatened or contemplated by any governmental
authority.
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(c) There are no contracts or other obligations outstanding for the
sale, exchange, or transfer of the real property listed on Schedule 4.09 or the
lessee's interest in the leases listed on Schedule 4.09 or any portion thereof.
(d) To the Knowledge of the Management Executives, no default or breach
exists under any covenant, condition, restriction, right-of-way, or easement
affecting the real property or leases listed on Schedule 4.09 or any portion
thereof.
(e) With respect to the real property listed on Schedule 4.09, and
excepting the matters set forth on Schedule 4.16, to the Knowledge of the
Management Executives there is no condition existing with respect to such real
property which violates any law, rule, statute, ordinance, zoning regulation,
building code, or other regulation of any governmental or quasi-governmental
authority having jurisdiction over such real property. Excepting the matters set
forth on Schedule 4.16, DSLT has not received any notice, written or otherwise,
from any governmental or quasi-governmental authority requiring the correction
of any condition with respect to such real property.
Section 4.10. Taxes. DSLT and its Subsidiaries have or will have filed
prior to or on the Closing Date all material Tax returns, statements, reports,
and forms (including estimated Tax returns and reports) required to be filed by
it or them or on its or their behalf on or before the Closing Date with any
Taxing Authority, except for such returns, statements, reports, or forms, the
failure of which to file would not have a Material Adverse Effect (collectively,
the "DSLT Returns"). The DSLT Returns have been or will be filed when due in
accordance with all applicable laws and, as of the time of filing, were or will
be correct and complete in all material respects regarding the income, costs,
business, assets, operations, activities, and status of DSLT and its
Subsidiaries and any other items of information shown therein. DSLT and its
Subsidiaries have or will have timely paid, withheld, or made reasonable
provision for all Taxes shown as due and payable in the Returns, except for such
Taxes that are being contested in good faith by appropriate proceedings and
which are listed on Schedule 4.10. None of DSLT or its Subsidiaries are
delinquent in the payment of any Tax due and payable as shown on any DSLT
Return, or have requested or will request prior to or on the Closing Date an
extension of time within which to file or send any Return which has not since
been filed or sent, except that DSLT and its Subsidiaries have obtained an
extension of time to file federal and state tax returns pertaining to the fiscal
year ended March 31, 1998. None of DSLT or its Subsidiaries have or will have
granted prior to or on the Closing Date any extension or waiver of the
limitation period applicable to any DSLT Returns to any Taxing Authority. To
the Knowledge of the Management Executives, there is no claim, audit, action,
suit, proceeding, or investigation pending or threatened against or with respect
to DSLT or any of its Subsidiaries in respect of any Tax except as set forth on
Schedule 4.10. None of DSLT or its Subsidiaries have pending requests for
rulings with any Taxing Authority. There are no Liens for Taxes upon the assets
of DSLT or any Subsidiary except Liens for current Taxes not yet due. Except
for the agreements contemplated by this Agreement, none of DSLT or its
Subsidiaries is currently under any contractual obligation to indemnify any
other person with respect to Taxes nor is any of them a party to any material
agreement providing for payments with respect to Taxes. Provision has been made
in the DSLT Financial Statements for all anticipated tax liabilities, whether
current,
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deferred or contingent. The distribution of the Real Estate Group and the
Excluded Assets to the DSLT Stockholders shall not result in any taxable gain
to, or any tax (including income or transfer tax) owed by, Parent or DSLT (as
the surviving corporation).
Section 4.11. Agreements and Other Matters; No Conflict. Schedule 4.11
lists all contracts, agreements, and binding commitments (including without
limitation the CIC Agreements, but not including this Agreement, the SARs and
the SAR Agreements related thereto, the agreements reflecting or pertaining to
the Existing Debt set forth on Schedule 4.08, leases of real property set forth
on Schedule 4.09, insurance policies set forth on Schedule 4.13, labor contracts
set forth on Schedule 4.14 and at-will employment arrangements, licenses set
forth on Schedule 4.15, and agreements entered into by DSLT or any of its
Subsidiaries in the ordinary course of business with customers, distributors,
brokers, vendors, or sales agents for the sale or distribution of products and
related matters) of DSLT or any Subsidiary that involve payment of more than
$250,000 in any twelve-month period and which cannot be terminated by DSLT or
the Subsidiary on notice of ninety days or less. There is no default by DSLT or
any of its Subsidiaries nor, to the Knowledge of the Management Executives, by
any other party to any of the contracts, agreements, and commitments listed on
Schedule 4.11 or any other material contract or agreement to which DSLT or any
of its Subsidiaries is a party, having, or which could reasonably be expected to
have, a Material Adverse Effect on DSLT and its Subsidiaries. Each of the
contracts, agreements, and binding commitments set forth on Schedule 4.11 and
any other material contract or agreement to which DSLT or any Subsidiary is a
party is valid, binding, and enforceable in all material respects, and, except
as set forth on Schedule 4.11, no right to terminate thereunder will arise from
the consummation of the transactions contemplated by this Agreement. To the
Knowledge of the Management Executives, no other party to the contracts,
agreements and binding commitments set forth on Schedule 4.11 has threatened to
terminate any such contracts, agreements or commitments.
Section 4.12. Employee Benefit Plans.
(a) Set forth on Schedule 4.12 is a listing of all: (i) (x) employee
welfare benefit plans (as defined in Section 3(1) of ERISA) and (y) employee
pension benefit plans (as defined in Section 3(2) of ERISA) (a) which have been
maintained or administered by DSLT during the three-year period prior to the
date hereof; (b) to which DSLT or any of its Subsidiaries contributed or were
legally obligated to contribute during the three-year period prior to the date
hereof, or (c) under which DSLT or any of its Subsidiaries had any liability
during the three-year period prior to the date hereof, with respect to its
current or former employees or independent contractors, and (ii) all other plans
or arrangements maintained by DSLT or any of its Subsidiaries for the benefit of
employees, including without limitation the SAR Plans (collectively, the
"Benefit Plans"). None of DSLT or its Subsidiaries contributes or is obligated
to contribute to any multiemployer plan (as defined in ERISA Section 3(37)), any
multiple employer welfare arrangement (within the meaning of ERISA Section
3(40)), any voluntary employees' benefit association (within the meaning of Code
Section 501(c)(9)) or any employee stock ownership plan (as defined in ERISA
Section 407(d)(6).
(b) Except as set forth in Schedule 4.12 hereto, each Benefit Plan which
has been maintained by DSLT or an Affiliate and intended to qualify under
Section 401(a)
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of the Code, has received a favorable determination or approval letter from the
Internal Revenue Service ("IRS") regarding its qualification under such section,
and, to the Knowledge of the Management Executives, nothing has occurred with
respect to the operation of each such Benefit Plan that would result in a loss
of such qualification.
(c) Each Benefit Plan maintained by DSLT or any Affiliate has complied
in all material respects, both in form and operation, with the provisions and
requirements of the Code, ERISA and all other applicable laws, and in accordance
with the terms of such Benefit Plan. With respect to any Benefit Plan maintained
by DSLT or any Affiliate, there has occurred no non-exempt "prohibited
transaction," as defined in Section 406 of ERISA, or Section 4975 of the Code,
or breach of fiduciary duty under ERISA or other applicable law, which could
result, directly or indirectly (including without limitation through any
obligation of indemnification or contribution), in any material taxes, penalties
or other liability to DSLT or any Affiliate. Except as set forth in Schedule
4.12 hereto, no litigation, claim, arbitration, governmental administration
proceeding or investigation or other proceeding (other than those relating to
routine claims for benefits) is pending or, to the Knowledge of the Management
Executives, threatened with respect to any Benefit Plan maintained by DSLT or an
Affiliate.
(d) Neither DSLT nor any Affiliate has incurred any material liability
under Title IV of ERISA which will not be paid in full prior to Closing. Except
as set forth in Schedule 4.12 hereto, there has been no "accumulated funding
deficiency" (whether or not waived) with respect to any Benefit Plan maintained
by DSLT or any Affiliate and subject to Code Section 412 or ERISA Section 302.
With respect to any Benefit Plan maintained by DSLT or any Affiliate and subject
to Title IV of ERISA, there has been no (nor will there be any as a result of
the transaction contemplated by this Agreement) (i) "reportable event," within
the meaning of ERISA Section 4043, or the regulations thereunder (for which the
notice requirement is not waived under 29 C.F.R. Part 2615) or (ii) event or
condition which presents a material risk of plan termination or any other event
that may cause DSLT or any Affiliate to incur liability or have a lien imposed
on its assets under Title IV of ERISA. Except as set forth in Schedule 4.12
hereto, all payments and/or contributions required to have been made (under the
provisions of any agreements or other governing documents or applicable law)
with respect to all Benefit Plans maintained by DSLT or any Affiliate, for all
periods prior to the date hereof, either have been made or have been accrued
(and all such unpaid but accrued amounts are described on Schedule 4.12 hereto).
Except as described in Schedule 4.12 hereto, no Benefit Plan maintained by DSLT
or any Affiliate within the three years preceding the date hereof and subject to
Title IV of ERISA has any "unfunded benefit liabilities" within the meaning of
ERISA Section 4001 (a)(18), as of the Effective Time. Except as set forth in
Schedule 4.12 hereto, none of the Benefit Plans maintained by DSLT or any
Affiliate within the three years preceding the date hereof has provided health
care or any other non-pension benefits to any employees after their employment
was terminated (other than as required by Part 6 of Subtitle B of Title I of
ERISA or any other applicable law) or has promised to provide such post-
termination benefits. Except as provided in this Agreement or as set forth on
Schedule 4.12 hereto, there have been no increases in benefits and there are no
promised increases in benefits (whether express, implied, oral or written) under
any Benefit Plan maintained by DSLT or any Affiliate, nor are there any
obligations, commitments or understandings to continue any such Benefit Plan
(whether express, implied,
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oral or written), except pursuant to the terms thereof or as required by Section
4980B of the Code.
(e) With respect to each Benefit Plan maintained by DSLT or any
Affiliate within the three years preceding the date hereof, complete and correct
copies of the following documents (if applicable to such Benefit Plan) have
previously been delivered or made available to Parent: (i) all documents
embodying or governing such Benefit Plan, and any funding medium for the Benefit
Plan (including, without limitation, trust agreements) as they may have been
amended through the date hereof, (ii) the most recent IRS determination or
approval letter with respect to such Benefit Plan under Code Section 401 and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the current summary
plan description for such Benefit Plan (or other descriptions of such Benefit
Plan provided to employees) and any material modifications to prior versions
thereof; (v) any insurance or annuity policy (including any fiduciary liability
insurance policy) related to such Benefit Plan; and (vi) the three most recent
summary annual reports provided to participants.
(f) Except as set forth in Schedule 4.12 hereto, each Benefit Plan
maintained by DSLT or any Affiliate as of the date hereof is subject to
termination by the Board of Directors of DSLT or any Affiliate, as the case may
be, without any further liability or obligation on the part of DSLT or any
Affiliate to make further contributions to any trust maintained under any such
Benefit Plan following such termination.
(g) Except as provided in this Agreement or as set forth in Schedule
4.12, neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any payment to be
made by DSLT or any Affiliate (including, without limitation, severance,
unemployment compensation, golden parachute (as defined in Section 280G of the
Code) or otherwise) becoming due to any employee, director or consultant that
would be nondeductible to DSLT or subject to tax under Section 4999 of the Code,
or (ii) increase any benefits otherwise payable under any Benefit Plan.
(h) Schedule 4.12 sets forth a true, correct and complete list of all
obligations under the CIC Agreements and the SAR Plans payable as a result of
the consummation of the transactions contemplated hereby.
(i) For purposes of this Section 4.12:
(i) "Benefit Plan" means (A) all employee benefit plans within
the meaning of ERISA Section 3(3), including, but not limited to, employee
benefit plans (such as foreign or excess benefit plans) which are not subject to
ERISA; and (B) all stock option plans, bonus or incentive award plans, severance
pay policies or agreements, parachute payment arrangements, deferred
compensation agreements, supplemental income arrangements, vacation plans and
all other employee benefit plans, agreements and arrangements not described in
(A) above;
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(ii) an entity "maintains" a Benefit Plan if such entity sponsors,
contributes to, or provides (or has promised to provide) benefits under such
Benefit Plan, or has any obligation (by agreement or under applicable law) to
contribute to such Benefit Plan, or if such Benefit Plan provides benefits to or
otherwise covers employees of such entity (or their spouses, dependents, or
beneficiaries); and
(iii) an entity is an "Affiliate" of DSLT for purposes of this Section
4.12 if it is considered a single employer with DSLT under ERISA Section 4001(b)
or part of the same "controlled group" as DSLT for purposes of ERISA Section
302(d)(8)(C).
Section 4.13. Insurance. Schedule 4.13 lists all material insurance
policies that insure DSLT or any of its Subsidiaries as of the date hereof. All
such insurance policies are in full force and effect, and such insurance
policies (or their reasonable equivalent) have been in full force and effect
since April 1, 1998. None of DSLT or its Subsidiaries is in default in any
material respect under any of these insurance policies, has failed to give
notice or present any material claim thereunder in a timely manner, and, to the
Knowledge of the Management Executives, there is no material claim by DSLT or
its Subsidiaries pending under any of such policies as to which coverage has
been questioned, denied, or disputed by the underwriters of such policies. To
the Knowledge of the Management Executives, there is no threatened termination
of, or material premium increase with respect to, any such policies.
Section 4.14. Collective Bargaining Agreements, Employment Agreements, and
Benefit Plans. Schedule 4.14 lists all employee benefit plans, all union,
collective bargaining or other employee association agreements, and all other
written agreements (other than the CIC Agreements, the SAR Plans and the
agreements related thereto, the Benefit Plans set forth on Schedule 4.12, and
at-will relationships with employees, brokers, consultants, or sales agents)
providing for any material salary, bonus, benefits, management fees, or other
compensation to be paid to any director, officer, employee, or agent (other than
distributors, brokers, consultants, or sales agents) of DSLT or any of its
Subsidiaries. Except as set forth on Schedule 4.14, neither DSLT nor any of its
Subsidiaries (a) has breached or otherwise failed to comply in any material
respect with any material provision of any plan or agreement set forth on
Schedule 4.14, (b) is subject to any unfair labor practice complaints pending
before the National Labor Relations Board or the equivalent Canadian authority
and, to the Knowledge of the Management Executives, is not subject to any
current union representation questions involving persons employed by DSLT or any
of its Subsidiaries, (c) to the Knowledge of the Management Executives, is, and
has been within the last two (2) years, subject to any material activities or
proceedings of any labor union (or representatives thereof) to organize any
unorganized employees, or (d) is, or has been within the last two (2) years,
subject to any strikes, organized slowdowns, work stoppages, or lockouts.
Except as set forth on Schedule 4.14, none of DSLT or its Subsidiaries has
violated in any material respect, and none of DSLT or its Subsidiaries has
received within the last two (2) years written notice of any claim with respect
to a material violation or alleged material violation, of any Federal or state
civil rights law, the Fair Labor Standards Act, as amended, the Age
Discrimination in Employment Act, as amended, the National Labor Relations Act,
as amended, the Occupational Safety and Health Act, as amended, or the
Vocational Rehabilitation Act of 1973, as amended, or any equivalent Canadian
laws or
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regulations other than claims that have been settled or dismissed and
for which DSLT and its Subsidiaries has no material continuing obligation.
Section 4.15. Intellectual Property. Schedule 4.15 attached hereto lists
all Intellectual Property (other than copyrights, unregistered trade dress or
trade secrets (which trade secrets include process technology and formulas))
owned by or used in the business of DSLT and its Subsidiaries. DSLT or its
Subsidiaries has good title to all Intellectual Property indicated to be so
owned on Schedule 4.15, free and clear of all Liens of any nature whatsoever,
except those listed on Schedule 4.15, and no person has a right to receive a
royalty or similar payment in respect of any Intellectual Property indicated as
owned by DSLT or its Subsidiaries, except as listed on Schedule 4.15. To the
Knowledge of the Management Executives, (a) neither DSLT nor any of its
Subsidiaries is a party to any material license or other agreement relating to
any of the Intellectual Property, except with respect to the license agreements
regarding the trade name "Diamond Crystal" and the related symbol which are
described on Schedule 4.15 and except as otherwise listed on Schedule 4.15; (b)
no other Intellectual Property of the type required to be listed on Schedule
4.15 is required to permit the conduct of the businesses of DSLT or its
Subsidiaries as now conducted without conflict with the rights of others, other
than in respects not material to DSLT and its Subsidiaries taken as a whole; (c)
neither DSLT nor any of its Subsidiaries has received written notice of any
alleged infringement or other violation of any third party's Intellectual
Property rights except as set forth on Schedule 4.15; (d) no proceedings have
been instituted against DSLT or any of its Subsidiaries, nor, to the Knowledge
of the Management Executives, are any proceedings threatened against DSLT or any
of its Subsidiaries alleging any violation of any third party's Intellectual
Property rights; (e) no Intellectual Property right of DSLT or any of its
Subsidiaries is subject to any outstanding order, judgment, decree, stipulation
or agreement materially restricting the use thereof by DSLT or its Subsidiaries
or materially restricting the licensing thereof by DSLT or its Subsidiaries to
any Person except as set forth on Schedule 4.15; and (f) neither DSLT nor any of
its Subsidiaries has entered into any material agreement to indemnify any other
Person against any charge of infringement of any Intellectual Property except as
set forth on Schedule 4.15.
Section 4.16. Environmental Matters.
(a) To the Knowledge of the Management Executives, each of DSLT
and its Subsidiaries has obtained any and all material permits or
licenses required by any governmental entity regarding the effect of
their respective operations on air, water, or waste ("Environmental
Permits") (or has filed any and all necessary Environmental Permit
applications) reasonably necessary to conduct their respective business
as it is now being conducted, and as to any Environmental Permits that
have expired or are about to expire, each of DSLT and its Subsidiaries
has timely and properly applied for renewal. To the Knowledge of the
Management Executives, each of DSLT and its Subsidiaries is operating
within the limits set forth in all such Environmental Permits and in
compliance with all applicable laws and regulations relating to
protection of human health and the environment.
(b) Schedule 4.16 lists all: (i) demands, requests for
information, citations, summons or orders that, to the Knowledge of the
Management Executives, have been
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received; (ii) complaints that, to the Knowledge of the Management
Executives, have been filed; (iii) penalties that, to the Knowledge of
the Management Executives, have been assessed; and (iv) investigations
or reviews that, to the Knowledge of the Management Executives, are
pending or threatened, by any Federal, state, local, or Canadian
environmental agency, within the past two (2) years, and all written
notices of violations issued by Federal, state, local, or Canadian
environmental agencies received by DSLT or its Subsidiaries within the
past two (2) years.
