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PROXY STATEMENT/PROSPECTUS
---------------------
PROXY STATEMENT
OF
ARCADIAN CORPORATION
RELATING TO A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 4, 1997
---------------------
PROSPECTUS
OF
POTASH CORPORATION OF SASKATCHEWAN INC.
RELATING TO AN OFFERING OF COMMON SHARES
This Proxy Statement/Prospectus (this "Proxy Statement") is being furnished
to the holders of Common Stock ("Arcadian Common Stock") and the holders of
Mandatorily Convertible Preferred Stock, Series A ("Arcadian Preferred Stock")
of Arcadian Corporation, a Delaware corporation ("Arcadian"), in connection with
the solicitation of proxies by the Board of Directors of Arcadian (the "Arcadian
Board") for use at a special meeting of Arcadian stockholders (including any
adjournment or postponement thereof, the "Special Meeting") to be held at
Arcadian's corporate office, located at 3175 Lenox Park Boulevard, Suite 400,
Memphis, Tennessee, on March 4, 1997, beginning at 10:00 a.m., local time. At
the Special Meeting, the Arcadian stockholders will consider and vote on a
proposal to approve the Agreement and Plan of Merger dated as of September 2,
1996, as amended (the "Merger Agreement"), among Potash Corporation of
Saskatchewan Inc., a Saskatchewan corporation ("PCS"), Arcadian and PCS
Nitrogen, Inc., a Delaware corporation and wholly owned subsidiary of PCS
("Merger Sub").
The Merger Agreement provides that, subject to the satisfaction or waiver
of certain conditions, PCS will acquire Arcadian through the merger of Arcadian
with and into Merger Sub, with Merger Sub being the surviving entity (the
"Merger"). In the Merger, the outstanding shares of Arcadian Common Stock,
including shares resulting from the Mandatory Pre-Merger Conversion (as defined
herein) of the outstanding shares of Arcadian Preferred Stock, will be converted
into the right to receive the Merger Consideration (as defined herein). The
principal terms of the proposed Merger are described in this Proxy Statement,
and a copy of the Merger Agreement is attached hereto as Annex I.
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT ARCADIAN STOCKHOLDERS SHOULD CONSIDER PRIOR TO VOTING ON THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT.
The Merger Agreement provides that immediately prior to the Effective Time
(as defined herein) of the Merger, each outstanding share of Arcadian Preferred
Stock will be converted into the right to receive one share (or a fraction of a
share) of Arcadian Common Stock on the terms set forth in the Certificate of
Designation for the Preferred Stock and described herein (the "Mandatory
Pre-Merger Conversion"). At the Effective Time, subject to adjustment and to
certain exceptions, each outstanding share of Arcadian Common Stock, including
each share resulting from the Mandatory Pre-Merger Conversion of the outstanding
shares of Arcadian Preferred Stock, will be converted into the right to receive
the Merger Consideration consisting of the Cash Consideration and the Stock
Consideration (each as defined herein), so that the aggregate value of the Stock
Consideration will constitute at least approximately 48% of the Total
Consideration (as defined herein). Subject to adjustment and to certain
exceptions, the "Cash Consideration" will consist of $12.25 in cash, and the
"Stock Consideration" will consist of a fraction of a share of PCS Common Stock
expected to have a market value of between $12.75 and $14.75. Consequently, the
Merger Consideration payable with respect to each outstanding share of Arcadian
Common Stock is expected to have a market value of between $25 and $27. This
range of values exceeds the last reported sale price per share of Arcadian
Common Stock ($22 on August 30, 1996) and the highest reported sale price per
share of Arcadian Common Stock ($24.125 on November 13, 1995) prior to the
public announcement of the proposed Merger on September 3, 1996. In
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addition, the Arcadian Board believes that the Merger provides Arcadian
stockholders with an opportunity to convert their existing investment in the
nitrogen industry into a new investment in a diversified company with
substantial market positions in all three of the basic plant
nutrients -- potash, phosphate and nitrogen.
The fraction of a share of PCS Common Stock constituting the Stock
Consideration will be determined based on the average of the daily high and low
trading prices of the PCS Common Stock on the New York Stock Exchange (the
"NYSE") during the 20 consecutive days on which shares of PCS Common Stock are
traded on the NYSE ending two trading days prior to the anticipated Effective
Time (the "Final PCS Common Stock Price"). The fraction of a share of PCS Common
Stock constituting the Stock Consideration, expressed as a decimal and with the
result rounded up or down to the nearest one one-thousandth, will be equal to:
(a) if the Final PCS Common Stock Price is at least $72 but not
greater than $83.25, then 0.17713;
(b) if the Final PCS Common Stock Price is less than $72, then the
lesser of (i) 0.21250 and (ii) the quotient of $12.75 divided by the Final
PCS Common Stock Price; and
(c) if the Final PCS Common Stock Price is greater than $83.25, then
the greater of (i) 0.16389 and (ii) the quotient of $14.75 divided by the
Final PCS Common Stock Price.
If the Final PCS Common Stock Price is less than $60, the market value of the
Stock Consideration will be less than $12.75. If the Final PCS Common Stock
Price is greater than approximately $90, the market value of the Stock
Consideration will be greater than $14.75. If the Final PCS Common Stock Price
is less than approximately $65 or greater than approximately $90, either PCS or
Arcadian may, but is not obligated to, terminate the Merger Agreement.
The Arcadian Common Stock and Arcadian Preferred Stock are listed for
trading on the NYSE under the symbols "ACA" and "ACA.PRA," respectively. The PCS
Common Stock is listed for trading on the NYSE, The Toronto Stock Exchange, and
the Montreal Exchange under the symbol "POT." On August 30, 1996, the last
trading day prior to the public announcement of the proposed Merger, the last
reported sale prices per share of Arcadian Common Stock, Arcadian Preferred
Stock and PCS Common Stock, as reported on the NYSE Composite Tape, were $22,
$20.75 and $76, respectively. On January 27, 1997, the last trading day prior to
the date of this Proxy Statement, the last reported sale prices per share of
Arcadian Common Stock, Arcadian Preferred Stock and PCS Common Stock, as
reported on the NYSE Composite Tape, were $26.375, $24.375 and $83,
respectively.
---------------------
NEITHER THE MERGER NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This Proxy Statement also constitutes a prospectus of PCS filed as part of
a Registration Statement on Form S-4 (together with all amendments thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the offering by PCS of the shares of PCS Common Stock to
be issued in the Merger.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will first be distributed to Arcadian stockholders is January 28,
1997.
The date of this Proxy Statement is January 28, 1997.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ARCADIAN, PCS OR MERGER SUB. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF ARCADIAN
OR PCS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN WITH RESPECT TO ARCADIAN AND ITS SUBSIDIARIES
HAS BEEN PROVIDED BY ARCADIAN. THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN WITH RESPECT TO PCS AND ITS SUBSIDIARIES AND K&S (AS DEFINED
HEREIN) AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY PCS.
AVAILABLE INFORMATION
Arcadian and PCS are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such materials may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission maintains a site on the
World Wide Web that contains documents filed electronically with the Commission.
The address of the Commission's web site is http://www.sec.gov, and the
materials filed electronically by Arcadian and PCS may be inspected at such
site. In addition, the materials filed by Arcadian and PCS with the NYSE may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
PCS has filed the Registration Statement with the Commission under the
Securities Act with respect to the shares of PCS Common Stock offered hereby.
This Proxy Statement, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits thereto pursuant to the Securities Act and the rules and regulations of
the Commission thereunder. Statements contained in this Proxy Statement, or in
any document incorporated by reference herein, as to the contents of any
document are summaries of such documents and are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement or such other document, each such
statement being hereby qualified in all respects by such reference. The
Registration Statement, including the exhibits thereto, is on file at the
offices of the Commission and may be inspected and copied as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
PCS (File No. 1-10351) incorporates by reference herein the following
documents filed with the Commission pursuant to the Exchange Act:
(a) PCS's Annual Report on Form 10-K for the year ended December 31,
1995, as amended;
(b) PCS's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996, and September 30, 1996, as amended;
(c) PCS's Current Report on Form 8-K for the event dated September 2,
1996;
(d) the consolidated financial statements of Texasgulf Inc., at
December 31, 1994 and 1993, and for each of the three years in the period
ended December 31, 1994, together with the report of Ernst & Young LLP,
independent auditors, thereon, included in Amendment No. 2 to PCS's
Registration Statement on Form F-10 (Registration No. 33-98616);
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(e) the unaudited consolidated financial statements of Texasgulf Inc.
at March 31, 1995, and for the quarter then ended, included in Amendment
No. 2 to PCS's Registration Statement on Form F-10 (Registration No.
33-98616); and
(f) the description of the Rights (as defined herein) included in
PCS's Registration Statement on Form 8-A, including any subsequent
amendment or report filed for the purpose of updating such description.
Arcadian (File No. 1-13774) incorporates by reference herein the following
documents filed with the Commission pursuant to the Exchange Act:
(a) Arcadian's Annual Report on Form 10-K for the year ended December
31, 1995, as amended;
(b) Arcadian's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996, and September 30, 1996, as amended;
(c) Arcadian's Current Reports on Form 8-K for the events dated
January 16, 1996, February 27, 1996, August 5, 1996, and September 2, 1996;
and
(d) the description of the Arcadian Common Stock and the Arcadian
Preferred Stock incorporated by reference in Arcadian's Registration
Statement on Form 8-A, as amended, including any subsequent amendment or
report filed for the purpose of updating such description.
All documents and reports filed by PCS or Arcadian pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the dates of filing of such documents or reports.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Proxy Statement to the
extent that a statement contained herein or in any subsequently filed document
which also is incorporated or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Such documents (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference)
are available, without charge, to any person, including any beneficial owner, to
whom this Proxy Statement is delivered, upon written or oral request, (a) in the
case of documents relating to Arcadian, to Arcadian Corporation, 3175 Lenox Park
Boulevard, Suite 400, Memphis, Tennessee 38115-4256, U.S.A., telephone (901)
758-5200 (Attention: Corporate Secretary), or (b) in the case of documents
pertaining to PCS, to Potash Corporation of Saskatchewan Inc., Suite 500,
122-1st Avenue South, Saskatoon, Saskatchewan, Canada S7K 7G3, telephone (306)
933-8500 (Attention: Corporate Secretary). To ensure delivery of the documents
prior to the Special Meeting, requests should be received by February 25, 1997.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
PCS is a corporation organized under the laws of the Province of
Saskatchewan, Canada. Certain of the directors and executive officers of PCS are
residents of Canada, and certain of the experts named herein are residents of
Canada. Substantial portions of the assets of PCS and such individuals and
experts are located outside of the United States. As a result, it may be
difficult or impossible for persons who become stockholders of PCS to effect
service of process upon such persons within the United States with respect to
matters arising under the United States federal securities laws or to enforce
against them in United States courts judgments of such courts predicated upon
the civil liability provisions of the United States federal securities laws.
Arcadian stockholders should be aware that there is some doubt as to the
enforceability in Canada in original actions, or in actions for enforcement of
judgments of United States courts, of civil liabilities predicated upon the
United States federal securities laws. In addition, awards of punitive damages
in actions brought in the United States or elsewhere may be unenforceable in
Canada.
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
Merger Parties............................................ 1
Special Meeting........................................... 2
Time, Date and Place................................... 2
Purpose................................................ 2
Record Date............................................ 2
Quorum................................................. 2
Required Vote.......................................... 2
Proxies................................................ 2
Solicitation of Proxies................................ 2
The Merger................................................ 2
Background............................................. 2
General................................................ 3
Effective Time......................................... 3
Merger Consideration................................... 3
Mandatory Pre-Merger Conversion of Arcadian Preferred
Stock................................................. 5
Fairness Opinion of Credit Suisse First Boston......... 5
Recommendation of Arcadian Board....................... 5
Voting Agreements...................................... 5
Conditions to Merger................................... 5
Termination of Merger Agreement........................ 5
Certain Income Tax Considerations...................... 6
Stock Exchange Listings................................ 6
Accounting Treatment................................... 6
Mandatory Pre-Merger Conversion of Arcadian Preferred
Stock.................................................. 6
Appraisal Rights.......................................... 7
Risk Factors.............................................. 7
Selected Consolidated Financial Data...................... 7
Selected Unaudited Pro Forma Consolidated Financial
Data................................................... 9
Recent Developments
K&S Acquisition........................................ 9
DOJ Investigations..................................... 9
Comparative Stock Prices.................................. 10
Comparative Per Share Data................................ 11
RISK FACTORS................................................ 12
Fluctuation in Amount and Market Value of Stock
Consideration.......................................... 12
Foreign Issuer............................................ 13
Different Stockholder Rights.............................. 13
Uncertainties of K&S Acquisition.......................... 13
Uncertainty Concerning Cost Savings....................... 13
THE SPECIAL MEETING......................................... 13
Time, Date and Place...................................... 13
Purpose................................................... 13
Record Date............................................... 13
Quorum.................................................... 14
Required Vote............................................. 14
Proxies................................................... 14
Solicitation of Proxies................................... 15
Presence of Public Accountants............................ 15
THE MERGER.................................................. 15
Background of the Merger.................................. 15
Reasons for the Merger; Recommendation of the Arcadian
Board.................................................. 18
Voting Agreements......................................... 20
Fairness Opinion of Credit Suisse First Boston............ 20
Introduction........................................... 20
Summary of Analyses.................................... 22
Fee and Other Information.............................. 23
Form of the Merger........................................ 23
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Merger Consideration...................................... 23
Financing................................................. 25
Procedures for Exchange of Stock Certificates............. 25
Effective Time............................................ 26
Stock Exchange Listings................................... 26
Treatment of Arcadian Options and Related Matters......... 26
Options................................................ 26
SARs................................................... 27
Restricted Stock....................................... 27
AAC Warrants........................................... 27
B Warrants............................................. 27
Certain Transactions; Conflicts of Interest............... 27
Litigation................................................ 28
Accounting Treatment...................................... 29
Approvals and Consents.................................... 29
Arcadian Stockholders' Appraisal Rights................... 29
Delisting and Deregistration of Arcadian Common Stock and
Arcadian Preferred Stock............................... 31
Resales of PCS Common Stock............................... 31
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................. 32
Certain Representations and Warranties.................... 32
Conduct of Business Pending the Merger.................... 32
Arcadian............................................... 32
PCS.................................................... 34
Arcadian Benefit Plans.................................... 34
Indemnification and Insurance............................. 35
Conditions to Consummation of the Merger.................. 35
No Solicitation........................................... 36
Termination............................................... 36
Fees and Expenses......................................... 37
Amendment and Waiver...................................... 37
MANDATORY PRE-MERGER CONVERSION OF ARCADIAN PREFERRED
STOCK..................................................... 37
General................................................... 37
Additional Information Regarding the Mandatory Pre-Merger
Conversion............................................. 38
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..... 39
Introduction.............................................. 39
United States Federal Income Tax Consequences of the
Mandatory Pre-Merger Conversion........................ 40
United States Federal Income Tax Consequences of the
Merger................................................. 41
Tax Consequences to Arcadian and PCS................... 41
Tax Consequences to Arcadian Stockholders.............. 41
Cash Received in Lieu of Fractional Share.............. 42
Holders of Five Percent of PCS Shares.................. 42
United States Taxation of Dividends on Shares of PCS
Common Stock........................................... 43
United States Taxation on Sale or Disposition of Shares of
PCS Common Stock....................................... 43
Backup Withholding........................................ 43
United States Estate Taxation............................. 43
CERTAIN CANADIAN INCOME TAX CONSIDERATIONS.................. 44
Introduction.............................................. 44
Canadian Taxation of Dividends on Shares of PCS Common
Stock.................................................. 45
Canadian Taxation on Sale or Disposition of Shares of PCS
Common Stock........................................... 46
Canadian Estate Taxation.................................. 46
K&S ACQUISITION............................................. 47
General................................................... 47
Purchase Agreement........................................ 47
Description of K&S Sub's Business......................... 48
German Mining Operations............................... 48
Properties............................................. 48
Production............................................. 48
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Reserves............................................................................................... 49
Marketing.............................................................................................. 49
Distribution and Transportation........................................................................ 49
Competition............................................................................................ 49
Employees.............................................................................................. 50
Government Ownership...................................................................................... 50
Litigation and Regulatory Proceedings..................................................................... 50
Canadian Mining Operations................................................................................ 51
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....................................................... 52
BENEFICIAL OWNERSHIP OF SECURITIES.......................................................................... 63
PCS....................................................................................................... 63
Arcadian.................................................................................................. 65
DESCRIPTION OF PCS CAPITAL STOCK............................................................................ 67
General................................................................................................... 67
PCS Common Stock.......................................................................................... 67
Transfer Agent and Registrar.............................................................................. 67
PCS Preferred Stock....................................................................................... 67
Rights.................................................................................................... 67
COMPARISON OF STOCKHOLDER RIGHTS............................................................................ 69
Vote Required for Extraordinary Transactions.............................................................. 69
Cumulative Voting and Classification of Board of Directors................................................ 70
Amendment to Governing Documents.......................................................................... 70
Appraisal Rights.......................................................................................... 70
Oppression Remedy......................................................................................... 71
Derivative Action......................................................................................... 72
Stockholder Consent in Lieu of Meeting.................................................................... 73
Director Residency Requirements........................................................................... 73
Fiduciary Duties of Directors............................................................................. 74
Indemnification of Directors and Officers................................................................. 75
Director Liability........................................................................................ 76
Director Removal and Vacancies............................................................................ 76
Stockholder Rights Plan................................................................................... 76
Stockholder Inspection Rights............................................................................. 77
Quorum Requirements; Meetings of Stockholders............................................................. 77
Dividends................................................................................................. 77
Interested Director Transactions.......................................................................... 78
"Anti-Takeover" Statute................................................................................... 78
Power to Call Special Meetings............................................................................ 79
LEGAL MATTERS............................................................................................... 79
EXPERTS..................................................................................................... 79
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS............................................................... 80
EXCHANGE RATE INFORMATION................................................................................... 80
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LIST OF ANNEXES
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Annex I Agreement and Plan of Merger dated as of September 2, 1996,
as amended, among Potash Corporation of Saskatchewan Inc.,
Arcadian Corporation, and PCS Nitrogen, Inc.
Annex II Fairness Opinion of Credit Suisse First Boston Corporation
dated January 28, 1997
Annex III Excerpt from the General Corporation Law of the State of
Delaware Relating to Appraisal Rights
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SUMMARY
The following summarizes certain information contained elsewhere in this
Proxy Statement, including the Annexes hereto, or in the documents incorporated
by reference herein. This summary is not intended to be a complete description
of the matters covered in this Proxy Statement. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
elsewhere in this Proxy Statement, including the Annexes hereto, and in the
documents incorporated by reference herein. Stockholders of Arcadian are urged
to carefully read this Proxy Statement, including the Annexes hereto, and the
documents incorporated by reference herein in their entirety. Stockholders
should carefully consider the information set forth below under the heading
"Risk Factors." Capitalized terms used in this Summary but not defined herein
shall have the meanings ascribed to them elsewhere in this Proxy Statement. All
dollar amounts contained herein are stated in U.S. dollars unless otherwise
indicated.
MERGER PARTIES
Potash Corporation of Saskatchewan Inc. ("PCS") is one of the world's
largest integrated fertilizer companies. In 1995, PCS's potash production
represented 15% of global production. In 1995, PCS had 22% of global potash
capacity and an estimated 46% of global potash excess capacity. By the end of
1995, PCS had also become the third largest producer of phosphates worldwide by
capacity, representing approximately 8% of world production, 7% of world
capacity, and 3% of world excess capacity. PCS's products are used for
agricultural and industrial purposes as well as for food ingredients. PCS
produces and sells potash, solid phosphate fertilizers (principally diammonium
phosphate ("DAP")), liquid phosphate fertilizers, phosphate feed supplements,
and purified phosphoric acid used in food products and industrial processes. PCS
produces potash from six mines in Saskatchewan (five of which it owns and
operates), one in New Brunswick, and one in Utah. PCS has the world's largest
vertically integrated phosphate mine and processing plant, which is located in
North Carolina, and two phosphate mines and chemical plants in northern Florida.
PCS also has seven phosphate feed plants in the United States, and manufactures,
processes and distributes fertilizer and other agricultural supplies from plants
located in Florida, Georgia and Alabama. PCS believes its potash and phosphate
reserves to be the largest in North America. The mailing address of PCS's
principal executive offices is Suite 500, 122-1st Avenue South, Saskatoon,
Saskatchewan, Canada S7K 7G3, and its telephone number is (306) 933-8500. In
this Proxy Statement, the term "PCS" means Potash Corporation of Saskatchewan
Inc., its predecessors, and its direct and indirect subsidiaries, unless the
context otherwise indicates.
Arcadian Corporation ("Arcadian") is the largest producer and marketer of
nitrogen fertilizer and chemical products in the Western Hemisphere. Arcadian's
nitrogen products are used for both agricultural and industrial purposes.
Arcadian produces ammonia, the primary raw material used in the production of
all upgraded nitrogen fertilizers and chemicals, at seven of its eight operating
plants. Arcadian sells approximately 35% of its ammonia production for use as a
direct application fertilizer and as a component of DAP and for a variety of
industrial uses. Arcadian upgrades the remaining approximately 65% of its
ammonia production to produce a full line of higher value-added products such as
urea, ammonium nitrate, nitric acid and nitrogen solutions. Urea, ammonium
nitrate and nitrogen solutions are used for both agricultural and industrial
purposes, while nitric acid is used solely for industrial applications. In
addition to nitrogen products, Arcadian manufactures a variety of phosphate
products at one plant for agricultural and industrial purposes. In 1995,
Arcadian's sales were divided approximately 60% to agricultural customers and
40% to industrial customers. Arcadian's principal executive offices are located
at 3175 Lenox Park Boulevard, Suite 400, Memphis, Tennessee 38115-4256, and its
telephone number is (901) 758-5200. In this Proxy Statement, the term "Arcadian"
means Arcadian Corporation, its predecessors, and its direct and indirect
subsidiaries, unless the context otherwise indicates.
PCS Nitrogen, Inc., a wholly owned subsidiary of PCS ("Merger Sub"), was
incorporated for the purpose of consummating the Merger. Merger Sub has engaged
in no other business.
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SPECIAL MEETING
Time, Date and Place. A special meeting of the holders of Arcadian's Common
Stock ("Arcadian Common Stock") and the holders of its Mandatorily Convertible
Preferred Stock, Series A ("Arcadian Preferred Stock") will be held at
Arcadian's corporate office, located at 3175 Lenox Park Boulevard, Suite 400,
Memphis, Tennessee, on March 4, 1997, beginning at 10:00 a.m., local time
(including any adjournment or postponement thereof, the "Special Meeting").
Purpose. At the Special Meeting, the holders of Arcadian Common Stock and
the holders of Arcadian Preferred Stock will consider and vote on a proposal to
approve the Agreement and Plan of Merger dated as of September 2, 1996, as
amended (the "Merger Agreement"), among PCS, Arcadian and Merger Sub, and will
transact such other business as may properly come before the Meeting. A copy of
the Merger Agreement is attached hereto as Annex I.
Record Date. The close of business on January 10, 1997 (the "Record Date")
has been fixed as the record date for determining the Arcadian stockholders
entitled to receive notice of, and to vote at, the Special Meeting.
Quorum. The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of Arcadian Common Stock and Arcadian Preferred Stock
at the Record Date is necessary to constitute a quorum for the transaction of
business at the Special Meeting.
Required Vote. The affirmative vote of the holders of a majority of the
outstanding shares of Arcadian Common Stock and Arcadian Preferred Stock, voting
together as a single class, is required to approve the Merger Agreement. At the
Record Date, there were 38,852,104 outstanding shares of Arcadian Common Stock
and 5,541,281 outstanding shares of Arcadian Preferred Stock. Each outstanding
share of Arcadian Common Stock is entitled to one vote, and each outstanding
share of Arcadian Preferred Stock is entitled to one vote.
Proxies. Shares of Arcadian Common Stock and Arcadian Preferred Stock
represented by properly executed proxies that are received at or prior to the
Special Meeting and have not been revoked will be voted in accordance with the
instructions indicated thereon. If no instructions are indicated on a properly
executed and returned proxy, such proxy will be voted FOR the approval of the
Merger Agreement at the Special Meeting. Shares of Arcadian Common Stock and
Arcadian Preferred Stock that are held of record by a broker or other nominee
can be voted only if the beneficial owner thereof specifically instructs such
broker or nominee as to the manner in which to vote such shares. The failure to
give such instructions or otherwise vote by proxy or in person or an abstention
from voting will have the effect of a vote AGAINST the proposed Merger, but the
failure to give such instructions or otherwise vote will not, by itself, result
in the loss of appraisal rights.
Solicitation of Proxies. Arcadian has engaged D.F. King & Co., Inc., as the
Information Agent for the Merger proposal. Holders of Arcadian Common Stock and
Arcadian Preferred Stock may obtain additional copies of this Proxy Statement
and the form of proxy as well as information regarding the current market price
of PCS Common Stock by calling the Information Agent toll-free at (800)
848-3051.
THE MERGER
Background. Since the formation of Arcadian in 1989, the Board of Directors
of Arcadian (the "Arcadian Board") has periodically reviewed Arcadian's general
strategic alternatives and opportunities to increase stockholder value. In July
and August 1996, management of Arcadian and the Arcadian Board discussed a
potential business combination of Arcadian with Freeport-McMoRan Inc.
("Freeport") and, on August 5, 1996, Arcadian and Freeport executed a
non-binding letter of intent that contemplated the formation of a new company
("Newco"), which would have acquired (a) each outstanding share of Arcadian
Common Stock in exchange for 0.658 share of Newco common stock, and (b) each
outstanding share of Freeport common stock in exchange for one share of Newco
common stock. On August 23, 1996, PCS contacted Arcadian, and subsequently made
a series of proposals to acquire Arcadian that resulted in the execution of the
Merger Agreement on September 2, 1996. The Arcadian Board believed that the
combination of Arcadian's nitrogen business with PCS's potash and phosphate
businesses would result in a
2
<PAGE> 10
more diversified business and would be in the best interests of the Arcadian
stockholders for the reasons described elsewhere herein. See "The
Merger -- Reasons for the Merger; Recommendation of the Arcadian Board."
General. The Merger Agreement provides that, subject to the approval of the
Merger Agreement by the Arcadian stockholders and the satisfaction or waiver of
certain other conditions, PCS will acquire Arcadian through the merger (the
"Merger") of Arcadian with and into Merger Sub, with Merger Sub being the
surviving entity (the "Surviving Corporation"). In the Merger, the outstanding
shares of Arcadian Common Stock, including shares resulting from the Mandatory
Pre-Merger Conversion (as defined herein) of the outstanding shares of Arcadian
Preferred Stock, will be converted into the right to receive the Merger
Consideration (as defined herein).
Effective Time. The Merger Agreement provides that as promptly as
practicable after the satisfaction or waiver of all conditions to the Merger,
the Merger will be effected by the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with applicable law.
The date and time of the filing of the Certificate of Merger are referred to
herein as the "Effective Time."
Merger Consideration. The Merger Agreement provides that at the Effective
Time, subject to adjustment and to certain exceptions, each outstanding share of
Arcadian Common Stock (including each share resulting from the Mandatory
Pre-Merger Conversion of the outstanding shares of Arcadian Preferred Stock, but
excluding any shares held by Arcadian, PCS or their respective subsidiaries and
any Dissenting Shares (as defined herein)) will be converted into the right to
receive the Merger Consideration consisting of (a) $12.25 in cash (the "Cash
Consideration") and (b) a fraction of a share of PCS Common Stock (the "Stock
Consideration") expected to have a market value of between $12.75 and $14.75.
Consequently, the Merger Consideration payable with respect to each outstanding
share of Arcadian Common Stock is expected to have a market value of between $25
and $27. This range of values exceeds the last reported sale price per share of
Arcadian Common Stock ($22 on August 30, 1996) and the highest reported sale
price per share of Arcadian Common Stock ($24.125 on November 13, 1995) prior to
the public announcement of the proposed Merger on September 3, 1996. In
addition, the Board of Directors of Arcadian (the "Arcadian Board") believes
that the Merger provides Arcadian stockholders with an opportunity to convert
their existing investment in the nitrogen industry into a new investment in a
diversified company with substantial market positions in all three of the basic
plant nutrients -- potash, phosphate and nitrogen.
The fraction of a share of PCS Common Stock constituting the Stock
Consideration will be determined based on the average of the daily high and low
trading prices of the PCS Common Stock on the New York Stock Exchange (the
"NYSE") during the 20 consecutive days on which shares of PCS Common Stock are
traded on the NYSE ending two trading days prior to the anticipated Effective
Time (the "Final PCS Common Stock Price"). The fraction of a share of PCS Common
Stock constituting the Stock Consideration, expressed as a decimal and with the
result rounded up or down to the nearest one one-thousandth, will be equal to:
(a) if the Final PCS Common Stock Price is at least $72 but not
greater than $83.25, then 0.17713;
(b) if the Final PCS Common Stock Price is less than $72, then the
lesser of (i) 0.21250 and (ii) the quotient of $12.75 divided by the Final
PCS Common Stock Price; and
(c) if the Final PCS Common Stock Price is greater than $83.25, then
the greater of (i) 0.16389 and (ii) the quotient of $14.75 divided by the
Final PCS Common Stock Price.
If the Final PCS Common Stock Price is less than $60, the market value of the
Stock Consideration will be less than $12.75. If the Final PCS Common Stock
Price is greater than approximately $90, the market value of the Stock
Consideration will be greater than $14.75. If the Final PCS Common Stock Price
is less than approximately $65 or greater than approximately $90, either PCS or
Arcadian may, but is not obligated to, terminate the Merger Agreement.
The table set forth below illustrates the effects of the foregoing
provisions. The exchange ratio of 0.17713 share of PCS Common Stock for each
share of Arcadian Common Stock is fixed within a Final PCS
3
<PAGE> 11
Common Stock Price range of $72 to $83.25, in which event the market value of
the Stock Consideration would be between $12.75 and $14.75. If the Final PCS
Common Stock Price is less than $72 but at least $60, the exchange ratio would
increase to a maximum of 0.21250, and the market value of the Stock
Consideration would be approximately $12.75. The exchange ratio would remain
fixed at 0.21250 if the Final PCS Common Stock Price is less than $60, in which
event the market value of the Stock Consideration would be less than $12.75. If
the Final PCS Common Stock Price is less than approximately $65, both Arcadian
and PCS would have the right, but not the obligation, to terminate the Merger
Agreement. If the Final PCS Common Stock Price is more than $83.25 but not more
than $90, the exchange ratio would decrease to a minimum of 0.16389, and the
market value of the Stock Consideration would be approximately $14.75. The
exchange ratio would remain fixed at 0.16389 if the Final PCS Common Stock Price
is more than $90, in which event the market value of the Stock Consideration
would be more than $14.75; however, under such circumstances, both Arcadian and
PCS would have the right, but not the obligation, to terminate the Merger
Agreement.
<TABLE>
<CAPTION>
FINAL PCS
COMMON CASH EXCHANGE STOCK TOTAL
STOCK PRICE CONSIDERATION RATIO CONSIDERATION CONSIDERATION
- ----------- ------------- -------- ------------- -------------
<C> <C> <C> <C> <C>
$57.00 $12.25 .21250 $12.11 $24.36
60.00 12.25 .21250 12.75 25.00
62.00 12.25 .20565 12.75 25.00
65.00 12.25 .19615 12.75 25.00
68.00 12.25 .18750 12.75 25.00
72.00 12.25 .17713 12.75 25.00
76.00 12.25 .17713 13.46 25.71
80.00 12.25 .17713 14.17 26.42
83.25 12.25 .17713 14.75 27.00
87.00 12.25 .16954 14.75 27.00
90.00 12.25 .16389 14.75 27.00
93.00 12.25 .16389 15.24 27.49
</TABLE>
The expected maximum number of shares of PCS Common Stock to be issued in
the Merger is 9,632,917, which would represent 17.5% of the total number of then
outstanding shares of PCS Common Stock. The expected minimum number of shares to
be issued is 7,429,359, which would represent 14.0% of the total number of then
outstanding shares. Arcadian stockholders may obtain information regarding the
current market price of PCS Common Stock by calling D. F. King & Co., Inc., the
Information Agent, at (800) 848-3051. See "Risk Factors -- Fluctuations in
Amount and Market Value of Stock Consideration."
For tax reasons, the Merger Agreement provides that the amount of the Cash
Consideration may be decreased, and the amount of the Stock Consideration
increased by the same dollar value, if necessary to cause the aggregate value of
the PCS Common Stock to be issued in the Merger to constitute at least 47.94% of
the Total Consideration (as defined herein). As used herein, the term "Total
Consideration" means the sum of (a) the aggregate Merger Consideration, (b) the
value of Dissenting Shares, and (c) any amount paid in redemption of Arcadian
Common Stock and Arcadian Preferred Stock, other than redemptions undertaken in
the ordinary course of business and not in contemplation of the Merger, within
one year prior to the Effective Time. The only such redemptions that will have
occurred during the one year prior to the Merger will be any redemptions
occurring as a part of the Merger, including the payment of cash in lieu of the
issuance of (a) fractional shares of Arcadian Common Stock upon the Mandatory
Pre-Merger Conversion of Arcadian Preferred Stock and (b) fractional shares of
PCS Common Stock upon the occurrence of the Merger. Solely for purposes of the
foregoing computation, the shares of PCS Common Stock to be received by any Five
Percent Holder (as defined herein), other than any Five Percent Holder who has
delivered to Arcadian a statement satisfactory to Arcadian to the effect that
such Five Percent Holder then has no intention to dispose of the shares of PCS
Common Stock to be received by such Five Percent Holder in the Merger for a
period of two years after the Effective Time, shall be considered to be cash
rather than shares of PCS Common Stock. As used herein, the term "Five Percent
Holder" means any stockholder of Arcadian who, immediately prior to the
Effective Time, is the owner of five percent or more of the aggregate number of
shares of Arcadian Common Stock then outstanding, including shares of Arcadian
Common Stock resulting from the Mandatory Pre-Merger Conversion of the
outstanding shares of Arcadian Preferred Stock. See "The Merger -- Merger
Consideration."
4
<PAGE> 12
Mandatory Pre-Merger Conversion of Arcadian Preferred Stock. Pursuant to
the Merger Agreement, Arcadian has agreed to elect the "Common Conversion
Option" under the Certificate of Designation for the Arcadian Preferred Stock
(the "Certificate of Designation"). As a consequence, immediately prior to the
Effective Time of the Merger, each outstanding share of Arcadian Preferred Stock
will be converted into the right to receive one share (or a fraction of a share)
of Arcadian Common Stock on the terms set forth in the Certificate of
Designation and described herein (the "Mandatory Pre-Merger Conversion"). Except
for any Dissenting Shares, all shares of Arcadian Common Stock issuable upon the
Mandatory Pre-Merger Conversion of the Arcadian Preferred Stock will be
converted in the Merger into the right to receive the Merger Consideration on
the same terms as those applicable to other shares of Arcadian Common Stock. See
"-- Mandatory Pre-Merger Conversion of Arcadian Preferred Stock."
Fairness Opinion of Credit Suisse First Boston. Credit Suisse First Boston
Corporation ("Credit Suisse First Boston") has acted as financial advisor to
Arcadian in connection with the Merger. On September 2, 1996, Credit Suisse
First Boston delivered its oral opinion to the Arcadian Board, which was
subsequently confirmed in writing, that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration to
be received by the holders of Arcadian Common Stock in the Merger is fair to
such holders from a financial point of view. Credit Suisse First Boston
confirmed its initial fairness opinion by the delivery of a subsequent fairness
opinion dated as of the date of this Proxy Statement. The full text of Credit
Suisse First Boston's subsequent fairness opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken in
connection therewith, is attached hereto as Annex II. Arcadian stockholders are
urged to read Credit Suisse First Boston's fairness opinion in its entirety. See
"The Merger -- Fairness Opinion of Credit Suisse First Boston."
Recommendation of Arcadian Board. The Arcadian Board has unanimously
determined that the Merger, upon the terms and conditions set forth in the
Merger Agreement, is fair to, and in the best interests of, Arcadian and its
stockholders. ACCORDINGLY, THE ARCADIAN BOARD HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF ARCADIAN COMMON STOCK AND
HOLDERS OF ARCADIAN PREFERRED STOCK VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AT THE SPECIAL MEETING. See "The Merger -- Certain Transactions;
Conflicts of Interest."
Voting Agreements. Each member of the Arcadian Board has agreed to vote all
shares of Arcadian Common Stock and Arcadian Preferred Stock over which he
exercises voting control for the approval of the Merger Agreement. On the Record
Date, the members of the Arcadian Board exercised voting control over a total of
approximately 2,881,946 shares of Arcadian Common Stock and 14,020 shares of
Arcadian Preferred Stock, constituting in the aggregate approximately 6.5% of
the total number of outstanding shares entitled to vote at the Special Meeting.
Conditions to Merger. The obligations of Arcadian and PCS to consummate the
Merger are subject to various conditions, including (a) obtaining the
affirmative vote of the holders of a majority of the outstanding shares of
Arcadian Common Stock and Arcadian Preferred Stock, voting together as a single
class, in favor of the approval of the Merger Agreement; (b) Arcadian having
received a reconfirmation of the opinion of its tax counsel, Bracewell and
Patterson, L.L.P., to the effect that, on the basis of the facts,
representations and assumptions set forth or referred to therein, for United
States federal income tax purposes, neither Arcadian nor any of its stockholders
shall recognize gain or loss as a result of the Merger, other than gain
recognized on account of the receipt of the Cash Consideration, cash paid in
connection with appraisal rights, and any cash paid in lieu of fractional
shares; and (c) PCS having received a reconfirmation of the opinion of its
United States tax counsel, Goodman Phillips & Vineberg (New York), to the effect
that, on the basis of the facts, representations and assumptions set forth or
referred to therein, for United States federal income tax purposes, the Merger
will constitute a reorganization under Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code").
Termination of Merger Agreement. The Merger Agreement may be terminated at
any time prior to the Effective Time by the mutual consent of Arcadian and PCS.
Either party may terminate the Merger Agreement if (a) the Merger has not been
consummated on or before April 30, 1997; (b) any order, decree, ruling or other
action by any court of competent jurisdiction or governmental entity permanently
restraining,
5
<PAGE> 13
enjoining or otherwise prohibiting the consummation of the Merger becomes final
and nonappealable; (c) the Arcadian stockholders do not approve the Merger
Agreement at the Special Meeting; or (d) the Final PCS Common Stock Price is
either less than $65 or greater than $90. Arcadian also may terminate the Merger
Agreement if the Arcadian Board determines, in its good faith judgment after
consultation with legal counsel and financial advisors, that its fiduciary
duties require the termination of the Merger Agreement. PCS also may terminate
the Merger Agreement if the Arcadian Board withdraws or modifies, or resolves to
withdraw or modify, its approval or recommendation of the Merger.
In the event that the Merger Agreement is terminated under certain
circumstances, Arcadian will be obligated to pay to PCS an amount equal to $20
million plus all out-of-pocket expenses incurred by PCS in connection with the
Merger Agreement, the Merger and all related transactions. See "Certain
Provisions of the Merger Agreement -- Fees and Expenses."
Certain Income Tax Considerations. Arcadian has received the opinion of
Bracewell & Patterson, L.L.P., its counsel, to the effect that, on the basis of
the facts, representations and assumptions set forth or referred to therein, for
United States federal income tax purposes, neither Arcadian nor any of its
stockholders shall recognize gain or loss as a result of the Merger, other than
gain recognized on account of the receipt of Cash Consideration, cash paid in
connection with appraisal rights, and cash paid in lieu of fractional shares.
Pursuant to the Merger, each holder of Arcadian Common Stock (including those
holders who acquire their Arcadian Common Stock as a result of the Mandatory
Pre-Merger Conversion of the Arcadian Preferred Stock) will receive cash and
shares of PCS Common Stock. In general, and subject to the discussion of certain
income tax consequences included elsewhere in this Proxy Statement, for United
States federal income tax purposes, each holder of Arcadian Common Stock who
participates in the Merger will recognize taxable gain in an amount equal to the
lesser of (a) the excess of the sum of the cash and the fair market value of the
PCS Common Stock received over such holder's tax basis in the Arcadian Common
Stock so exchanged or (b) the amount of cash received. Certain exceptions and/or
other considerations may apply. See "Certain United States Federal Income Tax
Considerations."
Stock Exchange Listings. PCS has filed applications to list the shares of
PCS Common Stock to be issued in connection with the Merger on the NYSE, The
Toronto Stock Exchange (the "TSE"), and the Montreal Exchange (the "ME"),
subject to approval of the Merger Agreement by the Arcadian stockholders and to
official notice of issuance. The PCS Common Stock is listed for trading on the
NYSE, TSE and ME under the symbol "POT."
Accounting Treatment. The Merger will be accounted for by PCS under the
purchase method of accounting.
MANDATORY PRE-MERGER CONVERSION OF ARCADIAN PREFERRED STOCK
Pursuant to the Merger Agreement, Arcadian has agreed to elect the "Common
Conversion Option" under the Certificate of Designation for the Preferred Stock.
As a consequence, except as described below, immediately prior to the Effective
Time of the Merger, each outstanding share of Arcadian Preferred Stock will be
converted into the right to receive:
(a) one share (or a fraction of a share, as described below) of
Arcadian Common Stock (the "Conversion Share");
(b) all accrued and unpaid dividends on such share of Arcadian
Preferred Stock, at the annual rate of $1.4725 per share, to and including
the Effective Time (the "Accrued Dividends"), payable in Arcadian Common
Stock; and
(c) a redemption premium in an amount equal to $1.3175 per annum
(computed on the basis of a 360-day year of twelve 30-day months)
commencing on the Effective Time and ending on and including August 10,
1998 (the "Redemption Premium"), payable in Arcadian Common Stock;
6
<PAGE> 14
provided, however, that if the Redemption Price (as defined herein) of a share
of Arcadian Preferred Stock at the Effective Time is less than the sum of (i)
the Current Market Price (as defined herein) of a share of Arcadian Common Stock
and (ii) the Redemption Premium, then the amount of the Conversion Share will be
reduced so that the value of the Conversion Share plus the Redemption Premium
equals the Redemption Price at the Effective Time. As used in the Certificate of
Designation, the "Redemption Price" of the Arcadian Preferred Stock is equal to
the sum of (a) $22.475 and (b) a redemption premium in an amount equal to
$1.3175 per annum (computed on the basis of a 360-day year of twelve 30-day
months) commencing on the redemption date and ending on and including August 10,
1998; and the "Current Market Price" of a share of Arcadian Common Stock is the
average of the daily closing sale prices per share of Arcadian Common Stock, as
reported on the NYSE Composite Tape, for the 20 consecutive trading days ending
two trading days prior to the Effective Time. As an illustration, if the
Effective Time of the Merger occurs on March 6, 1997 (on which date the
Redemption Price would be $24.3598 per share (including the Redemption Premium
of $1.8848 per share) and the Accrued Dividend would be $0.2700 per share), and
if the then Current Market Price of a share of Arcadian Common Stock is $26,
each share of Arcadian Preferred Stock would convert, immediately prior to the
Merger, into 0.947 of a share of Arcadian Common Stock. Holders of Arcadian
Preferred Stock will receive cash in lieu of fractional shares of Arcadian
Common Stock in the Mandatory Pre-Merger Conversion. Except for any Dissenting
Shares, all shares of Arcadian Common Stock issuable upon the Mandatory
Pre-Merger Conversion of the Arcadian Preferred Stock will be converted in the
Merger into the right to receive the Merger Consideration on the same terms as
those applicable to other shares of Arcadian Common Stock. See "Mandatory
Pre-Merger Conversion of Arcadian Preferred Stock."
APPRAISAL RIGHTS
Holders of Arcadian Common Stock and Arcadian Preferred Stock will be
entitled to dissent from the proposed Merger and to demand payment in cash of
the appraised "fair value" of their shares of Arcadian Common Stock, including
shares resulting from the Mandatory Pre-Merger Conversion of the Arcadian
Preferred Stock. See "The Merger -- Arcadian Stockholders' Appraisal Rights."
RISK FACTORS
In considering whether to approve the Merger Agreement, the Arcadian
stockholders should consider, among other things, that (a) the fraction of a
share of PCS Common Stock constituting the Stock Consideration offered in the
Merger is subject to fluctuation in terms of both the amount and market value
thereof; (b) the Merger Agreement does not prevent Arcadian and PCS from
proceeding with the Merger even if the value of the Stock Consideration is less
than $12.75; (c) there can be no assurance that any substantial cost savings
will be achieved as a result of the Merger; (d) PCS is a corporation organized
under the laws of the Province of Saskatchewan, Canada, and consequently, the
rights of holders of PCS Common Stock will be different from those of holders of
common stock of a Delaware corporation such as Arcadian; (e) the ability of
holders of PCS Common Stock to enforce certain rights under the United States
federal securities laws against PCS or its directors, officers and experts who
are not residents of the United States may be effectively limited; and (f) there
can be no assurance that PCS will consummate the K&S Acquisition (as defined
herein), nor can there be any assurance of the effect that the K&S Acquisition
will have on PCS or the extent to which PCS will be able to integrate the
business and assets to be so acquired with those of PCS and Arcadian. See
"Enforceability of Civil Liabilities Under United States Federal Securities
Laws," "Risk Factors," "Comparison of Stockholder Rights," and "K&S
Acquisition."
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial data for PCS
and Arcadian for each of the five years in the period ended December 31, 1995,
and for the nine months ended September 30, 1995 and 1996.
The data relating to PCS have been derived from the consolidated financial
statements of PCS; audited consolidated financial statements for the years ended
December 31, 1993, 1994 and 1995 and unaudited consolidated financial statements
for the nine months ended September 30, 1995 and 1996 are incorporated by
reference herein. Interim statements include, in the opinion of management of
PCS, all adjustments,
7
<PAGE> 15
consisting of normal recurring adjustments, necessary to present fairly the
results of operations and financial position of PCS for the periods and as of
the dates presented. This data should be read in conjunction with the audited
and unaudited consolidated financial statements of PCS (including the notes
thereto) incorporated by reference herein and the unaudited pro forma
consolidated financial statements appearing elsewhere in this Proxy Statement.
For comparability, the PCS historical financial data were prepared in accordance
with United States (rather than Canadian) generally accepted accounting
principles.
The data relating to Arcadian have been derived from the consolidated
financial statements of Arcadian; audited consolidated financial statements for
the years ended December 31, 1993, 1994 and 1995 and unaudited condensed
consolidated financial statements for the nine months ended September 30, 1995
and 1996 are incorporated by reference herein. Interim statements include, in
the opinion of management of Arcadian, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the results of operations and
financial position of Arcadian for the periods and as of the dates presented.
This data should be read in conjunction with the audited and unaudited
consolidated financial statements of Arcadian (including the notes thereto)
incorporated by reference herein and the unaudited pro forma consolidated
financial statements appearing elsewhere in this Proxy Statement.
See "Available Information," "Incorporation of Certain Documents by
Reference," and "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
ON OR AT SEPTEMBER 30,
(UNAUDITED) YEAR ENDED ON OR AT DECEMBER 31,
PCS ----------------------- --------------------------------------------------------------
1996 1995 1995* 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales....................... $1,149,797 $ 590,146 $ 961,805 $ 436,078 $ 278,829 $ 254,755 $ 212,301
Operating income................ 227,906 158,122 224,249 95,442 62,752 60,600 50,200
Net income...................... 157,095 122,296 178,084 86,680 49,926 49,300 40,600
Net income per common share..... 3.42 2.80 4.06 2.00 1.25 1.27 1.05
Cash dividends declared per
common share.................. .79 .79 1.06 .79 .57 .59 .63
BALANCE SHEET DATA
Working capital................. 250,868 221,978 154,676 103,281 36,985 70,911 47,399
Total assets.................... 2,533,343 2,195,493 2,600,415 1,028,094 1,096,352 1,007,000 1,086,800
Long-term debt and long-term
obligations under capital
leases........................ 639,733 772,468 714,498 2,000 20,128 48,900 54,424
Shareholders' equity............ 1,384,006 1,054,712 1,260,473 964,662 963,639 898,400 960,200
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
ON OR AT SEPTEMBER 30,
(UNAUDITED) YEAR ENDED ON OR AT DECEMBER 31,
ARCADIAN ----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales....................... $ 935,244 $ 960,601 $1,266,887 $1,100,301 $ 803,167 $ 593,440 $ 573,342
Operating income................ 209,562 223,225 292,341 117,272 62,041 70,543 66,382
Net income...................... 115,900 55,050 88,250 9,993 2,481 4,481 22,183
Net income (loss) per common
share......................... 2.49 2.44 3.08 .55 (.24) (.07) 1.15
Cash dividends declared per
common share.................. .25 1.67 1.72 .33 .42 .32 --
BALANCE SHEET DATA
Working capital................. 361,952 298,771 320,212 272,744 285,031 160,525 75,050
Total assets.................... 1,301,367 1,211,487 1,270,654 1,118,549 1,104,370 603,966 545,446
Long-term debt and long-term
obligations under capital
leases........................ 510,000 525,000 525,000 634,124 608,562 231,821 429,802
Stockholders' equity
(deficit)..................... 494,601 409,364 436,419 (52,699) (57,626) (45,837) (15,492)
</TABLE>
* The significant increase in PCS's operations in 1995 over 1994 is
attributable, in part, to PCS's acquisition of Texasgulf Inc.
8
<PAGE> 16
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma consolidated financial data give
effect to the Merger. The unaudited pro forma consolidated statement of income
data for the nine months ended September 30, 1996, were prepared based upon the
respective unaudited consolidated statements of income for the nine months ended
September 30, 1996, of PCS and Arcadian, as if the Merger had occurred on
January 1, 1995. The unaudited pro forma consolidated statement of income data
for the year ended December 31, 1995, were prepared based upon the respective
unaudited pro forma consolidated statements of income for the year ended
December 31, 1995, of PCS and Arcadian, as if the Merger had occurred on January
1, 1995. The unaudited pro forma consolidated balance sheet data at September
30, 1996, were prepared based upon the respective unaudited consolidated balance
sheets at September 30, 1996, of PCS and Arcadian, as if the Merger had occurred
on September 30, 1996. The unaudited pro forma consolidated financial data
reflect the application of the purchase method of accounting. Estimates of the
fair values of the respective assets and liabilities of Arcadian have been
combined with the recorded values of the assets and liabilities of PCS. However,
changes to the adjustments included in the unaudited pro forma consolidated
financial data are expected as evaluations of assets and liabilities are
completed and as additional information becomes available. In addition, the
results of operations of Arcadian subsequent to September 30, 1996, will affect
such evaluations. Accordingly, the final values assigned will differ from the
amounts set forth below. The unaudited pro forma consolidated financial data are
intended for informational purposes only and are not necessarily indicative of
the future results of operations or future financial position of the combined
company, or of the results of operations or financial position of the combined
company that would have actually occurred had the Merger been in effect for the
periods and as of the date presented. The unaudited pro forma consolidated
financial data should be read in conjunction with the respective audited and
unaudited consolidated financial statements of PCS and Arcadian (including the
notes thereto) incorporated by reference herein and the unaudited pro forma
consolidated financial statements appearing elsewhere in this Proxy Statement.
See "Available Information," "Incorporation of Certain Documents by Reference,"
and "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED ON OR AT YEAR ENDED ON
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS OF U.S. DOLLARS
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF INCOME DATA
Net sales................................................ $2,085,041 $2,364,165
Operating income......................................... 422,884 525,404
Net income............................................... 246,992 302,997
Net income per share..................................... 4.57 5.79
Cash dividends per share................................. .79 1.06
BALANCE SHEET DATA
Working capital.......................................... 392,820
Total assets............................................. 4,415,061
Long-term debt and long-term obligations under capital
leases................................................. 1,560,108
Shareholders' equity..................................... 2,057,799
</TABLE>
RECENT DEVELOPMENTS
K&S Acquisition. On December 6, 1996, PCS entered into an agreement (the
"Purchase Agreement") with Guano-Werke GmbH ("GW"), a wholly owned subsidiary of
BASF Aktiengesellschaft, under which PCS will purchase 51% of the outstanding
shares (the "K&S Shares") of Kali und Salz Beteiligungs Aktiengesellschaft
("K&S") from GW for an aggregate purchase price of DM 250 million (approximately
U.S. $164 million) (the "K&S Acquisition"). K&S's primary assets are a 51%
interest in Kali und Salz GmbH ("K&S Sub") and a 50% interest in Potash Company
of Canada Limited ("Potacan"). The primary assets of K&S Sub are its six potash
and two salt mines and processing plants in Germany. The primary assets of
Potacan are its potash mine and processing plant in Canada. See "K&S
Acquisition."
DOJ Investigations. In 1993, Arcadian learned that the Antitrust Division
of the Department of Justice (the "DOJ") had initiated a grand-jury
investigation of pricing practices in the explosives industry. In response to a
subpoena issued in that investigation, Arcadian produced to the DOJ in 1994 and
1995 documents concerning ammonium nitrate sold to explosives manufacturers. In
late 1996 and early 1997,
9
<PAGE> 17
Arcadian learned that the DOJ had begun contacting current and former Arcadian
employees seeking information concerning Arcadian's pricing of ammonium nitrate
in 1992. Arcadian currently has limited information concerning the DOJ's
investigations and thus is unable to predict their outcomes as to Arcadian.
However, Arcadian believes that neither it nor its employees have violated the
antitrust laws and that the DOJ's investigations are unlikely to result in a
material adverse effect on Arcadian.
COMPARATIVE STOCK PRICES
The Arcadian Common Stock and Arcadian Preferred Stock are listed for
trading on the NYSE under the symbols "ACA" and "ACA.PRA," respectively. The PCS
Common Stock is listed for trading on the NYSE, TSE and ME under the symbol
"POT." The following table sets forth in United States dollars the high and low
sale prices per share of Arcadian Common Stock, Arcadian Preferred Stock and PCS
Common Stock, as reported on the NYSE Composite Tape, and the quarterly cash
dividends per share declared by PCS during the periods indicated and by Arcadian
with respect to the periods indicated:
<TABLE>
<CAPTION>
0.17713 OF A
SHARE OF PCS
ARCADIAN ARCADIAN COMMON PCS
COMMON STOCK* PREFERRED STOCK* STOCK COMMON STOCK
------------------------- ------------------------- --------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS HIGH LOW HIGH LOW DIVIDENDS
----- ---- ---------- ----- ---- ---------- ------ ------ ----- ---- ----------
(IN U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter............ $ 5.23 $ 4.36 $29 1/2 $24 5/8 $.13
Second Quarter........... 4.89 3.94 27 5/8 22 1/4 .13
Third Quarter............ 7.37 4.76 41 5/8 26 7/8 .26
Fourth Quarter........... 7.44 5.51 42 1/8 31 1/8 .25
1995
First Quarter............ 8.34 5.73 47 1/8 32 3/8 .25
Second Quarter........... 9.90 7.71 56 3/4 43 3/8 .26
Third Quarter............ $21 1/2 $17 1/8 $.05 $19 7/8 $16 3/4 $.2127 12.13 9.54 68 1/2 53 7/8 .27
Fourth Quarter........... 24 1/8 18 3/8 .05 19 3/8 17 1/2 .3682 13.99 10.54 79 59 1/2 .28
1996
First Quarter............ 22 7/8 19 .10 21 1/4 17 7/8 .3681 14.25 10.63 80 1/2 60 .26
Second Quarter........... 21 3/4 18 1/8 .10 21 3/8 18 3/8 .3681 12.73 10.67 71 7/8 60 1/4 .26
Third Quarter............ 24 7/8 19 1/4 .10 24 3/8 19 .3681 14.08 11.36 79 1/2 64 1/8 .26
Fourth Quarter........... 26 5/8 24 3/8 .10 24 1/2 24 .3682 15.39 12.09 86 7/8 68 1/4 .27
1997
First Quarter (through
January 27, 1997)...... 26 3/4 25 7/8 -- 24 5/8 24 1/4 -- 15.92 14.37 89 7/8 81 1/8 --
</TABLE>
- ---------------
* The Arcadian Common Stock and Arcadian Preferred Stock commenced trading on
August 4, 1995.