(c) Except as indicated on Schedule 4.16, none of DSLT or its
Subsidiaries has operated, and they currently do not operate, any
surface impoundment, incinerator, landfill, tank, waste pile, or deep
well injection system on its owned, or previously owned or leased, real
property for the purpose of Treatment, Storage and Disposal of Solid
Wastes, each as defined by the Federal Resource Conservation and
Recovery Act, as amended ("RCRA").
(d) To the Knowledge of the Management Executives, except as
indicated on Schedule 4.16, none of DSLT or its Subsidiaries has
transported or arranged for the transportation of any Hazardous Wastes
or Hazardous Substances as defined in either RCRA or the Federal
Comprehensive Environmental Response, Compensation and Liability Act, as
amended ("CERCLA"), to any location which, to the Knowledge of the
Management Executives, is listed under CERCLA, or under any similar
published list of sites requiring investigation or clean-up published by
any states or Canadian provinces or which, to the Knowledge of the
Management Executives, is the subject of Federal, state, local, or
Canadian enforcement actions or other investigations which may lead to
claims against DSLT or any of its Subsidiaries for clean-up costs,
remedial work, or damages to natural resources or for personal injury
claims, including, but not limited to, claims under CERCLA.
(e) Except as indicated on Schedule 4.16, to the Knowledge of
the Management Executives, (i) there has not occurred any release of a
reportable quantity of a Hazardous Substance, as defined under CERCLA,
on real property while DSLT or any of its Subsidiaries owned or leased
the real property, nor has there been any material release by DSLT into
ground, surface, or navigable waters which violate any Federal, state,
local, or Canadian laws, rules, or regulations concerning water
pollution; (ii) no Federal, state, local, or Canadian government or
agency has asserted or created a Lien under CERCLA or any equivalent law
upon any or all of such real property as a result of any use, spill,
discharge, or clean-up of any Hazardous Substance, as defined under
CERCLA, while DSLT or any of its Subsidiaries owned or leased the real
property, or any other environmental Lien; and (iii) no such use, spill,
discharge, cleanup, or other act has occurred on such real property that
creates an imminent threat to the environment or to public health, under
any Federal, state, local, or Canadian laws, rules, or regulations.
(f) Except as set forth on Schedule 4.16, to the Knowledge of
the Management Executives, no real property now or previously owned or
leased by DSLT or any of its Subsidiaries is listed or proposed for
listing on the National Priorities List promulgated pursuant to CERCLA
or on any similar state list of sites requiring
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investigation or cleanup or containing known or suspected environmental
contamination. To the Knowledge of the Management Executives, none of
DSLT or its Subsidiaries currently is required to place any notice or
restriction relating to the presence of Hazardous Substances, as defined
under CERCLA, at the real property owned by it in any deed to such
property.
Section 4.17. General Compliance with Laws. Each of DSLT and its
Subsidiaries are in compliance with all applicable laws, rules, and regulations,
ordinances, writs, injunctions, orders, decrees, policies of any federal, state,
local, or Canadian governmental department, commission, board, bureau, agency,
or instrumentality, except to the extent that any non-compliance would not have
a Material Adverse Effect on DSLT and its Subsidiaries.
Section 4.18. Governmental Consents. Except for any filing required
under the Hart-Scott-Rodino Act, neither the nature of DSLT or any of its
Subsidiaries, nor their respective business or properties, nor any relationship
between DSLT or any of its Subsidiaries and any other Person, nor any
circumstance in connection with the Merger pursuant to this Agreement, is such
as to require any authorization, consent, approval, exemption, or other action
by or notice to or filing with any court or administrative or governmental body
(other than filing the Certificate of Merger with the Corporation, Securities
and Land Development Bureau of the State of Michigan Department of Consumer and
Industry Services) in connection with the execution and delivery by DSLT of this
Agreement or compliance by DSLT with its terms.
Section 4.19. Minute Books and Stock Record Books. The minute books of
DSLT and each of its Subsidiaries contain complete and accurate records in all
material respects of all official meetings and other official corporate actions
of their respective stockholders and Boards of Directors, including committees
of the Boards of Directors. The stock record books of DSLT and its Subsidiaries
contain complete and accurate records of all transactions involving equity
securities issued by each of them.
Section 4.20. Directors and Officers. Schedule 4.20 identifies all of
the directors and officers of DSLT and each of its Subsidiaries.
Section 4.21. Brokers' or Finders' Fees. Except for fees payable to
Piper Jaffray Inc., no agent, broker, investment banker, or other person or firm
acting on behalf of DSLT or any of its directors or executive officers, or under
the authority of any of them, is or will be entitled to any broker's or finder's
fee or any other commission or similar fee, directly or indirectly, from any of
the parties hereto in connection with any of the transactions contemplated
hereby. DSLT has provided Parent with a true and complete copy of DSLT's
engagement letter with Piper Jaffray Inc.
Section 4.22. Disclosure.
(a) No representation or warranty of DSLT in this Agreement
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
not misleading.
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(b) None of the information supplied or to be supplied by DSLT
for inclusion in the Proxy Statement/Prospectus will, at the time of
mailing the Proxy Statement/Prospectus to the DSLT Stockholders, and at
the time of the meeting of the DSLT Stockholders to be held in
accordance with Section 6.13, 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.
Section 4.23. Opinion of Financial Advisor. DSLT has received the
opinion of Piper Jaffray Inc. to the effect that, as of the date hereof, the
consideration to be received by the DSLT Stockholders pursuant to this Agreement
is fair from a financial point of view to such holders.
Section 4.24. Customers and Suppliers. To the Knowledge of the
Management Executives, the relationships of DSLT and its Subsidiaries with their
respective material customers, distributors, and suppliers are satisfactory. No
material customer, distributor, or supplier has terminated, nor provided DSLT or
any of its Subsidiaries with notice of its intent to terminate, nor to the
Knowledge of the Management Executives threatened to terminate, all or any
material portion of its relationship with DSLT or any of its Subsidiaries during
the preceding 12-month period.
Section 4.25. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of DSLT Common Stock entitled to vote is the
only vote of the holders of any class or series of DSLT capital stock necessary
to approve this Agreement and the transaction contemplated hereby.
Section 4.26. Excluded Assets. Except with respect to liabilities that
are (i) reflected in the DSLT Descriptive Memo March 31, 1998 Balance Sheet or
(ii) paid or to be paid on behalf of the DSLT Stockholders (without
reimbursement from Parent, Sub or DSLT as the surviving corporation), DSLT and
Sub will not have incurred at and will not incur following the Effective Time
any liabilities (including taxes) in connection with the Real Estate Group and
the Excluded Assets.
Section 4.27. Irrevocable Proxies. DSLT has obtained and has provided to
the Shareholders' Representative irrevocable proxies (in a form acceptable to
Parent) from holders of at least a majority of the outstanding shares of DSLT
Common Stock (or such greater number of shares of DSLT Common Stock as may be
required to approve the Agreement and the transactions contemplated hereby by
DSLT's Articles of Incorporation or Bylaws or in any agreement of DSLT
Stockholders) to vote all shares of DSLT Common stock held by such stockholders
at a meeting of the stockholders of DSLT on a proposal regarding the approval of
this Agreement and the transaction contemplated hereby (unless this Agreement
has been terminated pursuant to Section 12.01) and on other matters requested by
Parent.
Section 4.28. Representations and Warranties as of the Date of this
Agreement. Except as otherwise indicated therein, the representations and
warranties contained in the foregoing Section 4.01 through Section 4.27,
inclusive, are made as of the date of this Agreement.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SUB AND PARENT
Sub and Parent jointly and severally represent and warrant to DSLT that:
Section 5.01. Organization; Power; Qualification. Sub is a corporation
duly incorporated, validly existing, and in good standing under the laws of the
State of Michigan. Parent is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Texas. Each of Parent and
Sub has all requisite corporate power and authority and all material
governmental licenses, authorizations, consents, and approvals to own, lease,
and operate its properties and carry on its business or businesses as now being
conducted. Each of Parent and Sub is duly qualified as a foreign corporation
and is in good standing to do business in every jurisdiction in which such
qualification is necessary because of the nature of the properties owned, leased
or operated by it or the nature of the businesses conducted by it, except in
such jurisdictions in which, in the aggregate, the failure to so qualify would
not have a Material Adverse Effect on Sub or Parent, respectively. Parent has
delivered to DSLT complete and correct copies of the Articles or Certificate of
Incorporation and Bylaws of each of Parent and Sub, as amended to the date
hereof.
Section 5.02. Authority; Power. The execution and delivery of this
Agreement by each of Parent and Sub has been authorized by all necessary
corporate action on the part of Parent and Sub. Each of Parent and Sub has the
requisite corporate power and authority to execute and deliver this Agreement,
to consummate the Merger (subject to shareholder approval as contemplated
hereby) and to take any and all other actions required to be taken by it
pursuant to the provisions of this Agreement. This Agreement constitutes the
legal, valid, and binding obligation of each of Parent and Sub, enforceable
against each of them in accordance with its terms, except as the enforcement
hereof may be limited by bankruptcy, insolvency, moratorium, or other laws
relating to or limiting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in a proceeding
at law or in equity.
Section 5.03. No Violation. Except as contemplated by this Agreement or
as set forth on Schedule 5.03, executing and delivering this Agreement,
consummating the Merger under this Agreement, and complying with the terms of
this Agreement will not conflict with, violate the terms of, constitute a
default under (with or without the giving of notice or lapse of time or both),
or result in any Lien being created upon any of the properties or assets of
Parent or any of its Subsidiaries pursuant to, their respective Articles or
Certificate of Incorporation or Bylaws, any award of any arbitrator, or any
material agreement, instrument, order, judgment, law, rule, or regulation to
which Parent or any of its Subsidiaries is subject or by which the properties of
Parent or any of its Subsidiaries is otherwise bound.
Section 5.04. Capital Structure of Parent and Related Matters; Common
Stock to be Issued. (a) The total authorized capital stock of Parent consists
of 50,000,000 shares of common stock, without par value (the "Parent
Common Stock"), of which 27,050,208 shares were issued and outstanding as of
August 10, 1998, and 5,000,000 shares of preferred stock (the "Parent
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Preferred Stock" and, together with the Parent Common Stock, the "Parent
Stock"), none of which are issued and outstanding. All outstanding shares of the
Parent Stock have been duly authorized, were validly issued, and are fully paid
and non-assessable. None of the Parent Stock is entitled to preemptive rights.
Except as set forth on Schedule 5.04(a), Parent has no outstanding options,
warrants, or other rights of any kind to acquire any shares of capital stock of
Parent, or securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire any shares of capital stock of
Parent, nor is Parent committed to issue any such option, warrant, right, or
security.
(b) The Parent Common Stock to be issued to the DSLT shareholders
hereunder, when issued by Parent pursuant to this Agreement, will be duly
authorized, validly issued, fully paid, and non-assessable, will be issued in
compliance with applicable federal and state securities laws, will have the
rights and preferences set forth in the Articles or Certificate of Incorporation
of Parent previously delivered to DSLT, and will be free and clear of all liens,
encumbrances, and adverse claims.
Section 5.05. No Financing Contingency. Parent has cash and cash
equivalents on hand or available (subject to the waivers described in Section
7.06) which are sufficient for the current operations of Parent and to pay the
Cash Consideration to the DSLT shareholders, and there is no financing condition
to the obligations of Sub or Parent hereunder other than securing the waivers
described in Section 7.06.
Section 5.06. Absence of Certain Changes. From September 30, 1997,
except as set forth on Schedule 5.06, Parent and each of its Subsidiaries have
conducted their respective business in the ordinary and usual course and there
has not been (a) any damage, destruction, or other casualty loss (whether or not
covered by insurance) having, or which would reasonably be expected to have, a
Material Adverse Effect on Parent and its Subsidiaries, (b) any labor dispute
having a Material Adverse Effect on Parent and its Subsidiaries, or, to the
Knowledge of Parent, any material activity or proceeding by a labor union or
representative thereof to organize any employees of Parent or its Subsidiaries,
which employees were not subject to a collective bargaining agreement at
September 30, 1997, or any lockouts, strikes, slowdowns, work stoppages or, to
the Knowledge of Parent, threats thereof by or with respect to any employees of
Parent or its Subsidiaries, (c) any sale, transfer, or other disposition of any
material tangible or intangible assets of Parent or any of its Subsidiaries,
other than in the ordinary course of business, which would have a Material
Adverse Effect on Parent and its Subsidiaries, or (d) except as contemplated by
this Agreement, any agreement entered into by Parent or any of its Subsidiaries
to take any of the actions specified in the foregoing subsections (a) through
(c).
Section 5.07. Actions Pending. Schedule 5.07 lists all actions, suits,
and proceedings pending or, to the Knowledge of Parent, threatened, and all
investigations, to the Knowledge of Parent, pending or threatened, which in any
manner challenge or seek to prevent, enjoin, alter, or materially delay the
transactions contemplated by this Agreement, by or before any court, arbitrator,
or administrative or governmental body.
Section 5.08. Outstanding Debt and Related Matters. Parent and its
Subsidiaries have no outstanding Debt in excess of $10,000,000 except as set
forth on Schedule 5.08 ("Parent
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Existing Debt"). Except as listed on Schedule 5.08, there exists no material
default under the provisions of any instrument evidencing such Parent Existing
Debt or of any agreement relating thereto, the effect of which could reasonably
be expected to have a Material Adverse Effect on Parent and its Subsidiaries.
Section 5.09. Agreements and Other Matters; No Conflict. To the
Knowledge of Parent, there is no default by Parent or any of its Subsidiaries or
any other party to any material contract or agreement to which Parent or any of
its Subsidiaries is a party having, or which could reasonably be expected to
have, a Material Adverse Effect on Parent and its Subsidiaries. Each of such
material contracts and agreements is valid, binding and enforceable in all
material respects, and, except as set forth on Schedule 5.09, no right to
terminate thereunder will arise from the consummation of the transactions
contemplated by this Agreement.
Section 5.10. Employee Benefit Plans. With respect to each (i) (x)
employee welfare benefit plan (as defined in Section 3(1) of ERISA) and (y)
employee pension benefit plan (as defined in Section 3(2) of ERISA), (a) which
was maintained or administered by Parent immediately prior to Closing, (b) to
which Parent or any of its Subsidiaries contributed to, or was legally obligated
to contribute to immediately prior to Closing, or (c) under which Parent or any
of its Subsidiaries had any liability immediately prior to Closing, with respect
to its current or former employees or independent contractors, and (ii) all
other plans or arrangements maintained by Parent or any of its Subsidiaries for
the benefit of employees (collectively, the "Parent Benefit Plans"), to the
Knowledge of Parent, as of the Closing Date, each of Parent and its Subsidiaries
is in compliance with all material provisions of the Parent Benefits Plans, and,
to the Knowledge of Parent, all insurance premiums attributable to coverage
under the Parent Benefit Plans relating to periods prior to the date hereof have
been paid or accrued for by Parent.
Section 5.11. General Compliance with Laws. To the Knowledge of Parent,
each of Parent and its Subsidiaries are in compliance with all applicable laws,
rules, and regulations, ordinances, writs, injunctions, orders, decrees,
policies of any federal, state, local, or foreign governmental department,
commission, board, bureau, agency, or instrumentality, except to the extent that
any non-compliance would not have a Material Adverse Effect on Parent and its
Subsidiaries.
Section 5.12. Governmental Consents. Except for any filing required
under the Hart-Scott-Rodino Act, neither the nature of Parent or any of its
Subsidiaries, nor their respective business or properties, nor any relationship
between Parent or any of its Subsidiaries and any other Person, nor any
circumstance in connection with the Merger pursuant to this Agreement, is such
as to require any authorization, consent, approval, exemption, or other action
by or notice to or filing with any court or administrative or governmental body
(other than filing the Certificate of Merger with the Corporation, Securities
and Land Development Bureau of the State of Michigan Department of Consumer and
Industry Services) in connection with the execution and delivery by Parent and
Sub of this Agreement or compliance by Parent and Sub with its terms.
Section 5.13. Broker's or Finder's Fees. Except for fees payable to
Lehman Brothers Inc., no agent, broker, investment banker, or other person or
firm acting on behalf of Sub or Parent or any of their directors or executive
officers, or under the authority of any of them, is or
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will be entitled to any broker's or finder's fee or any other commission or
similar fee, directly or indirectly, from any of the parties hereto in
connection with any of the transactions contemplated hereby.
Section 5.14. Disclosure.
(a) No representation or warranty of Sub or Parent in this
Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained herein not misleading.
(b) None of the information supplied or to be supplied by Sub or
Parent for inclusion in the Proxy Statement/Prospectus will, at the time
of mailing the Proxy Statement/Prospectus to the DSLT Stockholders and
at the time of the meeting of such shareholders to be held in accordance
with Section 6.13, 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.
(c) Parent has furnished to DSLT copies of its Transition Report
on Form 10-K for the transition period ended September 30, 1997 and all
other statements, reports, registration statements (other than
registration statements on Form S-8, if any) filed by Parent with the
SEC since September 30, 1997, and prior to the date hereof
(collectively, the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may
be, and to Parent's knowledge none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Parent contained
in the SEC Documents fairly present the financial condition and results
of operations of Parent as of the respective dates thereof and for the
periods therein referred to, all in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods indicated, except in the case of unaudited financial statements
for the absence of notes thereto and subject to normal year-end audit
adjustments. Parent has further furnished to DSLT copies of all comment
letters received by Parent from the SEC since January 1, 1997.
Section 5.15. Representations and Warranties as of the Date of this
Agreement. Except as otherwise indicated therein, the representations and
warranties contained in the foregoing Section 5.01 through Section 5.14,
inclusive, are made as of the date of this Agreement.
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ARTICLE VI.
PRE-CLOSING COVENANTS OF DSLT
Except with the prior consent of Sub and Parent, which consent shall not be
unreasonably withheld or delayed, DSLT covenants and agrees, between the date of
this Agreement and the Closing, that DSLT shall comply, and cause its
Subsidiaries to comply, with the following provisions:
Section 6.01. Maintenance of Corporate Status. Each of DSLT and its
Subsidiaries will be maintained at all times as a corporation validly existing
and in good standing under the laws of their respective states of incorporation,
and in good standing as a foreign corporation in all jurisdictions in which they
are qualified to do business on the date of this Agreement.
Section 6.02. Operation of Business. Each of DSLT and its Subsidiaries
shall operate its business in the usual, regular, and ordinary manner only
(other than as contemplated or permitted by this Agreement), and will use
reasonable efforts to (a) preserve its present business organization intact, (b)
keep available the services of the present employees, (c) continue and preserve
good relationships with suppliers, customers, lenders, and others having
business dealings with it, and (d) maintain in full force and effect all
licenses and permits reasonably required to operate its businesses as presently
conducted. Except as contemplated or permitted by the provisions of this
Agreement, neither DSLT nor any of its Subsidiaries shall incur any material
liabilities after the date hereof other than in the ordinary course of its
business.