On August 30, 1996, the last trading day prior to the public announcement
of the proposed Merger, the last reported sale prices per share of Arcadian
Common Stock, Arcadian Preferred Stock and PCS Common Stock, as reported on the
NYSE Composite Tape, were $22, $20.75 and $76, respectively. On January 27,
1997, the last trading day prior to the date of this Proxy Statement, the last
reported sale prices per share of Arcadian Common Stock, Arcadian Preferred
Stock and PCS Common Stock, as reported on the NYSE Composite Tape, were
$26.375, $24.375 and $83, respectively. The market prices of Arcadian Common
Stock, Arcadian Preferred Stock and PCS Common Stock are subject to fluctuation;
therefore, Arcadian stockholders are urged to obtain current quotations of the
market prices of these securities.
Certain data contained in this Proxy Statement, including pro forma
financial information, assume that the Final PCS Common Stock Price will be at
least $72 and not greater than $83.25 per share.
At December 31, 1996, there were approximately 372 holders of record of
Arcadian Common Stock, 730 holders of record of Arcadian Preferred Stock, and
2,663 holders of record of PCS Common Stock.
10
<PAGE> 18
COMPARATIVE PER SHARE DATA
The following table sets forth certain net income, cash dividend and book
value per share data for PCS and Arcadian on historical and pro forma combined
bases in accordance with United States generally accepted accounting principles.
The pro forma data are derived from the unaudited pro forma consolidated
financial statements appearing elsewhere in this Proxy Statement, which give
effect to the Merger, accounted for as a purchase as if the Merger had been
consummated on January 1, 1995, or in the case of balance sheet data, at the
date of the balance sheet. The pro forma data have been prepared assuming that
the Final PCS Common Stock Price will be $83.54 per share and, therefore, the
fraction of a share of PCS Common Stock to be issued as the Stock Consideration
in partial exchange for each outstanding share of Arcadian Common Stock will be
0.17656. Under the Merger Agreement, the fraction of a share of PCS Common Stock
issuable as the Stock Consideration in partial exchange for each outstanding
share of Arcadian Common Stock may be as low as 0.16389 and as high as 0.21250.
See "The Merger -- Merger Consideration." The pro forma data do not reflect any
cost savings obtained as a result of the Merger. The pro forma data should be
read in conjunction with the respective audited and unaudited consolidated
financial statements of PCS and Arcadian (including the notes thereto)
incorporated by reference herein. See "Available Information," "Incorporation of
Certain Documents by Reference," and "Unaudited Pro Forma Consolidated Financial
Statements."
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED ON OR AT ON OR AT
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ---------------
<S> <C> <C>
PCS HISTORICAL DATA
Net income per share............................ $ 3.42 $ 4.06
Cash dividends declared per share............... .79 1.06
Book value per share............................ 30.38 27.74
ARCADIAN HISTORICAL DATA
Net income per common share..................... 2.49 3.08
Cash dividends declared per common share........ .25 1.72
Book value per common share..................... 10.56 7.29
PCS PRO FORMA DATA
Net income per share............................ 4.57 5.79
Cash dividends declared per share............... .79 1.06
Book value per share............................ 38.40 36.04
ARCADIAN EQUIVALENT DATA*
Net income per common share..................... .82 1.02
Cash dividends declared per common share........ .14 .19
Book value per common share..................... 6.78 6.36
</TABLE>
- ---------------
* The Arcadian equivalent data are based upon the PCS pro forma data multiplied
by the assumed exchange ratio of 0.17656 for the purpose of calculating the
Stock Consideration. In addition to the Stock Consideration, Arcadian
stockholders will receive the Cash Consideration of $12.25 per share in the
Merger. For the nine months ended on or at September 30, 1996, at assumed
exchange ratios of 0.21250 and 0.16389, the Arcadian equivalent net income per
common share would have been $.94 and $.76, respectively; the Arcadian
equivalent cash dividends declared per common share would have been $.17 and
$.13, respectively; and the Arcadian equivalent book value per common share
would have been $7.57 and $6.36, respectively. For the year ended on or at
December 31, 1995, at assumed exchange ratios of 0.21250 and 0.16389, the
Arcadian equivalent net income per common share would have been $1.19 and
$.96, respectively; the Arcadian equivalent cash dividends declared per common
share would have been $.23 and $.18, respectively; and the Arcadian equivalent
book value per common share would have been $7.08 and $5.97, respectively.
11
<PAGE> 19
RISK FACTORS
In considering whether to approve the Merger Agreement, the stockholders of
Arcadian should consider the following matters as well as the other information
contained in this Proxy Statement.
FLUCTUATION IN AMOUNT AND MARKET VALUE OF STOCK CONSIDERATION
Although the Stock Consideration is expected to have a market value of
between $12.75 and $14.75 based upon the Final PCS Common Stock Price, its
market value at any time will be equal to the product of the fraction of a share
of PCS Common Stock constituting the Stock Consideration and the then current
market price of PCS Common Stock. The potential fluctuations in the amount and
market value of the Stock Consideration are described below:
- If the Final PCS Common Stock Price is at least $72 but not more than
$83.25, the Stock Consideration would be fixed at 0.17713 of a share of
PCS Common Stock, and the market value of the Stock Consideration would
be between $12.75 and $14.75.
- If the Final PCS Common Stock Price is less than $72 but at least $60,
the Stock Consideration would increase to a maximum of 0.21250 of a share
of PCS Common Stock, and the market value of the Stock Consideration
would be approximately $12.75.
- If the Final PCS Common Stock Price is less than $60, the Stock
Consideration would remain at 0.21250 of a share of PCS Common Stock, and
the market value of the Stock Consideration would be less than $12.75. If
the Final PCS Common Stock Price is less than approximately $65, both
Arcadian and PCS would have the right, but not the obligation, to
terminate the Merger Agreement.
- If the Final PCS Common Stock Price is more than $83.25 but not more than
$90, the Stock Consideration would decrease to a minimum of 0.16389 of a
share of PCS Common Stock, and the market value of the Stock
Consideration would be approximately $14.75.
- If the Final PCS Common Stock Price is more than $90, the Stock
Consideration would remain at 0.16389 of a share of PCS Common Stock, and
the market value of the Stock Consideration would be more than $14.75.
Under such circumstances, both PCS and Arcadian would have the right, but
not the obligation, to terminate the Merger Agreement.
In any case, the market value of the Stock Consideration at the Effective
Time and at any time thereafter would reflect the then current market price of
PCS Common Stock and could be higher or lower than the market value based upon
the Final PCS Common Stock Price. Such variations may be the result of changes
in the business, operations or prospects of PCS or Arcadian, market assessments
of the likelihood that the Merger will be consummated and the timing thereof,
regulatory considerations, general market conditions and other factors. PCS and
Arcadian anticipate that the Merger will be consummated as promptly as
practicable following the satisfaction or waiver of each condition to the
Merger, including approval of the Merger Agreement by the Arcadian stockholders.
The Merger Agreement provides that the Final PCS Common Stock Price will be
determined based on the average of the daily high and low trading prices of the
PCS Common Stock on the NYSE during the 20 consecutive days on which shares of
PCS Common Stock are traded on the NYSE ending two trading days prior to the
anticipated Effective Time (the "Valuation Period"), at which time the number of
shares of PCS Common Stock constituting the Stock Consideration will be fixed.
If, on the date of the Special Meeting, the Effective Time is anticipated to
occur more than two trading days after the date of the Special Meeting, the
Final PCS Common Stock Price, the fraction of a share of PCS Common Stock
constituting the Stock Consideration, and the market value thereof will not be
known on the date of the Special Meeting. In addition, if the Final PCS Common
Stock Price is less than $65 or more than $90, Arcadian stockholders may not
know whether Arcadian or PCS will terminate the Merger Agreement. If the Final
PCS Common Stock Price is less than $65 or more than $90, Arcadian and PCS do
not intend to resolicit proxies or resubmit the Merger Agreement to another vote
of the Arcadian stockholders, regardless of whether Arcadian or PCS terminates
the Merger Agreement. The market price of PCS Common Stock at the Effective Time
and thereafter may be higher or lower than the Final PCS Common Stock Price,
12
<PAGE> 20
and as a result, the market value of the Stock Consideration at the Effective
Time and thereafter may be more or less than the market value of the Stock
Consideration based upon the Final PCS Common Stock Price.
FOREIGN ISSUER
PCS is a corporation organized under the laws of the Province of
Saskatchewan, Canada. Certain of the directors and officers of PCS are residents
of Canada, and certain of the experts named herein are residents of Canada.
Consequently, the ability of holders of PCS Common Stock to enforce certain
rights under the United States federal securities laws against PCS or its
directors, officers and experts who are not residents of the United States may
be effectively limited. See "Enforceability of Civil Liabilities Under United
States Federal Securities Laws."
DIFFERENT STOCKHOLDER RIGHTS
PCS is incorporated under the laws of the Province of Saskatchewan, Canada.
Arcadian is incorporated under the laws of the State of Delaware, United States.
If the Merger is consummated, the Arcadian stockholders will become stockholders
of PCS. As stockholders of a Saskatchewan corporation, their rights will differ
in certain respects from those of stockholders of a Delaware corporation. See
"Comparison of Stockholder Rights."
UNCERTAINTIES OF K&S ACQUISITION
There can be no assurance that PCS will consummate the K&S Acquisition as
contemplated by the Purchase Agreement. Further, even if the K&S Acquisition is
completed, there can be no assurance of the effect that it will have on PCS or
the extent to which PCS will be able to integrate the business and assets of K&S
with those of PCS and Arcadian. See "K&S Acquisition."
UNCERTAINTY CONCERNING COST SAVINGS
PCS believes that the Merger will involve some cost savings. Upon
consummation of the Merger, PCS will seek to achieve these cost savings,
including any such savings arising from the integration of departments, systems
and procedures and the increased bargaining power of a larger company. While PCS
will work diligently to achieve these goals, there can be no assurance that any
substantial cost savings will be achieved as a result of the Merger.
THE SPECIAL MEETING
TIME, DATE AND PLACE
The Special Meeting of the holders of Arcadian Common Stock and the holders
of Arcadian Preferred Stock will be held at Arcadian's corporate office, located
at 3175 Lenox Park Boulevard, Suite 400, Memphis, Tennessee, on March 4, 1997,
beginning at 10:00 a.m., local time.
PURPOSE
At the Special Meeting, the Arcadian stockholders will consider and vote on
a proposal to approve the Merger Agreement and will transact such other business
as may properly come before the Special Meeting. A copy of the Merger Agreement
is attached hereto as Annex I.
RECORD DATE
The close of business on January 10, 1997 (the "Record Date") has been
fixed as the record date for determining the Arcadian stockholders entitled to
receive notice of, and to vote at, the Special Meeting.
13
<PAGE> 21
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Arcadian Common Stock and Arcadian Preferred Stock at the
Record Date is necessary to constitute a quorum for the transaction of business
at the Special Meeting. Shares represented by properly executed and returned
proxies will be counted as present at the Special Meeting for purposes of
establishing a quorum, whether the proxy is marked for or against approval of
the Merger Agreement, is marked to abstain from voting, or is completely
unmarked. Shares held by nominees as to which the beneficial owner has withheld
voting power will not be counted as present for purposes of establishing a
quorum.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of Arcadian Common Stock and Arcadian Preferred Stock, voting together as a
single class, is required to approve the Merger Agreement. At the Record Date,
there were 38,852,104 outstanding shares of Arcadian Common Stock and 5,541,281
outstanding shares of Arcadian Preferred Stock. Each outstanding share of
Arcadian Common Stock is entitled to one vote, and each outstanding share of
Arcadian Preferred Stock is entitled to one vote.
PROXIES
The accompanying white form of proxy is being solicited by the Arcadian
Board and is revocable at any time before it is exercised. A proxy may be
revoked by written notice of revocation or by the delivery of a later dated
proxy, in either case delivered to the Corporate Secretary of Arcadian.
Attendance at the Special Meeting will not automatically revoke a proxy, but an
Arcadian stockholder in attendance may request a ballot and vote in person,
thereby revoking a previously granted proxy. Arcadian stockholders requiring
additional copies of this Proxy Statement or a form of proxy may obtain one by
calling D.F. King & Co., Inc., the Information Agent for the Merger proposal,
toll-free at (800) 848-3051. In addition, prior to the Special Meeting the
Arcadian stockholders may call the Information Agent at such toll-free telephone
number to obtain information regarding the current market price of PCS Common
Stock. See "-- Solicitation of Proxies."
Shares of Arcadian Common Stock and Arcadian Preferred Stock represented by
properly executed proxies that are received at or prior to the Special Meeting
and have not been revoked will be voted in accordance with the instructions
indicated thereon. Arcadian stockholders may vote FOR the approval of the Merger
Agreement or AGAINST the approval of the Merger Agreement or may ABSTAIN from
voting on the Merger Agreement. If no instructions are indicated on a properly
executed and returned proxy, such proxy will be voted FOR the approval of the
Merger Agreement at the Special Meeting. Shares of Arcadian Common Stock and
Arcadian Preferred Stock that are held of record by a broker or other nominee
can be voted only if the beneficial owner thereof specifically instructs such
broker or nominee as to the manner in which to vote such shares. The failure to
give such instructions or otherwise vote by proxy or in person or an abstention
from voting will have the effect of a vote AGAINST the proposed Merger, but the
failure to give such instructions or otherwise vote will not, by itself, result
in the loss of appraisal rights. See "The Merger -- Arcadian Stockholders'
Appraisal Rights."
It is not expected that any matter other than the approval of the Merger
Agreement will be brought before the Special Meeting. If a proxy is given to
vote FOR the approval of the Merger Agreement, or if no instructions are
indicated on a properly executed and returned proxy, the persons named in such
proxy will have the authority to vote in accordance with their best judgment on
any other matter that may properly come before the Special Meeting.
A vote FOR the approval of the Merger Agreement also constitutes a vote to
grant authority to adjourn the Special Meeting from time to time if the holders
of such proxies deem it advisable under the circumstances. However, no proxies
instructing that they be voted AGAINST, or ABSTAIN from voting on, the Merger
Agreement will be voted in favor of any such adjournment.
14
<PAGE> 22
SOLICITATION OF PROXIES
This proxy solicitation is being made on behalf of the Arcadian Board.
Arcadian will pay the costs of soliciting proxies from its stockholders, except
that PCS and Arcadian will share equally the cost of preparing and printing this
Proxy Statement (including the related filing fees). Arcadian also will
reimburse brokerage houses, custodians, fiduciaries and other nominees for their
reasonable expenses of forwarding proxy materials to the beneficial owners of
Arcadian Common Stock and Arcadian Preferred Stock.
Arcadian has retained D.F. King & Co., Inc., as the Information Agent for
the Merger proposal. The Information Agent will contact Arcadian stockholders by
mail, telephone, telegram, personal interview or other means to encourage the
return of proxies and will provide copies of this Proxy Statement and related
proxy materials to such stockholders. The Information Agent has established a
toll-free telephone number, (800) 848-3051, for Arcadian stockholders to call
for information or requests for additional copies of this Proxy Statement or a
form of proxy. In addition, prior to the Special Meeting the Arcadian
stockholders may call the Information Agent at such toll-free telephone number
to obtain information regarding the current market price of the PCS Common
Stock. Arcadian will pay the Information Agent a base fee of $7,500 plus
additional nominal amounts for each Arcadian stockholder contacted, and will
reimburse the Information Agent for its reasonable out-of-pocket expenses
incurred in connection with such services, none of which compensation will be
contingent on the outcome of such efforts or will be based on the number of
proxies received. In addition, directors, officers and employees of Arcadian may
solicit proxies by mail, telephone, telegram, personal interview or otherwise,
and such persons may meet with brokers, research analysts and other members of
the investment community to discuss the Merger proposal.
Arcadian stockholders should not send in their Arcadian Common Stock or
Arcadian Preferred Stock certificates with their proxies. If the Merger
Agreement is approved by the Arcadian stockholders and the Merger is completed,
Arcadian will notify the stockholders when and where they should submit their
certificates. See "The Merger -- Procedures for Exchange of Stock Certificates."
PRESENCE OF PUBLIC ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, Arcadian's independent public
accountants, are expected to be present at the Special Meeting, where they will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE MERGER
The discussion in this Proxy Statement of the Merger and the description of
the Merger Agreement's principal terms are subject to and qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex I and is incorporated by reference herein.
BACKGROUND OF THE MERGER
Since the formation of Arcadian, management has concentrated its efforts on
the integration of the assets and operations of the five separate nitrogen
businesses that Arcadian acquired in 1989, as well as acquiring and integrating
the additional nitrogen production facilities that Arcadian acquired in 1993 in
Trinidad and Lima, Ohio. In addition, management has caused the relocation of a
refurbished ammonia production facility to Trinidad, is in the process of
building a new ammonia production facility in Trinidad, and is evaluating the
technical and economic feasibility of building additional nitrogen production
facilities in Venezuela. Management also has taken significant steps to reduce
the seasonality of Arcadian's cash flow through an emphasis on sales to
industrial users of nitrogen products; to decrease Arcadian's exposure to
fluctuations in the market price of natural gas, the primary raw material used
in the production of nitrogen products; and to increase Arcadian's corporate
flexibility and simplify its capital structure through the acquisition in 1995
of all of the publicly held limited partner interests in Arcadian Partners, L.P.
In addition to taking the major actions described above and a number of
other steps that have resulted in Arcadian's current pre-eminent position in the
nitrogen industry, management of Arcadian and the Arcadian
15
<PAGE> 23
Board have periodically reviewed Arcadian's general strategic alternatives and
opportunities to increase stockholder value. Although the Arcadian Board
considers Arcadian's current position in the nitrogen industry to be strong, the
Arcadian Board believes that a combination of Arcadian's nitrogen business with
a strong potash and/or phosphate business would result in a more balanced
business that would be less cyclical and less dependent on the market price of
natural gas. Consequently, the Arcadian Board has from time to time considered
the possibility of combining Arcadian's business with that of a number of other
potash and/or phosphate producers and was receptive to the inquiries described
below.
In July 1996, the Chairman of the Board of Freeport-McMoRan Inc.
("Freeport") contacted William A. McMinn, the Chairman of the Arcadian Board, to
inquire whether the Arcadian Board would be interested in discussing a potential
business combination of Freeport and Arcadian. On July 31, 1996, Arcadian
contacted Credit Suisse First Boston to act as financial advisor in connection
with the discussions relating to such a potential business combination. On
August 2, 1996, Arcadian and Credit Suisse First Boston entered into a letter
agreement pursuant to which Arcadian engaged Credit Suisse First Boston as its
exclusive financial advisor. Representatives of Freeport and Arcadian
subsequently negotiated a non-binding letter of intent regarding the potential
combination (the "Freeport Letter of Intent"), which the parties executed on
August 5, 1996. The potential business combination contemplated by the Freeport
Letter of Intent would have involved the formation of a new company ("Newco"),
which would have acquired (a) each outstanding share of Arcadian Common Stock in
exchange for 0.658 share of Newco common stock and (b) each outstanding share of
Freeport common stock in exchange for one share of Newco common stock. The
Freeport Letter of Intent contemplated that the Arcadian Preferred Stock would
have been converted into a new series of preferred stock issued by Newco having
terms substantially equivalent to the terms of the Arcadian Preferred Stock,
except that it would have been convertible into Newco common stock. The Freeport
Letter of Intent further provided that, while not a condition to the
combination, Freeport would provide to Freeport-McMoRan Resource Partners,
Limited Partnership ("FRP") an opportunity to participate in a transaction that
would convert the publicly held limited partner units of FRP into common stock
of Newco.
On August 6, 1996, the Arcadian Board met to discuss the potential business
combination of Arcadian with Freeport. Mr. McMinn reviewed for the directors the
details of the proposed combination. Following an extensive discussion of the
matter, the Arcadian Board authorized management to pursue the negotiation of a
definitive agreement with Freeport with respect to the combination and to
address certain issues identified by management relating to the structure of the
combination and, therefore, its value to Arcadian stockholders.
On August 7, 1996, Arcadian and Freeport issued a joint press release
announcing their execution of the Freeport Letter of Intent, and Arcadian filed
with the Commission a Current Report on Form 8-K which included a copy of the
Freeport Letter of Intent as an exhibit.
On August 23, 1996, the Board of Directors of PCS authorized Charles E.
Childers, the Chairman of the Board, President and Chief Executive Officer of
PCS, to negotiate, on behalf of PCS, the acquisition of Arcadian for
consideration payable in cash or shares of PCS, subject to approval by the
Executive Committee of the Board of Directors of PCS of the structure and
material terms of any acquisition so negotiated. Following the PCS Board of
Directors meeting, Mr. Childers contacted Mr. McMinn and requested a meeting
with him on the following day.
On August 24, 1996, Messrs. Childers and McMinn met, and Mr. Childers
described to Mr. McMinn a proposal for PCS to acquire Arcadian, the terms of
which were set forth in a letter and an unsigned draft of a letter of intent,
each dated August 23, 1996, which subsequently were delivered to Mr. McMinn on
August 25, 1996. In the letters, PCS proposed to acquire Arcadian at a price of
$24.50 per share of Arcadian Common Stock, consisting of $12.25 in cash and
$12.25 in PCS Common Stock. The proposal required Arcadian to agree to pay PCS a
$35 million "break-up" fee in the event that Arcadian elected to pursue an
alternative transaction. Mr. Childers requested that Arcadian enter into a
letter of intent containing such terms and that Mr. McMinn recommend the
transaction to the Arcadian Board. Mr. McMinn declined Mr. Childers' request but
agreed to convey the PCS proposal (without any recommendation) to the Arcadian
Board.
On August 25, 1996, Messrs. Childers and McMinn met again. Mr. Childers
proposed to Mr. McMinn that PCS acquire Arcadian at a price of $25.50 per share
of Arcadian Common Stock, consisting of $12.25 in
16
<PAGE> 24
cash and $13.25 in PCS Common Stock. Mr. Childers asked that Arcadian enter into
the letter of intent in the form previously provided (including the break-up fee
provision) and that Mr. McMinn recommend the transaction to the Arcadian Board.
Mr. McMinn declined Mr. Childers' request but agreed to convey the PCS proposal
(without any recommendation) to the Arcadian Board.
On August 26, 1996, following further discussions with Mr. McMinn, Mr.
Childers proposed to Mr. McMinn that PCS acquire Arcadian at a price of $26 per
share of Arcadian Common Stock, consisting of $12.25 in cash and $13.75 in PCS
Common Stock. Mr. Childers repeated his request that Arcadian enter into the
letter of intent in the form previously provided (including the break-up fee
provision) and that Mr. McMinn recommend the transaction to the Arcadian Board.
Mr. Childers stated that the offer was valid for two hours. Mr. McMinn again
declined Mr. Childers' request. In response to an inquiry from Mr. McMinn, Mr.
Childers then asked him to present to the Arcadian Board a proposal by PCS to
acquire Arcadian at a price of $25.50 per share of Arcadian Common Stock,
consisting of $12.25 in cash and $13.25 in PCS Common Stock, subject to Arcadian
agreeing to a $35 million break-up fee.
On August 27, 1996, the Arcadian Board met to discuss the proposed
transactions with Freeport and PCS. Mr. McMinn, with the assistance of J.D.
Campbell, the President and Chief Executive Officer of Arcadian, reviewed the
principal terms of the potential business combination with Freeport. Mr. McMinn
presented the last proposal made by Mr. Childers for PCS to acquire Arcadian,
but he did not make any recommendation concerning such proposal to the Arcadian
Board. The Arcadian Board discussed both potential transactions at length. The
Arcadian Board also discussed the possibility of Arcadian remaining an
independent entity. Representatives of Credit Suisse First Boston discussed the
potential Freeport and PCS transactions with the Arcadian Board and advised it
that, based on the last reported sale price per share of Freeport common stock
on August 26, 1996, an acquisition of Arcadian by PCS at $26 per share would
represent a higher per share value for the holders of Arcadian Common Stock than
would the potential business combination with Freeport, which Credit Suisse
First Boston determined to have an implied value of $23.03 per share. Credit
Suisse First Boston recommended that Arcadian pursue negotiations with PCS. The
Arcadian Board discussed its fiduciary duties under applicable law with legal
counsel. Based on the advice of Credit Suisse First Boston and legal counsel as
well as on the Arcadian Board's assessment that the proposed PCS acquisition of
Arcadian was financially superior to the potential business combination of
Arcadian with Freeport, the Arcadian Board made a good faith judgment that it
would not be prudent in view of the Arcadian Board's fiduciary duties to decline
to enter into negotiations with PCS.
In the afternoon of August 27, 1996, following the Arcadian Board meeting,
Mr. McMinn called the Chairman of the Board of Freeport and advised him that
Arcadian had received a proposal from another company for the acquisition of
Arcadian that the Arcadian Board deemed to be superior to the potential business
combination with Freeport. The Chairman of the Board of Freeport responded to
Mr. McMinn that Freeport would not raise its offer and that Arcadian should
pursue such superior acquisition proposal.
In the late afternoon of August 27, 1996, Messrs. McMinn and Childers
discussed entering into a letter of intent contemplating the proposed
acquisition in which the consideration payable by PCS to the holders of Arcadian
Common Stock would consist of cash and PCS Common Stock valued at $26 per share,
but without any provision for a break-up fee other than in a definitive merger
agreement. Arcadian provided to PCS a letter of intent containing such terms and
signed by Arcadian. PCS did not sign the letter of intent, and the parties
subsequently agreed to proceed directly to the negotiation of a definitive
merger agreement.
Beginning on August 29, 1996, and continuing through the early afternoon of
September 2, 1996, representatives of Arcadian and of PCS negotiated the terms
of the proposed Merger Agreement.
In the late morning of September 2, 1996, the Executive Committee of the
PCS Board of Directors met to review the structure and material terms of the
proposed transaction with Arcadian. After discussion, the PCS Executive
Committee approved the acquisition of Arcadian on the terms contained in the
Merger Agreement.
In the early afternoon of September 2, 1996, the Arcadian Board met to
consider the proposed transaction with PCS. Mr. McMinn reviewed the principal
terms of the proposed acquisition of Arcadian by PCS, and Arcadian's legal and
financial advisors discussed various legal, regulatory, accounting and financial
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issues relating to the proposed transaction. Following a thorough discussion of
the matter, the Arcadian Board received the oral opinion of Credit Suisse First
Boston, which was subsequently confirmed in writing, that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
consideration to be received by the holders of Arcadian Common Stock in the
Merger is fair to such holders from a financial point of view. See "-- Fairness
Opinion of Credit Suisse First Boston." The Arcadian Board then unanimously
determined that the Merger, upon the terms and conditions set forth in the
Merger Agreement, is fair to, and in the best interests of, Arcadian and its
stockholders, unanimously adopted the Merger Agreement, and unanimously resolved
to recommend that the Arcadian stockholders vote for the approval of the Merger
Agreement at the Special Meeting. See "-- Certain Transactions; Conflicts of
Interests."