Section 6.03. Maintenance of Assets and Properties. Each of DSLT and its
Subsidiaries shall maintain all of its assets and properties in their present
order and condition, subject to normal wear and tear and normal obsolescence and
the requirements of its business, and will maintain insurance upon all of its
properties and assets and operations of the kind and in the amounts existing as
of the date of this Agreement, to the extent available on a reasonably
comparable basis. Notwithstanding anything contained in this Section to the
contrary, prior to the Effective Time DSLT will distribute to the DSLT
Stockholders the assets comprising the Real Estate Group and the Excluded
Assets, subject to all liabilities with respect thereto, which liabilities shall
be assumed by the Real Estate Group. The form of all documents necessary to
implement such distribution shall be subject to the prior written approval of
Parent, which approval shall not be unreasonably withheld, delayed or
conditioned.
Section 6.04. Maintenance of Records and Compliance with Laws. Each of
DSLT and its Subsidiaries shall maintain its books, accounts and records in the
usual, regular and ordinary manner and will comply in all material respects with
all federal, state, local, or foreign laws, rules, regulations, permits, and
licenses applicable to it and to conducting its business.
Section 6.05. Governing Documents. No amendment will be made to the
articles or certificate of incorporation or bylaws of DSLT or any of its
Subsidiaries, except that the articles and/or bylaws of the entities comprising
the Real Estate Group may be modified in connection with the distribution of
such entities to the DSLT Stockholders.
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Section 6.06. No Change in Capitalization. Except for changes required in
connection with the distribution to the DSLT Stockholders of the entities
comprising the Real Estate Group, no change will be made in the number of issued
and outstanding shares of capital stock of DSLT or any of its Subsidiaries, and
neither DSLT nor any of its Subsidiaries shall subdivide or in any way
reclassify any of its shares of capital stock. No option, warrant, or any other
right to purchase or to convert any obligation or security into shares of
capital stock of DSLT or any of its Subsidiaries will be granted, and no
agreement of whatever description will be entered into under or in connection
with any shares of capital stock of DSLT or any of its Subsidiaries.
Section 6.07. Dividends and Other Payments. Except for the regular
quarterly dividend to the DSLT Stockholders, declared at a rate not to exceed
$.33 per share of DSLT Common Stock per quarter, using customary record and
payment dates, DSLT shall not declare or pay any dividends or other
distributions on its outstanding stock to any shareholders or purchase or redeem
any of its stock, or otherwise acquire any of its stock, or issue any notes or
other evidences of indebtedness (except with respect to indebtedness relating to
the Real Estate Group or the Excluded Assets and which is assumed by the Real
Estate Group). Except in the ordinary course of business or as may be
contemplated or permitted by this Agreement, neither DSLT nor any of its
Subsidiaries shall make any payments of salaries or other compensation for
services to its non-employee shareholders or to any other Person, and shall not
make any capital expenditures in excess of $100,000 except as may be involved in
ordinary repair, maintenance or replacements or except as may have been
previously approved by the Board of Directors of DSLT or DCSFI and disclosed in
writing to Parent prior to the date hereof. Notwithstanding anything contained
in this Section to the contrary, prior to the Effective Time DSLT will
distribute to the DSLT Stockholders the assets comprising the Real Estate Group
and the Excluded Assets.
Section 6.08. Access; Cooperation. DSLT shall grant to Sub and Parent and
their accountants, attorneys and other authorized representatives, subject to
the Confidentiality Agreement, the right, upon reasonable notice and during
normal business hours, to enter upon the offices and plant sites of DSLT and its
Subsidiaries in order to inspect their respective records and business
operations and to consult with their officers, key employees, attorneys, and
agents. DSLT and its Subsidiaries shall cooperate with Sub and Parent and their
officers, directors, employees, attorneys, accountants, and other agents and do
such other acts and things in good faith as may be reasonable to timely
effectuate the purposes of this Agreement and the consummation of the Merger in
accordance with the provisions of this Agreement.
Section 6.09. Loans or Contingent Liabilities. Except as otherwise
contemplated or permitted by the provisions of this Agreement, neither DSLT nor
any of its Subsidiaries shall incur any Debt or extend credit or guarantee,
insure or assume any contingent liability with respect to the obligations of any
other Person, except for borrowings under existing bank facilities listed on
Schedule 4.08 and the endorsement of checks in the ordinary course of business.
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Section 6.10. Performance of Obligations Under Agreements. Each of DSLT
and its Subsidiaries shall timely perform in all material respects all of the
material obligations and covenants set forth in its leases, agreements,
contracts, and binding commitments.
Section 6.11. Fire or Casualty. In the event that any material assets or
properties of DSLT or its Subsidiaries are damaged or destroyed as a result of
fire, casualty, or other occurrence, no settlement shall be made with any
insurance company and no decision with regard to restoring or rebuilding any
properties shall be made without first consulting in good faith with Sub and
Parent.
Section 6.12. Additional Notices. DSLT shall give or cause to be given
all notices to governmental authorities and other third parties required to be
given by DSLT or its Subsidiaries under any authorization, lease, note,
mortgage, indenture, agreement, or other instrument in connection with the
transactions contemplated by this Agreement.
Section 6.13. Shareholders Meeting; Informational Materials. DSLT shall
cause a special meeting of its shareholders to be duly called and held as soon
as practicable following the execution and delivery of this Agreement for the
purpose of voting on the approval and adoption of this Agreement and the Merger.
The Board of Directors of DSLT shall, subject to the fiduciary duties of the
members thereof, recommend approval and adoption of this Agreement and the
Merger by DSLT's shareholders. In connection with this meeting, DSLT:
(a) shall mail to its shareholders as promptly as practicable an
appropriate proxy statement and/or prospectus describing the Merger (the
"Proxy Statement/Prospectus") and all other materials for use in
connection with the special meeting of shareholders, which shall include
the information required by Section 502(b)(2) of Regulation D under the
Securities Act (provided that Parent shall provide DSLT with copies of
its filings with the SEC and any other information necessary for DSLT to
comply with the foregoing covenant);
(b) shall use its best efforts to obtain the necessary approvals
by its shareholders of this Agreement and the Merger; and
(c) shall otherwise comply with all legal requirements
applicable to such meeting.
Prior to the Effective Time, DSLT shall obtain from each DSLT
Stockholder a certification as to such DSLT Stockholder's status as an
"accredited investor" and such DSLT Stockholder's investment intent (as set
forth in Section 4.04(c)). To the extent that any DSLT Stockholder does not
provide adequate representations and agreements with respect to such DSLT
Stockholder's status, the Merger Consideration payable to such DSLT Stockholder
shall, at Parent's election, consist solely of cash, in which event the Merger
Consideration allocated to the other DSLT Stockholders shall be proportionately
adjusted so that the aggregate Merger Consideration shall not be affected
thereby.
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Section 6.14. Other Offers. (a) DSLT agrees that (i) prior to the
Effective Time, neither it nor any of its Subsidiaries will, and each of them
will not permit any of its officers, directors, employees, agents or
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) to, solicit or
encourage (including by way of furnishing confidential or non-public
information), directly or indirectly, any inquiry, proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
tender offer, merger, consolidation, share exchange or similar transaction
involving, or any purchase of all or a material part of the assets on a
consolidated basis or the capital stock of, DSLT or any of its Subsidiaries (any
such transaction, proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning an Acquisition
Proposal; and (ii) each of them will immediately cease and cause to be
terminated any existing negotiations with any parties conducted heretofore with
respect to any of the foregoing.
(b) DSLT will promptly notify parent in writing of any requests
for such information or the receipt of any Acquisition Proposal, including the
identity of the person or group engaging in such discussions or negotiations,
requesting such information or making such Acquisition Proposal, and the
material terms and conditions of any Acquisition Proposal.
(c) Nothing in this Section 6.14 shall permit DSLT to enter into
any agreement with respect to an Acquisition Proposal during the term of this
Agreement, it being agreed that during the term of this Agreement, DSLT shall
not enter into any agreement with any person that provides for, or in any way
facilitates, an Acquisition Proposal.
Section 6.15. Changes to Representations and Warranties in Article IV.
DSLT shall deliver to Sub and Parent, as soon as reasonably practical after
discovery thereof, but not later than at the Closing, written notice of
supplemental information updating or changing the information set forth in the
representations and warranties set forth in Article IV to reflect any subsequent
occurrences or inaccuracies (and such notice shall specify the representations
and warranties, including the schedules referred to therein, to which such
supplemental information relates).
Section 6.16. Governmental Approvals. Promptly after this Agreement is
executed, DSLT shall file all applications and reports which are required to be
filed by DSLT with any governmental agency or authority in connection with the
transactions contemplated by this Agreement, including without limitation any
filing required of it under the Hart-Scott-Rodino Act. DSLT shall also promptly
provide all information as any governmental agency may require in connection
with any such application or report.
Section 6.17. No Acquisitions. DSLT will not, and it will not permit any
of its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets, of or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof.
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Section 6.18. No Dispositions. Other than: (i) dispositions in the
ordinary course of business consistent with past practice that are not material,
individually or in the aggregate, to DSLT and its Subsidiaries taken as a whole,
(ii) product sales in the ordinary course of business consistent with past
practice, and (iii) distributions of the Real Estate Group and the Excluded
Assets, DSLT will not and it will not permit any of its Subsidiaries to sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether such
lease is an operating or capital lease), encumber or otherwise dispose of, any
of its assets.
Section 6.19. No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, DSLT will not authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of DSLT or any of its Subsidiaries.
Section 6.20. Certain Employee Matters. Except as required or permitted
under the CIC Agreements, DSLT will not and it will not permit any of its
Subsidiaries to: (i) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or contemplated by any of the existing
Benefit Plans or employment policies as in effect on the date hereof to any
director, officer or employee, whether past or present; (ii) become obligated
under any new DSLT employee benefit plan, which was not in existence or approved
by the DSLT Board of Directors prior to or on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such amendment would have
the effect of enhancing any benefits thereunder; (iii) other than annual
increases in the ordinary course of business consistent with past practices,
grant any increases in the compensation (salary, bonus or other) of any of its
directors, officers or employees; (iv) enter into any new, or amend any
existing, employment or severance or termination agreement with any director,
officer or key employee; or (v) terminate the employment of any officer or
employee of DSLT or any of its Subsidiaries without cause.
Section 6.21. Notification of Certain Occurrences. DSLT will provide
prompt notice to Parent of what it in good faith believes to be any material
occurrence in its business. DSLT will promptly notify Parent of any lawsuits,
claims, proceedings or investigations that are threatened or commenced against
DSLT or any of its Subsidiaries.
Section 6.22. Taxes. DSLT will not make any tax election or settle or
compromise any material federal, state, local or foreign income tax liability.
ARTICLE VII.
PRE-CLOSING COVENANTS OF SUB AND PARENT
Except with the prior consent of DSLT, which consent shall not be
unreasonably withheld or delayed, each of Sub and Parent covenants and agrees,
between the date of this Agreement and the Closing, that it shall comply, and
Parent shall cause its Subsidiaries to comply, with the following provisions:
Section 7.01. Maintenance of Corporate Status. Each of Parent and Sub
will be maintained at all times as a corporation validly existing and in good
standing under the laws of
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their respective states of incorporation, and in good standing as a foreign
corporation in all jurisdictions in which they are qualified to do business on
the date of this Agreement.
Section 7.02. Access; Cooperation. Parent and its Subsidiaries shall
cooperate with DSLT and its officers, directors, employees, attorneys,
accountants, and other agents and do such other acts and things in good faith as
may be reasonable to timely effectuate the purposes of this Agreement and the
consummation of the Merger in accordance with the provisions of this Agreement.
Section 7.03. Shareholders Meeting; Informational Materials. To the
extent necessary, Parent shall cause a special meeting of its shareholders to be
duly called and held as soon as practicable following the execution and delivery
of this Agreement for the purpose of voting on the approval and adoption of this
Agreement and the Merger. The Board of Directors of Parent shall, subject to
the fiduciary duties of the members thereof, recommend approval and adoption of
this Agreement and the Merger by Parent's shareholders. In connection with this
meeting, Parent:
(a) shall mail to its shareholders as promptly as practicable
all materials that may be required for use in connection with the
special meeting of shareholders;
(b) shall use its best efforts to obtain the necessary approvals
by its shareholders of this Agreement and the Merger; and
(c) shall otherwise comply with all legal requirements
applicable to such meeting.
Section 7.04. Changes to Representations and Warranties in Article V.
Parent shall deliver to DSLT, as soon as reasonably practicable after discovery
thereof, written notice of supplemental information updating or changing the
information set forth in the representations and warranties set forth in Article
V to reflect any subsequent occurrences or inaccuracies (and such notice shall
specify the representations and warranties, including the schedules referred to
therein, to which such supplemental information relates).
Section 7.05. Governmental Approvals. Promptly after this Agreement is
executed, Sub and Parent shall file all other applications and reports which are
required to be filed by Sub or Parent with any governmental agency or authority
in connection with the transactions contemplated by this Agreement, including
without limitation any filing required of them under the Hart-Scott-Rodino Act.
Sub and Parent shall also promptly provide all information as any governmental
agency may require in connection with any such application or report.
Section 7.06. Bank Waivers. Parent shall use commercially reasonble
efforts to obtain, within twenty-one (21) days following the date of execution
of this Agreement, the waivers required under its bank credit facility to
consummate the Merger without causing an event of default. Parent shall deliver
to DSLT copies of all such waivers immediately upon receipt thereof.
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ARTICLE VIII.
OTHER MATTERS
Section 8.01. CIC Agreements; SAR Plans; Retiree Benefits. Parent will
cause DSLT and DCSFI to continue to administer and to honor all of their
respective obligations under the CIC Agreements and the SAR Plans. Parent will
cause DSLT and DCSFI to continue to administer and to honor all of their
respective obligations under the DSLT retiree health care policy (as summarized
on Schedule 8.01), DSLT Salaried Retirement Plan, DSLT Top Management Plan, the
DSLT Executive Management Performance Incentive Plan, the Diamond Crystal
Executive Management Performance Incentive Plan, and the Diamond Crystal Hourly
Retirement Plan. With respect to the DSLT retiree health care policy, (i)
Parent will cause DSLT and DCSFI to continue to administer such policy and to
continue to honor all of their respective obligations under such policy with
respect to (a) all former employees of DSLT or its Subsidiaries who are
participants receiving or eligible to receive benefits under such policy, (b)
all current employees of DSLT or its Subsidiaries who, as of the Closing Date,
would be eligible to retire and receive benefits under such policy (without the
necessity of actual retirement by such employees prior to the Closing Date) and
(c) the individuals named in clause (iii) of this sentence, (ii) after the
Effective Time Parent or DSLT (as the surviving corporation) may elect at any
time to modify or terminate such policy with respect to any employees of DSLT or
its Subsidiaries who, as of the Closing Date, would not be eligible to retire
and receive benefits under such policy, and (iii) notwithstanding the provisions
of clause (ii) of this sentence, Frederick S. Moore and Hugh D. McMorran,
current employees of DSLT, shall continue to be eligible to receive all benefits
under such policy (in the case of Mr. McMorran without regard to his age)
without the necessity of actual retirement by such employees prior to the
Closing Date and whether or not such employees actually retire prior to the
Closing Date. The benefits and coverage for all individuals covered or to be
covered by the DSLT retiree health care policy within the scope of the preceding
sentence shall continue at a level equal to or greater than the benefits and
coverage as in effect on the date hereof, with the understanding that the
providers of selected coverage items or the terms of such coverage may be
substituted or modified from time to time so long as the overall benefits and
coverage are not reduced in the aggregate. Effective on the Closing Date, all
unvested DSLT participants in the DSLT Top Management Plan shall automatically
be deemed vested without regard to age or service requirements. The deferred
compensation obligations under the Executive Management Performance Incentive
Plans are to be observed by being paid out in the recommended manner (i.e., over
a 10-year period beginning on January 1st of the year after termination) as
described in Section 4.4 of each of such Plans as it exists immediately prior to
the Effective Time. The individuals who are parties to a CIC Agreement, or are
or are to be participants under the SAR Plans, the Executive Management
Performance Incentive Plans, or the Diamond Crystal Hourly Retirement Plan or
beneficiaries of the DSLT Salaried Retirement Plan, DSLT Top Management Plan,
and the DSLT retiree health care policy on the Closing Date shall be deemed to
be third-party beneficiaries of this Agreement with respect to the provisions of
this Section 8.01.
Section 8.02. Employee Severance Payments. With respect to any employee
of DSLT or any of its Subsidiaries at the time of the Closing who is terminated
without cause within one
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year from the date of the Closing and who is not otherwise a party to a CIC
Agreement, a collective bargaining agreement, or another written employment
agreement, Parent will cause DSLT to comply with the severance compensation
policy summarized in Schedule 8.02. DSLT shall not be required and has no
obligation to make or cause to be made any payments pursuant to this Section
8.02 or pursuant to any severance plan or policy to any employee who is a party
to a CIC Agreement, a collective bargaining agreement, or another written
employment agreement. The employees of DSLT and its Subsidiaries on the Closing
Date shall be deemed to be third-party beneficiaries of this Agreement with
respect to the provisions of this Section 8.02.
Section 8.03. Matters Regarding IRBs. Prior to the Closing, Parent shall
obtain a letter of credit (the "Substitute Letter of Credit") to replace the
existing letter of credit (the "Existing Letter of Credit") securing the
Industrial Development Revenue Bonds issued in connection with the purchase of
and construction on the Indianapolis Manufacturing/Office Facility.
Section 8.04. Existing Bonus Plans. The DSLT Executive Management
Performance Incentive Plan and the Diamond Crystal Executive Management
Performance Incentive Plan have been amended to provide for pro-rated incentive
bonus payments based upon a partial year for the fiscal year of DSLT and DCSFI
ending March 31, 1999, which partial year will end at the Effective Time, with
performance determined based upon the results for such partial year.
Section 8.05. Post-Closing Taxes. DSLT shall prepare and file any return
related to Taxes for the periods up to and including the Closing, and DSLT (and
not the shareholders of DSLT) shall bear any liability with respect to Taxes due
and payable for periods up to and including the Closing. DSLT (as the surviving
corporation) and Parent shall not be liable after the Effective Time for any
taxes related to the operations or assets of, or the distribution of, the Real
Estate Group and the Excluded Assets, and the liability for all such taxes shall
be assumed by the Real Estate Group.
Section 8.06. Indemnity. (a) Following the Closing, Parent shall
indemnify, defend, and hold harmless the pre-closing DSLT Stockholders and the
pre-closing officers and directors of DSLT and its Subsidiaries from any claim
related to the failure of DSLT or its Subsidiaries to pay any amount or to honor
any obligation Parent has agreed to cause DSLT (as the surviving corporation)
and its Subsidiaries to pay or honor. The pre-closing DSLT Stockholders and the
pre-closing officers and directors of DSLT and its Subsidiaries shall be deemed
to be third-party beneficiaries of this Agreement with respect to the provisions
of this Section 8.06(a).