In the mid-afternoon of September 2, 1996, promptly after the meeting of
the Arcadian Board, Mr. McMinn contacted the Chairman of the Board of Freeport
to inform him of the proposed Merger and to discuss the termination of the
Freeport Letter of Intent. Arcadian subsequently formally terminated the
Freeport Letter of Intent by a written notice delivered to Freeport.
In the late afternoon of September 2, 1996, Arcadian, PCS and Merger Sub
executed the Merger Agreement after receiving the approvals of the PCS Executive
Committee and the Arcadian Board described above.
On September 3, 1996, prior to the beginning of trading on the NYSE, TSE
and ME, Arcadian issued a press release announcing the termination of the
Freeport Letter of Intent, and Arcadian and PCS issued a joint press release
announcing the proposed Merger and the execution of the Merger Agreement.
Prior to the discussions leading to the execution of the Merger Agreement,
except as described below, Arcadian and PCS had no material contracts,
arrangements, understandings or relationships and had not engaged in any
material negotiations or transactions. In 1994, representatives of PCS initiated
discussions between representatives of PCS and Arcadian about a potential
acquisition of Arcadian by PCS. Arcadian and PCS entered into a confidentiality
agreement and exchanged certain information, and representatives of PCS and
Arcadian met on several occasions. However, the discussions never progressed
beyond the preliminary stage and did not result in any offer for Arcadian.
REASONS FOR THE MERGER; RECOMMENDATION OF THE ARCADIAN BOARD
At a special meeting of the Arcadian Board held on September 2, 1996, the
Arcadian Board received presentations concerning, and reviewed the terms of, the
Merger Agreement with members of Arcadian's management and its legal counsel and
financial advisors. At the meeting, the Arcadian Board unanimously determined
that the Merger, upon the terms and conditions set forth in the Merger
Agreement, is fair to, and in the best interests of, Arcadian and its
stockholders. ACCORDINGLY, THE ARCADIAN BOARD HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE ARCADIAN STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT AT THE SPECIAL MEETING. See "-- Background of
the Merger" and "-- Certain Transactions; Conflicts of Interest."
In reaching its determination, the Arcadian Board considered a number of
factors, including the following principal factors:
(a) The consideration to be received by the Arcadian stockholders in
the Merger. The Arcadian Board considered the fact that if the market value
of the Merger Consideration is $26 (the midpoint of the expected range of
value), the Merger Consideration would represent an approximately 18%
premium over the last reported sale price per share of Arcadian Common
Stock ($22) on August 30, 1996 (the last trading day prior to the public
announcement of the proposed Merger on September 3, 1996), and an
approximately 26% premium over the last reported sale price per share of
Arcadian Common Stock ($20.625) on August 6, 1996 (the last trading day
prior to the public announcement of Arcadian's execution of the Letter of
Intent with Freeport on August 7, 1996). The Arcadian Board also considered
the potential premium over the highest reported sale price per share of
Arcadian Common Stock prior to the public announcement of the proposed
Merger on September 3, 1996 ($24.125 on November 13, 1995), the potential
premium over the price per share at which the Arcadian Common Stock was
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<PAGE> 26
originally offered to the public ($15.50 on August 4, 1995), and the
potential premium over the price per share at which public trading in the
Arcadian Common Stock commenced ($17.125 on August 4, 1995). See "-- Merger
Consideration" and "Risk Factors -- Fluctuation in Amount and Market Value
of Stock Consideration."
(b) The cyclical nature of the nitrogen industry, and the effect that
significant fluctuations in the prevailing market price of natural gas
could have on Arcadian. The Arcadian Board believed that the
diversification resulting from the combination of PCS's potash and
phosphate businesses with Arcadian's nitrogen businesses would result in a
company with a more balanced product mix that would be less exposed to the
cyclical market for nitrogen products and less dependent on the market
price of natural gas.
(c) The ability of Arcadian stockholders who wish to do so to continue
to participate in the growth of the businesses conducted by PCS and
Arcadian after the Merger and to benefit from the potential appreciation in
the value of PCS Common Stock, while realizing an immediate premium for
their shares of Arcadian Common Stock and obtaining tax-free treatment to
the extent that they receive shares of PCS Common Stock in the Merger. See
"Certain Income Tax Considerations."
(d) The Arcadian Board's review of other strategic alternatives,
including possible business combinations with other companies. See
"-- Background of the Merger." Based upon its review of other strategic
alternatives and the advantages that could be achieved from Arcadian's
acquisition by PCS, the Arcadian Board did not believe that a transaction
(whether in the form of a business combination, acquisition or otherwise)
with any other company could reasonably be expected to offer advantages
comparable to those presented by an acquisition by PCS.
(e) Information provided by Arcadian's legal counsel with respect to
the United States federal income tax consequences of the Merger to Arcadian
stockholders. The Arcadian Board was advised that, for United States
federal income tax purposes, each holder of Arcadian Common Stock who
participates in the Merger generally will recognize taxable gain in an
amount equal to the lesser of (i) the excess of the sum of the cash and the
fair market value of the PCS Common Stock received over such holder's tax
basis in the Arcadian Common Stock so exchanged and (ii) the amount of cash
received. See "Certain Income Tax Considerations."
(f) Arcadian's and PCS's respective businesses, assets, liabilities,
managements, strategic objectives, competitive positions and prospects.
(g) The presentation of Credit Suisse First Boston delivered to the
Arcadian Board on September 2, 1996, including, without limitation, Credit
Suisse First Boston's opinion that, as of such date and based upon and
subject to certain matters stated therein, the consideration to be received
by the holders of Arcadian Common Stock in the Merger is fair to such
holders from a financial point of view. Credit Suisse First Boston
subsequently confirmed its initial fairness opinion by the delivery of a
subsequent fairness opinion dated as of the date of this Proxy Statement. A
copy of the subsequent fairness opinion of Credit Suisse First Boston is
attached hereto as Annex II. See "-- Fairness Opinion of Credit Suisse
First Boston."
(h) The terms and conditions of the Merger Agreement, including the
amount and the form of the Merger Consideration, the parties'
representations, warranties, covenants and agreements, and the conditions
to their respective obligations to consummate the Merger. The Arcadian
Board, based on presentations by its financial advisors and legal counsel,
determined that the terms and conditions of the Merger Agreement, including
the nature of the representations and warranties of Arcadian, the limited
conditions to PCS's obligation to close the Merger, and the ability of
Arcadian to consider alternative business combination proposals (as further
described below in paragraph (i)), are generally favorable to Arcadian. See
"Certain Provisions of the Merger Agreement."
(i) The terms of the Merger Agreement that permit the Arcadian Board
to terminate the Merger Agreement if the Arcadian Board shall have
determined, in its good faith judgment after consultation with legal
counsel and financial advisors, that the Arcadian Board's fiduciary duties
require termination of
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the Merger Agreement. The Arcadian Board noted that the Merger Agreement
provides that in the event of a termination of the Merger Agreement under
certain circumstances, Arcadian would be obligated to pay PCS an amount
equal to $25 million (representing approximately 2.1% of the estimated
value of the aggregate Merger Consideration) plus all out-of-pocket
expenses incurred by PCS in connection with the Merger Agreement, the
Merger and all related transactions. Based upon, among other things, the
presentation to the Arcadian Board of certain information relating to the
amounts of similar fees and provisions in other recent business
combinations, the Arcadian Board did not view such fee and reimbursement
provisions of the Merger Agreement as unreasonably impeding any interested
third party from proposing an alternative transaction. See "Certain
Provisions of the Merger Agreement -- Termination" and "-- Fees and
Expenses."
(j) The possible strategic growth opportunities that might be
available to Arcadian absent the Merger. Based upon its review of the
possible strategic growth opportunities that might be available to Arcadian
as an independent entity, the Arcadian Board believed that the Arcadian
stockholders would benefit most from the potential acquisition by PCS.
(k) The fact that if the Merger is consummated, Arcadian stockholders
would not receive the full benefit of any future growth in the value of
their equity that Arcadian might have achieved as an independent entity,
and the potential disadvantage to Arcadian stockholders who receive PCS
Common Stock in the event that PCS does not perform as well in the future
as Arcadian might have performed as an independent entity.
(l) The fact that holders of Arcadian Preferred Stock will be entitled
to receive the Redemption Premium payable on the Arcadian Preferred Stock
upon the Mandatory Pre-Merger Conversion, subject to the limitation set
forth in the Certificate of Designation that the aggregate value of the
share (or fraction of a share) of Arcadian Common Stock constituting the
Conversion Share plus the Redemption Premium cannot exceed the Redemption
Price of the Arcadian Preferred Stock at the Effective Time.
The foregoing discussion of information and factors considered and given
weight by the Arcadian Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
proposed Merger, the Arcadian Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching their determinations. In addition, individual members of
the Arcadian Board may have given different weights to different factors.
THE ARCADIAN BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ARCADIAN
COMMON STOCK AND THE HOLDERS OF ARCADIAN PREFERRED STOCK VOTE FOR APPROVAL OF
THE MERGER AGREEMENT. SEE "-- CERTAIN TRANSACTIONS; CONFLICTS OF INTEREST."
VOTING AGREEMENTS
Each member of the Arcadian Board has agreed to vote all shares of Arcadian
Common Stock and Arcadian Preferred Stock over which he exercises voting control
for the approval of the Merger Agreement. On the Record Date, the members of the
Arcadian Board exercised voting control over a total of approximately 2,881,946
shares of Arcadian Common Stock and 14,020 shares of Arcadian Preferred Stock,
constituting in the aggregate approximately 6.5% of the total number of
outstanding shares entitled to vote at the Special Meeting.
FAIRNESS OPINION OF CREDIT SUISSE FIRST BOSTON
Introduction. Credit Suisse First Boston has acted as financial advisor to
Arcadian in connection with the Merger. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
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<PAGE> 28
In connection with Credit Suisse First Boston's engagement, Arcadian
requested that Credit Suisse First Boston evaluate the fairness to the holders
of Arcadian Common Stock from a financial point of view of the consideration to
be received by such holders pursuant to the terms of the Merger Agreement.
At a meeting of the Arcadian Board held on September 2, 1996, Credit Suisse
First Boston delivered its oral opinion to the Arcadian Board that, as of the
date of such opinion and based upon and subject to certain matters discussed
with the Arcadian Board, the consideration to be received by holders of Arcadian
Common Stock in the Merger is fair to such holders from a financial point of
view. Credit Suisse First Boston's oral opinion was subsequently confirmed in
writing, and was reconfirmed as of the date of this Proxy Statement. Certain
financial analyses used by Credit Suisse First Boston in connection with its
presentation to the Arcadian Board on September 2, 1996, are summarized under
"-- Summary of Analyses" below.
In arriving at its fairness opinion, Credit Suisse First Boston reviewed,
among other things, (a) the Merger Agreement; (b) certain publicly available
business and financial information relating to Arcadian and PCS; and (c) certain
other information, including financial forecasts for Arcadian and PCS prepared
by their respective managements. Credit Suisse First Boston also held
discussions with members of the managements of Arcadian and PCS regarding the
business and prospects of their respective companies. In addition, Credit Suisse
First Boston reviewed the reported sale prices and trading activity for the
Arcadian Common Stock and the PCS Common Stock, compared certain financial and
stock market information for Arcadian and PCS with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the nitrogen
fertilizer and chemical products industry, and performed such other studies and
analyses as Credit Suisse First Boston considered appropriate.
In connection with its fairness opinion, Credit Suisse First Boston did not
assume responsibility for independent verification of any information provided
to or otherwise reviewed by Credit Suisse First Boston and relied upon its being
complete and accurate in all material respects. With respect to the financial
forecasts reviewed, Credit Suisse First Boston assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Arcadian's and PCS's managements as to the future financial
performance of Arcadian and PCS, respectively. Credit Suisse First Boston also
assumed, with the consent of Arcadian, that the Merger will qualify as a
reorganization under Section 368(a)(2)(D) of the Code, and that it will be
consummated in accordance with the Merger Agreement. In addition, Credit Suisse
First Boston did not make an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Arcadian or PCS, nor was Credit
Suisse First Boston furnished with any such evaluations or appraisals. Credit
Suisse First Boston's opinion is necessarily based on information available to
it and financial, economic, market and other conditions as they existed and
could be evaluated on the date of Credit Suisse First Boston's fairness opinion.
Credit Suisse First Boston expressed no opinion as to what the value of the PCS
Common Stock actually would be when issued pursuant to the Merger or the prices
at which the PCS Common Stock would trade subsequent to the Merger. Although
Credit Suisse First Boston evaluated the fairness of the consideration to be
received by the holders of Arcadian Common Stock in the Merger from a financial
point of view, the specific consideration payable in the Merger was determined
by Arcadian and PCS through arm's length negotiation. No other limitations were
imposed by Arcadian on Credit Suisse First Boston with respect to the
investigations made or procedures followed by Credit Suisse First Boston.
THE FULL TEXT OF THE FAIRNESS OPINION OF CREDIT SUISSE FIRST BOSTON, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS ANNEX II
AND IS INCORPORATED BY REFERENCE HEREIN. ARCADIAN STOCKHOLDERS ARE URGED TO READ
SUCH OPINION IN ITS ENTIRETY. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. Credit Suisse First Boston
consented to the inclusion of its fairness opinion as an annex to this Proxy
Statement. Credit Suisse First Boston's opinion was directed only to the
fairness of the consideration to be received by stockholders of Arcadian in the
Merger from a financial point of view, does not address any other aspects of the
Merger or any related transaction, and does not constitute a recommendation to
any stockholder of Arcadian as to the manner in which such stockholder should
vote at the Special Meeting.
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<PAGE> 29
Summary of Analyses. The following is a summary of the material financial
analyses used by Credit Suisse First Boston in connection with its presentation
to the Arcadian Board on September 2, 1996, and delivery of its fairness opinion
to the Arcadian Board, and does not purport to be a complete description of the
analyses conducted by Credit Suisse First Boston in arriving at its opinion.
-- Discounted Cash Flow Analysis. Credit Suisse First Boston performed a
discounted cash flow analysis of the projected unleveraged free cash flows of
Arcadian for the years ended December 31, 1996 through 2006, based upon (a)
certain operating and financial assumptions, forecasts and other information
prepared and/or provided by the management of Arcadian (the "Base Case"), (b)
revised estimates of these operating and financial assumptions, forecasts and
other information assuming, among other things, lower reference prices to
develop prices for Arcadian's major products and greater inflation rates for
natural gas costs (the "Low Case"), and (c) revised estimates of these operating
and financial assumptions, forecasts and other information assuming, among other
things, increased reference prices to develop prices for Arcadian's major
products (the "High Case"). Credit Suisse First Boston utilized "Base Case,"
"Low Case" and "High Case" scenarios for Arcadian merely as points of reference
for the Arcadian Board and in no way intended to suggest parameters or forecasts
as to minimum or maximum enterprise and equity valuation ranges for Arcadian.
This analysis resulted in a reference range for Arcadian Common Stock of $20.43
to $23.49 per share in the Base Case, $11.44 to $13.11 per share in the Low
Case, and $26.70 to $30.71 per share in the High Case.
-- Comparable Company Analysis. Credit Suisse First Boston reviewed and
compared certain financial, operating and stock market information of Arcadian
with the following selected publicly traded nitrogen fertilizer companies: First
Mississippi Corporation, Mississippi Chemical Corporation, Terra Industries,
Inc., and Viridian Inc. (the "Nitrogen Comparable Companies"). In addition,
Credit Suisse First Boston reviewed and compared certain financial, operating
and stock market information of Arcadian with the following selected publicly
traded phosphate/potash fertilizer companies: Freeport, IMC Global Inc. and PCS
(the "Phosphate Comparable Companies" and, together with the Nitrogen Comparable
Companies, the "Comparable Companies"). Credit Suisse First Boston derived
multiples of adjusted market value relative to estimated earnings before
interest, income taxes, depreciation and amortization ("EBITDA") for the 1996
and 1997 fiscal years. In addition, Credit Suisse First Boston derived multiples
of equity values relative to estimated earnings per share for the 1996 and 1997
fiscal years. Credit Suisse First Boston then calculated the imputed value of
Arcadian Common Stock by applying forecasted EBITDA and earnings per share for
fiscal year 1997 to the multiples derived from its analysis of the Comparable
Companies. This analysis resulted in a reference range for shares of Arcadian
Common Stock of $19 to $24 per share.
-- Comparable Transaction Analysis. Using publicly available information,
Credit Suisse First Boston determined that only Terra Industries, Inc.'s
acquisition of Agricultural Minerals & Chemicals Inc. in 1994 (the "Comparable
Transaction") was susceptible to comparison to the Merger contemplated by the
Merger Agreement. Applying the Comparable Transaction latest 12 months EBITDA
multiple of 3.5x, Credit Suisse First Boston derived a reference value of $23.45
per share for the Arcadian Common Stock. Based upon the lack of other comparable
transactions, Credit Suisse First Boston concluded, however, that the valuation
derived from its analysis of the Comparable Transaction was not as relevant as
the other valuation methodologies utilized in its analysis, but that it did lend
support to the ranges suggested by such other valuation methodologies.
-- Historical Stock Trading Ranges. Credit Suisse First Boston also
analyzed public trading price and volume data for the Arcadian Common Stock and
the PCS Common Stock, as reported on the NYSE Composite Tape, for the period
from August 31, 1995, through August 30, 1996. The Arcadian data included the
high, low and average sale prices per share of Arcadian Common Stock of $24.125,
$18.25 and $20.666, respectively, during the year ended August 30, 1996; and the
high, low and average sale prices per share of Arcadian Common Stock of $23.125,
$18.50 and $20.481, respectively, during the 26-week period ended August 30,
1996. Credit Suisse First Boston also considered the all-time high public
trading price per share of $24.125 on November 13, 1995, and the all-time low
public trading price per share of $17.125 on August 10, 1995. The PCS data
included the high, low and average closing sale prices per share of PCS Common
Stock of $80.375, $56.875 and $68.316, respectively, during the year ended
August 30, 1996. The information also reflected that at no time during such year
had the sale price per share of PCS Common Stock exceeded
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$83.25. This data indicated that at no time during the periods examined did the
highest sale price per share of Arcadian Common Stock exceed $25 (the low point
on the expected range of value of the Merger Consideration). See
"Summary -- Comparative Stock Prices" and "-- Reasons for the Merger;
Recommendation of the Arcadian Board."
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the process
underlying Credit Suisse First Boston's fairness opinion. In arriving at its
fairness opinion, Credit Suisse First Boston considered the results of all such
analyses taken as a whole. Furthermore, in arriving at its fairness opinion,
Credit Suisse First Boston did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. No company or
transaction used in the above analyses as a comparison is identical to Arcadian
or PCS or the Merger. The analyses were prepared solely for purposes of Credit
Suisse First Boston providing its opinion to the Arcadian Board as to the
fairness of the consideration to be received by the holders of Arcadian Common
Stock in the Merger from a financial point of view, and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Such analyses are based upon
numerous factors or events beyond the control of Arcadian, PCS, their respective
advisors or any other person, and are inherently uncertain. Actual future
results may be materially different from those forecast.
Fee and Other Information. Credit Suisse First Boston provides a full range
of financial, advisory and brokerage services, and in the course of its normal
trading activities may from time to time effect transactions and hold positions
in the securities or options on securities of Arcadian and/or PCS for its own
account and for the accounts of customers.
Pursuant to a letter agreement dated August 2, 1996, as amended on August
26, 1996, and August 30, 1996 (collectively the "Engagement Letter"), Arcadian
engaged Credit Suisse First Boston to act as its financial advisor. Pursuant to
the terms of the Engagement Letter, Arcadian has agreed to pay Credit Suisse
First Boston an initial retainer of $100,000 and an additional fee payable upon
Credit Suisse First Boston's delivery of its fairness opinion of $400,000. In
addition, pursuant to the Engagement Letter, Arcadian has agreed to pay Credit
Suisse First Boston a transaction fee of $3,500,000 upon consummation of the
Merger. Arcadian also has agreed to reimburse Credit Suisse First Boston for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Credit Suisse First Boston and certain related persons against certain
liabilities, including certain liabilities under the federal securities laws.
As described above, Credit Suisse First Boston's opinion to the Arcadian
Board was one of many factors taken into consideration by the Arcadian Board in
making its determination to approve the Merger Agreement. The foregoing summary
does not purport to be a complete description of the analysis performed by
Credit Suisse First Boston and is qualified by reference to the fairness opinion
of Credit Suisse First Boston set forth in Annex II hereto.
FORM OF THE MERGER
If the approval of the Arcadian stockholders is obtained and all other
conditions to the Merger are satisfied or waived, Arcadian will be merged with
and into Merger Sub, with Merger Sub being the Surviving Corporation.
MERGER CONSIDERATION
The Merger Agreement provides that at the Effective Time, subject to
adjustment and to certain exceptions, each outstanding share of Arcadian Common
Stock (including each share resulting from the Mandatory Pre-Merger Conversion
of the outstanding shares of Arcadian Preferred Stock, but excluding any shares
held by Arcadian, PCS or their respective subsidiaries and any Dissenting
Shares) will be converted into the right to receive the Merger Consideration
consisting of (a) $12.25 in cash (the "Cash
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Consideration") and (b) a fraction of a share of PCS Common Stock (the "Stock
Consideration") expected to have a market value of between $12.75 and $14.75.
Consequently, the Merger Consideration payable with respect to each outstanding
share of Arcadian Common Stock is expected to have a market value of between $25
and $27.
The fraction of a share of PCS Common Stock constituting the Stock
Consideration will be determined based on the average of the daily high and low
trading prices of the PCS Common Stock on the New York Stock Exchange (the
"NYSE") during the 20 consecutive days on which shares of PCS Common Stock are
traded on the NYSE ending two trading days prior to the anticipated Effective
Time (the "Final PCS Common Stock Price"). The fraction of a share of PCS Common
Stock constituting the Stock Consideration, expressed as a decimal and with the
result rounded up or down to the nearest one one-thousandth, will be equal to:
(a) if the Final PCS Common Stock Price is at least $72 but not
greater than $83.25, then 0.17713;
(b) if the Final PCS Common Stock Price is less than $72, then the
lesser of (i) 0.21250 and (ii) the quotient of $12.75 divided by the Final
PCS Common Stock Price; and
(c) if the Final PCS Common Stock Price is greater than $83.25, then
the greater of (i) 0.16389 and (ii) the quotient of $14.75 divided by the
Final PCS Common Stock Price.
If the Final PCS Common Stock Price is less than $60, the market value of the
Stock Consideration will be less than $12.75. If the Final PCS Common Stock
Price is greater than approximately $90, the market value of the Stock
Consideration will be greater than $14.75. If the Final PCS Common Stock Price
is less than approximately $65 or greater than approximately $90, either PCS or
Arcadian may, but will not be obligated to, terminate the Merger Agreement.
For tax reasons, the Merger Agreement provides that the amount of the Cash
Consideration may be decreased, and the amount of the Stock Consideration
increased by the same dollar value, if necessary to cause the aggregate value of
the PCS Common Stock to be issued in the Merger to constitute at least 47.94% of
the Total Consideration (as defined herein). As used herein, the term "Total
Consideration" means the sum of (a) the aggregate Merger Consideration, (b) the
value of any Dissenting Shares, and (c) any amount paid in redemption of
Arcadian Common Stock and Arcadian Preferred Stock, other than redemptions
undertaken in the ordinary course of business and not in contemplation of the
Merger, within one year prior to the Effective Time. The only such redemptions
that will have occurred during the one year prior to the Merger will be any
redemptions occurring as a part of the Merger, including the payment of cash in
lieu of the issuance of (a) fractional shares of Arcadian Common Stock upon the
Mandatory Pre-Merger Conversion of Arcadian Preferred Stock and (b) fractional
shares of PCS Common Stock upon the occurrence of the Merger. Solely for
purposes of the foregoing computation, the shares of PCS Common Stock to be
received by any Five Percent Holder (as defined herein), other than any Five
Percent Holder who has delivered to Arcadian a statement satisfactory to
Arcadian to the effect that such Five Percent Holder then has no intention to
dispose of the shares of PCS Common Stock to be received by such Five Percent
Holder in the Merger for a period of two years after the Effective Time, shall
be considered to be cash rather than shares of PCS Common Stock. As used herein,
the term "Five Percent Holder" means any stockholder of Arcadian who,
immediately prior to the Effective Time, is the owner of five percent or more of
the aggregate number of shares of Arcadian Common Stock then outstanding,
including shares of Arcadian Common Stock resulting from the Mandatory
Pre-Merger Conversion of the outstanding shares of Arcadian Preferred Stock.
PCS and Arcadian anticipate that the Effective Time will occur as promptly
as practicable following the satisfaction or waiver of each condition to the
Merger, including approval of the Merger Agreement by the Arcadian stockholders.
The Merger Agreement provides that the Valuation Period will end two trading
days prior to the anticipated Effective Time, at which time the number of shares
of PCS Common Stock constituting the Stock Consideration will be fixed. The
market price of PCS Common Stock at the Effective Time and thereafter may be
higher or lower than the Final PCS Common Stock Price, and as a result, the
market value of the Stock Consideration at the Effective Time and thereafter may
be more or less than the market value of the Stock Consideration based upon the
Final PCS Common Stock Price.
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In lieu of fractional shares of PCS Common Stock, PCS will pay to each
Arcadian stockholder who would otherwise be entitled to receive a fractional
share an amount in cash equal to the product of (a) such fractional share to
which such holder would otherwise be entitled multiplied by (b) the Final PCS
Common Stock Price.
FINANCING
The total Cash Consideration to be paid by Merger Sub in the Merger will be
invested in Merger Sub by PCS (directly or indirectly), which will make such
investment, in whole or in part, with borrowings under a credit facility
extended to PCS by a syndicate of Canadian and foreign banks (the "Credit
Facility"). The Credit Facility was established pursuant to a credit agreement
dated as of October 4, 1996. The Credit Facility provides for aggregate
unsecured advances of $1.45 billion which may be used (a) to pay all or a
portion of the aggregate Cash Consideration in the Merger, (b) to refinance debt
owing by PCS pursuant to a credit agreement dated as of April 10, 1995, as
amended, and (c) for general corporate purposes. The Credit Facility has an
initial revolving period of one year which may be extended with the unanimous
consent of the lenders. The Credit Facility provides for 20 quarterly payments
of principal beginning following the end of the revolving period, each of which
payments is in the amount of 1% of the principal outstanding at the end of the
revolving period, and a final payment of the remaining principal five years and
one day following the end of the revolving period. The maximum annual rate of
interest on the principal amounts outstanding and not in default under the
Credit Facility is LIBOR plus 0.5%. Interest on such amounts will be payable
throughout the term of the Credit Facility in accordance with the applicable
LIBOR period. The Credit Facility provides that, subject to certain conditions,
amounts outstanding thereunder may be prepaid at any time without penalty.
Merger Sub intends to commence, shortly after the date hereof, a tender
offer to purchase for cash all $340 million principal amount of Arcadian's
outstanding 10 3/4% Series B Senior Notes due 2005 (the "Senior Notes"),
together with a related consent solicitation to delete certain covenants in the
indenture governing the Senior Notes (collectively the "Senior Notes Tender
Offer and Consent Solicitation"). The Senior Notes Tender Offer and Consent
Solicitation is conditioned upon, among other things, the consummation of the
Merger, and is expected to close on or about the Effective Time of the Merger.
Merger Sub intends to pay the costs of the Senior Notes Tender Offer and Consent
Solicitation with funds obtained by PCS from existing cash and short-term
investments and from borrowings under the Credit Facility and a short-term loan
to be provided by a bank. (Under the indenture governing the Senior Notes, each
holder of the Senior Notes has the right to require Arcadian to purchase all or
any part of such holder's Senior Notes at a purchase price equal to 101% of the
principal amount thereof plus any accrued and unpaid interest to the date of
purchase.)
Immediately after the Special Meeting, Arcadian intends, at the request of
PCS, to redeem all $185 million principal amount of its outstanding First
Mortgage Notes pursuant to the note agreement governing the First Mortgage Notes
(the "First Mortgage Notes Redemption"). The First Mortgage Notes Redemption
will entail the payment by Arcadian of an additional make-whole premium of
approximately $25 million to the holders of the First Mortgage Notes. Arcadian
intends to pay the total cost of the First Mortgage Notes Redemption of
approximately $210 million with funds obtained from existing cash and short-term
investments.
See Note 6 of the Notes to the Pro Forma Consolidated Financial Statements.
PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
Upon consummation of the Merger, PCS shall make available to ChaseMellon
Shareholder Services, L.L.C., 85 Challenger Road, Ridgefield Park, New Jersey
07660, or such other institution as may be designated by PCS (the "Exchange
Agent"), for the benefit of the holders of shares of Arcadian Common Stock
(including shares resulting from the Mandatory Pre-Merger Conversion of the
outstanding shares of Arcadian Preferred Stock, but excluding any shares held by
Arcadian, PCS or their respective subsidiaries and any Dissenting Shares), for
exchange, certificates evidencing shares of PCS Common Stock and cash (to be
furnished by Merger Sub) in amounts required to be exchanged for shares of
Arcadian Common Stock in the Merger.
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As promptly as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of a certificate formerly representing shares of
Arcadian Common Stock or Arcadian Preferred Stock (each a "Certificate") (a) a
Letter of Transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent, and (b) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration.
Upon surrender to the Exchange Agent of a Certificate for cancellation,
together with such Letter of Transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration.
No dividends or other distributions declared or made after the Effective
Time with respect to PCS Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of PCS Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder, until the holder
of such Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable laws, following surrender of any such
Certificate, the holder of whole shares of PCS Common Stock issued in exchange
therefor, will be paid without interest, (a) the amount of any cash payable with
respect to a fractional share of PCS Common Stock to which such holder is
entitled and the amount of dividends or other distributions with a record date
after the Effective Time and theretofore paid with respect to such whole shares
of PCS Common Stock, and (b) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of PCS Common Stock.
At the Effective Time, the stock transfer books of Arcadian shall be closed
and there shall be no further registration of transfers of shares of Arcadian
Common Stock or Arcadian Preferred Stock thereafter on the records of Arcadian.
From and after the Effective Time, (a) the holders of Certificates representing
shares of Arcadian Preferred Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Arcadian Preferred Stock, except as otherwise provided in the Certificate of
Designation, in the Merger Agreement or by law, and (b) the holders of
Certificates representing shares of Arcadian Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Arcadian Common Stock, except as otherwise provided in
the Merger Agreement or by law.
EFFECTIVE TIME
The Merger Agreement provides that as promptly as practicable after the
satisfaction or waiver of all conditions to the Merger, the Merger will be
effected by the filing of a Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with applicable law. The date and time of
the filing of the Certificate of Merger are referred to herein as the "Effective
Time."
STOCK EXCHANGE LISTINGS
PCS has filed applications to list the shares of PCS Common Stock to be
issued in connection with the Merger on the NYSE, TSE and ME, subject to
approval of the Merger Agreement by the Arcadian stockholders and to official
notice of issuance. The PCS Common Stock is listed for trading on the NYSE, TSE
and ME under the symbol "POT."
TREATMENT OF ARCADIAN OPTIONS AND RELATED MATTERS
Options. Pursuant to the Merger Agreement and instructions received from
PCS, Arcadian has taken all necessary actions to implement the provisions of
clause (1) of Section 6(j) of its Stock Option Plan, as amended (the "U.S.
Option Plan"), with respect to the outstanding options to purchase Arcadian
Common Stock granted under the U.S. Option Plan. Subject to certain conditions
set forth in the U.S. Option Plan, clause (1) of Section 6(j) permits Arcadian
to accelerate the time at which the then outstanding options, whether vested or
not, may be exercised in full for a limited period of time on or before a
specified date
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(which, in the case of the Merger, will permit the holders of the options to
participate in the Merger with the shares of Arcadian Common Stock received upon
the exercise of such options) to be fixed by the Committee (as defined in the
U.S. Option Plan), after which specified date all unexercised options and all
rights of the optionees thereunder will terminate. In accordance with clause (1)
of Section 6(j), the Committee has fixed February 20, 1997, as the date through
which all outstanding options granted under the U.S. Option Plan may be
exercised prior to the Merger. In addition, Arcadian has taken all necessary
actions to cause the options to purchase Common Stock granted under the 1994
Stock Option Plan for Key Employees of Arcadian Trinidad Ammonia Limited and
Arcadian Trinidad Urea Limited (the "Trinidad Option Plan") to be treated in the
same manner. At December 31, 1996, there were outstanding options to purchase
721,401 shares of Arcadian Common Stock granted under the U.S. Option Plan and
outstanding options to purchase 67,500 shares of Arcadian Common Stock granted
under the Trinidad Option Plan.
SARs. Pursuant to the Merger Agreement, Arcadian has taken all necessary
actions to amend its Stock Appreciation Rights Plan, as amended (the "SAR
Plan"), to provide that at the Effective Time, each stock appreciation right
unit granted under the SAR Plan ("SAR") that is outstanding immediately prior to
the Effective Time will be converted into cash in an amount equal to the Merger
Consideration less the applicable Award Price (as set forth in the applicable
SAR agreement) of such SAR. At December 31, 1996, there were 219,607 outstanding
SARs.
Restricted Stock. The Merger Agreement provides that immediately prior to
the Effective Time, all restrictions relating to all shares of Arcadian Common
Stock theretofore granted pursuant to Arcadian's Restricted Stock Plan (the
"Restricted Stock Plan") will lapse, and all conditions to the holders' receipt
of such shares free of any such restrictions will be deemed satisfied. At the
Effective Time, each share of Arcadian Common Stock theretofore granted pursuant
to the Restricted Stock Plan will be converted into the Merger Consideration. At
December 31, 1996, there were 131,589 outstanding shares of Arcadian Common
Stock issued pursuant to the Restricted Stock Plan.
AAC Warrants. Each warrant ("AAC Warrant") issued pursuant to the Warrant
Issuance Agreement dated as of May 31, 1989, between Arcadian and AAC Holdings,
Inc., outstanding immediately prior to the Effective Time will expire at the
Effective Time; however, the holders thereof will be entitled to receive the
Merger Consideration that they would have been entitled to receive in the Merger
if they had exercised such AAC Warrants and held shares of Arcadian Common Stock
immediately prior to the Effective Time, less the exercise price of such AAC
Warrants which will be deducted from the Cash Consideration. At December 31,
1996, there were outstanding AAC Warrants to purchase 234,853 shares of Arcadian
Common Stock.
B Warrants. Pursuant to the Merger Agreement, Arcadian will take action so
that each outstanding warrant ("B Warrant") issued pursuant to the Warrant
Agreement dated as of December 22, 1989, between Arcadian and Chemical Bank, as
Warrant Agent, as amended, shall be deemed to constitute a warrant having such
terms and conditions as are required by such Warrant Agreement. At December 31,
1996, there were outstanding B Warrants to purchase 258,538 shares of Arcadian
Common Stock.
CERTAIN TRANSACTIONS; CONFLICTS OF INTEREST
Certain members of Arcadian's management have interests in the Merger, in
addition to their interests solely as stockholders of Arcadian, as described
below.
In connection with Arcadian's exploration of the possibility of entering
into a business combination, the Arcadian Board authorized Arcadian to adopt
certain severance programs for the benefit of Arcadian employees classified
within various grade levels and to enter into employment agreements with the
executive officers of Arcadian (the "Executives") providing for severance and
related benefits (the "Employment Agreements"). The Employment Agreements
provide that upon actual (other than for cause) or constructive termination of
an Executive after the occurrence of a change of control of Arcadian (such as
the Merger), the terminated Executive will be entitled to the payment, within 30
days after termination or at such later time as specified by the Executive (but
no later than 36 months after termination) of an amount equal to the sum of (a)
three times the Executive's base salary then in effect, (b) three times the
average of all bonus, profit sharing and other incentive payments made to the
Executive in respect of the two calendar years immediately preceding such
termination, (c) a pro rata portion of the then current calendar year's targeted
bonus, profit
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sharing and other incentive payments based on the number of months worked during
such year, and (d) all other amounts or benefits owing or accrued to, vested in,
or earned by the Executive through the termination date. The Employment
Agreements provide for the continuation of various benefits for the terminated
Executive for three years after the Executive's termination occurring after a
change of control (such as the Merger), and provide for immediate vesting of all
retirement benefits as well as credit for an additional three years of service
for purposes of such retirement benefits. The Employment Agreements also provide
for gross-up payments to protect the Executives from the effects of certain
excise taxes.
For additional information regarding the benefits to be received by the
foregoing individuals as a result of the Merger, see "-- Treatment of Arcadian
Options and Related Matters," and for additional information concerning the
beneficial ownership of Arcadian Common Stock and Arcadian Preferred Stock by
the directors and executive officers of Arcadian prior to the Merger, see
"Beneficial Ownership of Securities -- Arcadian."
Pursuant to the Merger Agreement, PCS and the Surviving Corporation have
agreed that for a period of six years after the Effective Time, PCS shall cause
to be maintained in effect (a) the indemnification provisions set forth in
Arcadian's Restated Certificate of Incorporation, as amended, and its Amended
and Restated Bylaws, in each case as of the date of the Merger Agreement, and
(b) Arcadian's current directors' and officers' liability insurance and
fiduciary insurance policies, subject to specified limitations. PCS also has
agreed to assume all obligations of Arcadian and any of its subsidiaries under
any indemnification or similar agreements with any employee, officer or director
of Arcadian in effect immediately prior to the Effective Time, in each case
without releasing the indemnitor under such agreements. See "Certain Provisions
of the Merger Agreement -- Indemnification and Insurance."
LITIGATION
Following the public announcement on August 7, 1996, of Arcadian's
execution of the Freeport Letter of Intent concerning a potential business
combination with Freeport, five lawsuits were filed in the Court of Chancery of
the State of Delaware in and for New Castle County on behalf of a purported
class of all stockholders of Arcadian other than the defendants and their
affiliates. Arcadian and some or all of its directors (including one former
director, who was subsequently dismissed from the lawsuits) were named as
defendants in the lawsuits. On September 5, 1996, following the public
announcement of the proposed Merger on September 3, 1996, an amended complaint
(the "Amended Complaint") was filed in two of the five lawsuits. PCS is named as
an additional defendant in the Amended Complaint, but PCS has not yet received
service of process. The Amended Complaint alleges generally that the defendants
acted improperly in causing Arcadian to enter into the Merger Agreement, and
seeks an injunction preventing the Merger, unspecified monetary damages, and
other relief. On September 16, 1996, the court signed an order consolidating all
five lawsuits and ordering that the Amended Complaint serve as the complaint in
the consolidated action. The defendants believe the lawsuit is without merit.
Nevertheless, Arcadian and the other defendants have entered into a memorandum
of understanding (the "Memorandum of Understanding") with the plaintiffs
providing for the conditional settlement of the litigation. In so doing, the
defendants denied that they violated the law and agreed to settle the suit
solely to eliminate the burden and expense of any further litigation relating to
the Merger. In the Memorandum of Understanding, Arcadian and PCS agreed to
modify and enhance the terms of the Merger in the following respects: (a) to
reduce the termination fee payable under certain circumstances specified in
Section 9.02(b) of the Merger Agreement from $25 million to $20 million; (b) to
provide that if the Final PCS Common Stock Price is less than $65 but at least
$60, the Stock Consideration would increase such that the expected market value
of the Stock Consideration would be approximately $12.75 per share; and (c) to
extend the date provided in Section 8.01(b) after which the Merger Agreement may
be terminated from February 28, 1997, to April 30, 1997. The Merger Agreement
has been so amended. Arcadian also agreed, with PCS's approval, (a) to announce
publicly, consistent with its past practices, its earnings for the fiscal year
ended December 31, 1996, prior to the Special Meeting; and (b) to declare and
pay, consistent with its ordinary practice, a regular quarterly dividend on the
Arcadian Common Stock of at least $0.10 per share in April 1997, if the Merger
has not been consummated by the time that payment of such a dividend would
ordinarily be considered by the Arcadian Board. Arcadian and PCS also have
agreed to pay the fees and expenses, if any, awarded by the court to the
plaintiffs' counsel up to $450,000. The Memorandum of
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Understanding provides that the parties will attempt in good faith to agree upon
and enter into a stipulation of settlement of all claims asserted in the suit
and all other claims, if any, arising out of or relating to the Merger (the
"Stipulation"). The Stipulation will provide for, among other things, (a) the
dismissal of all claims asserted in the lawsuit with prejudice; (b) class
certification of a class of plaintiffs consisting of all persons other than
defendants who owned Arcadian Common Stock or Arcadian Preferred Stock on August
7, 1996, and their successors in interest and transferees, immediate and remote,
through and including the consummation of the Merger; and (c) the release by the
plaintiffs of any and all claims relating to the Merger that they may have
against the defendants and related persons. The release will not affect
stockholders' appraisal rights. The consummation of the settlement is subject to
certain conditions, including (a) the completion of confirmatory discovery by
the plaintiffs to verify that the terms of the settlement are fair and
reasonable; (b) the approval of the Stipulation by the Delaware court; and (c)
the consummation of the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by PCS under the purchase method of
accounting. Therefore, the aggregate consideration paid by PCS in connection
with the Merger will be allocated to Arcadian's assets and liabilities based on
their fair market values with any excess being treated as goodwill. The assets
and liabilities and results of operations of Arcadian will be consolidated into
the assets and liabilities and results of operations of PCS subsequent to the
Effective Time.
APPROVALS AND CONSENTS
In the Merger Agreement, subject to the terms thereof, PCS and Arcadian
have agreed to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the Merger and the other transactions
contemplated by the Merger Agreement, including making all necessary filings
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). PCS and Arcadian each made the necessary filings under the HSR Act,
and the waiting period thereunder expired at midnight on October 27, 1996.
ARCADIAN STOCKHOLDERS' APPRAISAL RIGHTS
Holders of record of Arcadian Common Stock and holders of record of
Arcadian Preferred Stock are entitled to appraisal rights under Section 262
("Section 262") of the Delaware General Corporation Law (the "DGCL") in
connection with the Merger. The following discussion is not a complete statement
of the law pertaining to appraisal rights under the DGCL and is qualified in its
entirety by reference to the full text of Section 262, which is reprinted in its
entirety as Annex III to this Proxy Statement. Except as set forth herein and in
Annex III, holders of Arcadian Common Stock and Arcadian Preferred Stock will
not be entitled to appraisal rights in connection with the Merger.
Under the DGCL, holders of record of Arcadian Common Stock and holders of
record of Arcadian Preferred Stock who follow the procedures set forth in
Section 262 and who have not voted FOR the Merger will be entitled to have their
shares of Arcadian Common Stock, including shares resulting from the Mandatory
Pre-Merger Conversion of the Arcadian Preferred Stock, appraised by the Delaware
Court of Chancery and to receive payment of the "fair value" of such shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, as determined by such
court. Shares of Arcadian Common Stock as to which appraisal rights have been
properly demanded pursuant to Section 262 and not waived or otherwise lost are
referred to in this Proxy Statement as "Dissenting Shares."
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Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of stockholders (such as the Merger Agreement at the Special
Meeting), then not less than 20 days prior to such meeting, the corporation
whose stockholders are entitled to appraisal rights must notify each of its
stockholders of record at the close of business on the record date for such
meeting that such rights are available and must include in each such notice a
copy of Section 262. This Proxy Statement and the accompanying Notice constitute
such notice for purposes of the Special Meeting. Any stockholder of record who
wishes to exercise appraisal rights should review the following discussion and
Annex III carefully.
A holder of Arcadian Common Stock or Arcadian Preferred Stock wishing to
exercise appraisal rights must deliver to Arcadian, before the vote on the
approval of the Merger Agreement at the Special Meeting, a written demand for
appraisal of such shares. In addition, a holder of shares wishing to exercise
appraisal rights must hold such shares of record on the date that the written
demand for appraisal is made and must continue to hold such shares through the
Effective Time.
Only a holder of record of shares is entitled to assert appraisal rights
for the shares registered in that holder's name. A demand for appraisal should
be fully and correctly executed by or on behalf of the holder of record, as such
holder's name appears on the stock certificates. If shares are held of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand for appraisal should be made in that capacity, and if the shares are
held of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one of two or more joint owners, may execute the
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record holder or holders and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for such holder or holders. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising such rights with respect
to the shares held for other beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought, and where
no number of shares is expressly mentioned the demand will be presumed to cover
all shares held in the name of the record holder. Persons who hold shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers or other nominees to determine
the appropriate procedures for the making of a demand for appraisal by such
broker or nominee. All written demands for appraisal should be sent or delivered
to Arcadian Corporation, 3175 Lenox Park Boulevard, Suite 400, Memphis,
Tennessee 38115-4256, Attention: General Counsel, so as to be received before
the vote on the approval of the Merger Agreement at the Special Meeting.
Within 10 days after the Effective Time, the Surviving Corporation must
send a notice as to the effectiveness of the Merger to each holder of record of
Arcadian Common Stock and each holder of record of Arcadian Preferred Stock who
submitted a timely written demand for appraisal and did not vote FOR or consent
to the Merger. Within 120 days after the Effective Time, but not thereafter, the
Surviving Corporation, or any record holder of shares entitled to appraisal
rights under Section 262 who has complied with the foregoing procedures, may
file a petition in the Delaware Court of Chancery (the "Court") demanding a
determination of the fair value of such shares. Merger Sub, which will become
the Surviving Corporation upon consummation of the Merger, will not have any
obligation, and has no present intention, to file any such petition.
Accordingly, it will be the obligation of any Arcadian stockholders seeking
appraisal rights to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. Such statements must be mailed within 10 days after a written
request therefor has been received by the Surviving Corporation or within 10
days after expiration of the period for delivery of demands for appraisal,
whichever is later.
If a petition for appraisal is timely filed, the Court will fix a time and
place for the hearing of such petition, and, if so ordered by the Court, notice
of such hearing will be given to the Surviving Corporation and
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the record holders of shares who have complied with the procedures for
perfection of their appraisal rights. At the hearing on such petition, the Court
will determine the record holders of shares entitled to appraisal rights and
will appraise the "fair value" of the shares of Arcadian Common Stock, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Holders considering seeking appraisal
should be aware that the fair value of the shares of Arcadian Common Stock as
determined under Section 262 could be more than, the same as, or less than the
market value of the Merger Consideration that they would otherwise receive if
they did not seek appraisal of their shares. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and are otherwise admissible in
court" should be considered in the appraisal proceedings. The Court also will
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares have been appraised. The costs of the action
may be determined by the Court and taxed upon the parties as the Court deems
equitable. The Court also may order that all or a portion of the expenses
incurred by any record holder of shares in connection with an appraisal
(including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding) be charged pro rata
against the value of all shares entitled to appraisal. No appraisal proceeding
in the Court will be dismissed with respect to any Arcadian stockholder without
the approval of the Court, and such approval may be conditioned upon such terms
as the Court deems just.
Any record holder of shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of Arcadian Common Stock or to
holders of record of Arcadian Preferred Stock as of a date prior to the
Effective Time).
If any record holder of Arcadian Common Stock or Arcadian Preferred Stock
who demands appraisal of shares under Section 262 fails to perfect, or
effectively withdraws or loses, the right to appraisal, as provided in the DGCL,
the shares of Arcadian Common Stock (including shares issued as a result of the
Mandatory Pre-Merger Conversion of the outstanding shares of Arcadian Preferred
Stock) of such holder will be converted into the right to receive the Merger
Consideration in accordance with the Merger Agreement. A record holder of shares
will fail to perfect, or effectively lose, the right to appraisal if no petition
for appraisal is filed within 120 days after the Effective Time. A record holder
of shares may withdraw a demand for appraisal by delivering to the Surviving
Corporation a written withdrawal of the demand for appraisal and acceptance of
the Merger at any time within 60 days after the Effective Time.
FAILURE TO STRICTLY FOLLOW THE REQUIREMENTS AND CONDITIONS OF SECTION 262
OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH
RIGHTS.
DELISTING AND DEREGISTRATION OF ARCADIAN COMMON STOCK AND ARCADIAN PREFERRED
STOCK
If the Merger is consummated, the Arcadian Common Stock and Arcadian
Preferred Stock will be delisted from the NYSE and will be deregistered under
the Exchange Act.
RESALES OF PCS COMMON STOCK
All shares of PCS Common Stock to be issued in connection with the Merger
will have been registered under the Securities Act. Such shares of PCS Common
Stock will be freely transferable by the holders thereof, except that (a) shares
received by any person who may be deemed to be an affiliate within the meaning
of Rule 145 under the Securities Act (an "Affiliate") of Arcadian may not be
resold other than in transactions permitted by such Rule 145 or as otherwise
permitted under the Securities Act, and (b) shares received by any person who is
a party to an agreement not to transfer shares will be subject to the
restrictions on transfer contained therein.
Pursuant to the Merger Agreement, Arcadian has delivered to PCS a list of
the names and addresses of those persons who, in Arcadian's reasonable judgment,
will be Affiliates of Arcadian for purposes of Rule 145 at the time of the
Special Meeting. Arcadian has agreed to provide PCS with such information and
documents
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as PCS shall reasonably request for purposes of reviewing such list. Arcadian
also has delivered to PCS a letter executed by each of the Affiliates of
Arcadian identified in such list and has agreed to update such list if Arcadian
becomes aware of any person who becomes an Affiliate of Arcadian subsequent to
the delivery of such list and prior to the Effective Time.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
PCS, Arcadian and Merger Sub relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (a) the due organization, existence and good standing of,
and similar corporate matters with respect to, each of PCS and its subsidiaries,
Arcadian and its subsidiaries, and Merger Sub, and the organizational documents
of each party; (b) the capitalization of each party; (c) the authorization,
execution, delivery and enforceability of the Merger Agreement and the
transactions contemplated thereby; (d) the absence, other than as disclosed, of
(i) any conflict with such party's organizational documents, applicable law, or
certain contracts or (ii) any governmental or regulatory authorization, consent
or approval required to consummate the Merger; (e) reports and other documents
filed by PCS and Arcadian with the Commission and the accuracy of the
information contained therein; (f) the accuracy of the information supplied in
this Proxy Statement; (g) the absence of certain changes or events; (h) the
absence of material pending or threatened litigation; (i) the absence, other
than as disclosed, of changes to, and the qualification, operation and liability
under, certain employee benefit plans of Arcadian and its subsidiaries; (j)
certain tax matters of, and the payment of taxes by, Arcadian; (k) compliance
with applicable laws by Arcadian; (l) compliance with applicable environmental
laws and other environmental matters; (m) the absence of actions or failures to
act by either party which would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; (n) the vote
required by the Arcadian stockholders to approve the Merger Agreement; (o)
Arcadian's receipt of an opinion of CS First Boston as to the fairness, from a
financial point of view, of the consideration to be received in the Merger by
the holders of Arcadian Common Stock; (p) the absence of any brokerage, finder's
or other similar fee due from Arcadian in connection with the Merger; and (q)
the absence of any liabilities or obligations of Merger Sub other than its
obligations under the Merger Agreement. The representations and warranties will
not survive after the Effective Time of the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Arcadian. Arcadian has agreed (except as permitted by the Merger Agreement)
that, prior to the Effective Time or the date on which the Merger Agreement is
terminated, Arcadian:
(a) shall, and shall cause its subsidiaries to, conduct its and their
operations in the ordinary and usual course of business in substantially
the same manner as conducted prior to the date of the Merger Agreement;
(b) shall use its reasonable efforts, and shall cause each of its
subsidiaries to use its reasonable efforts, to preserve intact their
respective business organizations and goodwill in all material respects,
keep available the services of its officers and employees as a group,
subject to changes in the ordinary course, and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with it;
(c) shall notify PCS of any material emergency or material change in
the normal course of its or its subsidiaries' businesses or in the
operation of their properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated) if such emergency, change, complaint, investigation or
hearing would have a material adverse effect on Arcadian;
(d) except as expressly permitted by the Merger Agreement, shall not,
and shall not permit any of its subsidiaries which is not wholly-owned to,
declare or pay any dividends on or make any distribution
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with respect to its outstanding shares of capital stock other than
Arcadian's regular quarterly dividend on Arcadian Common Stock in an amount
not exceeding $0.10 per share and the dividend on the Arcadian Preferred
Stock;
(e) except as contemplated by certain provisions of the Merger
Agreement, and except in the ordinary course of business, shall not (i)
grant or permit any of its subsidiaries to grant any severance or
termination pay to, or enter into any employment, termination or severance
arrangement with, its employees or directors; (ii) amend in any material
respect any employment, termination or severance arrangement with any
directors, officers or employees, it being understood that any increase or
acceleration of benefits under any such agreement or arrangement (other
than bonuses paid in the ordinary course of business consistent with past
practice) shall be deemed material; (iii) establish, adopt, enter into, or
amend or take action to accelerate or enhance any rights or benefits under,
(A) any plan providing for options, stock, performance awards or other
forms of incentive or deferred compensation or (B) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any of its directors, officers or employees; or (iv)
increase the compensation or benefits of any other employees or payment of
any benefit not required by any plan or arrangement as in effect on June
30, 1996;
(f) subject to certain provisions of the Merger Agreement, shall not,
and shall not permit any of its subsidiaries to, authorize, propose or
announce an intention to authorize or propose, or enter into an agreement
with respect to, any merger, consolidation or business combination (other
than the Merger and any partnership or joint venture arrangements entered
into in the ordinary course of business consistent with past practice), any
acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities or any release or
relinquishment of any material contract rights not in the ordinary course
of business;
(g) except as otherwise contemplated by the Merger Agreement, shall
not, and shall not permit any of its subsidiaries to, issue any shares of
capital stock except upon exercise of rights pursuant to securities
outstanding on June 30, 1996, or upon exercise of rights or options issued
pursuant to existing employee incentive and benefit plans, programs or
arrangements (including, without limitation, shares issued in connection
with stock grants or awards or the exercise of rights or options granted in
the ordinary course of business consistent with past practice pursuant to
such plans, programs or arrangements) or effect any stock split not
previously announced or otherwise change its capitalization as it existed
on June 30, 1996;
(h) shall not, and shall not permit any of its subsidiaries to, grant,
confer or award any options, warrants, conversion rights or other rights,
not existing on the date of the Merger Agreement, to acquire any shares of
its capital stock, except grants of options pursuant to employee incentive
and benefit plans, programs or arrangements in existence on the date hereof
in the ordinary course of business consistent with past granting practices
and policies;
(i) except as otherwise described in the Merger Agreement shall not,
and shall not permit any of its subsidiaries to, except in the ordinary
course of business in connection with employee incentive and benefit plans,
programs or arrangements in existence on the date of the Merger Agreement,
purchase or redeem any shares of its capital stock;
(j) shall not, and shall not permit any of its subsidiaries to, incur,
assume or guaranty any indebtedness from any third party for borrowed
money, other than in the ordinary course of business consistent with past
practice;
(k) shall not, and shall not permit any of its subsidiaries to, amend
any term of any of their outstanding securities;
(l) shall not, and shall not permit any of its subsidiaries to, create
or assume any lien on any material asset other than in the ordinary course
of business consistent with past practices;
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(m) shall not, and shall not permit any of its subsidiaries to, make
any loan, advance or capital contribution to or investment in any person
other than (i) loans, advances or capital contributions to or investments
in its subsidiaries, (ii) investments in securities consistent with past
practice or (iii) other loans, advances, capital contributions or
investments in an aggregate amount not exceeding $25,000,000 since June 30,
1996;
(n) except in the ordinary course of business consistent with past
practice, shall not, and shall not permit any of its subsidiaries to, enter
into any transaction, commitment, contract or agreement relating to their
assets or businesses (including, without limitation, the acquisition or
disposition of any assets) or to relinquish any contract, license or other
right other than transactions, commitments, contracts or agreements
contemplated by the Merger Agreement;
(o) shall not, and shall not permit any of its subsidiaries to, change
any of their respective methods of accounting or accounting principles or
practices, except for any such change required by reason of a concurrent
change in generally accepted accounting principles;
(p) shall not, and shall not permit any of its subsidiaries to, enter
into any contract limiting the right of Arcadian or any of its subsidiaries
at any time on or after the date of the Merger Agreement to engage in, or
to compete with any person in, any business, except such contracts as would
not be material to Arcadian and its subsidiaries, taken as a whole;
(q) subject to certain provisions of the Merger Agreement, shall not,
and shall not permit any of its subsidiaries to, agree, in writing or
otherwise, to take any of the foregoing actions or any action which would
make any of its representations or warranties in the Merger Agreement
untrue or incorrect in any material respect;
(r) shall not propose or adopt any amendments to its Restated
Certificate of Incorporation, as amended, or its Amended and Restated
Bylaws; and
(s) shall deliver to PCS a letter from an identified stockholder of
Arcadian regarding such stockholder's intention to hold a portion of the
shares of PCS Common Stock that he will receive in the Merger for a period
of time and containing an agreement of such stockholder not to dispose of
certain of such shares for a period of time.