(b) Following the Closing, the Real Estate Group shall
indemnify, defend, and hold harmless Parent and DSLT (as the surviving
corporation) and their respective officers and directors from any claim related
to the liabilities assumed by the Real Estate Group. At or before the time of
distribution of the Real Estate Group to the DSLT Stockholders, DSLT's existing
guaranty (the "Halco Guaranty") of certain bank indebtedness of Halco
Investments Partnership will be released (and, if required by the lender,
assumed by a member of the Real Estate Group). In the event that the Halco
Guaranty is not released on or prior to the Closing Date, then on the Closing
Date the Real Estate Group will deliver into escrow, under a mutually-acceptable
escrow agreement, cash in an amount equal to the then maximum amount of the
Halco Guaranty, to secure any costs or liabilities incurred by Parent or DSLT
(as the surviving corporation) in
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connection with any demand made under the Halco Guaranty. The escrowed funds
shall beplaced in an interest-bearing account and shall be disbursed in full
(less any amounts disbursed to Parent or DSLT to cover costs or liabilities as
described in the preceding sentence) to the Real Estate Group immediately upon
the bank's release of the Halco Guaranty.
Section 8.07. Payment of Certain Fees and Expenses. Prior to the date
hereof, DSLT has provided to Parent an estimate of the fees and expenses that
DSLT reasonably anticipates that it will incur in connection with the Merger.
On the Closing Date, Parent shall pay or cause DSLT to pay, (i) the fees of
Piper Jaffray Inc. pursuant to the terms of the engagement letter delivered to
Parent pursuant to Section 4.21 and (ii) all other reasonable fees and expenses
(not to exceed $750,000 in the aggregate) incurred by DSLT in connection with
the Merger, including but not limited to, the fees and expenses of its counsel,
consultants and accountants, which fees and expenses shall in no manner be
deducted from the amount of the Merger Price to be paid to the DSLT
shareholders.
Section 8.08. Registration of Parent Common Stock. At the Closing Date,
the DSLT Stockholders shall have the following registration rights with respect
to any Parent Common Stock issued pursuant to this Agreement.
(a) Registration Rights for Parent Common Stock; Filing of
Registration Statement. Parent will utilize its reasonable best efforts to
cause, as soon as practicable following the Closing Date, a registration
statement to be filed under the Securities Act for the purpose of registering
the Parent Common Stock issued in the Merger for resale by a Holder thereof (the
"Registration Statement"). For purposes of this Section, a person is deemed to
be a "Holder" of Parent Common Stock whenever such person is the record owner of
Parent Common Stock. Parent will use its best efforts to have the Registration
Statement become effective and cause the Parent Common Stock to be registered
under the Securities Act, and registered, qualified or exempted under the State
securities laws of such jurisdictions as any Holder reasonably requests, as soon
as reasonably practicable following the Closing Date, provided, however, that
Parent shall not be required to qualify to do business in any state or to
consent to be subject to general service of process in any state where it is not
otherwise required to be so qualified or subject. Parent shall be entitled to
place appropriate restrictive legends on any shares of Parent Common Stock
issued in the Merger.
(b) Expenses of Registration. Parent shall pay all expenses
incurred by Parent in connection with the registration, qualification, or
exemption of the Parent Common Stock, including any SEC and state securities law
registration and filing fees, printing expenses, fees, and disbursements of
Parent's counsel and accountants, transfer agents' and registrars' fees, fees
and disbursements of experts used by Parent in connection with such
registration, qualification, or exemption, and expenses incidental to any
amendment or supplement to the Registration Statement or prospectuses contained
therein. Parent shall not, however, be liable for any sales, broker's, or
underwriting commissions upon any Holder's sale of the Parent Common Stock.
(c) Furnishing of Documents. Parent shall furnish to the Holders
such reasonable number of copies of the Registration Statement, such
prospectuses as are contained in
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the Registration Statement, and such other documents as the Holders may
reasonably request in order to facilitate the offering of the Parent Common
Stock.
(d) Amendments and Supplements. Parent shall prepare and
promptly file with the SEC and promptly notify the Holders of the filing of such
amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions if,
at the time when a prospectus relating to the Parent Common Stock is required to
be delivered under the Securities Act, any event shall have occurred as a result
of which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Parent shall also advise the Holders
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the SEC suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
(e) Effective Period. Parent shall maintain the effectiveness of
the Registration Statement until the earlier of (i) such time as all shares of
Parent Common Stock issued in the Merger have been sold pursuant to the
Registration Statement, (ii) such time as each DSLT Stockholder may sell all its
shares of Parent Common Stock received in the Merger under Rule 144 of the
Securities Act (or any successor rule or regulation) without regard to volume
limitations or (iii) the second anniversary of the Closing Date; provided, that
in the event Parent determines in good faith that, because it has under
consideration a significant acquisition or disposition or other material
transaction that has not been publicly disclosed or that it is in the process of
preparing for filing with the SEC a Report on Form 8-K or other form or that as
a result of any fact the disclosure of which at that time would be materially
disadvantageous to Parent, the Registration Statement may contain a material
misstatement or omission, the Parent may cause the Registration Statement to not
to be used for a period not to exceed sixty (60) days.
(f) Further Information. Each Holder shall furnish Parent such
information regarding itself as Parent may reasonably request and as shall be
required in connection with any registration of Parent Common Stock,
qualification, or compliance referred to in this Agreement.
(g) Indemnification. In addition to any indemnification rights
of the parties under Section 8.06 or Article XIIA, the parties shall have the
following rights and obligations.
(i) Parent will indemnify and hold harmless the Holders,
and each person, if any, who controls a Holder within the meaning of the
Securities Act, from and against any and all losses, damages, liabilities,
costs, and expenses to which the Holders or any such controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities, costs, or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which
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they were made, not misleading; provided, however, that Parent will not be
liable in any such case to the extent that any such loss, claim, damage,
liability, cost, or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by or on behalf of any Holder or such
controlling person in writing specifically for use in the preparation thereof.
(ii) Each of the Holders severally, but not jointly, will
indemnify and hold harmless Parent, and each person, if any, who controls Parent
within the meaning of the Securities Act, from and against any and all losses,
damages, liabilities, costs, and expenses to which Parent or any such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs, or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in strict conformity with written
information furnished by or on behalf of the Holder specifically for use in the
preparation thereof; provided that Parent shall look solely to the applicable
Holder's pro-rata portion of the Escrow to satisfy any claim for indemnification
pursuant to this subparagraph.
(iii) Promptly after an indemnified party receives notice
pursuant to the provisions of subparagraphs (g)(i) or (g)(ii) of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party hereunder, promptly notify the indemnifying
party of the commencement thereof; but the failure to so notify the indemnifying
party will not relieve it from any liability which it may have hereunder unless
the indemnifying party has been materially prejudiced thereby, nor will such
failure to so notify the indemnifying party relieve it from any liability which
it may have to any indemnified party otherwise than hereunder. In case such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the right
to participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the indemnifying
party and there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the indemnified
party or parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions hereof for any legal
or other expense subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
(A) the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence, (B) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of
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the action, or (C) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
Section 8.09. Listing Application. Parent shall promptly prepare and
submit to the AMEX a listing application covering the shares of Parent Common
Stock issuable in the Merger, and shall use its best efforts to obtain, prior to
the Effective Time, approval for the listing of such Parent Common Stock,
subject to the official notice of issuance.
ARTICLE IX.
CONDITIONS PRECEDENT TO OBLIGATIONS OF SUB AND PARENT
The obligations of Sub and Parent under this Agreement are subject to
the fulfillment, prior to or at the Closing, of the following conditions:
Section 9.01. Deliveries by DSLT. DSLT shall have delivered to Sub and
Parent the documents and items specified in Section 11.02.
Section 9.02. Representations and Warranties of DSLT. Each of DSLT's
representations and warranties contained in this Agreement, disregarding any
modification by any notice given pursuant to Section 6.15, shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date (except to the extent such representations and warranties speak as of an
earlier date) with the same force and effect as though made at and as of the
Closing Date, except where the failure to be so true and correct (without giving
effect to the individual materiality qualifications and thresholds otherwise
contained in Article IV hereof) could not reasonably be expected to have a
Material Adverse Effect on DSLT and its Subsidiaries taken as a whole.
Section 9.03. Compliance. DSLT shall have complied with and fulfilled in
all material respects all of the covenants, agreements, obligations, and
conditions required by this Agreement to be complied with or fulfilled by it at
or prior to the Closing.
Section 9.04. Compliance Certificate. DSLT shall have delivered to Sub
and Parent a certificate of its President and Chief Financial Officer in their
corporate officer capacity and not personally, dated the Closing Date,
certifying that the conditions specified in Sections 9.02, 9.03, 9.06, 9.07 and
9.08, as to DSLT, have been fulfilled.
Section 9.05. DSLT Counsel Opinion. Sub and Parent shall have received a
written opinion of counsel from Dickinson Wright PLLC, counsel for DSLT, dated
the Closing Date, in substantially the form attached hereto as Exhibit 9.05.
Section 9.06. Legal Proceedings. None of Sub, Parent, or DSLT shall be
subject to any injunction, preliminary restraining order or other similar decree
of a court of competent jurisdiction against performing the transactions
contemplated by this Agreement or imposing any limitation on Parent's ownership
of any portion of Parent's or DSLT's business or assets, and
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there shall be no suit or proceeding by a governmental authority seeking any
such injunction, order or decree pending or threatened.
Section 9.07. Governmental Approvals. All governmental consents and
approvals necessary to permit the transactions contemplated by this Agreement
shall have been received, including without limitation the Registration
Statement being declared effective, and the waiting period required with respect
to any filing made under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated.
Section 9.08. DSLT Shareholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved by holders of a
majority of the outstanding shares of DSLT Common Stock entitled to vote thereon
at a meeting duly convened therefor or at any adjournment thereof.
Section 9.09. Bank Waivers. Parent shall have obtained and delivered to
DSLT the bank waivers described in Section 7.06.
Section 9.10. No Material Adverse Change. Since the date hereof, except
for (i) changes that affect the industries in which DSLT and its Subsidiaries
operate generally and (ii) changes related to the potential loss of customers,
there shall have been no changes that constitute, and no event or events
(including, without limitation, litigation developments) shall have occurred
which have resulted in or constitute a Material Adverse Effect with respect to
DSLT and its Subsidiaries.
ARTICLE X.
CONDITIONS PRECEDENT TO OBLIGATIONS OF DSLT
The obligations of DSLT under this Agreement are subject to the
fulfillment, prior to or at the Closing, of the following conditions:
Section 10.01. Deliveries by Sub and Parent. Sub and Parent shall have
delivered to DSLT the documents and items specified in Section 11.03.
Section 10.02. Representations and Warranties of Sub and Parent. Each of
the representations and warranties by Sub and Parent contained in this
Agreement, disregarding any modification by any notice given pursuant to Section
7.04, shall be true and correct in all material respects as of the date hereof
and as of the Closing Date (except to the extent such representations and
warranties speak as of an earlier date) with the same force and effect as though
made at and as of the Closing Date, except where the failure to be so true and
correct (without giving effect to the individual materiality qualifications and
thresholds otherwise contained in Article V hereof) could not reasonably be
expected to have a Material Adverse Effect on Parent and its Subsidiaries taken
as a whole.
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Section 10.03. Compliance. Sub and Parent shall have complied with and
fulfilled in all material respects all of the covenants, agreements,
obligations, and conditions required by this Agreement to be complied with or
fulfilled by them at or prior to the Closing.
Section 10.04. Compliance Certificate. Sub and Parent shall each have
delivered to DSLT a certificate of its President and Chief Financial Officer in
their corporate officer capacity and not personally, dated the Closing Date,
certifying that the conditions specified in Sections 10.02, 10.03, 10.06, 10.07
and 10.08, as to Sub and Parent, have been fulfilled.
Section 10.05. Sub and Parent Counsel Opinion. DSLT and the DSLT
shareholders shall have received a written opinion from Baker & Botts, L.L.P.,
counsel for Sub and Parent, dated the Closing Date, in substantially the form
attached hereto as Exhibit 10.05.
Section 10.06. Legal Proceedings. None of Sub, Parent, or DSLT shall be
subject to any injunction, preliminary restraining order or other similar decree
of a court of competent jurisdiction against performing the transactions
contemplated by this Agreement.
Section 10.07. Governmental Approvals. All governmental consents and
approvals necessary to permit the transactions contemplated by this Agreement
shall have been received, including without limitation the Registration
Statement being declared effective, and the waiting period required with respect
to any filing made under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated.
Section 10.08. Parent Shareholder Approval. If required, Parent's
shareholders shall have approved this Agreement and the transactions
contemplated hereby at a meeting duly convened therefor or at any adjournment
thereof.
Section 10.09. Bank Waivers. Parent shall have obtained and delivered to
DSLT the bank waivers described in Section 7.06.
Section 10.10. Parent Share Value. The Parent Share Value, calculated as
of the Closing Date, shall be at least $8.00, unless the All Cash Election
Notice is timely delivered by Parent.
ARTICLE XI.
CLOSING
Section 11.01. Closing Date. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m.,
local time, on the next Business Day following the date on which all of the
conditions precedent set forth in Article IX and Article X have been satisfied
or waived, or on such other date as the parties shall agree (the "Closing
Date"). The Closing shall be held at the offices of Dickinson Wright PLLC,
Detroit, Michigan or at such other place as the parties shall agree.
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Section 11.02. Deliveries by DSLT. At the Closing, DSLT shall deliver to
Sub and Parent the following duly executed documents and other items in form
reasonably satisfactory to Sub and Parent:
(a) The executed compliance certificate specified in Section
9.04.
(b) The counsel's opinion specified in Section 9.05.
(c) The resignations of the officers and directors of DSLT and
its Subsidiaries as specified by Parent, each dated as of the Closing
Date, but not to be effective until Parent's written acceptance thereof
(provided that, in order to avoid any unreasonable delay in the
application of the CIC Agreements, such written acceptance must be
delivered, if at all, within five (5) business days after the Closing
Date).
Section 11.03. Deliveries by Sub and Parent. At the Closing, Sub and
Parent shall deliver to DSLT the following duly executed documents and other
items in form reasonably satisfactory to DSLT:
(a) A certificate of the Disbursing Agent acknowledging receipt
from Sub of the cash required by Section 3.02 and Section 3.03 for
payment of the Cash Consideration to each of the DSLT shareholders.
(b) The executed compliance certificates specified in Section
10.04.
(c) The counsel's opinion specified in Section 10.05.
ARTICLE XII.
TERMINATION
Section 12.01. Events of Termination. This Agreement may, by notice
given in the manner hereinafter provided, be terminated and abandoned at any
time prior to completion of the Closing:
(a) by DSLT if there has been a material misrepresentation or a
material default or breach by Sub or Parent with respect to Sub's or
Parent's representations and warranties in this Agreement or the due and
timely performance of any of the covenants and agreements of Sub or
Parent contained in this Agreement, and such misrepresentation, default,
or breach involves a Material Adverse Effect on Sub or Parent, and such
material misrepresentation, default or breach shall not have been cured
within ten (10) days after Sub or Parent receives notice specifying
particularly such misrepresentation, default or breach; or
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(b) by Sub or Parent if there has been a material
misrepresentation or a material default or breach by DSLT with respect
to DSLT's representations and warranties in this Agreement or the due
and timely performance of any of DSLT's covenants and agreements
contained in this Agreement, and such misrepresentation, default or
breach involves a Material Adverse Effect on DSLT, and such material
misrepresentation, default or breach shall not have been cured within
ten (10) days after DSLT receives notice specifying particularly such
misrepresentation, default or breach; or
(c) by DSLT at any time after November 15, 1998, if any of the
conditions precedent to DSLT's obligations under this Agreement shall
not have been satisfied, unless waived by DSLT, provided, however, that
in the event that the condition set forth in Section 10.07 has not been
satisfied by November 15, 1998, DSLT may not terminate this Agreement
hereunder unless such condition has not been satisfied on or before
December 31, 1998; or
(d) by Sub or Parent at any time after November 15, 1998, if any
of the conditions precedent to the obligations of Sub and Parent under
this Agreement shall not have been satisfied, unless waived by Sub and
Parent, provided, however, that in the event that the condition set
forth in Section 9.07 has not been satisfied by November 15, 1998,
neither Parent nor Sub may terminate this Agreement hereunder unless
such condition has not been satisfied on or before December 31, 1998; or
(e) by DSLT at any time after September 25, 1998, if the
condition precedent set forth in Section 10.09 shall not have been
satisfied as of the date of such termination; or
(f) by mutual agreement of all of DSLT, Sub, and Parent.
Section 12.02. Effect of Termination. (a) In the event this Agreement is
terminated pursuant to Section 12.01, all obligations of the parties shall
terminate except for those obligations set forth in Sections 12.02(b) and 13.05,
which obligations shall survive indefinitely.
(b) Parent Fee. If this Agreement is terminated by DSLT under
Section 12.01(a) because of breach of the covenant set forth in Section 7.06, or
by DSLT under Section 12.01(c) due to failure of the condition precedent to the
obligations of DSLT set forth in Section 10.08, or by DSLT under Section
12.01(e) due to the failure of the condition precedent to the obligations of
DSLT set forth in Section 10.09, or by Parent or Sub under Section 12.01(d) due
to failure of the condition precedent to the obligations of Parent and Sub set
forth in Section 9.09, then, in any of such events, Parent will pay to DSLT a
non-refundable fee of $1.5 million by wire transfer of immediately available
funds to an account designated by DSLT in writing. If this Agreement is
terminated by DSLT under Section 12.01(c) due to the failure of the condition
precedent to the obligations of DSLT set forth in Section 10.10, and if the
Parent Share Value as of the date of termination of this Agreement by DSLT is
less than $7.25, then Parent shall reimburse DSLT for its reasonable out-of-
pocket costs and professional fees incurred in connection with the matters
contemplated by this Agreement, in an amount not to
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exceed $250,000 in the aggregate, by wire transfer of immediately available
funds to an account designated by DSLT in writing.