PCS. PCS has agreed (except as permitted by the Merger Agreement) that,
prior to the Effective Time or the date on which the Merger Agreement is
terminated, PCS:
(a) shall, and shall cause its subsidiaries to, conduct its and their
operations in the ordinary and usual course of business in substantially
the same manner as heretofore conducted;
(b) except as otherwise contemplated in the Merger Agreement, shall
not effect any stock split or otherwise change its capitalization as it
existed on June 30, 1996 (provided, however, that the exercise of employee
or director stock options and issuance of shares of PCS Common Stock
pursuant to the PCS Dividend Reinvestment Plan shall not be considered to
be a change in the capitalization of PCS); and
(c) shall not, and shall not permit any of its subsidiaries to, amend
any term of any of its or their outstanding securities.
ARCADIAN BENEFIT PLANS
The Merger will constitute a "Change of Control" or "Change in Control"
within the meaning assigned to such terms, as applicable, under certain employee
incentive plans, option plans, severance programs and employment contracts of
Arcadian and any agreements pursuant thereto. See "The Merger -- Certain
Transactions; Conflicts of Interest."
PCS has agreed in the Merger Agreement to cause the employees of Arcadian
and its subsidiaries who are employed by the Surviving Corporation or any of its
subsidiaries after the Merger in positions that are not covered by a collective
bargaining agreement (the "Continuing Employees") either (a) to be covered by
the benefit plans and programs of PCS and its subsidiaries with substantially
equivalent benefits in respect of future service that accrue in respect of
future services to the employees of PCS and its subsidiaries who are
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employed in comparable positions, or (b) to be covered by the benefit plans and
programs of Arcadian and its subsidiaries as in effect immediately prior to the
Effective Time; provided, however, that the Surviving Corporation will remain
liable for its obligations under Arcadian's severance program or any employment
agreement or similar contractual obligation. The Continuing Employees shall be
credited for their service with Arcadian and its subsidiaries and their
predecessors for purposes of participation, eligibility and vesting under the
benefit plans and programs provided by PCS, and for benefit accrual purposes for
vacation, severance, pension and retirement benefits only. PCS has agreed to
cause its group health plan that will provide coverage to the Continuing
Employees to waive any limitations regarding pre-existing conditions of the
Continuing Employees and their eligible dependents (except to the extent that
such limitations would have applied to any such individual under the group
health plan of Arcadian and its subsidiaries).
PCS has agreed in the Merger Agreement that each officer and other employee
of Arcadian or any of its subsidiaries who is a party to a written employment
agreement with Arcadian or any of its subsidiaries, and who remains in the
employment of PCS, the Surviving Corporation or any of its other subsidiaries
after the expiration of the term of such agreement, shall be entitled to the
benefits of an employment agreement with PCS in form and substance substantially
similar to the employment agreements then in place between PCS and other
employees of PCS holding comparable positions.
INDEMNIFICATION AND INSURANCE
PCS has agreed in the Merger Agreement that for a period of six years after
the Effective Time, PCS shall cause to be maintained in effect (a) the current
provisions regarding indemnification of officers and directors contained in the
Restated Certificate of Incorporation and the Amended and Restated Bylaws of
Arcadian, and (b) if available, the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by Arcadian
(provided that PCS may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from acts or omissions which occurred on or before the Effective Time; provided,
that PCS shall not be obligated to pay premiums in excess of 200% of the amount
per annum that Arcadian paid in the aggregate in its last fiscal year, it being
understood that PCS shall nevertheless be obligated to provide such coverage as
may be obtained for such amount. PCS has also agreed to assume all obligations
of Arcadian and any of its subsidiaries under any indemnification or similar
agreements with any employee, officer or director of Arcadian in effect
immediately prior to the Effective Time, in each case without releasing the
indemnitor under such agreements.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Arcadian, PCS and Merger Sub to consummate the Merger
are subject to the satisfaction or waiver of the following conditions: (a) the
approval of the Merger Agreement by the requisite vote of the Arcadian
stockholders; (b) no court or governmental entity having enacted, entered,
promulgated or enforced any statute, rule, regulation, executive order, decree
or injunction that prohibits the consummation of the Merger on substantially the
terms contemplated by the Merger Agreement; (c) the effectiveness of the
Registration Statement and the absence of any stop order suspending the
effectiveness thereof; (d) the shares of PCS Common Stock issuable in the Merger
having been authorized for listing on the NYSE, TSE and ME, subject only to
official notice of issuance; (e) all other required consents, approvals and
authorizations having been obtained, except where the failure to obtain such
consents, approvals and authorizations would not have a material adverse effect
on PCS or Arcadian, as the case may be; (f) Arcadian having received a
reconfirmation of the opinion of its tax counsel, Bracewell & Patterson, L.L.P.,
dated the date on which the Effective Time occurs, to the effect that, on the
basis of the facts, representations and assumptions set forth or referred to
therein, for United States federal income tax purposes neither Arcadian nor any
of its stockholders shall recognize gain or loss as a result of the Merger,
other than gain recognized on account of the receipt of the Cash Consideration,
cash paid in connection with appraisal rights, and any cash paid in lieu of
fractional shares; and (g) PCS having received a reconfirmation of the opinion
of its United States tax counsel, Goodman Phillips & Vineberg (New York), dated
the date on which the Effective Time occurs, to the effect that, on the basis of
the facts, representations and assumptions set forth or referred to therein, for
United States federal income tax purposes the Merger will constitute a
reorganization under Section 368(a)(2)(D) of the Code.
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The obligations of PCS and Merger Sub to consummate the Merger are also
subject to the satisfaction or waiver by PCS of the following conditions: (a)
the representations and warranties of Arcadian contained in the Merger Agreement
being true and correct in all respects (but without regard to any materiality
qualifications contained in any specific representation or warranty) as of the
Effective Time as though made as of the Effective Time, except (i) for changes
permitted by the Merger Agreement and (ii) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects as of the Effective Time would not have a material adverse effect on
Arcadian; and (b) Arcadian having performed or complied in all material respects
with all material obligations and covenants required by the Merger Agreement to
be performed or complied with by it prior to the Effective Time.
The obligations of Arcadian to consummate the Merger are also subject to
the satisfaction or waiver by Arcadian of the following conditions: (a) the
representations and warranties of PCS contained in the Merger Agreement being
true and correct in all respects (but without regard to any materiality
qualifications contained in any specific representation or warranty) as of the
Effective Time as though made as of the Effective Time, except (i) for changes
permitted by the Merger Agreement and (ii) where any such failure of the
representations and warranties in the aggregate to be true and correct in all
respects as of the Effective Time would not have a material adverse effect on
PCS; and (b) each of PCS and Merger Sub having performed or complied in all
material respects with all material obligations and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Effective Time.
NO SOLICITATION
The Merger Agreement provides that unless and until the Merger Agreement
shall have been terminated by either party, neither PCS nor Arcadian nor any of
their respective subsidiaries, officers, directors or agents shall, directly or
indirectly, take any action to solicit, initiate or encourage any proposal or
offer with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, it or any of its subsidiaries (any such
proposal or offer being hereinafter referred to as a "Third Party Acquisition
Proposal"); provided, however, that the foregoing limitation shall not apply if,
in the good faith judgment of the Arcadian Board after consultation with legal
counsel and financial advisors, the Arcadian Board's fiduciary duties require it
or Arcadian to take any such action. PCS and Arcadian each has agreed to
promptly notify the other of its receipt of any Third Party Acquisition
Proposal, and to provide the other with two business days' advance notice of any
agreement to be entered into with any person making a Third Party Acquisition
Proposal.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval thereof by the Arcadian stockholders:
(a) by the mutual written consent of PCS and Arcadian;
(b) by PCS or Arcadian if the Effective Time shall not have occurred
on or before April 30, 1997; provided, that the party seeking to terminate
the Merger Agreement shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or
before such date;
(c) by PCS or Arcadian if a United States federal or state court of
competent jurisdiction or United States governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions substantially on the terms
contemplated by the Merger Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate the Merger Agreement shall have used its
reasonable best efforts to remove such restraint, injunction or
prohibition;
(d) by PCS if (i) the approval of the Arcadian stockholders
contemplated by the Merger Agreement shall not have been obtained by reason
of the failure to obtain the required vote at the Special
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Meeting or (ii) prior to the Special Meeting, the Arcadian Board shall have
withdrawn or modified, or resolved to withdraw or modify, its approval or
recommendation of the Merger Agreement;
(e) by Arcadian, if the Arcadian Board shall have determined, in its
good faith judgment after consultation with legal counsel and financial
advisors, that the Arcadian Board's fiduciary duties require termination of
the Merger Agreement;
(f) by Arcadian, if the approval of the Arcadian stockholders
contemplated by the Merger Agreement shall not have been obtained by reason
of the failure to obtain the required vote at the Special Meeting; and
(g) by Arcadian or PCS, if the Final PCS Common Stock Price is either
less than $65 or greater than $90.
FEES AND EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement, the Merger and any other transaction
contemplated by the Merger Agreement shall be paid by the party incurring such
costs or expenses, except that certain filing fees, commissions, transfer taxes
and other out-of-pocket transaction costs shall be shared equally by PCS and
Arcadian. Arcadian shall pay to PCS an amount equal to $20 million plus all
out-of-pocket expenses incurred by PCS in connection with the Merger Agreement,
the Merger and all related transactions if (a) PCS terminates the Merger
Agreement after the Arcadian Board, prior to the Special Meeting, withdraws or
modifies, or resolves to withdraw or modify, its approval or recommendation of
the Merger Agreement; (b) Arcadian terminates the Merger Agreement after the
Arcadian Board determines, in its good faith judgment after consultation with
legal counsel and financial advisors, that the Arcadian Board's fiduciary duties
require termination of the Merger Agreement; or (c) Arcadian or PCS terminates
the Merger Agreement after the Arcadian stockholders fail to approve the Merger
Agreement by the requisite vote at the Special Meeting if, but only if, both (i)
after the date of the Merger Agreement but before the date of the Special
Meeting, a Third Party Acquisition Proposal is publicly disclosed, and (ii)
within one year after the date of such public disclosure the transaction
contemplated by such Third Party Acquisition Proposal, or by any subsequent
Third Party Acquisition Proposal, is consummated.
AMENDMENT AND WAIVER
The Merger Agreement may be amended or supplemented in writing by the
parties at any time before or after the approval of the Merger Agreement by the
Arcadian stockholders and prior to the Effective Time, except that following
approval of the Merger Agreement by the Arcadian stockholders no amendment may
be made with respect to the conversion ratio of shares of Arcadian Common Stock
into shares of PCS Common Stock and cash as described in the Merger Agreement.
No amendment which under applicable law may not be made without the approval of
the Arcadian stockholders may be made without such approval.
At any time prior to the Effective Time, either PCS or Arcadian may (a)
extend the time for the performance of any of the obligations or other acts of
the other party; (b) waive any inaccuracies in the representations and
warranties of the other party contained in the Merger Agreement or in any
document delivered pursuant thereto; or (c) waive compliance with any of the
agreements or conditions of the other party contained therein.
MANDATORY PRE-MERGER CONVERSION OF ARCADIAN PREFERRED STOCK
GENERAL
Pursuant to the Merger Agreement, Arcadian has agreed to elect the "Common
Conversion Option" under the Certificate of Designation for the Preferred Stock
(the "Certificate of Designation"). As a consequence, except as described below,
immediately prior to the Effective Time of the Merger, each share of Arcadian
Preferred Stock then outstanding will be converted into the right to receive:
(a) one share (or a fraction of a share, as described below) of
Arcadian Common Stock (the "Conversion Share");
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(b) all accrued and unpaid dividends on such share of Arcadian
Preferred Stock, at the annual rate of $1.4725 per share, to and including
the Effective Time (the "Accrued Dividends"), payable in Arcadian Common
Stock; and
(c) a redemption premium in an amount equal to $1.3175 per annum
(computed on the basis of a 360-day year of twelve 30-day months)
commencing on the Effective Time and ending on and including August 10,
1998 (the "Redemption Premium"), payable in Arcadian Common Stock;
provided, however, that if the Redemption Price (as defined herein) of a share
of Arcadian Preferred Stock at the Effective Time is less than the sum of (i)
the Current Market Price (as defined herein) of a share of Arcadian Common Stock
and (ii) the Redemption Premium, then the amount of the Conversion Share will be
reduced so that the value of the Conversion Share plus the Redemption Premium
equals the Redemption Price at the Effective Time. As used in the Certificate of
Designation, the "Redemption Price" of the Arcadian Preferred Stock is equal to
the sum of (a) $22.475 and (b) a redemption premium in an amount equal to
$1.3175 per annum (computed on the basis of a 360-day year of twelve 30-day
months) commencing on the redemption date and ending on and including August 10,
1998; and the "Current Market Price" of a share of Arcadian Common Stock is the
average of the daily closing sale prices per share of Arcadian Common Stock, as
reported on the NYSE Composite Tape, for the 20 consecutive trading days ending
two trading days prior to the Effective Time. As an illustration, if the
Effective Time of the Merger occurs on March 6, 1997 (on which date the
Redemption Price would be $24.3598 per share (including the Redemption Premium
of $1.8848 per share) and the Accrued Dividend would be $0.2700 per share), and
if the then Current Market Price of a share of Arcadian Common Stock is $26,
each share of Arcadian Preferred Stock would convert, immediately prior to the
Merger, into 0.947 of a share of Arcadian Common Stock. In this illustration,
the Redemption Premium of $1.8848 per share is calculated as 17 1/6 months at a
rate of $1.3175 per annum (approximately $0.1098 per month). The Accrued
Dividends and the Redemption Premium will be payable in Arcadian Common Stock.
See "-- Additional Information Regarding the Mandatory Pre-Merger Conversion."
No fractional shares of Arcadian Common Stock will be issued or issuable
upon the occurrence of the Mandatory Pre-Merger Conversion of the Arcadian
Preferred Stock. In lieu of the issuance of any fractional shares of Arcadian
Common Stock upon the occurrence of the Mandatory Pre-Merger Conversion,
Arcadian will pay the persons entitled thereto cash in an amount equal to such
fraction multiplied by the Current Market Price of the Arcadian Common Stock
calculated as described above.
Except for any Dissenting Shares, all shares of Arcadian Common Stock
issuable upon the Mandatory Pre-Merger Conversion of the Arcadian Preferred
Stock, including any shares issued in satisfaction of the Accrued Dividends and
the Redemption Premium, will be converted in the Merger into the right to
receive the Merger Consideration on the same terms as those applicable to other
shares of Arcadian Common Stock.
ADDITIONAL INFORMATION REGARDING THE MANDATORY PRE-MERGER CONVERSION
Pursuant to the Certificate of Designation, Arcadian hereby notifies the
holders of record of shares of Arcadian Preferred Stock on the Record Date that
the Merger will constitute a "Merger or Consolidation," as defined in the
Certificate of Designation, and that Arcadian has elected to exercise the
"Common Conversion Option" set forth in the Certificate of Designation.
Consequently, immediately prior to the Effective Time, without any action by the
holders of Arcadian Preferred Stock, all then outstanding shares of Arcadian
Preferred Stock will automatically convert into shares of Arcadian Common Stock
pursuant to the terms of the Certificate of Designation and as described in this
Proxy Statement. Arcadian hereby further notifies the holders of shares of
Arcadian Preferred Stock of the following:
(a) the date on which the Mandatory Pre-Merger Conversion will occur
is the Effective Time of the Merger;
(b) all outstanding shares of Arcadian Preferred Stock are to be
converted into Arcadian Common Stock in the Mandatory Pre-Merger
Conversion, except that cash will be paid in lieu of the issuance of
fractional shares of Arcadian Common Stock;
(c) Arcadian intends to exercise its option to deliver shares of
Arcadian Common Stock in lieu of cash in payment of the Redemption Premium;
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(d) Arcadian intends to exercise its option to deliver shares of
Arcadian Common Stock in lieu of cash in payment of the Accrued Dividends;
(e) the "Current Market Price" of a share of Arcadian Common Stock to
be used in all computations relating to the Mandatory Pre-Merger Conversion
is the average of the daily closing sale prices per share of Arcadian
Common Stock, as reported on the NYSE Composite Tape, for the 20
consecutive trading days ending two trading days prior to the Effective
Time. If the Effective Time occurs more than two trading days after the
date of the Special Meeting, the Current Market Price will not be known on
the date of the Special Meeting;
(f) holders of Arcadian Preferred Stock will not be entitled to elect
the "Holder Opt-Out Right" as defined in the Certificate of Designation in
connection with the Mandatory Pre-Merger Conversion;
(g) the place or places where certificates representing shares of
Arcadian Preferred Stock are to be surrendered for conversion, and the
procedures to be followed in connection therewith, are set forth in this
Proxy Statement under the caption "The Merger -- Procedures for Exchange of
Stock Certificates;" and
(h) dividends on the Arcadian Preferred Stock will cease to accrue
immediately after the Effective Time, unless Arcadian defaults in
delivering the shares of Arcadian Common Stock and cash payable by Arcadian
as described under the caption "The Merger -- Procedures for Exchange of
Stock Certificates."
The Certificate of Designation provides that Arcadian's obligation to
deliver the shares of Arcadian Common Stock deliverable upon the Mandatory
Pre-Merger Conversion of the Arcadian Preferred Stock shall be deemed fulfilled
if, on or before the Effective Time, Arcadian deposits with a bank or trust
company, or an affiliate of a bank or trust company, having an office or agency
in New York City and capital and surplus of at least $50 million, the aggregate
number of shares of Arcadian Common Stock and cash payable in lieu of the
issuance of fractional shares of Arcadian Common Stock deliverable upon the
Mandatory Pre-Merger Conversion, in trust for the holders of the Arcadian
Preferred Stock, with irrevocable instructions to such bank or trust company to
deliver such shares and cash upon the occurrence of the Mandatory Pre-Merger
Conversion. Arcadian will deliver such shares and cash to the Exchange Agent in
trust for the holders of the Arcadian Preferred Stock and with irrevocable
instructions as described above. All such shares of Arcadian Common Stock, other
than any Dissenting Shares and any shares held by Arcadian, PCS or any of their
respective subsidiaries, will be converted in the Merger into the Merger
Consideration as described elsewhere herein. Stock certificates representing
such shares of PCS Common Stock will be made available to the persons entitled
thereto as described in "The Merger -- Procedures for Exchange of Stock
Certificates."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following discussion is a summary of the material United States federal
income tax consequences of the Mandatory Pre-Merger Conversion, the Merger, and
the ownership and disposition of shares of PCS Common Stock. This summary does
not intend to be a complete discussion of potential tax effects that might
relate to the Mandatory Pre-Merger Conversion, the Merger, or the ownership of
PCS Common Shares. It addresses only those United States income tax issues
relevant to United States domestic corporations or United States citizens or
residents.
This discussion is based on the Code, law, regulations, rulings, practice
and judicial decisions in effect at the date of this Proxy Statement and
constitutes the opinion of Bracewell & Patterson, L.L.P., United States counsel
to Arcadian, with respect to United States federal income taxes. However,
legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences described herein to the Arcadian stockholders.
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EACH ARCADIAN STOCKHOLDER IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
In the opinion of Bracewell & Patterson, L.L.P., United States counsel to
Arcadian, this discussion sets forth, under currently applicable law, the
material United States federal income tax consequences of the Mandatory
Pre-Merger Conversion and the Merger and of the ownership of shares of PCS
Common Stock to Arcadian stockholders who are United States domestic
corporations or United States citizens or residents. The following discussion of
the United States federal income tax considerations assumes that the Arcadian
stockholders hold their shares of Arcadian Common Stock and Arcadian Preferred
Stock, and their shares of PCS Common Stock, as capital assets. This discussion
does not cover all aspects of United States federal income taxation that may be
relevant to a particular Arcadian stockholder in light of such stockholder's
specific circumstances or to certain types of stockholders subject to special
treatment under the United States federal income tax laws (for example, Canadian
or foreign persons, dealers in securities, banks, insurance companies,
tax-exempt organizations, holders of Dissenting Shares and stockholders who
acquired Arcadian Common Stock or Arcadian Preferred Stock pursuant to the
exercise of options or otherwise as compensation or through a tax-qualified
retirement plan), and it does not discuss any aspect of state, local, foreign or
other tax laws. No ruling has been (or will be) sought from the Internal Revenue
Service (the "IRS") or any other taxing authority as to any tax consequences of
the Mandatory Pre-Merger Conversion, the Merger, or the ownership of shares of
PCS Common Stock.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MANDATORY PRE-MERGER
CONVERSION
Except with respect to any Arcadian Common Stock received on account of
accrued but unpaid dividends, as discussed in detail below, a holder of Arcadian
Preferred Stock will recognize no gain or loss for United States federal income
tax purposes on the Mandatory Pre-Merger Conversion of Arcadian Preferred Stock
solely into Arcadian Common Stock. The treatment of cash received in lieu of
fractional shares of Arcadian Common Stock is discussed below. An Arcadian
stockholder will take an aggregate tax basis in the shares of Arcadian Common
Stock received in the Mandatory Pre-Merger Conversion (including any fractional
share of Arcadian Common Stock treated as received, but excluding shares treated
as a receipt of a dividend, discussed below) equal to the stockholder's tax
basis in the converted Arcadian Preferred Stock immediately prior to the
Pre-Merger Mandatory Conversion, and the stockholder's holding period for such
shares will include the stockholder's holding period in the Arcadian Preferred
Stock exchanged.
Dividends accrue daily on the Arcadian Preferred Stock. Consequently, at
the time of the Mandatory Pre-Merger Conversion, each share of Arcadian
Preferred Stock will have unpaid dividends accrued thereon. Because the amount
of the accrued but unpaid dividends will be less than the excess of the fair
market value of the Arcadian Common Stock to be received in the Mandatory
Pre-Merger Conversion over the issue price of the exchanged Arcadian Preferred
Stock, an Arcadian stockholder will be treated as having received a taxable
dividend equal to the portion of the Arcadian Common Stock received in the
Mandatory Pre-Merger Conversion attributable to the accrued but unpaid
dividends. The stockholder will take a tax basis in the Arcadian Common Stock
treated as a dividend in an amount equal to its fair market value as of the date
of its distribution.
No fractional shares of Arcadian Common Stock will be issued pursuant to
the Mandatory Pre-Merger Conversion of the Arcadian Preferred Stock. A holder of
Arcadian Preferred Stock who, pursuant to the Mandatory Pre-Merger Conversion,
receives cash in lieu of a fractional share of Arcadian Common Stock will be
treated as having actually received such fractional share of Arcadian Common
Stock pursuant to the Mandatory Pre-Merger Conversion and then having received
such cash in a redemption of such fractional share. Under Section 302 of the
Code, provided that such deemed redemption is "substantially disproportionate"
or "not essentially equivalent to a dividend" with respect to such stockholder,
after giving effect to the applicable constructive ownership rules, the holder
of the Arcadian Preferred Stock will recognize capital gain or loss on such
deemed redemption equal to the difference between the amount of cash received
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and the stockholder's adjusted basis in the fractional share of Arcadian Common
Stock (determined as described above) rather than ordinary dividend income. Such
capital gain or loss would be long-term capital gain or loss if the holding
period (determined as described above) for the fractional share of Arcadian
Common Stock deemed received and then redeemed is more than one year.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The parties have structured the merger to constitute a reorganization
qualifying under Section 368(a) by application of Section 368(a)(2)(D) of the
Code. As a reorganization under Section 368(a) of the Code, the Merger will have
the following United States federal income tax consequences:
Tax Consequences to Arcadian and PCS. No gain or loss will be recognized by
Arcadian or PCS as a result of the Merger.
Tax Consequences to Arcadian Stockholders. Pursuant to the Merger, each
holder of Arcadian Common Stock (including those stockholders who acquire their
Arcadian Common Stock as a result of the Mandatory Pre-Merger Conversion) will
receive cash and shares of PCS Common Stock. Subject to the discussion under
"-- Five Percent United States Holders," each Arcadian stockholder who
participates in the Merger will recognize gain limited to an amount equal to the
lesser of cash received (excluding any cash received in lieu of a fractional
share of PCS Common Stock) by such stockholder and the gain realized by such
stockholder.
The amount of gain realized by an Arcadian stockholder as a result of the
Merger will be equal to the sum of the fair market value (in United States
dollars) of shares of PCS Common Stock and the amount of cash received
(excluding any cash received in lieu of a fractional share of PCS Common Stock)
by such stockholder less such stockholder's basis in the Arcadian Common Stock
exchanged therefor. No Arcadian stockholder will be entitled to recognize any
loss as a result of the Merger. Any recognized gain will be treated as capital
gain unless the cash received has the effect of the distribution of a dividend,
in which case the gain would be treated as a dividend to the extent of the
stockholder's ratable share of Arcadian's accumulated earnings and profits.
Characterization of the gain recognized in the Merger as capital gain or
dividend income depends upon whether and to what extent that exchange reduces
the Arcadian stockholder's deemed percentage stock ownership of PCS. For
purposes of that determination, the Arcadian stockholder is treated as if he or
she first exchanged all of his or her shares of Arcadian Common Stock solely for
PCS Common Stock and then PCS immediately redeemed (the "deemed redemption") a
portion of such PCS Common Stock in exchange for the cash the Arcadian
stockholder actually received. The gain recognized in that exchange will be
treated as capital gain if the deemed redemption is (a) "not essentially
equivalent to a dividend" or (b) "substantially disproportionate" with respect
to the stockholder.
Whether the deemed redemption is "not essentially equivalent to a dividend"
with respect to an Arcadian stockholder will depend upon the stockholder's
particular circumstances. At a minimum, however, in order for the deemed
redemption to be "not essentially equivalent to a dividend," the deemed
redemption must result in a "meaningful reduction" in the stockholder's deemed
percentage stock ownership of PCS. In general, that determination requires a
comparison of (a) the percentage of the outstanding stock of PCS the Arcadian
stockholder is deemed actually and constructively to have owned immediately
before the deemed redemption and (b) the percentage of the outstanding stock of
PCS actually and constructively owned by the stockholder immediately after the
deemed redemption. The deemed redemption will be "substantially
disproportionate" with respect to an Arcadian stockholder if the percentage
described in (b) above is less than 80 percent of the percentage described in
(a) above. The IRS has ruled that a reduction in the percentage stock ownership
of a minority stockholder in a publicly held corporation whose relative stock
interest is minimal and who exercises no control with respect to corporate
affairs is a "meaningful reduction."
In applying the foregoing tests, under certain attribution rules, a
stockholder is deemed to own stock owned and, in some cases, constructively
owned by certain family members, by certain estates and trusts of which the
stockholder is a beneficiary, and by certain affiliated entities, as well as
stock subject to an option actually or constructively owned by the stockholder
or such other persons.
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In most circumstances, gain recognized by an Arcadian stockholder that
exchanges his or her shares of Arcadian Common Stock for a combination of PCS
Common Stock and cash will be treated as capital gain, and will be long-term
capital gain if the holding period for such shares was greater than one year as
of the date of the exchange. However, each Arcadian stockholder should consult
his or her tax advisor concerning the application of the tests described above
and the character of any gain realized by the stockholder as a result of the
Merger. If neither the "substantially disproportionate" test nor the "not
essentially equivalent to a dividend" test is satisfied with respect to an
Arcadian stockholder, some or all of the gain recognized by such stockholder
would likely be treated as ordinary dividend income. Each Arcadian stockholder
should be aware that the amount of cash and the number of shares of PCS Common
Stock to be received by him or her pursuant to the Merger is subject to
adjustment pursuant to the Merger Agreement and that changes in the fair market
value of shares of PCS Common Stock before the Effective Time may affect the
application of these tests. Until any such adjustments and fair market values
are known, the outcome of the application of these rules to an Arcadian
stockholder of these tests may be unknown.
An Arcadian stockholder will have an aggregate tax basis in the shares of
PCS Common Stock received (including any fractional shares of PCS Common Stock
treated as received) pursuant to the Merger equal to the tax basis immediately
prior to the Effective Time of such stockholder in the Arcadian Common Stock
exchanged therefor, increased by the amount of any gain recognized (including
any recognized gain treated as ordinary dividend income, but excluding gain with
respect to any fractional share of PCS Common Stock) pursuant to the Merger and
decreased by the amount of cash received (excluding cash received in lieu of any
fractional share of PCS Common Stock).
The holding period of shares of PCS Common Stock received (or treated as
received with respect to fractional shares) by an Arcadian stockholder will
include the holding period of such stockholder in the Arcadian Common Stock
exchanged therefor.
Cash Received in Lieu of Fractional Share. No fractional share of PCS
Common Stock will be issued pursuant to the Merger. An Arcadian stockholder who,
pursuant to the Merger, receives cash in lieu of a fractional share of PCS
Common Stock will be treated as having actually received such fractional share
of PCS Common Stock pursuant to the Merger and as then having received such cash
in a redemption of such fractional share. Under Section 302 of the Code,
provided that such deemed redemption is "substantially disproportionate" or is
"not essentially equivalent to a dividend" with respect to such stockholder,
after giving effect to the applicable constructive ownership rules, the Arcadian
stockholder will recognize capital gain or loss on such deemed redemption equal
to the difference between the amount of cash received and the Arcadian
stockholder's adjusted tax basis in the fractional share of PCS Common Stock
(determined as described above) rather than ordinary dividend income. Such
capital gain or loss would be long-term capital gain or loss if the holding
period (determined as described above) for the fractional share of PCS Common
Stock deemed received and then redeemed is more than one year.
Holders of Five Percent of PCS Shares. Notwithstanding the above, any
Arcadian stockholder who is a United States domestic corporation, or a United
States citizen or resident and who owns (actually or constructively) five
percent or more of either the total voting power or the total value of PCS
immediately after the Merger will be treated as having sold all such
stockholder's Arcadian Common Stock in a fully taxable transaction, unless such
stockholder enters into an agreement to recognize gain complying with the
applicable regulations under Section 367 of the Code and other regulatory
requirements are satisfied. Under such an agreement to recognize gain, such an
Arcadian stockholder generally will be treated as having sold Arcadian Common
Stock in a fully taxable transaction on the date of the Merger if PCS disposes
of any stock of Merger Sub in a taxable transaction, or if Merger Sub disposes
of substantially all the assets received from Arcadian in a taxable transaction,
within a specified period of time after the Merger or if certain other events
occur within a specified period of time after the Merger. Any Arcadian
stockholder who currently owns or believes that he or she may own (actually or
constructively) five percent or more of either the total voting power or the
total value of the stock of PCS immediately after the Merger should consult his
or her own tax advisor as to the particular tax consequences to such stockholder
of the Merger in light of such ownership.
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UNITED STATES TAXATION OF DIVIDENDS ON SHARES OF PCS COMMON STOCK
A holder will realize dividend income for United States income tax purposes
in an amount equal to the sum of any dividend paid by PCS (without reduction for
Canadian withholding taxes), to the extent paid out of current or accumulated
earnings and profits of PCS, as determined under current United States federal
income tax principles. The amount included in income will be the United States
dollar value of the payment (determined at the spot rate on the date of such
payment) regardless of whether the payment is in fact converted into United
States dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period between the date of such payment and the date the
dividend is paid out in United States dollars for distribution will be treated
as ordinary income or loss. Dividends will not be eligible for the dividends
received deduction allowed to corporations under the Code.
Subject to certain limitations, the Canadian withholding tax will be
treated as a foreign income tax that may be claimed as a deduction from income
or as a credit against the United States income tax liability of a United States
domestic corporation, or a United States citizen or resident. The particular
circumstances of each holder will affect the holder's ability to use the foreign
tax credit. Arcadian stockholders should consult with their own tax advisors
about the availability of the foreign tax credit.
UNITED STATES TAXATION ON SALE OR DISPOSITION OF SHARES OF PCS COMMON STOCK
Any gain realized on the sale or disposition of shares of PCS Common Stock
will be subject to United States federal (and possibly State) income taxation.
If the holder has paid any Canadian income taxes on such gain, such holder may
be able to claim a foreign tax credit with respect to such taxes against all or
part of the United States federal income tax liability attributable to such
gain. See " -- United States Taxation of Dividends on Shares of PCS Common
Stock."
BACKUP WITHHOLDING
A holder of Arcadian Common Stock who participates in the Merger may be
subject to United States backup withholding tax at the rate of 31% with respect
to the Merger Consideration unless the holder (a) is a corporation or other
exempt recipient and, if required, demonstrates its status as such; or (b)
provides a United States taxpayer identification number ("TIN"), certifies that
the TIN provided is correct and that the holder has not been notified by the IRS
that he or she is subject to backup withholding due to the under-reporting of
interest or dividends, and otherwise complies with the applicable requirements
of the backup withholding rules. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against such
stockholder's United States federal income tax liability provided that the
required information is furnished to the IRS.
At present, a holder of shares of PCS Common Stock is not subject to United
States backup withholding tax with respect to dividends paid on, the cash
proceeds of a sale or exchange of, or a redemption of such shares, because
Potash Corporation of Saskatchewan Inc. is a foreign corporation that is not
engaged in a business within the United States and does not have an office or
place of business or a fiscal or paying agent in the United States. In the event
Potash Corporation of Saskatchewan Inc. utilizes a fiscal or paying agent in the
United States for the payment of dividends, backup withholding may be required.
Moreover, under regulations proposed to be effective with respect to payments
made after December 31, 1997, the United States backup withholding rules may
apply with respect to dividends paid on, the cash proceeds of a sale or exchange
of, or a redemption of PCS Common Stock.
UNITED STATES ESTATE TAXATION
The value of the PCS Common Stock will be included in a holder's taxable
estate and may be subject to United States federal (and State) estate taxation.
If Canadian taxes were imposed on any gain resulting from a deemed disposition
of such shares of PCS Common Stock, then, the estate of the holder may be able
to claim a foreign tax credit with respect to such taxes against all or part of
the United States federal estate tax liability with respect to the value of the
PCS Common Stock.
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THE SUMMARY OF UNITED STATES TAX CONSEQUENCES SET FORTH ABOVE IS BASED ON
INCOME TAX CONVENTION BETWEEN CANADA AND THE UNITED STATES AND UNITED STATES LAW
AS THEY EXIST AS OF THE DATE OF THIS PROXY STATEMENT. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO ARCADIAN STOCKHOLDERS IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES. IN PARTICULAR, IT DOES NOT ADDRESS THE
CONSEQUENCES TO ARCADIAN STOCKHOLDERS RESIDENT OR DOMICILED IN CANADA OR DOING
BUSINESS IN CANADA. ARCADIAN STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MANDATORY
PRE-MERGER CONVERSION, THE MERGER, AND THE OWNERSHIP AND DISPOSITION OF SHARES
OF PCS COMMON STOCK AND THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
CERTAIN CANADIAN INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary sets forth the opinion of Goodman Phillips & Vineberg
S.E. N.C. (Montreal), Canadian tax counsel to PCS, concerning the principal
Canadian federal income tax consequences of the ownership of shares of PCS
Common Stock to Arcadian stockholders who are United States Holders (as defined
hereinafter). This summary does not intend to be a complete discussion of
potential tax effects that might relate to the ownership of PCS Common Shares.
This summary only addresses those principal Canadian federal income tax issues
relevant to United States domestic corporations, or to United States citizens or
residents who are eligible for benefits, with respect to Canadian taxes, under
the Income Tax Convention between Canada and the United States (the
"Convention") (each a "United States Holder"), such eligible persons usually
comprising United States citizens or residents who have a substantial presence,
a permanent home or a habitual abode in the United States, and closer personal
and economic ties to the United States than to any other country and who are not
residents of Canada. Individuals who are citizens or residents of the United
States but who would also be considered a citizen or resident of Canada under
Canadian law may not constitute United States Holders for purposes of this
discussion and should consult their own tax advisors regarding their potential
Canadian income tax consequences of the ownership of shares of PCS Common Stock.
This summary of Canadian federal income tax consequences applicable to the
ownership of PCS Common Stock is based upon the current provisions of the Income
Tax Act (Canada), as amended (the "ITA") and the regulations thereunder and
Canadian tax counsel's understanding of the current published administrative
practices and policies of Revenue Canada -- Customs, Excise and Taxation
("Revenue Canada"). The summary as to the Canadian federal income tax
consequences of ownership of PCS Common Stock also takes into account all
specific proposals to amend the ITA and the regulations thereunder publicly
announced prior to the date hereof (the "Proposed Amendments"), and assumes that
the Proposed Amendments will be enacted substantially as proposed. This summary
as to the Canadian federal income tax consequences of ownership of PCS Common
Stock does not otherwise take into account or anticipate any other changes in
law, whether by way of legislative, judicial or governmental action or
interpretation, nor does the opinion of Canadian tax counsel to PCS, address any
provincial or foreign income tax considerations. However, legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences described herein to the Arcadian stockholders.
EACH ARCADIAN STOCKHOLDER IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
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The following summary of Canadian federal income tax considerations assumes
that the Arcadian stockholders deal at arm's length and are not affiliated
(within the meaning of the ITA) with PCS and will hold their PCS Common Stock as
capital property and will not hold or use and will not be deemed to hold or use
their PCS Common Stock in connection with a business carried on in Canada and
does not address the case of a non-resident insurer who carries on business in
Canada and elsewhere. PCS Common Stock will generally be considered to be
capital property to a holder unless the holder holds it as inventory in the
course of carrying on a business or acquired it in a transaction or transactions
considered to be an adventure in the nature of a trade. PCS Common Stock held by
certain financial institutions, including banks, trust companies, credit unions,
insurance corporations, registered securities dealers and corporations
controlled by one or more of the foregoing, will generally not be held as
capital property. This summary does not discuss all aspects of Canadian federal
taxation that may be relevant to a particular Arcadian stockholder in light of
such stockholder's specific circumstances or to certain types of stockholders
subject to special treatment under the Canadian tax law (for example, Canadian
residents or persons residing in a country other than the United States,
financial institutions, including banks, trust companies, credit unions,
insurance corporations, registered securities dealers, corporations controlled
by one or more of the foregoing, tax exempt organizations, holders of Dissenting
Shares and stockholders who may acquire PCS Common Stock pursuant to the
exercise of options, if any, or otherwise as compensation), and it does not
discuss any aspect of state, local, foreign (other than Canadian federal income
tax law applicable to United States Holders) or other tax laws. No ruling has
been (or will be) sought from Revenue Canada, or any other taxing authority as
to any tax consequences of the ownership of shares of PCS Common Stock.
CANADIAN TAXATION OF DIVIDENDS ON SHARES OF PCS COMMON STOCK
Dividends paid and deemed to be paid on the PCS Common Stock to a United
States Holder will be subject to a Canadian withholding tax under the ITA at the
rate of 25% on the gross amount of such dividends or deemed dividends, subject
to reduction under the provisions of the Convention. PCS will deduct this
withholding tax from the amount of any dividends on the PCS Common Stock prior
to its payment to the United States Holder.
Under the Convention, the rate of withholding tax is generally 15%. However
a lower withholding rate (six percent in 1996 and five percent thereafter) will
apply to United States Holders who are corporations that own at least 10% of the
total outstanding voting stock of PCS. United States Holders who fail to provide
such statements or information as PCS may require and request under applicable
Canadian income tax law and regulations may be subject instead to Canadian
withholding tax on dividends on PCS Common Stock at the statutory rate of 25%.
The above discussion of the Canadian taxation of dividends on shares of PCS
Common Stock is directed only to those United States Holders who hold their PCS
Common Stock as capital property and who will not hold or use and will not be
deemed to hold or use their PCS Common Stock in connection with a business
carried on in Canada (an "Eligible United States Holder").
A United States Holder who is not an Eligible United States Holder would
generally be subject to the regular Canadian income tax (including provincial
taxes) on the dividends paid by PCS if (a) such person has a fixed place of
business (such as an office or workshop) in Canada, and (b) the shares of PCS
Common Stock are considered to be part of the business property of, or otherwise
pertain to, that fixed place of business.
It should be noted that under Canadian tax law dividends may be deemed to
be paid. For example, in certain circumstances when a corporation redeems or
purchases for cancellation shares of its capital stock, a dividend will be
deemed to be paid in an amount equal to the difference between the amount paid
and the "paid-up capital" (as defined in the ITA) of the shares so redeemed or
purchased for cancellation. The "paid-up capital" of the PCS Common Stock issued
to an Arcadian stockholder may be less than the value of such shares upon their
issuance by reason of the averaging of the paid-up capital with that of shares
of such class already issued and outstanding. The paid-up capital attributable
to each PCS Common Share will be a relevant consideration to the holders thereof
in connection with any purchase for cancellation of such shares or upon the
winding-up of PCS.
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CANADIAN TAXATION ON SALE OR DISPOSITION OF SHARES OF PCS COMMON STOCK
Upon the disposition (or deemed disposition) of the PCS Common Stock a
capital gain may be realized equal to the amount by which the proceeds of
disposition (determined in Canadian dollars), net of any reasonable costs of
disposition exceed the adjusted cost base (determined in Canadian dollars) to
the holders of the PCS Common Stock. For Canadian income tax purposes the cost
to an Arcadian stockholder of the PCS Common Stock received pursuant to the
Merger will be equal to the fair market value (determined in Canadian dollars)
of the PCS Common Stock so received in the Merger determined as at the Effective
Time. Under the ITA, the cost of the PCS Common Stock received by an Arcadian
stockholder will be averaged with the cost of any PCS Common Stock already held
by such Arcadian stockholder as capital property. A United States Holder of the
PCS Common Stock will not be subject to tax under the ITA in respect of a
capital gain realized upon a disposition (or deemed disposition) of the PCS
Common Stock unless such PCS Common Stock constitutes or is deemed to constitute
"taxable Canadian property" for purposes of the ITA. The definition of "taxable
Canadian property" would include any PCS Common Stock held by a United States
Holder if, at any time during the five-year period immediately preceding the
disposition of the PCS Common Stock, the United States Holder, persons with whom
such Holder does not deal at arm's length or a combination of such United States
Holder and such persons owned 25% or more of the issued shares of any class or
series of shares of PCS. Taxable Canadian property would also include any PCS
Common Stock held by a United States Holder if the Holder has used or has been
deemed to use his PCS Common Stock in carrying on a business in Canada.
Furthermore, the PCS Common Stock can constitute taxable Canadian property if at
the time of its disposition such shares are not listed on a prescribed stock
exchange. PCS anticipates that the PCS Common Stock will be listed on a
prescribed stock exchange for the foreseeable future.
Even if the PCS Common Stock constitutes or is deemed to constitute taxable
Canadian property to a particular United States Holder and its disposition would
give rise to a capital gain, an exemption from tax under the ITA may be
available under the terms of the Convention. A United States Holder who is an
Eligible United States Holder will generally be exempt from Canadian income
taxation on any gain realized on the sale or other disposition of shares of PCS
Common Stock under the terms of the Convention unless (a) the value of the PCS
Common Stock is derived principally from real property (including mines)
situated in Canada; or (b) the Holder of such PCS Common Stock has or had
(within the 12-month period preceding the date of disposition) a fixed place of
business in Canada and the shares of PCS Common Stock are considered part of the
business property of, or otherwise pertain to, that fixed place of business.
It should be noted that if the shares of PCS Common Stock constitute
Canadian taxable property and the disposition of such shares by a United States
Holder gives rise to a capital gain which is not exempt under the terms of the
Convention, then such United States Holder will be required to include in
computing income for Canadian tax purposes three-fourths of the amount of any
resulting capital gain.
CANADIAN ESTATE TAXATION
Although Canada does not impose an estate tax on a transfer of assets at
death, under applicable Canadian income tax law, an individual who holds PCS
Common Stock at the time of his or her death will be deemed to have, immediately
before his or her death, disposed of the PCS Common stock and to have received
proceeds of disposition therefor equal to the fair market value of the PCS
Common Stock immediately before his or her death. To the extent that such deemed
proceeds of disposition exceed the adjusted cost base of the PCS Common Stock, a
capital gain would arise. As explained above under the heading "Canadian
Taxation on Sale or Disposition of Shares of PCS Common Stock," any capital gain
so realized upon such deemed disposition of the PCS Common Stock by a United
States Holder will not be subject to Canadian income tax unless the shares of
PCS Common Stock constitute or are deemed to constitute taxable Canadian
property for purposes of the ITA and the conditions for exemption under the
Convention do not arise. Generally, the comments above under the heading
"Canadian Taxation on Sale or Disposition of Shares of PCS Common Stock" will be
applicable to any capital gain which may be realized by a United States Holder
by virtue of the deemed disposition of the PCS Common Stock occurring upon the
death of such Holder.
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THE SUMMARY OF CANADIAN TAX CONSEQUENCES SET FORTH ABOVE IS BASED ON THE
INCOME TAX CONVENTION, CANADIAN LAW AND REVENUE CANADA PRACTICE, ALL AS THEY
EXIST AS OF THE DATE OF THIS PROXY STATEMENT. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS THAT MAY BE RELEVANT TO ARCADIAN STOCKHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES. IN PARTICULAR, IT DOES NOT ADDRESS THE CONSEQUENCES TO
ARCADIAN STOCKHOLDERS RESIDENT OR DOMICILED IN CANADA OR DOING BUSINESS IN
CANADA. ARCADIAN STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MANDATORY PRE-MERGER CONVERSION,
THE MERGER, AND THE OWNERSHIP AND DISPOSITION OF SHARES OF PCS COMMON STOCK AND
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF
CHANGES IN APPLICABLE TAX LAWS.
K&S ACQUISITION
GENERAL
On December 6, 1996, PCS entered into an agreement (the "Purchase
Agreement") with Guano-Werke GmbH ("GW"), a wholly-owned subsidiary of BASF
Aktiengesellschaft ("BASF"), under which PCS will purchase 51% of the
outstanding shares (the "K&S Shares") of Kali und Salz Beteiligungs
Aktiengesellschaft ("K&S") from GW for an aggregate purchase price of DM 250
million (approximately $164 million) (the "K&S Acquisition"). Upon the closing
of the purchase, GW will continue to hold approximately 25.4% of the outstanding
K&S Shares and the remaining 23.6% will continue to be widely held and publicly
traded in Germany. K&S's primary assets are a 51% interest in Kali und Salz GmbH
("K&S Sub") and a 50% interest in Potash Company of Canada Limited ("Potacan").
The primary assets of K&S Sub are its six potash and two salt mines and
processing plants in Germany. The primary assets of Potacan are its potash mine
and processing plant in Canada. Wholly owned subsidiaries of K&S are engaged in
the businesses of providing dry solid waste disposal services and providing
transportation and terminalling for certain bulk commodities. Waste disposal
takes place at some of the mines of K&S Sub and is conducted in compliance with
German environmental and other regulatory requirements. Terminalling services
are provided through a terminal in Hamburg, Germany. As used herein, "DM" means
Deutsche Marks. See "Exchange Rate Information."
PURCHASE AGREEMENT
The Purchase Agreement provides that GW will sell 2,550,000 K&S Shares to
PCS for a purchase price of DM 250 million to be paid in cash in two
installments consisting of DM 150 million payable at closing and DM 100 million
payable no earlier than one year and no later than three years from closing. In
addition, GW agreed to grant to PCS a call option to purchase the remaining
1,272,789 K&S Shares held by it at any time before January 1, 2000, at a price
of DM 124.8 million and a right of first refusal thereafter to January 1, 2010.
PCS will fund the purchase price of the K&S Shares with cash obtained from
either its existing cash or borrowings under the Credit Facility.
The Purchase Agreement contains conditions to closing thereunder, including
the obtaining of certain applicable regulatory approvals. BASF and PCS have each
made the necessary filings under the HSR Act, and the waiting period thereunder
expired at midnight on January 12, 1997. Submissions have been made to the
Canadian and German regulatory authorities regarding the proposed transaction
and discussions are continuing. Most recently, PCS received a statement of
objections from the German Federal Cartel Office summarizing its preliminary
reasons for a possible prohibition order. PCS and BASF on January 27, 1997 filed
a reply to this statement of objections.
The Purchase Agreement contains certain representations and warranties made
with respect to K&S, K&S Sub and certain other principal operating subsidiaries,
including that, to the best knowledge of GW, (a) any environmental pollution of
the real estate used in the businesses to be acquired, for which such businesses
could be held liable, and (b) any decommissioning costs applicable to such
businesses, under
47
<PAGE> 55
current law or presently required final operation plans, are covered by
enforceable obligations against third parties or by proper financial statement
accruals. The Purchase Agreement also contains representations and warranties
made with respect to K&S, K&S Sub and certain other principal operating
subsidiaries that, to the best knowledge of GW, all licenses, permits and
authorizations necessary to continue such businesses as currently operated have
been obtained. GW has agreed to indemnify PCS for a period of two years after
closing for claims arising out of GW's breaches of its representations and
warranties under the Purchase Agreement. However, certain environmental claims
will be indemnified for a period of five years, and certain tax claims will be
indemnified for a period six months longer than the applicable statute of
limitations.
The financial obligations of GW under the Purchase Agreement are guaranteed
by BASF.
DESCRIPTION OF K&S SUB'S BUSINESS
German Mining Operations. K&S Sub produces and markets a broad line of
fertilizer products compounded from potassium, magnesium and sulfur. It also
produces and markets salt (NaCl). In 1995, K&S Sub's sales were DM 1,232
million, of which 66% was attributable to sales of muriate of potash and
sulphate of potash. In 1995, K&S Sub accounted for 14% (by volume) of the world
market for potassium-based fertilizer products.
Properties. K&S Sub operates two groups of potash and salt mines and
processing plants, the North Group and the Werra Group. The North Group consists
of operating mines and processing plants at Sigmundshall, Zielitz, Bernburg and
Braunschweig-Luneburg and a processing plant at Bergmannsegen-Hugo. The Werra
Group consists of operating mines and processing plants at Wintershall, Hattorf,
Unterbreizbach and Neuhof-Ellers.
<TABLE>
<CAPTION>
CAPACITY
MINE (THOUSAND TONNES/YR)
---- --------------------
<S> <C>
NORTH GROUP
Sigmundshall................................................ 450 K(2)O*
Zielitz..................................................... 1,250 K(2)O
Bernburg.................................................... 2,000 NaCl
Braunschweig-Luneburg....................................... 600 NaCl
WERRA GROUP
Wintershall................................................. 600 K(2)O
Hattorf..................................................... 700 K(2)O
Unterbreizbach.............................................. 350 K(2)O
Neuhof-Ellers............................................... 350 K(2)O
</TABLE>
- ---------------
* K(2)0 tonnes are the units of measurement of the potassium nutrient value of
potassium-containing fertilizers.
Production. K&S Sub extracts ore from its potash mines using conventional
underground drill and blast techniques. The salt mines also utilize various
drill and blast mining methods underground with nearly 50% of the salt
production at Bernburg coming from solution mining caverns. K&S Sub generally
operates its mines 24 hours a day, 5 days a week, using 3 shifts, and operates
its processing plants 24 hours a day, 7 days a week, using 3 shifts a day.
In the processing plants, saleable products are separated from waste
material by crushing to a fine fraction and then using either electro-static
separation or flotation techniques. In some plants, crystallization circuits are
utilized to improve recovery or produce more refined potassium chloride
products. Finished products are screened to required size ranges and, in some
cases, compactor circuits are utilized to produce a larger size granular product
suitable for bulk blending with other fertilizers.
The collective annual capacity of the operating Werra Group mines and
processing plants is 1.6 million tonnes of potassium chloride, 1.2 million
tonnes of potassium sulfate, 1.3 million tonnes of potassium-magnesium products,
1.1 million tonnes of magnesium sulfate products, 0.2 million tonnes of
magnesium chloride products, and 0.6 million tonnes of sodium chloride.
Production pattern flexibility in the Werra group could permit increases in
annual potassium chloride capacity of 0.5 million tonnes, in annual potassium-
48
<PAGE> 56
magnesium products capacity of 0.4 million tonnes, and in annual magnesium
sulfate products capacity of 0.2 million tonnes, limited however by the overall
capacity. Thus, an increase in one product may result in a decrease in the
availability of other products. The collective annual capacity of the operating
North Group mines and processing plants is 2.9 million tonnes of potassium
chloride and 2.6 million tonnes of sodium chloride.
Reserves. K&S Sub has calculated its ore reserves as of October 1996 for
the various operations as follows:
<TABLE>
<CAPTION>
MINE LIFE
ORE RESERVES (YEARS AT CURRENT
MINE (MILLION TONNES) PRODUCTION RATES)
---- ---------------- -----------------
<S> <C> <C>
NORTH GROUP
Sigmundshall.................................. 36 14
Zielitz....................................... 222 50
Bernburg...................................... 53 57
Braunschweig-Luneburg......................... 18 30
WERRA GROUP
Wintershall................................... 390 51
Hattorf....................................... 736 84
Unterbreizbach................................ 144 48
Neuhof-Ellers................................. 170 57
</TABLE>
Marketing. In 1995, European sales of DM 924 million represented
approximately 75% of K&S Sub's total sales. European sales were primarily to
cooperatives, brokers, compound fertilizer producers, bulk blenders and
industrial customers. Offshore sales were primarily to cooperatives, brokers,
compound fertilizer producers, bulk blenders and industrial customers located in
Brazil, India, Indonesia, Japan, Malaysia, the United States, Columbia and
China. In 1995, no one customer accounted for as much as 10% of K&S Sub's total
sales.
In 1995, K&S Sub had approximately 2,800 European customers, with the top
10 (ranked by volume) accounting for 37% of European sales, and had
approximately 260 overseas customers, with the top 10 (ranked by volume)
accounting for 38% of overseas sales. Sales volumes are spread relatively
uniformly over the year, with sales in the first and fourth quarters exceeding
in a minor amount sales in the second and third quarters. Generally, sales are
made on a spot basis, with 90% of European sales and 75% of offshore sales being
made to traditional long-term customers.