ARTICLE XIIA
ESCROW AND INDEMNIFICATION
Section 12A.01. Escrow Amount. Sub or the Disbursing Agent will hold
back and place into escrow with the Disbursing Agent or another Person mutually
agreed-upon by Parent and the Shareholders' Representative ("Escrow Agent")
pursuant to an escrow agreement (the "Escrow"), Merger Consideration equal to
ten percent (10%) of the Closing Payment (the "Escrow Amount") as established
pursuant to Section 3.08(a), to secure the indemnification obligations for
Losses (described in Section 12A.03) and to secure the return to DSLT (as the
surviving corporation) of any amount by which the Closing Payment exceeds the
Adjusted Merger Price ("Merger Price Overpayment"). In the event that DSLT
timely receives from Parent the All Cash Election Notice, then the escrow shall
consist of all cash. In the absence of DSLT's timely receipt of the All Cash
Election Notice, then the entire escrow shall consist of a number of shares of
Parent Common Stock, equal to the quotient obtained by ten percent (10%) of the
Closing Payment divided by the Parent Share Value. In the event that, after the
Closing, Parent or its assignee timely exercises the Repurchase Option, then,
upon the closing of the Repurchase Option, the Parent Common Stock theretofore
held in the Escrow shall be delivered to, or upon the order of, Parent or its
assignee against delivery to the Escrow Agent of cash in an amount equal to ten
percent (10%) of the excess of the Closing Payment over Five Million Dollars
($5,000,000), which amount shall thereafter secure the indemnification for
Losses and the return of any Merger Price Overpayment.
Section 12A.02. Escrow Distributions. Any and all distributions to and
from the Escrow shall be allocated among the DSLT Stockholders, pro rata, based
on each holder's proportionate interest in shares of DSLT Common Stock held
immediately prior to the Merger, as separate subaccounts for each holder. Any
and all distributions of Parent Common Stock from the Escrow shall be valued at
the Parent Share Value as of the date of disribution. Any distribution from the
Escrow is to be adjusted to reflect the appropriate Tax Adjustment (provided
that the payment to which such distribution relates is within a category
cutomarily deductible for federal income tax purposes), such that only the net
amount following such adjustment shall be withdrawn, and Parent or DSLT (as the
surviving corporation) shall use its own funds to make the full amount of the
gross payment required even though the actual tax adjustment might be deferred.
Section 12A.03. Indemnification. Each DSLT Stockholder severally on a
pro-rata basis, but not jointly, shall indemnify and defend Parent and DSLT (as
the surviving corporation) and hold each of them harmless, to the extent
provided hereby (but only by means of deduction from the Escrow as set forth
herein and subject to the limitation set forth in Section 12A.06), from and
against any and all losses, damages, liabilities, claims, demands, judgments,
settlements, costs and expenses of any nature whatsoever (including reasonable
attorneys' fees) (collectively, "Losses") resulting from or arising out of (i)
any error, inaccuracy, breach or misrepresentation in any representation,
warranty or agreement of DSLT contained herein (without giving effect to
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the individual materiality qualifications otherwise contained in any
representation, warranty or agreement), (ii) the past or present presence of,
release, remediation or clean up of, or exposure to, Hazardous Substances
relating to or located on, within or under any asset owned, leased or used by
DSLT or any of its Subsidiaries prior to the Closing, (iii) violation of any
Environmental Permits or environmental laws or regulations prior to the Closing,
(iv) in the event that Ronald M. Tarantino does not elect to remain employed by
DCSFI (or by Parent or any of Parent's subsidiaries or affiliates) after the
Closing Date, fifty percent (50%) of the amount of any payment, net of the
applicable Tax Adjustment, required to be made to Mr. Tarantino under paragraph
3(e) of the CIC Agreement pertaining to Mr. Tarantino, (v) any payments required
to be made to Dissenting Shareholders under Section 3.06 and not paid at or
prior to the Closing, (vi) any severance payments referenced in Section 8.02, in
each case net of the applicable Tax Adjustment, made within one (1) year after
the Closing Date to any employee of DSLT or its Subsidiaries, to the extent that
the payment to such employee exceeds the equivalent of such employee's base
salary multiplied by one week for each full or partial year of service (provided
that Parent shall be solely responsible, without any deduction from the Escrow,
for the amount of any severance payment to the extent in excess of the
guidelines of the severance policy of DSLT described in Schedule 8.02), and
(vii) any liabilities, costs or expenses relating to the Excluded Assets and the
Real Estate Group or the distribution thereof (including any taxes incurred
thereon or incurred as a result of the distribution thereof). Any claim for
indemnification pursuant to this Section 12A.03 made prior to the 50th day after
the Closing Date shall be held in abeyance until the earlier to occur of the
50th day after the Closing Date or the closing of the Repurchase Option (if
timely exercised). No claim for indemnification pursuant to this Section 12A.03
may be made subsequent to the date one (1) year after the Effective Time.
Following the expiration of one (1) year after the Effective Time (or, if there
is then pending any timely claim(s) for indemnification pursuant to this Section
12A.03, upon final resolution of such claim(s)), any balance in the Escrow
(including any interest or dividends for the benefit of the DSLT Stockholders as
described in Section 12A.08) shall be distributed to the DSLT Stockholders after
deduction for any payments required by Section 3.07.
Section 12A.04. Third Party Claims.
(a) If any third party shall notify Parent or DSLT with respect
to any third-party claim (a "Third-Party Claim") that may give rise to a Loss,
then Parent or DSLT (as the surviving corporation) shall promptly notify the
Shareholders' Representative of such claim in writing by registered mail or
overnight courier; provided, however, that no delay on the part of Parent or
DSLT in notifying the Shareholders' Representative shall relieve the DSLT
Stockholders from any obligation hereunder unless (and then solely to the
extent) they are prejudiced thereby. The parties acknowledge that "Third-Party
Claims" shall not include any claims submitted by customers, distributors or
suppliers of DSLT or its Subsidiaries that relate to earned income credits,
customer rebates, or similar adjustments to accounts receivable according to the
historical practice of DSLT and its Subsidiaries pursuant to agreements with its
customers, distributors or suppliers.
(b) The DSLT Stockholders will have the right to defend Parent
or DSLT against such Third-Party Claim with counsel of their choice reasonably
satisfactory to Parent so long as (i) the DSLT Stockholders so notify Parent in
writing within 15 days; (ii) the amount of value in
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the Escrow Account (valued, in the case of Parent Common Stock, at the Parent
Share Value) exceeds the greater of (A) the amount of the damages asserted in
the Third-Party Claim or (B) the good faith estimate by Parent of the maximum
potential Loss; (iii) the Third-Party Claim involves only money damages and does
not seek an injunction or other equitable relief; and (iv) the DSLT Stockholders
conduct the defense of the Third-Party Clam actively and diligently. The DSLT
Stockholders will be reimbursed from the Escrow promptly and periodically for
the costs of defending against such Third-Party Claim (including reasonable
attorneys' fees and expenses).
(c) So long as the DSLT Stockholders are conducting the defense
of the Third-Party Claim in accordance with Section 12.04(b), (i) Parent or DSLT
may retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third-Party Claim, (ii) Parent or DSLT will not consent to
the entry of any judgment or enter into any settlement with respect to the
Third-Party Claim without the prior written consent of the Shareholders'
Representative (which consent will not be withheld unreasonably); and (iii) the
DSLT Stockholders will not consent to the entry of any judgment or enter into
any settlement with respect to the Third-Party Claim without the prior written
consent of Parent (which consent will not be withheld unreasonably).
(d) In the event any of the conditions in Section 12A.04(b) is
or becomes unsatisfied, however, (i) Parent may defend against the Third-Party
Claim in any manner it reasonably may deem appropriate; provided, however, that
Parent shall not consent to the entry of any judgment or enter into any
settlement or agreement to settle a Third-Party Claim without the prior written
consent of the Shareholders Representative, which consent shall not be
unreasonably withheld, (ii) Parent or DSLT will be reimbursed from the Escrow
promptly and periodically for the costs of defending against the Third-Party
Claim (including reasonable attorneys' fees and expenses); and (iii) the DSLT
Stockholders will remain responsible for any Loss that Parent or DSLT actually
suffers resulting from, arising out of, relating to, in the nature of, or caused
by the Third-Party Claim to the fullest extent provided in this Article XIIA.
Section 12A.05. Indemnity Claims Procedure. At any time DSLT (as the
surviving corporation) shall have a claim for indemnification for Losses, DSLT
shall submit such claim to the Shareholders' Representative in writing via
registered mail or overnight courier, and within 30 calendar days after receipt
thereof the Shareholders' Representative shall notify DSLT, in writing, whether
he or she agrees with such claim; provided, however, that in the event that the
Shareholders' Representative shall fail to so notify DSLT (as the surviving
corporation), the Shareholders' Representative shall be deemed to have agreed to
the release of cash in the amount of such claim (or the equivalent amount of
stock) from the Escow. In the event that the Shareholders' Representative
notifies DSLT that he disagrees with such claim, the Shareholders'
Representative shall provide DSLT with written notice specifying the basis for
such disagreement and, if the Shareholders' Representative and DSLT shall be
unable to reach agreement within 30 days, the matter will be submitted to
arbitration pursuant to the rules of the American Arbitration Association in
Houston, Texas, before a panel of three arbitrators, the cost of which shall be
borne equally by the DSLT Stockholders, on one hand, and DSLT on the other. Any
determination by the arbitrators shall be final and binding on the parties.
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Section 12A.06. Limitation; Sole Remedy. Notwithstanding anything to the
contrary in this Article XIIA, the DSLT Stockholders shall not be required to
indemnify DSLT for Losses unless the aggregate of all amounts for which
indemnity would otherwise be due exceeds $500,000, and then only for any Losses
exceeding such amount. The obligations of the DSLT Stockholders to (i) return
any Merger Price Overpayment to DSLT and (ii) to indemnify Parent and DSLT (as
the surviving corporation) for any payments described in clauses (iv), (v), (vi)
and (vii) of Section 12A.03, are not subject to any threshold amount. The remedy
provided for in this Article XIIA shall be the only remedy available to Parent
or DSLT following the Effective Time with respect to claims for Losses and for
any Merger Price Overpayment.
Section 12A.07. Indemnification of Shareholders' Representative;
Successor Shareholders' Representative. (a) Each of the DSLT Stockholders hereby
constitutes and appoints Frederick S. Moore as the Shareholders' Representative
to take such action on their behalf in the capacity of Shareholders'
Representative and to exercise such rights, power and authority as are
authorized, delegated and granted to the Shareholders' Representative under this
Agreement in connection with the transactions contemplated hereby, to give and
receive notices and communications, and to take all actions necessary or
appropriate, in the judgment of the Shareholders' Representative, under such
instructions as the Shareholders' Representative determines are appropriate, to
accomplish the foregoing. The Shareholders' Representative shall not be liable
for any act done or omitted hereunder as Shareholders' Representative unless
resulting from gross negligence or wilful misconduct. The DSLT Stockholders
shall, jointly and severally, indemnify the Shareholders' Representative and
hold him harmless from and against any loss, liability or expense incurred on
the part of the Shareholders' Representative and arising out of or in connection
with the acceptance or administration of his rights or duties hereunder,
including without limitation any legal, accounting or other professional fees
and expenses incurred by the Shareholders' Representative hereunder.
(b) DSLT Stockholders holding a majority of the Merger Price held in the
Escrow may, by written notice signed by them and delivered to DSLT, appoint any
other individual to act in the place and stead of the Shareholders'
Representative. In the event of the death, incapacity or resignation of the
Shareholders' Representative, if no such replacement is appointed within 30
days, Parent may designate an interim replacement to serve until such
appointment.
Section 12A.08. Interest and Dividends. To the extent that the
Escrow is comprised of cash, it shall be placed in an interest-bearing account
acceptable to Parent and the Shareholders' Representative, and the interest
thereon shall be maintained in the Escrow subject to all its terms and, unless
distributed pursuant to Section 3.08 or to secure the DSLT Stockholders'
indemnification for any Losses, shall accrue for the benefit of the DSLT
Stockholders and be distributed to the DSLT Stockholders upon termination of the
Escrow. To the extent that the Escrow is comprised of Parent Common Stock, any
dividends declared thereon from time to time shall be paid to the Escrow Agent
to be held and distributed in the same manner as interest under the preceding
sentence.
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ARTICLE XIII.
MISCELLANEOUS
Section 13.01. Representations and Warranties; Exclusive Remedy.
(a) Any matter, event, condition, or state of facts disclosed by
DSLT on any schedule hereto shall be deemed disclosed by DSLT on all
schedules hereto for purposes of DSLT's representations and warranties
in Article IV.
(b) All of the representations and warranties of the parties
made herein or in any other agreement or instrument delivered hereunder
shall expire one year after the Closing Date.
(c) In the event of any breach of the representations and
warranties set forth in Article IV, or in the event of any claim related
to any agreement of DSLT contained herein (including without limitation
any claim related to the matters described in Section 12A.03 or any
Third-Party Claim), Sub and Parent's sole and exclusive remedy, other
than any right of termination of this Agreement prior to the Closing as
described in Section 12.01, shall be to pursue a claim for Losses under
Article XIIA to the extent of the then-remaining amount of the Escrow,
and no legal action at law or in equity shall be maintained by Sub or
Parent against DSLT or its Subsidiaries, shareholders, officers,
directors, employees, or agents which is directly or indirectly related
to a breach of any of such representations, warranties or agreements,
including without limitation a breach of the compliance certificate
delivered by DSLT pursuant to Section 11.02 or a breach of the
obligations under Section 6.15.
Section 13.02. Assignability. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
provided, however, that this Agreement may not be assigned by any party without
the prior written consent of the other parties, and any attempted assignment in
violation of this Section shall be void.
Section 13.03. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 13.04. Best Efforts; Cooperation. Subject to the terms of this
Agreement, each party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The parties each agree to execute and deliver
such other documents, certificates, agreements, and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement, and,
from time to time, upon the request of any other party to this Agreement and
without further consideration, to execute, acknowledge, and deliver in proper
form any further instruments, and take such other action as
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such other party may reasonably require, in order to effectively carry out the
intent of this Agreement. The parties shall further cooperate to facilitate and
allow the Shareholders' Representative and its agents and representatives, for
and on behalf of the DSLT Stockholders and the Real Estate Group, to review all
records relevant to the preparation of the DSLT Closing Balance Sheet, to have
access to other pre-Closing corporate records (including minute books and stock
records) and to prepare any post-Closing tax returns.
Section 13.05. Expenses. Except as set forth under Section 12.02, and as
limited by Section 3.07 and Section 8.07, each of the parties shall pay their
own expenses incurred in connection with the transactions provided for in this
Agreement, including without limitation the fees and expenses of their
respective counsel and other advisors.
Section 13.06. Index and Captions; Rules of Construction. The index and
the captions of the Articles and Sections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of this Agreement. All terms defined herein shall include both
the singular and plural forms thereof and shall be construed accordingly.
References to "Articles" and "Sections" shall be to Articles and Sections of
this Agreement unless otherwise specifically provided.
Section 13.07. Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party to
whom notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given by certified mail, return receipt requested,
and properly addressed as follows (with a copy sent as provided below):
If to DSLT, to: DSLT Inc.
1362 North River Road
St. Clair, Michigan 48079
Attention: Frederick S. Moore
Telephone: 810-329-3100
Telecopy: 810-329-9328
Copy to: William T. Burgess, Esq.
Dickinson Wright PLLC
500 Woodward Avenue, 40th Floor
Detroit, Michigan 48226-3425
Telephone: 313-223-3500
Telecopy: 313-223-3598
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If to Sub or Parent, to: Imperial Holly Corporation
8016 Highway 90A
P.O. Box 9
Sugar Land, Texas 77487-0009
Attention: James C. Kempner
Telephone: 281-491-9181
Telecopy: 281-490-9895
Copy to: J. David Kirkland, Jr., Esq.
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Telephone: 713-229-1101
Telecopy: 713-229-1522
Any party may change its address for purposes of this Section 13.07 by
giving the other parties written notice of the new address in the manner set
forth above.
Section 13.08. Entire Agreement. This Agreement, including the exhibits
and schedules referred to herein which form a part of this Agreement, contains
the entire understanding of the parties with respect to the transactions
provided for in this Agreement. Except for the Confidentiality Agreement, there
are no representations, promises, warranties, covenants, or undertakings with
respect to the transactions provided for in this Agreement other than those
expressly set forth or provided for in this Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the transactions contemplated by this Agreement, except that the
Confidentiality Agreement shall remain in full force and effect in accordance
with its terms.
Section 13.09. Governing Law. This Agreement and all transactions
contemplated hereby shall be governed, construed, and enforced in accordance
with the laws of the State of Michigan, notwithstanding any state's choice of
law rules to the contrary.
Section 13.10. Public Announcements. Parent and Sub, on the one hand,
and DSLT and its Subsidiaries, on the other hand, will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange
transaction reporting system.
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Section 13.11. Waiver of Compliance; Modifications. The party for
whose benefit a warranty, representation, covenant, or condition is intended may
waive any inaccuracies in the warranties and representations contained in this
Agreement or any of the covenants or conditions contained herein in writing and
so waive performance of any of the obligations of the other party hereto, and
any defaults hereunder; provided, however, that such waiver shall not affect or
impair the waiving party's rights with respect to any other warranty,
representation, or covenant or any default hereunder. No supplement,
modification, or amendment of this Agreement shall be binding unless it is in
writing and executed by all of the parties hereto.
Section 13.12. Other Persons. Except for the right of the shareholders
of DSLT to receive the payments to which they are entitled pursuant to this
Agreement and as provided in Article VIII, nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any Person other than the parties hereto and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any other Person to any
party to this Agreement, nor shall any provision give any Person any right of
subrogation or action over or against any party to this Agreement.
ARTICLE XIV.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (such meanings applicable to both the singular and plural
forms of the terms defined):
"Acquisition Proposal" has the meaning set forth in Section 6.14.
"Adjusted Merger Price" has the meaning set forth in Section 3.07.
"Agreed Interest Rate" means the lesser of (i) the maximum interest rate
permitted by applicable law or (ii) seven and one-half percent (7.5%) per annum.
"Agreement" means this Agreement and Plan of Merger.
"All Cash Election Notice" has the meaning set forth in Section 3.02(a).
"Benefit Plans" has the meaning set forth in Section 4.12.
"Business Day" means each calendar day except a Saturday, Sunday or a
federal holiday.
"Cash Consideration" means (a) in the case where DSLT has timely
received the All Cash Election Notice, one hundred percent (100%) of the
applicable Merger Price divided by the number of shares of DSLT Common Stock
outstanding immediately prior to the Effective Time, or (b) in the case where
DSLT has not timely received the All Cash Election Notice, two-thirds
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(2/3) of the applicable Merger Price divided by the number of shares of DSLT
Common Stock outstanding immediately prior to the Effective Time.
"Certificate of Merger" means the certificate of merger that must be
filed by DSLT pursuant to Section 707 of the MBCA.
"CERCLA" has the meaning set forth in Section 4.16.
"CIC Agreements" means the Change in Control and Non-Compete Agreements
as in effect on the Closing Date among DSLT and DCSFI and each of Ronald
Tarantino, David Lewis, Walter Lehneis, Sanford Carlisle and Karl Kaiser.
"Closing" and "Closing Date" have the meanings set forth in Section
11.01.
"Closing Payment" has the meaning set forth in Section 3.08.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Confidentiality Agreement" means, collectively, the two letter
agreements respectively dated May 5, 1998 and July 26, 1998, each between Parent
and DSLT.
"DCSFI" means Diamond Crystal Specialty Foods, Inc., a Michigan
corporation and wholly owned Subsidiary of Holding.
"DCSFI Audited Financial Statements" has the meaning set forth in
Section 4.05(b).
"DCSFI Canada" means Diamond Crystal Specialty Foods of Canada Limited,
an Ontario corporation and wholly owned Subsidiary of DCSFI.
"DCSFI Financial Statements" has the meaning set forth in Section
4.05(b).
"DCSFI Unaudited Financial Statements" has the meaning set forth in
Section 4.05(b).
"DSLT" has the meaning set forth in the Preamble to this Agreement.
"DSLT Audited Financial Statements" has the meaning set forth in Section
4.05(a).
"DSLT Closing Balance Sheet" means the DSLT balance sheet as of the
Closing Date and reflecting all accruals after giving effect to the Merger,
prepared pursuant to Section 3.08(b) in accordance with generally accepted
accounting principles applied in a manner consistent with DSLT's historical
policies and practices, and in a format consistent with the DSLT Descriptive
Memo March 31, 1998 Balance Sheet.
"DSLT Common Stock" means the common stock of DSLT, par value $1.25 per
share.
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"DSLT Existing Debt" has the meaning set forth in Section 4.08.
"DSLT Financial Statements" has the meaning set forth in Section 4.05(a).
"DSLT Descriptive Memo March 31, 1998 Balance Sheet" means the balance
sheet describing selected items as of March 31, 1998 attached as Schedule
4.05(E).
"DSLT Preferred Stock" means the preferred stock of DSLT, without par
value.
"DSLT Returns" has the meaning set forth in Section 4.10.
"DSLT Share Consideration Value" means one-third (1/3) of the applicable
Merger Price divided by the number of shares of DSLT Common Stock outstanding
immediately prior to the Effective Time.
"DSLT Stock" means, collectively, the DSLT Common Stock and the DSLT
Preferred Stock.
"DSLT Stockholders" means the holders of the DSLT Stock.
"DSLT Unaudited Financial Statements" has the meaning set forth in Section
4.05(a).
"Debt" means any obligation for borrowed money (and any notes payable,
reimbursement obligations, and drafts accepted representing extensions of
credit, whether or not representing obligations for borrowed money).
"Deferred Compensation Liability" means the liability for deferred
compensation reflected on DSLT's balance sheet.
"Disbursing Agent" has the meaning set forth in Section 3.03.
"Dissenting Stockholders" has the meaning set forth in Section 3.06.
"Effective Time" has the meaning set forth in Section 1.02.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" has the meaning set forth in Section 12A.01.
"Escrow Agent" has the meaning set forth in Section 12A.01.
"Escrow Amount" has the meaning set forth in Section 12A.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Ratio" means the quotient (rounded to four decimal places) of the
DSLT Share Consideration Value divided by the Parent Share Value, provided that
if the Parent Share Value at the applicable date of calculation is less than
$8.00 then the denominator of such quotient shall be fixed at $8.00.
"Excluded Assets" means (a) the trade name "DSLT" and all derivatives
thereof, (b) real and personal property leases, furniture, fixtures, equipment,
and related personal property and business records of DSLT as may be located at
the DSLT corporate headquarters in St. Clair, Michigan, and directly relate to
the headquarters or any member of the Real Estate Group, and (c) any cash, cash
equivalents and marketable securities (valued at market) of DSLT which are
transferred to the Real Estate Group in connection with the distribution of the
Real Estate Group to the DSLT Stockholders prior to the Effective Time.
"Existing Letter of Credit" has the meaning set forth in Section 8.03.
"Halco Guaranty" has the meaning set forth in Section 8.06(b).
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations thereunder.
"Hazardous Substance" means any hazardous substance, hazardous waste,
contaminant, or pollutant as defined under applicable state law or CERCLA.
"Holder" has the meaning set forth in Section 8.08.
"Holding" means DSLT Holding Company, a Delaware corporation and wholly
owned Subsidiary of DSLT.
"Indianapolis Manufacturing/Office Facility" means the facility owned and
operated by Menu Magic located at 4343 West 62nd Street, Indianapolis, Indiana
46268.
"Intellectual Property" means patents and applications therefor, copyrights
and applications for registrations therefor, trademarks and service marks and
applications for registrations therefor, trade names, trade dress or trade
secrets, used by and necessary to carry on the business of DSLT or its
Subsidiaries.
"Knowledge of the Management Executives" or words of like import mean, with
respect to the existence or absence of a fact, the actual collective knowledge
of the Management Executives on the date of this Agreement.
"Knowledge of Parent" or words of like import mean, with respect to the
existence or absence of a fact, the actual collective knowledge of James C.
Kempner, William F. Schwer and Mary L. Burke on the date of this Agreement.
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien,
pledge, charge, encumbrance, or security interest of any kind in respect of such
asset.
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"Long-Term Debt" means the amount of long-term debt, less current
maturities, reflected on DSLT's balance sheet.
"Loss" has the meaning set forth in Section 12A.03.
"MBCA" means the Michigan Business Corporation Act, M.C.L. (S) 450.1101 et
seq., as amended.
"Management Executives" means, collectively, Frederick S. Moore, Hugh D.
McMorran, Frank N. Hayes, Ronald Tarantino, David Lewis, Walter Lehneis, and
Sanford Carlisle.
"Material Adverse Effect" means, in respect of Parent and its Subsidiaries
or DSLT and its Subsidiaries, as the case may be, any effect or change that is
or, as far as can be reasonably determined, is reasonably likely to be,
materially adverse to (i) the business, condition (financial or otherwise),
results of operations, assets, liabilities, or prospects of such party and its
Subsidiaries taken as a whole or (ii) the enforcement or validity of this
Agreement.
"Merger" has the meaning set forth in the Preamble to this Agreement.
"Merger Consideration" has the meaning set forth in Section 3.02.
"Merger Price" has the meaning set forth in Section 3.02.
"Merger Price Overpayment" has the meaning set forth in Section 12A.01.
"Menu Magic" means Menu Magic Foods, Inc., an Indiana corporation and
wholly owned Subsidiary of DCSFI.
"Parent" has the meaning set forth in the Preamble to this Agreement.
"Parent Benefit Plans" has the meaning set forth in Section 5.10.
"Parent Common Stock" has the meaning set forth in Section 5.04.
"Parent Existing Debt" has the meaning set forth in Section 5.08.
"Parent Preferred Stock" has the meaning set forth in Section 5.04.
"Parent Share Value" shall mean, for any date of calculation, the average
of the per share closing prices of Parent Common Stock as reported on the
American Stock Exchange, Inc. (as reported in the New York City edition of The
Wall Street Journal, or, if not reported thereby, another authoritative source)
for the ten (10) consecutive trading days ending immediately prior to the third
trading day prior to the applicable date of calculation.
"Parent Stock" has the meaning set forth in Section 5.04.
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"Person" means an individual, a corporation, a partnership, a joint
venture, an association, a trust or any other entity or organization including a
government or political subdivision or an agency or instrumentality thereof.
"Preamble" means the portion of this Agreement preceding Article I.
"Proxy Statement/Prospectus" has the meaning set forth in Section 6.13.
"RCRA" has the meaning set forth in Section 4.16.
"Real Estate Group" means the following entities: Diamond Energy Corp., a
Michigan corporation and wholly owned subsidiary of DSLT ("Energy"); DSLT
Properties, Inc., a Michigan corporation and wholly owned subsidiary of Holding
("Properties"); DSLT Development Co., a Michigan corporation and wholly owned
subsidiary of Properties ("Development"); DSLT Storage Co., a Michigan
corporation and wholly owned subsidiary of Properties; and Manistee Village
Partners, a Michigan partnership, all of the partnership interests of which are
owned by Energy and Development.
"Registration Statement" has the meaning set forth in Section 8.08.
"Repurchase Notice" has the meaning set forth in Section 3.09.
"Repurchase Option" has the meaning set forth in Section 3.09.
"Repurchase Price" has the meaning set forth in Section 3.09.
"Repurchased Shares" has the meaning set forth in Section 3.09.
"SARs" means the stock appreciation rights granted by DSLT and DCSFI,
respectively, under the SAR Plans.
"SAR Plans" means, collectively, the DSLT Inc. 1989 Stock Appreciation
Rights Plan the DSLT Inc. 1994 Stock Appreciation Rights Plan, the DSLT 1997
Board of Directors Stock Appreciation Rights Plan, the Diamond Crystal Specialty
Foods, Inc. 1989 Stock Appreciation Rights Plan and the Diamond Crystal
Specialty Foods, Inc. 1994 Stock Appreciation Rights Plan, each as amended and
as may be amended from time to time.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.14.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Consideration" means a number of shares of Parent Common Stock equal
to the Exchange Ratio.
56
<PAGE>
"Shareholders' Representative" means Frederick S. Moore.
"Stock Appreciation Rights Liabilities" means the liabilities of DSLT or
DCSFI for SARs reflected on DSLT's balance sheet.
"Sub" has the meaning set forth in the Preamble to this Agreement
"Sub Stock" has the meaning set forth in the Preamble to this Agreement.
"Subsidiary" means, (a) with respect to DSLT, Holding, DCSFI, Menu Magic,
and DCSFI Canada, (b) with respect to DCSFI, Menu Magic and DCSFI Canada, and
(c) with respect to Parent, any wholly-owned subsidiary of Parent or any
corporation, partnership or other entity in which Parent directly or indirectly
holds a majority equity interest The term "Subsidiary" shall not include any
entity included within the Real Estate Group.
"Tax" means and includes (except as provided in the following sentence) any
net income, alternative or add-on minimum, gross income, gross receipts, sales,
use, ad valorem, franchise, profits, license, withholding on amounts paid by
DSLT or its Subsidiaries, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit, custom, or duty
tax obligation of DSLT or its Subsidiaries arising from its or their operations
and activities, together with any interest or penalty relating thereto, imposed
by any Taxing Authority. "Tax" shall not mean or include any tax relating to or
arising from the execution, delivery or consummation of the transactions
provided for in this Agreement, or any elections or deemed elections (including
an election under Section 338 of the Code) relating to any-of the foregoing
transactions or agreements.
"Tax Adjustment" means the provision for federal, state and local taxes
relating to income or expenses at the rate of (i) 34% for items affecting DSLT
and (ii) 38% for items affecting DCSFI.
"Taxing Authority" means any domestic or foreign governmental authority
having responsibility for imposing any Tax.
"Third-Party Claim" has the meaning set forth in Section 12A.04.
"Working Capital" means current assets minus current liabilities reflected
on DSLT's balance sheet (but excluding any accrual for fees or expenses
described in Section 8.07, subject to the limitation therein, even if such fees
or expenses are to be paid at or following the Closing), plus an amount equal to
the aggregate amount of fees and expenses described in Section 8.07 (subject to
the limitation therein) which were paid prior to the Closing.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
DSLT INC.
By: /s/ Frederick S. Moore
----------------------
(Signature)
Frederick S. Moore, Chairman
IMPERIAL HOLLY CORPORATION
By: /s/ W.F. Schwer
---------------
(Signature)
William Schwer
--------------
(Printed Name and Title)
Managing Director
IHK ACQUISITION CORP.
By: /s/ W.F. Schwer
---------------
(Signature)
William Schwer
--------------
(Printed Name and Title)
Sr. Vice President
58
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (the "Amendment") dated as of October 22, 1998 is among
Imperial Holly Corporation, a Texas corporation ("Parent"), IHK Acquisition
Corp., a Michigan corporation ("Sub"), and DSLT Inc., a Michigan corporation
("DSLT").
RECITALS
WHEREAS, Parent, Sub and DSLT and parties to an Agreement and Plan of
Merger dated as of September 4, 1998 (the "Merger Agreement"); and
WHEREAS, Parent, Sub and DSLT wish to amend the Merger Agreement as
contemplated by Section 13.11 thereto, and Parent, Sub and DSLT have approved
and adopted this Amendment;
NOW, THEREFORE, the parties hereby amend the Merger Agreement as
follows:
Section 1. Amendment of the Merger Agreement.
(a) Sections 3.08(c) and 3.09 of the Merger Agreement are amended and
restated in their entirety to read as follows:
(c) All payments to be made under this Section 3.08 to the DSLT
Stockholders will be made in the proportion of cash and Parent Common Stock
calculated in the same manner as set forth in Section 3.02 (except that such
payments will be in all cash in the event of Parent's timely delivery of the All
Cash Election Notice or timely exercise in full of the Repurchase Option), which
will be deposited with the Disbursing Agent for pro rata distribution to the
DSLT Stockholders. All payments to be made under Section 3.08(b) to DSLT (as the
surviving corporation) will be paid from the Escrow, in Parent Common Stock
valued at the Parent Share Value as of the date of distribution from the Escrow,
to the extent Parent Common Stock is in the Escrow, or cash from the Escrow,
otherwise.
Section 3.09. Repurchase Option. If Parent does not timely deliver an
All Cash Election Notice, Parent shall have the option (the "Repurchase
Option"), exercisable by written notice delivered to the Shareholders'
Representative (the "Repurchase Notice") on or before the close of business on
the 45th day after the Closing Date (or, if such 45th day is not a Business Day,
the close of business on the next succeeding Business Day), to purchase for cash
any or all shares of Parent Common Stock issued pursuant to the Merger,
including the shares initially placed in Escrow pursuant to Section 12A.01 (the
shares so repurchased, the "Repurchased Shares"). The Repurchase Notice shall
specify a number of shares of Parent Common Stock to be repurchased, which
number shall not be less than the quotient of $5 million divided by the Parent
Share Value used in
<PAGE>
determining the Exchange Ratio (provided that if such Parent Share Value
is less than $8.00, then $8.00 shall be used as the Parent Share Value
for this purpose). The repurchase price for each Repurchased Share shall
be equal to the sum of (i) 87.5% of the Parent Share Value used in
determining the Exchange Ratio (provided that if such Parent Share Value
is less than $8.00, then $8.00 shall be used as the Parent Share Value
for this purpose) plus (ii) interest on such amount at the Agreed
Interest Rate from the Closing Date to the date of repurchase of the
Repurchased Shares. The aggregate amount for all Repurchased Shares set
forth in clause (i) of the preceding sentence shall be referred to as
the "Incremental Option Cash" and the aggregate repurchase price for all
Repurchased Shares, including the amount set forth in clause (i) of the
preceding sentence and interest as set forth in clause (ii) of the
preceding sentence, shall be referred to as the "Repurchase Price". The
Repurchase Option, and the right to repurchase the Repurchased Shares,
may be assigned by Parent to any other Person, provided that Parent
provides prompt written notice of any such assignment to the
Shareholders' Representative. Upon timely exercise of the Repurchase
Option, the closing of the repurchase of the Repurchased Shares shall
occur on the third Business Day after receipt by the Shareholder's
Representative of the Repurchase Notice, at the offices of Parent or
such other place and time as Parent and the Shareholders' Representative
may agree. The Repurchase Price shall be paid or caused to be paid by
Parent or its assignee by wire transfer in immediately available funds
to the Disbursing Agent for distribution to the DSLT Stockholders in the
same proportion as under Section 3.03, subject to pro rata withholding
of any portion thereof to be held in escrow pursuant to Section 12A.01.
The Repurchased Shares shall be delivered to, or upon the order of,
Parent or its assignee against such payment of the Repurchase Price.
Upon closing of the Repurchase Option, (A) the Merger Price, the
Adjusted Merger Price and any calculations or adjustments that are
dependent upon the Merger Price or the Adjusted Merger Price (including,
without limitation, the Escrow Amount calculated under Section 12A.01)
shall be reduced by the Discount; and (B) thereafter the Escrow shall
consist entirely of Parent Common Stock unless all shares of Parent
Common Stock not subject to the Escrow are repurchased, as described in
Section 12A.01.
(b) The last sentence of Section 12A.01 is replaced with the
following:
In the event that, after the Closing, Parent or its assignee
timely exercises the Repurchase Option, then, upon the closing of the
Repurchase Option, if all shares of Parent Common Stock not held in the
Escrow are repurchased and additional shares remain to be purchased,
then such additional shares theretofore held in Escrow shall be
delivered to, or to the order of, Parent or its assignee against
delivery to the Escrow Agent of cash in an amount equal to the aggregate
repurchase price for such shares, which amount shall thereafter be held
in the Escrow together with any remaining Parent Common Stock and cash
to secure the indemnification for Losses and the return of any Merger
Price Overpayment.
(c) The following definitions are added to Article XIV of the
Merger Agreement:
2
<PAGE>
"Discount" means the product of $5 million multiplied by a fraction
equal to (x) the Incremental Option Cash divided by (y) $35 million.
"Incremental Option Cash" has the meaning set forth in Section 3.09.
Section 2. Miscellaneous.
(a) Except as expressly set forth herein, all the provisions of the
Merger Agreement are hereby ratified and confirmed by the parties and shall
remain in full force and effect. All references in the Merger Agreement to "this
Agreement" shall be read as references to the Merger Agreement as amended by
this Amendment but references to the date of the Agreement shall remain
references to September 4, 1998.
(b) This Amendment shall be governed, construed and entered in
accordance with the laws of the State of Michigan, notwithstanding any state's
choice of laws rules to the contrary.
(c) This Amendment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto.
(d) Headings of the Sections of this Amendment are for the convenience
of the parties only, and shall be given no substantive or interpretative effect
whatsoever.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment and caused
the same to be duly delivered on their behalf on the day and year first written
above.
DSLT INC.
By:/s/ Fredrick S. Moore
-------------------------------
Name: Fredrick S. Moore
Title: Chairman
IMPERIAL HOLLY CORPORATION
By:/s/ W.F. Schwer
-------------------------------
Name: W.F. Schwer
Title: Managing Director
IHK ACQUISITION CORP.
By:/s/ W.F. Schwer
-------------------------------
Name: W.F. Schwer
Title: Senior Vice President
4
<PAGE>
EXHIBIT 99.3
REPORT OF INDEPENDENT ACCOUNTANTS
July 20, 1998
To the Board of Directors and Shareholders of DSLT Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of DSLT Inc.
and its subsidiaries (Company) at March 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the Notes to Consolidated Financial Statements, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in
Fiscal 1997.
PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
<PAGE>
DSLT INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31
1998 1997
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 525 $ 1,222
Marketable securities 11,088 10,432
Accounts receivable, net 14,482 14,650
Inventories 11,249 10,798
Real estate projects in process 9,955 8,269
Prepaid expenses 3,012 3,370
-------- --------
TOTAL CURRENT ASSETS 50,311 48,741
PROPERTY, PLANT AND EQUIPMENT, net 15,213 14,497
REAL ESTATE HELD FOR FUTURE DEVELOPMENT 252 252
INVESTMENT IN PARTNERSHIP 358 354
DEFERRED INCOME TAXES 4,465 4,127
INTANGIBLE ASSETS, net 34,449 36,421
-------- --------
$105,048 $104,392
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,381 $ 4,196
Loans payable 8,048 4,958
Accounts payable 8,062 7,621
Accrued liabilities 6,746 7,154
Income taxes payable 800 91
-------- --------
TOTAL CURRENT LIABILITIES 29,037 24,020
-------- --------
LONG-TERM OBLIGATIONS:
Long-term debt, less current maturities 22,943 28,330
Deferred compensation 708 736
Stock appreciation rights 8,611 8,054
Postretirement health benefits 2,867 2,752
Accrued pensions 1,862 1,764
-------- --------
TOTAL LONG-TERM OBLIGATIONS 36,991 41,636
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -
Authorized 300,000 shares
None issued
Common stock of $1.25 par value -
Authorized 4,000,000 shares
Issued 1,149,209 and 1,162,641 shares 1,437 1,453
Capital in excess of par value 5,016 5,075
Retained earnings 32,567 32,208
-------- --------
TOTAL SHAREHOLDERS' EQUITY 39,020 38,736
-------- --------
$105,048 $104,392
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
DSLT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1998 1997
<S> <C> <C>
REVENUES $131,695 $105,869
Cost of revenues 97,868 79,299
Real estate impairment loss - 5,741
Marketing, general and administrative expense 24,757 22,342
-------- --------
OPERATING INCOME (LOSS) 9,070 (1,513)
Other income (expense) -
Investment income 926 3,133
Interest expense (3,325) (2,262)
Stock appreciation rights expense (979) (1,401)
-------- --------
INCOME (LOSS) BEFORE TAXES 5,692 (2,043)
Provision (credit) for income taxes 2,944 (280)
-------- --------
NET INCOME (LOSS) $ 2,748 $ (1,763)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
DSLT INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
CAPITAL TOTAL
COMMON STOCK IN EXCESS SHARE-
PAR OF PAR RETAINED HOLDERS'
SHARES VALUE VALUE EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1996 1,180,497 $1,476 $5,153 $37,579 $44,208
Net loss (1,763) (1,763)
Fair value adjustment to investment
securities available-for-sale, net (963) (963)
Cash dividends paid (1,544) (1,544)
Repurchase of common stock (17,856) (23) (78) (1,101) (1,202)
--------- ------ ------ ------- -------
BALANCE AT MARCH 31, 1997 1,162,641 1,453 5,075 32,208 38,736
Net income 2,748 2,748
Fair value adjustment to investment
securities available-for-sale, net (3) (3)
Cash dividends paid (1,525) (1,525)
Repurchase of common stock (13,432) (16) (59) (861) (936)
--------- ------ ------ ------- -------
BALANCE AT MARCH 31, 1998 1,149,209 $1,437 $5,016 $32,567 $39,020
========= ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
DSLT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1998 1997
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATIONS:
Net income (loss) $ 2,748 $ (1,763)
Add (deduct) amounts not affecting cash -
Real estate impairment loss - 5,741
Depreciation and amortization 3,752 2,385
Deferred compensation (28) (92)
Stock appreciation rights 979 1,401
Accrued pensions 80 159
Postretirement health benefits 115 89
Deferred income taxes 124 (1,602)
Other (4) (12)
Change in net working capital 1,788 784
------- --------
Net Cash Provided (Used) By Operations 9,554 7,090
------- --------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,478) (4,994)
Additions to real estate projects in process (3,541) (3,937)
Purchase of Menu Magic Foods, Inc., net of cash acquired - (40,037)
(Increase) decrease in marketable securities (659) 13,854
------- --------
Net Cash Provided (Used) By Investing Activities (6,678) (35,114)
------- --------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from long-term debt - 32,950
Payments on long-term debt (4,202) (516)
Proceeds from loans payable, net 3,090 3,289
Repurchase of common stock (936) (1,202)
Exercise of stock appreciation rights - (3,921)
Cash dividends (1,525) (1,544)
------- --------
Net Cash Provided (Used) By Financing Activities (3,573) 29,056
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (697) 1,032
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,222 190
------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 525 $ 1,222
======= ========
SUPPLEMENTAL INFORMATION:
Federal income taxes paid $ 2,384 $ 1,250
======= ========
Interest paid $ 3,255 $ 1,250
======= ========
Details of acquisition:
Fair value of assets acquired $ 44,433
Liabilities assumed (4,042)
--------
Cash paid 40,391
Less cash acquired (354)
--------
Net cash paid for acquisition $ 40,037
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
DSLT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DSLT Inc. and all
subsidiaries (Company). The Company's major subsidiary, Diamond Crystal
Specialty Foods, Inc. (DCSFI), operates as a manufacturer and packager of
products for the food service industry. Through the Company's subsidiaries,
DSLT Properties, Inc., DSLT Development Company, Diamond Energy Corp., and DSLT
Storage Company, the Company is active in real estate ownership and development.
In addition, the Company holds a portfolio of investments in cash equivalents
and marketable securities, the income from which is reported as investment
income. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are stated at cost which approximates market and include debt
instruments with a maturity of three months or less - principally commercial
paper and money market accounts.
MARKETABLE SECURITIES
Marketable securities include money market funds, municipal bonds, and private
placement investments. All securities are classified as available-for-sale and
are recorded at fair value. Unrealized holding gains and losses on available-
for-sale securities are excluded from earnings and are reported as a component
of retained earnings until realized. Dividends and interest income are
recognized when earned.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally under the last-in, first-out (LIFO) method.
6
<PAGE>
LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (FAS 121), in Fiscal 1997. The carrying value of long-lived assets
which includes real estate projects; property, plant, and equipment and
intangible assets will be evaluated whenever changes in circumstances indicate
the carrying amount of such assets may not be recoverable. In performing such
reviews for recoverability, the Company determines whether the long-lived asset
is to be held and used or is to be disposed. Real estate properties under
development are considered assets to be held and used, and completed properties
are considered assets to be disposed for purposes of applying the provisions of
FAS 121. For assets to be held and used, undiscounted expected cash flows are
compared to the carrying value of assets and if the sum of the undiscounted cash
flows is less than the carrying value, an impairment for the difference between
the carrying value and fair value is recognized. Assets to be disposed are
reported at the lower of carrying value or fair value. Fair value is estimated
using expected discounted future cash flows.
REAL ESTATE
Real estate sales are recorded upon the receipt of a cash payment from the buyer
and the transfer of a deed. Projects in process and real estate held for future
development are carried at cost, except impaired assets, which are carried at
the lower of cost or fair value in accordance with the provisions of FAS 121.
All construction related costs of real estate projects are deferred until the
time of sale, except administrative costs which are expensed as incurred. Real
estate projects in process include all properties currently held for sale.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed
principally using the straight-line method for financial reporting purposes and
accelerated methods for federal income tax purposes. Expenditures for repairs
and maintenance are charged to operations as incurred.
INTANGIBLE ASSETS
Intangible assets consist primarily of Goodwill which is the excess of cost over
the fair value of the net assets of businesses acquired. Goodwill is amortized
using the straight-line method over 20 years.
INCOME TAXES
Income tax provisions are based upon income reported for financial reporting
purposes. Deferred taxes are provided to give recognition to the effect of
expected future tax consequences of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the
related tax bases for income tax purposes.
INVESTMENT IN PARTNERSHIP
DSLT Storage Company owns a 50% interest in the Halco Investments Partnership
which operates three self-storage facilities in St. Clair, Fort Gratiot Township
and Port Huron, Michigan under the name Secured Storage Systems. The Company
accounts for its interest in Halco by the equity method. The Company was a 50%
guarantor of loans to Halco which aggregated $1,227 as of March 31, 1998. The
Company recorded income of $4 and $26 in Fiscal 1998 and Fiscal 1997,
respectively, as its share of the partnership's earnings.
7
<PAGE>
MARKETABLE SECURITIES
The fair market value of marketable securities, most of which were managed by
independent investment advisors, at the end of each fiscal year were:
1998 1997
Money market funds $ 78 $ 26
U.S. Treasury obligations 4,490 4,144
Municipal bonds 4,778 5,089
Private placement investments 1,742 1,173
------- -------
$11,088 $10,432
======= =======
Net capital gains of $293 and $2,163 were recognized during Fiscal 1998 and
Fiscal 1997, respectively.
Unrealized net gains and losses applicable to securities categorized as
available-for-sale were $311 and $262 in Fiscal 1998 and Fiscal 1997,
respectively.
INVENTORIES
Inventories at the end of each fiscal year were:
1998 1997
Raw materials, packaging materials and supplies $ 3,689 $ 3,468
Finished goods 7,560 7,330
------- -------
$11,249 $10,798
======= =======
The amount of inventories valued under the LIFO method approximated 93% and 94%
in Fiscal 1998 and Fiscal 1997, respectively. The excess of current cost over
stated LIFO value approximated $794 and $1,195 at March 31, 1998 and March 31,
1997, respectively.
REAL ESTATE
Real estate projects in process, at cost (except as noted), at the end of each
fiscal year were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Harbor Village at Manistee Beach residential/marina condominiums
(net of $4,483 and $5,741 valuation reserve
in 1998 and 1997, respectively) $6,713 $5,774
Diamond Cove North residential/marina condominiums 408 456
Diamond Cove South residential/marina condominiums 1,893 1,465
Diamond Trails residential homesites 72 41
Diamond Meadows residential condominiums 869 478
Doctors Park office condominium - 55
------ ------
$9,955 $8,269
====== ======
</TABLE>
Revenues of $5,843 and $3,094 and cost of revenues of $4,131 and $1,995 relating
to real estate activities were recorded in Fiscal 1998 and Fiscal 1997,
respectively.
The adoption of FAS 121 in Fiscal 1997 resulted in a pre-tax charge of $5,741 to
operating income (loss), related to certain real estate projects at Harbor
Village at Manistee Beach.
8
<PAGE>
REAL ESTATE - (Continued)
Real estate held for future development at the end of each fiscal year was:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
East China Township property $ 31 $ 31
St. Clair Township (Feldman) property 221 221
-------- --------
$ 252 $ 252
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each fiscal year was:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and land improvements $ 836 $ 468
Buildings and building improvements 12,182 11,143
Machinery and equipment 15,860 15,045
-------- --------
28,878 26,656
Accumulated depreciation (13,665) (12,159)
-------- --------
$ 15,213 $ 14,497
======== ========
</TABLE>
Rental expense on operating leases amounted to $564 and $451 in Fiscal 1998 and
Fiscal 1997, respectively. As of March 31, 1998, the total minimum lease
commitments under operating leases approximated $1,420.
PROVISION (CREDIT) FOR INCOME TAXES
Provision (credit) for income taxes comprised the following in each fiscal year:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C> <C>
Currently payable - Federal and foreign $2,457 $ 1,119
- State 535 136
------ -------
2,992 1,255
------ -------
Deferred provision (benefit) - Federal (37) (1,618)
- State (11) 83
------ -------
(48) (1,535)
------ -------
Provision (credit) for income taxes $2,944 $ (280)
====== =======
</TABLE>
9
<PAGE>
PROVISION (CREDIT) FOR INCOME TAXES - (Continued)
The effective tax rate in each year differed from the federal statutory tax rate
of 34% for the following reasons:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Computed "expected" tax provision (credit) on before tax income $1,935 $(695)
Increase (decrease) in taxes resulting from:
State income taxes - net of federal benefit 346 144
Tax-exempt interest income (98) (116)
Dividends received deduction - (31)
Meals and entertainment 86 84
Goodwill 624 303
Other 51 31
------ -----
Provision (credit) for income taxes $2,944 $(280)
====== =====
</TABLE>
The tax effects of temporary differences which produced deferred tax assets and
liabilities as of the end of each fiscal year are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets related to:
Stock appreciation rights $ 3,259 $ 2,907
Postretirement health benefits 1,080 1,068
Pensions 608 602
Other employee benefits 419 605
Deferred compensation 297 341
Real estate valuation reserve 1,595 1,853
Other 320 322
------- -------
7,578 7,698
------- -------
Deferred tax liabilities related to:
Unrealized net gains on marketable securities (106) (89)
Depreciation (719) (732)
------- -------
(825) (821)
------- -------
Net deferred tax asset 6,753 6,877
Less current portion of net deferred tax asset (2,288) (2,750)
------- -------
Net long-term deferred tax asset $ 4,465 $ 4,127
======= =======
</TABLE>
ACQUISITIONS
On October 15, 1996, DCSFI purchased all outstanding shares of Menu Magic Foods,
Inc., a privately held foodservice manufacturer located in Indianapolis,
Indiana. The purchase price totalled $40,391. The acquisition was accounted for
using the purchase method and resulted in $36,671 of Goodwill. Results of
operations of Menu Magic Foods, Inc. are included with those of the Company
commencing October 15, 1996.
10
<PAGE>
LOANS PAYABLE AND LONG-TERM DEBT
The Company maintains bank lines of credit totalling $8,000, which have no
commitment fee or compensating balance requirements, to finance its working
capital needs. All borrowings from the lending institutions are at the prime
rate of interest. As of March 31, 1998 and 1997, the Company had $2,500 and $0,
respectively, outstanding short-term borrowings against these lines of credit
(included in loans payable).
In addition to these lines of credit, the Company, through DCSFI, maintains the
debt instruments outlined in the following table and described below:
<TABLE>
<CAPTION>
Fiscal Year Interest
Type Maturity Rate 1998 1997
<S> <C> <C> <C> <C>
Loans payable, revolver 1999 8.00% $ 5,548 $ 4,958
======= =======
Long-term debt:
Term loan 2003 9.00% $25,435 $29,500
Industrial revenue bond 2016 3.90% 2,850 2,950
Other 2000 10.00% 39 76
------- -------
28,324 32,526
Current maturities 5,381 4,196
------- -------
Long-term debt $22,943 $28,330
======= =======
</TABLE>
On October 15, 1996, DCSFI entered into a $45,000 credit agreement with a group
of financial institutions which provides for a $15,000 secured revolving credit
facility (revolver) and a seven year $30,000 secured term loan (term loan). The
proceeds of the term loan were used to finance the acquisition of Menu Magic
Foods, Inc.
The revolver bears interest at DCSFI's option, at the prime rate or Eurodollar
rate, plus in each instance, a margin based upon DCSFI's ratio of senior debt to
earnings before interest, taxes, depreciation and amortization. A commitment fee
of 0.5% is payable quarterly on the unused portion of the revolver. The term
loan bears interest in the same manner as the revolver, however, DCSFI has
entered into an interest rate swap agreement to effectively convert the variable
rate term loan into a fixed rate loan with a weighted average interest rate of
9%. Principal payments commenced on January 17, 1997 and are due quarterly
through Fiscal 2003. Annual principal payments escalate from $2,000 to $7,000.
Prepayments of principal may be required based upon a calculation of excess cash
flows determined under the agreement's formula. During Fiscal 1998, DCSFI repaid
$1,565 pursuant to the excess cash flow formula and expects to pay an
incremental $1,000 during Fiscal 1999. Such amounts are classified as current
maturities. The revolver and term loan contain certain affirmative and negative
covenants and reporting requirements, and are secured by substantially all of
DCSFI's assets.
The City of Indianapolis, Indiana Variable Rate Demand Industrial Revenue Bond,
Series 1995 was assumed on March 31, 1997 as part of the purchase agreement for
the Indianapolis facility. This bond is secured by an irrevocable letter of
credit in the principal amount of $2,990 at March 31, 1998. Principal payments
commenced on January 1, 1997 and are due semi-annually through 2016. Annual
principal payments range from $100 to $170.
The principal maturities of long-term debt subsequent to Fiscal 1998 are:
1999 - $5,381; 2000 - $5,233; 2001 - $5,850; 2002 - $6,755; 2003 - $2,845; 2004
and thereafter - $2,260.
11
<PAGE>
STOCK APPRECIATION RIGHTS PLANS
The 1989 Stock Appreciation Rights Plans for both the Company and DCSFI provide
for the granting of Stock Appreciation Rights (Rights). Each participant was
provided a separate letter agreement under which he can purchase shares of his
company's common stock equivalent to the number of Rights exercised under the
Plan, at prices determined in accordance with that company's stock redemption
policy. The Plans provide for the grant of up to 121,996 Company Rights and up
to 482,658 DCSFI Rights. Rights vest and become exercisable beginning one year
after date of grant at the rate of approximately 20% - 25% per year. Upon
exercise, the grantee will receive cash equal to the increase in the fair market
value per Right from the date of grant to the date of exercise. The fair market
value of each company is determined as of each March 31 substantially by an
independent valuation consulting firm selected by the Board. For Rights
exercised between appraisal dates, the fair market value is prorated as defined
in the Plans. Rights expense under these Plans was $774 and $1,231 in Fiscal
1998 and Fiscal 1997, respectively.
<TABLE>
<CAPTION>
DSLT Inc. DCSFI
Price Per Price Per
Rights Right Rights Right
<S> <C> <C> <C> <C>
Rights outstanding at March 31, 1997 76,247 $39.57 220,831 $7.70 - $25.03
Rights forfeited during Fiscal 1998 - (14,625) 8.07 - 25.03
Rights exercised during Fiscal 1998 - (26,324) 25.03
------ -------
Rights outstanding at March 31, 1998 76,247 39.57 179,882 7.70 - 25.03
====== =======
Rights exercisable at March 31, 1998 76,247 39.57 165,258 7.70 - 25.03
====== =======
Range of expiration dates 3/31/1999 7/1/1999 to 6/30/2000
</TABLE>
The 1994 Stock Appreciation Rights Plans provide for the granting of Rights to
certain officers of each company based on each officer's salary, position and
the fair market value per Right of each company's stock. Rights granted to
participants who are also original participants in the 1989 Stock Appreciation
Rights Plans become fully vested six years after the date of grant. Rights
granted to all other participants vest at the rate of 20% per year. Upon
exercise, the participants will receive cash equal to the increase in the fair
market value per Right from the date of the grant to the date of exercise in the
same manner as determined under the 1989 Plan. Rights expense under these Plans
was $202 and $170 in Fiscal 1998 and Fiscal 1997, respectively.
12
<PAGE>
STOCK APPRECIATION RIGHTS PLANS - (Continued)
<TABLE>
<CAPTION>
DSLT Inc. DCSFI
Price Per Price Per
Rights Right Rights Right
<S> <C> <C> <C> <C>
Rights outstanding at March 31, 1997 13,204 $62.55 - 86.73 54,521 $18.85 - 31.63
Rights granted during Fiscal 1998 4,073 91.11 23,482 35.63
Rights forfeited during Fiscal 1998 - (10,387) 28.15 - 35.63
------ -------
Rights outstanding at March 31, 1998 17,277 62.55 - 91.11 67,616 18.85 - 35.63
====== =======
Rights exercisable at March 31, 1998 - -
====== =======
Range of expiration dates 3/31/2004-2007 3/31/2004-2007
</TABLE>
Under certain conditions, the provisions of the previously described DCSFI
credit agreement may prohibit DCSFI from paying cash to Plan participants for
Rights exercised. Instead, DCSFI Plan participants may receive a note from DCSFI
upon exercise of their Rights under both the 1989 and 1994 Plans. There is no
effect on the Company's Rights holders.
The 1997 Board of Directors Stock Appreciation Rights Plan was adopted effective
April 1, 1997 and provides for the granting of Rights to non-employee Directors
based on a $9 compensation and the fair market value per Right of the Company's
stock. The Rights vest after one year and expire in five years from date of
grant. Upon exercise, the grantee will receive cash equal to the increase in the
fair market value per Right from the date of grant to the date of exercise.
Rights expense under this Plan was $3 in Fiscal 1998.
POSTRETIREMENT BENEFITS
PENSION PLAN BENEFITS
The Company sponsors trusteed, noncontributory, qualified pension plans covering
substantially all of its employees. Plan benefits are based on years of service
and compensation for the Salaried Plan, and a specified benefit per year of
service for the Hourly Plan. The Company's policy is to fund only amounts
required to satisfy minimum legal requirements. The Company also maintains
unfunded, non-contributory, non-qualified pension plans covering certain
salaried executive employees of both the Company and DCSFI. Plan benefits are
based on years of service and compensation. The Company's policy is to fund only
amounts required to satisfy actual benefit payments.
13
<PAGE>
POSTRETIREMENT BENEFITS - (Continued)
Pension expense includes the following components for each fiscal year:
<TABLE>
<CAPTION>
1998 1997
Non- Non-
Qualified Qualified Qualified Qualified
Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Service cost - benefits earned during the year $ 442 $ 71 $ 448 $ 67
Interest cost on projected benefit obligations 436 59 388 50
Return on assets - actual (1,410) - (775) -
Return on assets - deferred 996 - 429 -
Amortization of unrecognized net transition asset (63) - (48) -
Amortization of unrecognized intangible asset - 67 - 67
------- ----- ----- ----
Net pension expense $ 401 $ 197 $ 442 $184
======= ===== ===== ====
</TABLE>
The funded status of the plans at the end of each fiscal year was:
<TABLE>
<CAPTION>
1998 1997
Non- Non-
Qualified Qualified Qualified Qualified
Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Actuarial present value of current vested
benefit obligations $ 5,291 $ 636 $ 4,443 $ 384
Actuarial present value of current nonvested
benefit obligations 235 122 248 159
------- ----- ------- -----
Total actuarial present value of current
benefit obligations $ 5,526 $ 758 $ 4,691 $ 543
======= ===== ======= =====
Actuarial present value of projected
benefit obligations $ 6,589 $ 872 $ 5,940 $ 775
Plan assets at market value (7,761) - (5,984) -
------- ----- ------- -----
Actuarial present value of projected
benefit obligations greater (less) than plan assets (1,172) 872 (44) 775
Unrecognized net transition asset 145 - 173 -
Unrecognized intangible asset - 201 - 184
Unrecognized prior service cost (133) (386) (143) (454)
Unrecognized net gain 2,264 71 1,235 38
------- ----- ------- -----
Accrued pensions at end of year $ 1,104 $ 758 $ 1,221 $ 543
======= ===== ======= =====
</TABLE>
14
<PAGE>
POSTRETIREMENT BENEFITS - (Continued)
Actuarial expense assumptions for the qualified plans at the end of each
fiscal year were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Discount rate 7.25% 7.50%
Expected long term rate of return on plan assets 8.00% 8.00%
Salary progression (Salaried Plan only) 4.50% 5.50%
</TABLE>
Plan assets consist principally of cash, cash equivalents, corporate bonds, U.S.
Treasury notes and common stocks.
HEALTH BENEFITS
The Company has adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS
106), which requires the accrual of postretirement health benefits during the
active service periods of employees to the date they attain full eligibility for
benefits. A majority of the Company's employees may become eligible for such
benefits upon retiring directly from active employment under a Company
retirement plan. The Company will continue to fund postretirement health
benefits on a cash basis.
The components of the postretirement health benefits expense at the end of
each fiscal year were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Service cost - benefits earned during the year $ 120 $ 110
Interest cost on projected benefit obligations 216 198
------- --------
Net postretirement health benefits expense $ 336 $ 308
======= ========
</TABLE>
The components of the postretirement health benefits liability at the end of
each fiscal year were:
Retirees $ 1,470 $ 1,376
Fully eligible active plan participants 545 451
Other active plan participants 852 925
--------- ---------
Accrued postretirement health benefits $ 2,867 $ 2,752
========= =========
The actuarial expense assumptions used in the determination of the
postretirement health benefit obligation include a discount rate of 7.25% and
certain assumed health care cost trend rates. The health care cost trend rate
used for Fiscal 1998 to project future cost increases for retired Medicare
eligible employees was 11.9%, reducing to 6.3% by Fiscal 2013. For retired
employees who are not Medicare eligible, the trend rate was 12.3% for Fiscal
1998, reducing to 6.0% by Fiscal 2013. A one point increase in the assumed
health care cost trend rate would not have a material impact on liabilities or
service cost.
15
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities at the end of each fiscal year were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Accrued compensation $2,112 $2,590
Workers compensation 262 -
Accrued and withheld taxes 468 658
Accrued Salt Division sale costs 127 132
Accrued interest 642 673
Distributor allowance 2,286 2,473
Consulting services 217 181
Other 632 445
------ ------
$6,746 $7,154
====== ======
</TABLE>
MAJOR CUSTOMER
One DCSFI customer comprised approximately 38% and 40% of total revenues in
Fiscal 1998 and Fiscal 1997, respectively.
16
<PAGE>
EXHIBIT 99.4
DSLT INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
JUNE 30
1998
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 84
Marketable securities 11,080
Accounts receivable, net 12,883
Inventories 13,282
Real estate projects in process 9,159
Prepaid expenses 3,059
--------
TOTAL CURRENT ASSETS 49,547
PROPERTY, PLANT AND EQUIPMENT, net 15,065
REAL ESTATE HELD FOR FUTURE DEVELOPMENT 252
INVESTMENT IN PARTNERSHIP 357
DEFERRED INCOME TAXES 4,737
INTANGIBLE ASSETS, net 33,980
--------
$103,938
========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,631
Loans payable 5,465
Accounts payable 9,551
Accrued liabilities 6,183
Income taxes payable 1,446
--------
TOTAL CURRENT LIABILITIES 28,276
--------
LONG-TERM OBLIGATIONS:
Long-term debt, less current maturities 21,753
Deferred compensation 719
Stock appreciation rights 8,876
Postretirement health benefits 2,939
Accrued pensions 2,036
--------
TOTAL LONG-TERM OBLIGATIONS 36,323
--------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -
Authorized 300,000 shares
None issued
Common stock of $1.25 par value -
Authorized 4,000,000 shares
Issued 1,149,209 1,437
Capital in excess of par value 5,016
Retained earnings 32,886
--------
TOTAL SHAREHOLDERS' EQUITY 39,339
--------
$103,938
========
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
DSLT INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
REVENUES $34,786 $31,939
Cost of revenues 26,301 23,607
Marketing, general and administrative expense 6,113 6,050
------- -------
OPERATING INCOME 2,372 2,282
Other income (expense) -
Investment income 120 158
Interest expense (1,004) (1,140)
Stock appreciation rights expense (265) (293)
------- -------
INCOME BEFORE TAXES 1,223 1,007
Provision for income taxes 531 473
------- -------
NET INCOME $ 692 $ 534
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
DSLT INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net income $ 692 $ 534
Add (deduct) amounts not affecting cash--
Depreciation and amortization 1,012 922
Accrued pensions and other benefits 522 547
Other (274) (16)
Change in net working capital 1,887 (427)
------- -------
Net Cash Provided By Operations 3,839 1,560
------- -------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (395) (776)
(Increase) decrease in marketable securities 16 (423)
------- -------
Net Cash Provided (Used) By Investing
Activities (379) (1,199)
------- -------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments on long-term debt (940) (866)
Proceeds (repayment) of loans payable, net (2,583) 1,585
Repurchase of common stock -- (348)
Cash dividends (378) (384)
------- -------
Net Cash Provided (Used) By Financing
Activities (3,901) (13)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (441) 878
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 525 1,222
------- -------
CASH AND CASH EQUIVALENTS--END OF PERIOD $ 84 $ 1,673
======= =======
</TABLE>
3
<PAGE>
DSLT INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The interim condensed consolidated financial statements are unaudited; however,
in the opinion of DSLT's management, the statements include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of the results for the interim periods presented. The foregoing interim results
are not necessarily indicative of the results of operations expected for the
full fiscal year.
These consolidated financial statements should be read together with DSLT's
audited financial statements.
Certain reclassifications have been made to conform with current period
presentation.
NOTE 2 - INVENTORIES
- --------------------
The major classes of inventories are as follows (dollars in thousands):
June 30,
1998
-------
Raw materials, packaging materials and supplies $ 5,161
Finished goods 8,121
------
$13,282
======
NOTE 3 - SUBSEQUENT EVENTS
- --------------------------
On November 2, 1998, DSLT was acquired by Imperial Holly Corporation in a
transaction whereby DSLT was merged with a wholly-owned subsidiary of Imperial
Holly. DSLT survived the merger as a wholly-owned subsidiary of Imperial Holly
and changed its name to Diamond Crystal Holdings, Inc. In connection with the
merger, DSLT distributed to its shareholders certain operations, consisting
primarily of real estate ventures, which Imperial Holly did not wish to acquire.
4
<PAGE>
EXHIBIT 99.5
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the purchase method of accounting for the
Company's acquisition of DSLT after giving effect to the pro forma
reclassifications and adjustments described in the accompanying notes. These
unaudited pro forma combined condensed financial statements have been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and notes thereto of the Company and of DSLT, which are
included in this current report or in the Company's previous filings with the
Securities and Exchange Commission.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to
the Merger as if it had occurred on June 30, 1998. The Unaudited Pro Forma
Combined Condensed Income Statements for the year ended March 31, 1997, the six
months ended September 30, 1997, and the nine months ended June 30, 1998 give
effect to the Merger as if it had occurred at the beginning of the earliest
period presented. The unaudited pro forma combined condensed financial
statements are intended for information purposes and are not necessarily
indicative of the future financial position or future financial results of the
combined companies or of the financial position or the results of operations
that would have actually occurred had the Merger be in effect as of the date or
for the periods presented.
1
<PAGE>
IMPERIAL HOLLY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED JUNE 30, 1998
(In Thousands of Dollars, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Imperial Holly
Less (Pro Forma
Consolidated Real Estate Acquired Combined With Pro Forma Pro Forma
DSLT Inc. Group Business Savannah) (*) Adjustments Combined
------------ ----------- -------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $101,024 $5,941 $95,083 $ 1,305,921 $ 1,401,004
Cost of sales 74,472 4,326 70,146 1,186,907 1,257,053
Selling, general &
administrative 16,851 1,664 15,187 49,835 65,022
Depreciation &
amortization 2,794 2,794 33,910 $ 977 (1) 37,681
Nonrecurring charges 18,287 18,287
----------------------------------------------------- -------------
Operating income (loss) 6,907 (49) 6,956 16,982 22,959
Interest (expense) (2,172) (121) (2,051) (35,690) (3,713) (2) (41,454)
Other income (83) 408 (491) 6,005 5,514
----------------------------------------------------- -------------
Income before income taxes 4,652 238 4,414 (12,703) (12,981)
Income tax expense (credit) 2,410 109 2,301 (2,385) (1,300) (3) (1,384)
----------------------------------------------------- -------------
Net income (loss) $ 2,242 $ 129 $ 2,113 ($10,318) ($11,597)
===================================================== =============
Weighted average shares outstanding 27,033,005 4,866,875 31,899,880
Basic earnings per share ($0.36)
=============
</TABLE>
(*) Pro forma combined results as if the acquisition of Savannah Foods &
Industries, Inc. in October 1997, had been completed prior to the beginning
of the period.
The Notes following these tables form an integral part
of the information provided.
2
<PAGE>
IMPERIAL HOLLY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
SIX MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands of Dollars, Except Share and Per Share Data )
<TABLE>
<CAPTION>
Imperial Holly
Less (Pro Forma
Consolidated Real Estate Acquired Combined With Pro Forma Pro Forma
DSLT Inc. Group Business Savannah) (*) Adjustments Combined
------------ ----------- -------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $65,459 $3,665 $61,794 $ 1,018,911 $ 1,080,705
Cost of sales 47,651 2,756 44,895 880,460 925,355
Selling, general &
administrative 11,669 1,067 10,602 61,379 71,981
Depreciation &
amortization 1,837 1,837 22,883 $ 652 (1) 25,372
----------------------------------------------------------------- -------------
Operating income (loss) 4,302 (158) 4,460 54,189 57,997
Interest (expense) (1,782) (4) (1,778) (26,066) (2,455)(2) (30,299)
Other income (254) 104 (358) 1,029 671
----------------------------------------------------------------- -------------
Income before income taxes 2,266 (58) 2,324 29,152 28,369
Income tax expense
(credit) 1,065 (29) 1,094 12,342 (859)(3) 12,577
----------------------------------------------------------------- -------------
Net income (loss) $ 1,201 ($29) $ 1,230 $ 16,810 $ 15,792
================================================================= =============
Weighted average shares
outstanding 26,654,513 4,866,875 31,521,388
Basic earnings per share $0.50
=============
</TABLE>
(*) Pro forma combined results as if the acquisition of Savannah Foods &
Industries, Inc. in October 1997, had been completed prior to the beginning
of the period.
The Notes following these tables form an integral part
of the information provided.
3
<PAGE>
IMPERIAL HOLLY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED MARCH 31, 1997
(In Thousands of Dollars, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Imperial Holly
Less (Pro Forma
Consolidated Real Estate Acquired Combined With Pro Forma Pro Forma
DSLT Inc. Group Business Savannah) (*) Adjustments Combined
------------ ----------- -------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $105,869 $ 3,094 $102,775 $ 1,923,324 $ 2,026,099
Cost of sales 78,378 1,989 76,389 1,682,208 1,758,597
Selling, general &
administrative 22,246 2,214 20,032 113,977 134,009
Depreciation & amortization 1,017 1,017 47,156 $ 2,297 (1) 50,470
Real Estate Impairment loss 5,741 5,741 11,003 11,003
---------------------------------------------------------------- ------------
Operating income (loss) (1,513) (6,850) 5,337 68,980 72,020
Interest (expense) (2,262) (470) (1,792) (56,916) (4,996)(2) (63,704)
Other income 1,732 3,050 (1,318) 1,410 92
---------------------------------------------------------------- ------------
Income before income taxes (2,043) (4,270) 2,227 13,474 8,408
Income tax expense (credit) (280) (1,504) 1,224 7,434 (1,749)(3) 6,909
---------------------------------------------------------------- ------------
Net income (loss) ($1,763) ($2,766) $ 1,003 $ 6,040 $ 1,499
================================================================ ============
Weighted average shares 24,983,809 4,866,875 29,850,684
outstanding
Basic earnings per share 0.05
============
</TABLE>
(*) Pro forma combined results as if the acquisition of Savannah Foods &
Industries, Inc. in October 1997, had been completed prior to the beginning
of the period.
The Notes following these tables form an integral
part of the information provided.
4
<PAGE>
IMPERIAL HOLLY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(In Thousands of Dollars )
<TABLE>
<CAPTION>
Less
Consolidated Real Estate Acquired Imperial Holly Pro Forma Pro Forma
DSLT Inc. Group Business Corporation Adjustments Combined
------------ ----------- -------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 84 ($57) $ 141 $ 9,408 $ 9,549
Marketable securities 11,080 4,904 6,176 65,643 $ (6,176) (6) 65,643
Accounts receivable 12,882 366 12,516 129,040 141,556
Inventory 13,282 12 13,270 261,804 275,074
Real estate projects 9,159 9,159
Prepaid expenses 3,058 1,843 1,215 30,739 31,954
--------------------------------------------------------------- ---------------
Total current assets 49,545 16,227 33,318 496,634 523,776
Plant, property &
equipment - net 15,068 449 14,619 399,393 414,012
Other investments 357 357 13,821 13,821
Real estate projects 252 252
Deferred income taxes 4,737 18 4,719 4,719
Other assets 34,546 34,546
(33,980) (5)
Goodwill and other intangibles 33,980 33,980 283,489 125,554 (7) 409,043
--------------------------------------------------------------- ---------------
Total Assets $103,939 $17,303 $86,636 $1,227,883 $1,399,917
=============================================================== ===============
Current maturities of long-term
debt $ 5,631 $ 5,631 $ 7,098 (5,531) (4) $ 7,198
Short-term borrowings 9,551 $ 2,600 6,951 5,719 (6,951) (4) 5,719
Accounts payable 5,465 50 5,415 148,398 153,813
Accrued liabilities 7,628 471 7,157 64,744 71,901
--------------------------------------------------------------- ---------------
Total current liabilities 28,275 3,121 25,154 225,959 238,631
(18,937) (4)
Long-term debt 21,754 66 21,688 525,431 103,112 (6) 631,294
Deferred taxes & other credits 14,571 7 14,564 125,238 139,802
38,935 (6)
Shareholders' equity 39,339 14,109 25,230 351,255 (25,230) (6) 390,190
-------------------------------------------------------------- ---------------
Total $103,939 $17,303 $86,636 $1,227,883 $1,399,917
=============================================================== ===============
</TABLE>
The Notes following these tables form an integral
part of the information provided.
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(1) Adjustment to reflect the amortization of the excess of the purchase price
over the fair value of the net assets acquired ("goodwill").
(2) Adjustment to reflect the increase in interest cost for the cash portion of
the Merger consideration, as well as the impact of refinancing certain
existing DSLT borrowings. Weighted average annual interest rates, which are
based on Imperial Holly's existing revolving credit agreement, are assumed
to be 7.31%, 7.44% and 7.48% for the year ended March 31, 1997, the six
months ended September 30, 1997 and the nine months ended June 30, 1998,
respectively.
(3) Represents the tax effect of adjustment (2) above.
(4) Adjustment to reflect the repayment of certain existing DSLT borrowings as a
result of the change in control.
(5) Adjustment to eliminate DSLT's existing goodwill.
(6) Represents payment of the Merger consideration, which is assumed to consist
of 4,866,875 shares of Imperial Holly Common Stock and $77.9 million in
cash based on the balance sheet at June 30, 1998; the final Merger
consideration will be determined based upon an acquisition date balance
sheet of DSLT. The funding for the cash portion of the Merger Consideration
and debt repayment described in (4) above is assumed to come from DSLT's
marketable securities and borrowings under Imperial Holly's existing
revolving credit agreement.
(7) Adjustment to record goodwill arising from the acquisition.
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