Distribution and Transportation. K&S Sub ships product from its mines to
customers by various means, including rail, barge, truck and ship. Most offshore
sales are handled through the K&S-owned port facility in Hamburg, Germany. In
1995, 2.7 million tonnes of potash were exported through Hamburg, 0.5 million
tonnes of salt and potash through Lubeck, Germany, to Baltic destinations, and
lesser quantities through the ports of Antwerp and Wismar. K&S's warehouse
capacity for all products, excluding rock salt, totals approximately 1.7 million
tonnes, with approximately 1.0 million tonnes capacity at the mines,
approximately 0.3 million tonnes capacity at the port of Hamburg, approximately
0.2 million tonnes of capacity elsewhere in Germany, and approximately 0.2
million tonnes of storage elsewhere in Europe.
Competition. Potash is a bulk commodity industry in which production and
transportation costs determine the relative competitiveness of the producers in
the various global regional markets. K&S Sub supplies nearly all of Germany's
internal consumption of potash. In 1995, this represented 21% of its total
potash sales. Western Europe is the most important export market for K&S Sub,
representing 39% of its total potash sales in 1995. Exclusive of sales into
Germany, K&S Sub sales represented 37% of potash sold into western Europe in
1995, of which sales into France, Belgium, Italy, the Netherlands, Sweden and
the United Kingdom were the most significant. K&S Sub competes against
indigenous producers in France and the United Kingdom. Key competitors in
Western Europe (ranked in order of relative share of export sales) in 1995 were
located in Israel, Spain, the United Kingdom, the former Soviet Union, Canada
and Jordan. Potash sales into Asia, particularly India, and into Latin America,
particularly Brazil, represent the other key markets
49
<PAGE> 57
for K&S Sub. In the Indian market, key competitors for K&S Sub are producers
from the former Soviet Union, Jordan and Israel. In the Brazilian market, key
competitors for K&S Sub are producers from Canada, the former Soviet Union and
Israel. K&S Sub is most competitive in its domestic market and in European
markets where it enjoys some transportation cost advantage. Moreover, the
European markets are the key markets for the supply of specialty fertilizers
containing potassium, magnesium and sulphur. In 1995, approximately 31% of K&S
Sub's potash sales was in the form of potassium sulphate and other specialty
fertilizers, a specialized potassium market in which there are fewer competitors
globally.
Employees. At December 31, 1995, K&S directly and through subsidiaries
employed 9,218 full-time employees which included 8,786 employees of K&S Sub. In
addition, 77 employees worked under part-time contracts.
GOVERNMENT OWNERSHIP
In 1993, a reorganization of the German potash industry occurred and K&S
Sub was created. K&S contributed its mines and properties to K&S Sub and
received 51% of its shares. The Treuhandanstalt, a state agency established for
the purpose of privatizing East German industrial activities, contributed the
former East German mines and properties plus DM 1.0 billion to K&S Sub and
received 49% of its shares.
At present, the German federal government, through
Beteiligungs - Management - Gesellschaft Berlin mbH ("BMGB"), beneficially owns
and controls 49% of the shares of K&S Sub. BMGB's shareholder rights are
exercised by Bundesanstalt fur vereinigungsbedingte Sonderaufgaben, as successor
to the Treuhandanstalt.
On May 13, 1993, a shareholders agreement (the "Shareholders Agreement")
was entered into between K&S and the Treuhandanstalt. It contains a five-year
(to December 31, 1997) business plan (the "Business Plan") and reserves to the
shareholders of K&S Sub authority to amend, or approve deviations from, the
Business Plan. It also establishes a special 75% majority with respect to most
matters requiring shareholder approval, including amendments to the Business
Plan, which special majority provision will expire December 31, 1997, except as
described below.
After 1997, and for so long as BMGB and K&S hold, in the aggregate, 75% or
more of the shares of K&S Sub, a shareholders resolution regarding (a) adoption
of annual financial statements, (b) distribution of profits (i.e., dividends),
or (c) establishment of new waste disposal sites requires an affirmative vote of
at least 75% of the shares outstanding.
In addition, while such aggregate shareholding is at least 75%, BMBG is
entitled to nominate one of the five managing directors of K&S Sub and one-half
of the shareholders representatives on the supervisory board of K&S Sub. The
articles of association of K&S Sub provide that until the shareholders'
resolution approving the 1997 financial statements of K&S Sub is adopted, any
transfer of shares of K&S Sub requires the consent of the non-transferring
shareholder. For the period thereafter, the articles of association provide for
a right of first refusal in favor of K&S regarding the sale by BMGB of its
shares.
The Business Plan requires K&S Sub to make investments, repairs and
remediation to existing mines in an aggregate amount exceeding DM 800 million
and to decommission other mines. The Business Plan also provides for a
structured reduction in the size of the K&S Sub workforce through the end of
1997. It establishes projected cash flows through the period and requires the
shareholders to fund K&S Sub in the event that such cash flows are not attained.
The proportionate liability of each shareholder for such funding is determined
according to a formula, but in no case is K&S's share greater than 20% of the
amount required.
LITIGATION AND REGULATORY PROCEEDINGS
K&S Sub has been sued for damages for breach of contract and additional
compensation before the Commercial Court of Brussels by Cogepotasse S.A. and
ITEMA S.A., both of which are subsidiaries of Societe Commerciale et de l'Azote
("SCPA"). The claim by Cogepotasse is for 66,141,121 Belgian francs ("BFR"). The
claim by ITEMA is for approximately 1,513,000 BFR. (On September 30, 1996, one
BFR equalled 0.03344 U.S. dollar.) The claims are based on the purported breach
of an exclusive distribution
50
<PAGE> 58
agreement for the territory of Belgium and Luxembourg entered into by
Cogepotasse with the former East German potash export entity Kali-Bergbau. The
Commercial Court has rejected ITEMA's claim entirely and Cogepotasse's claim in
part. K&S Sub has been deemed liable to pay to Cogepotasse the "half gross
profit" realized on the basis of the exclusive distribution right during a
three-year period to be calculated on the average figures of the past three
years. The Commercial Court has appointed an accountant as expert to determine
the profits of Cogepotasse in the past three years and the costs incurred due to
the agreement in order to allow the Commercial Court to calculate the exact
amount to be paid by K&S Sub. K&S has appealed the decision of the Commercial
Court to the Belgian Court of Appeal.
On December 14, 1993, the Commission of the European Communities (the
"European Commission") gave clearance under the European Communities' merger
control rules by allowing the merger of K&S (in which the West German potash
activities were operated) and MdK (in which the East German potash activities
were operated) into K&S Sub, subject to certain conditions. Such conditions have
been fulfilled by K&S Sub. On February 18, 1994, the Republic of France filed a
lawsuit against the European Commission before the European Court of Justice
applying for an annulment of the European Commission's decision of December 14,
1993. On February 25, 1994, SCPA and Enterprise Miniere et Chimique ("EMC")
filed a lawsuit against the European Commission in the European Court of First
Instance in which the plaintiffs applied for a partial revision of the European
Commission's decision with respect to the conditions set out by the European
Commission and the restructuring of Potacan's sales activities. Neither K&S nor
K&S Sub is a party to either lawsuit, although they have intervenor status.
Based on information currently available to it, K&S does not expect either
lawsuit to result in a ruling which will have a material effect on the 1993
decision of the European Commission.
In March 1994, the European Commission implemented an anti-dumping duty on
imports of muriate of potash into the European Communities from Russia, Belarus
and Ukraine. The effect of the duty is to establish minimum prices for the sale
of such imports in the European Communities. Imports of potash from such
countries have been significantly reduced from import levels prior to the
imposition of duties. The European Commission is presently conducting a review
of the existing anti-dumping order. The outcome of the review cannot be
accurately predicted. If, however, the review results in a reduction or
elimination of the minimum price, imports of potash from Russia, Belarus and
Ukraine into the European Communities could increase significantly from current
levels.
CANADIAN MINING OPERATIONS
K&S holds 50% of the outstanding shares of Potacan, while the remaining 50%
is held by EMC. Potacan Mining Company ("PMC"), a partnership between Potacan
and a wholly owned subsidiary of Potacan, owns and operates a potash mine and
processing plant in Sussex, New Brunswick, Canada. The mine has an annual
productive capacity of approximately 1.2 million tonnes of potassium chloride
and a proven and probable reserve life in excess of 17 years at current rates of
production. At present, most of the potash produced by PMC is marketed by
Potacan through offices in Toronto and Atlanta. Each of the two shareholders in
Potacan has a right to 50% of the production of PMC and may take such product in
kind upon the delivery of proper notice. In 1995, Potacan's sales were CDN$166.9
million (approximately U.S.$122.3 million based on the exchange rate at December
31, 1995, of CDN$1.00 = U.S.$.7325).
The Potacan shareholder agreement between K&S and EMC provides a right of
first refusal in the event either EMC or K&S intends to sell its shares in
Potacan. BASF has advised PCS that EMC has sought to exercise such right and
that K&S had notified EMC that no sale of Potacan shares is occurring and that
therefore the right of first refusal is not applicable. On November 13, 1996,
EMC initiated an arbitration of the matter pursuant to the terms of the
shareholder agreement.
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<PAGE> 59
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements presented herein
give effect to the Merger. The unaudited pro forma consolidated statement of
income for the year ended December 31, 1995, was prepared based upon PCS's and
Arcadian's respective unaudited pro forma consolidated statements of income for
the year ended December 31, 1995, as if the Merger had occurred on January 1,
1995. The unaudited pro forma consolidated statement of income for the nine
months ended September 30, 1996, was prepared based upon PCS's and Arcadian's
respective unaudited consolidated statements of income for the nine months ended
September 30, 1996, as if the Merger had occurred on January 1, 1995. The
unaudited pro forma consolidated balance sheet at September 30, 1996, was
prepared based upon PCS's and Arcadian's respective unaudited consolidated
balance sheets at September 30, 1996, as if the Merger had occurred on September
30, 1996.
The fraction of a share of PCS Common Stock constituting the Stock
Consideration will be determined based on the average of the daily high and low
trading prices of the PCS Common Stock on the NYSE during the 20 consecutive
days on which shares of PCS Common Stock are traded on the NYSE ending two
trading days prior to the anticipated Effective Time (the "Final PCS Common
Stock Price"). The fraction of a share of PCS Common Stock constituting the
Stock Consideration, expressed as a decimal and with the result rounded up or
down to the nearest one one-thousandth, will be equal to:
(a) if the Final PCS Common Stock Price is at least $72 but not
greater than $83.25, then 0.17713;
(b) if the Final PCS Common Stock Price is less than $72, then the
lesser of (i) 0.21250 and (ii) the quotient of $12.75 divided by the Final
PCS Common Stock Price; and
(c) if the Final PCS Common Stock Price is greater than $83.25, then
the greater of (i) 0.16389 and (ii) the quotient of $14.75 divided by the
Final PCS Common Stock Price.
If the Final PCS Common Stock Price is less than approximately $60, the market
value of the Stock Consideration will be less than $12.75. If the Final PCS
Common Stock Price is greater than approximately $90, the market value of the
Stock Consideration will be greater than $14.75. If the Final PCS Common Stock
Price is less than approximately $65 or greater than approximately $90, either
PCS or Arcadian may, but is not obligated to, terminate the Merger Agreement.
The pro forma data have been prepared assuming that the Final PCS Common
Stock Price is $83.54 per share and, therefore, the fraction of a share of PCS
Common Stock to be issued as the Stock Consideration in partial exchange for
each outstanding share of Arcadian Common Stock is 0.17656. Under the Merger
Agreement, the fraction of a share of PCS Common Stock issuable as the Stock
Consideration in partial exchange for each outstanding share of Arcadian Common
Stock may be as low as 0.16389 and as high as 0.21250, before the parties'
rights to terminate the Merger Agreement will arise.
The unaudited pro forma consolidated financial statements and the
accompanying notes reflect the application of the purchase method of accounting.
Under this method of accounting, the aggregate consideration paid by PCS in
connection with the Merger will be allocated to Arcadian's assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
As described in the accompanying notes, estimates of the fair values of
Arcadian's assets and liabilities have been combined with the recorded values of
the assets and liabilities of PCS. However, changes to the adjustments included
in the unaudited pro forma consolidated financial statements are expected as
evaluations of assets and liabilities are completed and as additional
information becomes available. In addition, the results of operations of
Arcadian subsequent to September 30, 1996, will affect such evaluations.
Accordingly, the final allocated values will differ from the amounts set forth
in these unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated statements of income exclude
nonrecurring costs to be incurred by PCS in acquiring Arcadian. These amounts
cannot be determined until the Merger is completed. See, however, the discussion
in Note 14.
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<PAGE> 60
The unaudited pro forma consolidated financial statements are intended for
informational purposes only and are not necessarily indicative of the future
results of operations or future financial position of the combined company, or
of the results of operations or financial position of the combined company that
would have actually occurred had the Merger been in effect for the periods and
as of the date presented. The unaudited pro forma consolidated financial
statements and the accompanying notes should be read in conjunction with the
respective audited and unaudited consolidated financial statements of PCS and
Arcadian (including the notes thereto) incorporated by reference herein. See
"Available Information" and "Incorporation of Certain Documents by Reference."
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<PAGE> 61
POTASH CORPORATION OF SASKATCHEWAN INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
PCS ARCADIAN NOTE ADJUSTMENTS CONSOLIDATED
---------- ---------- ---- ----------- ------------
(NOTE 12) (NOTE 11)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $1,097,278 $1,266,887 $2,364,165
Cost of goods sold.............................. 699,686 910,759 1,610,445
---------- ---------- ----------
Gross margin.................................... 397,592 356,128 753,720
---------- ---------- ----------
Research and development........................ 1,553 -- 1,553
Selling, distribution and administrative........ 115,714 65,208 8 18,806 199,728
Other taxes..................................... 43,388 1,112 44,500
Interest income................................. (4,598) (13,090) 6 12,500 (5,188)
Other income.................................... (12,035) (242) (12,277)
---------- ---------- ----------
144,022 52,988 228,316
---------- ---------- ----------
Operating income................................ 253,570 303,140 525,404
Interest expense................................ 55,460 59,311 6,7 9,663 124,434
---------- ---------- ----------
Income before income taxes...................... 198,110 243,829 400,970
Income taxes.................................... 6,287 100,551 9 (8,865) 97,973
---------- ---------- ----------
Net income...................................... $ 191,823 $ 143,278 $ 302,997
========== ========== ==========
Net income per share (Note 13).................. $ 4.33 $ 5.79
========== ==========
</TABLE>
54
<PAGE> 62
POTASH CORPORATION OF SASKATCHEWAN INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
PCS ARCADIAN NOTE ADJUSTMENTS CONSOLIDATED
---------- -------- ---- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $1,149,797 $935,244 $2,085,041
Cost of goods sold................................ 817,583 685,601 1,503,184
---------- -------- ----------
Gross margin...................................... 332,214 249,643 581,857
---------- -------- ----------
Research and development.......................... 955 -- 955
Selling, distribution and administrative.......... 81,742 40,081 8 14,106 135,929
Other taxes....................................... 29,497 647 30,144
Interest income................................... (1,381) (13,427) 6 11,900 (2,908)
Other (income) expense............................ (6,505) 1,358 (5,147)
---------- -------- ----------
104,308 28,659 158,973
---------- -------- ----------
Operating income.................................. 227,906 220,984 422,884
Interest expense.................................. 36,784 43,269 6,7 7,928 87,981
---------- -------- ----------
Income before income taxes........................ 191,122 177,715 334,903
Income taxes...................................... 34,027 61,815 9 (7,931) 87,911
---------- -------- ----------
Net income........................................ $ 157,095 $115,900 $ 246,992
========== ======== ==========
Net income per share (Note 13).................... $ 3.42 $ 4.57
========== ==========
</TABLE>
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<PAGE> 63
POTASH CORPORATION OF SASKATCHEWAN INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
PCS ARCADIAN NOTE ADJUSTMENTS CONSOLIDATED
---------- ---------- ---- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents......................... $ 108,534 $ 214,752 6 $(162,278) $ 161,008
Restricted reserve accounts....................... -- 57,801 6 (47,722) 10,079
Accounts receivable............................... 175,300 123,172 -- 298,472
Inventories....................................... 189,457 118,486 -- 307,943
Prepaid expenses.................................. 13,228 11,367 -- 24,595
Other current assets.............................. 3,987 748 -- 4,735
---------- ---------- ----------
490,506 526,326 806,832
Property, plant and equipment....................... 1,983,780 598,882 2,582,662
Goodwill............................................ -- 94,567 5 801,165 895,732
Deferred income taxes............................... 12,845 -- 12,845
Other assets........................................ 46,212 81,592 5 (10,814) 116,990
---------- ---------- ----------
$2,533,343 $1,301,367 $4,415,061
========== ========== ==========
LIABILITIES
Current Liabilities
Accounts payable and accrued charges.............. $ 150,618 $ 149,374 5 $ 10,000 $ 309,992
Current portion of long-term debt................. 88,755 15,000 -- 103,755
Current obligations under capital leases.......... 265 -- -- 265
---------- ---------- ----------
239,638 164,374 414,012
Long-term debt...................................... 638,465 510,000 5,6 410,375 1,558,840
Obligations under capital leases.................... 1,268 -- -- 1,268
Deferred income tax liability....................... 19,478 108,427 5,10 (33,716) 94,189
Accrued post-retirement/employment
benefits.......................................... 96,042 8,467 -- 104,509
Accrued reclamation costs........................... 148,386 -- -- 148,386
Other non-current liabilities and
deferred credits.................................. 6,060 15,498 5 14,500 36,058
---------- ---------- ----------
1,149,337 806,766 2,357,262
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock -- PCS (45,561,890 shares;
53,594,890 pro forma shares)..... 629,954 -- 5 671,077 1,301,031
-- Arcadian........................ -- 402 4,5 (402) --
Common stock held in treasury....................... -- (36,515) 5 36,515 --
Preferred stock..................................... -- 85,999 4 (85,999) --
Contributed surplus................................. 336,486 352,466 5,10 (345,677) 343,275
Retained earnings................................... 417,566 92,249 5,10 (96,322) 413,493
---------- ---------- ----------
1,384,006 494,601 2,057,799
---------- ---------- ----------
$2,533,343 $1,301,367 $4,415,061
========== ========== ==========
</TABLE>
56
<PAGE> 64
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
NOTE 1:
The unaudited pro forma consolidated statement of income for the year ended
December 31, 1995 was prepared by combining the unaudited pro forma consolidated
statement of income of Potash Corporation of Saskatchewan Inc. ("PCS") for the
year ended December 31, 1995 with the unaudited pro forma consolidated statement
of income of Arcadian Corporation ("Arcadian") for the year ended December 31,
1995 (both in U.S. GAAP).
The unaudited pro forma consolidated statement of income for the nine
months ended September 30, 1996 was prepared by combining PCS's and Arcadian's
respective unaudited consolidated statements of income for the nine months ended
September 30, 1996 (both in U.S. GAAP). Because of the seasonal nature of
certain of the companies' businesses, the results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for a full fiscal year.
The unaudited pro forma consolidated balance sheet at September 30, 1996
was prepared by combining PCS's and Arcadian's respective unaudited consolidated
balance sheets at September 30, 1996 (both in U.S. GAAP).
Certain figures from the Arcadian consolidated financial statements have
been reclassified to conform to the basis of presentation used in the PCS
consolidated financial statements.
In addition to the combination of the historical and pro forma financial
statements referred to above, the unaudited pro forma consolidated statements of
income for the year ended December 31, 1995 and the nine months ended September
30, 1996 reflect certain adjustments to give effect to the Merger as if it had
occurred on January 1, 1995. They also reflect the adjustments to give effect to
the issuance of shares of PCS Common Stock and the incurrence of long-term debt
by PCS in order to finance the Merger and the retirement of the Senior Notes.
The unaudited pro forma consolidated balance sheet at September 30, 1996
reflects certain adjustments to give effect to the Merger as if it had occurred
on September 30, 1996.
Pro forma adjustments are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the unaudited pro forma consolidated financial
statements are expected as evaluations of assets and liabilities are completed
and additional information becomes available. In addition, the results of
operations of Arcadian subsequent to September 30, 1996 will affect such
evaluations. Accordingly, the final allocated values will differ from the
amounts set forth in the unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated financial statements are intended for
informational purposes only and are not necessarily indicative of the future
results of operations or future financial position of the combined company, or
the results of operations or financial position of the combined company that
would have actually occurred had the Merger been in effect for the periods and
as of the date presented.
57
<PAGE> 65
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
NOTE 2:
The expected range of Stock Consideration is set out in the following
table:
<TABLE>
<S> <C> <C> <C> <C>
Arcadian comparable price.......... $ 25.00 $ 26.00 $ 27.00 $ 27.00
Final PCS Common Stock Price....... $ 60.00 $ 77.63 $ 83.54 $ 90.00
Exchange ratio..................... .21250 .17713 .17656 .16389
Number of shares of PCS Common
Stock to be issued............... 9,669 8,059 8,033 7,457
Stock Consideration................ $ 580,140 $ 625,625 $ 671,077 $ 671,130
Cash Consideration................. $ 557,375 $ 557,375 $ 557,375 $ 557,375
Merger Consideration............... $1,137,515 $1,183,000 $1,228,452 $1,228,505
</TABLE>
The pro forma consolidated financial statements have been prepared based on
the average of the daily closing price of PCS Common Stock on the New York Stock
Exchange for the last 20 trading days preceding January 8, 1997 of $83.54.
Pro forma net income will not be materially different within the ranges set
out above (refer to Note 13 for the effect on pro forma earnings per share).
The above table assumes that there will be 45.5 million shares of Arcadian
Common Stock outstanding at the Effective Time of the Merger. The conversion of
the Arcadian Preferred Stock and the exercise of stock options and warrants has
been assumed to result in the issuance of the following numbers of shares of
Arcadian Common Stock:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
Conversion of Arcadian Preferred Stock...................... 5,391
Exercise of stock options................................... 885
Restricted stock............................................ 132
Exercise of AAC Warrants.................................... 235
Exercise of B Warrants...................................... 259
-------
6,902
Shares of Arcadian Common Stock assumed to be outstanding
prior to the conversion of the Arcadian Preferred Stock
and exercise of the options and warrants.................. 38,572
-------
45,474
=======
</TABLE>
NOTE 3:
It is assumed that the purchase price will be financed by the incurrence of
long-term debt and the issuance of shares of PCS Common Stock and will be used
to acquire the following net assets at September 30, 1996:
<TABLE>
<S> <C>
Working capital............................................. $ 351,952
Fixed assets and other assets............................... 670,269
Goodwill.................................................... 895,123
Long-term debt.............................................. (573,000)
Other liabilities........................................... (115,892)
----------
Net assets acquired......................................... 1,228,452
Financed by share issue (estimated)......................... 671,077
----------
Financed by long-term debt.................................. $ 557,375
==========
</TABLE>
58
<PAGE> 66
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
NOTE 4:
To give effect to the conversion of Arcadian Preferred Stock to Arcadian
Common Stock immediately prior to the Merger. At September 30, 1996, 5,541
shares of Arcadian Preferred Stock are assumed to be converted into 5,391 shares
of Arcadian Common Stock.
NOTE 5:
To give effect to the purchase of Arcadian as at September 30, 1996.
<TABLE>
<CAPTION>
DEBIT CREDIT
------- -------
<S> <C> <C>
Goodwill.................................................... 801,165
Other assets................................................ 10,814
Accounts payable............................................ 10,000
Long-term debt.............................................. 620,375
Deferred income taxes....................................... 31,000
Other long-term liabilities................................. 14,500
Common stock (after conversion of Preferred Stock).......... 86,401 671,077
Treasury stock.............................................. 36,515
Contributed surplus......................................... 352,466
Retained earnings........................................... 92,249
</TABLE>
The reduction to other assets relates to deferred financing costs. The
adjustment to accounts payable relates primarily to accruals for transaction
costs to acquire Arcadian. The increase in long-term debt includes the principal
amount of the long-term debt incurred on the acquisition and the fair value
adjustments related thereto. The adjustment to other long-term liabilities
relates to fair value adjustments of the post-retirement benefits.
NOTE 6:
To record the prepayment of the First Mortgage Notes of Arcadian in the
amount of $210,000 (including the fair value adjustment of $25,000) concurrently
with the Merger and the retirement of the Senior Notes in the amount of $378,000
(including the fair value adjustment of $38,000) shortly after the Merger. The
fair value adjustments to the First Mortgage Notes and Senior Notes approximate
the excess of the amounts to be paid over the principal amount of the debt.
Arcadian intends to pay the costs of the First Mortgage Notes redemption with
funds obtained from existing cash and short-term investments. Merger Sub expects
to pay the costs of the Senior Notes tender offer with funds obtained by PCS
from existing cash and short-term investments and from borrowings under the
Credit Facility (see Note 7) and a short-term loan to be provided by a bank.
The effect is a reduction of interest expense and interest income as
follows:
<TABLE>
<CAPTION>
INTEREST INTEREST
INCOME EXPENSE
-------- --------
<S> <C> <C>
For the Year ended December 31, 1995........................ $12,500 $55,813
For the Nine months ended September 30, 1996................ $11,900 $41,179
</TABLE>
Upon retirement of the debt, the requirement to maintain certain cash
reserve accounts in the amount of $47,722 at September 30, 1996 will be
eliminated.
59
<PAGE> 67
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
NOTE 7:
To account for the interest expense arising from the debt financing of the
acquisition of Arcadian and the retirement of the Senior Notes:
<TABLE>
<S> <C>
Estimated amount of debt.................................... $935,375
Estimated interest rate..................................... 7%
Interest expense
For the Year ended December 31, 1995...................... $ 65,476
========
For the Nine months ended September 30, 1996.............. $ 49,107
========
</TABLE>
The estimated interest rate is based on LIBOR plus 5/8%. A 1% increase in
the interest rate would increase interest expense by $9,354 for the year ended
December 31, 1995 and $7,015 for the nine months ended September 30, 1996.
PCS has put in place the Credit Facility to finance part of the
acquisition. The term of this Credit Facility is renewable every 364 days with
the unanimous consent of the lenders. No principal payments are required as long
as the Credit Facility continues to be renewed. If the Credit Facility is not
renewed the terms provide for 20 quarterly payments of principal beginning
following the end of the revolving period, each of which payments is in the
amount of 1% of the principal outstanding at the end of the revolving period,
and a final payment of the remaining principal five years and one day following
the end of the revolving period.
Assuming that the Credit Facility will continue to be renewed, the
estimated amount of principal repayments required in each of the next 5 years on
total long-term debt outstanding after the Merger are:
<TABLE>
<S> <C>
1997........................................................ $118,250
1998........................................................ 63,825
1999........................................................ 31,060
2000........................................................ 464,350
2001........................................................ 34,100
--------
$711,585
========
</TABLE>
NOTE 8:
Amortization will be adjusted for the allocation of the purchase price to
goodwill. Goodwill will be amortized on a straight-line basis over 40 years.
NOTE 9:
To record the tax effect of the additional interest expense and reduced
interest income at an assumed average tax rate of 40% which approximates the
statutory rate.
NOTE 10:
Arcadian has certain stock-based employee benefit plans which vest and
become payable concurrently with the Merger. The additional premerger
compensation accruals at September 30, 1996, relating to these benefit plans are
as follows:
<TABLE>
<S> <C>
Stock options (221,500 shares).............................. $2,752
SARS (153,650 shares)....................................... 2,253
CESARS (108,801 shares)..................................... 558
Restricted stock (131,348 shares)........................... 1,226
------
6,789
Tax effect at 40%........................................... 2,716
------
$4,073
======
</TABLE>
60
<PAGE> 68
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
The premerger compensation accruals have been calculated based on the
number of shares which vest concurrently with the Merger multiplied by the
difference between the estimated fair market value per share as at the date of
the Merger ($27.00) and the exercise price.
NOTE 11:
The unaudited pro forma consolidated statement of income of Arcadian for
the year ended December 31, 1995 gives effect to the merger (the "Arcadian
Merger") of a wholly owned subsidiary of Arcadian with and into Arcadian
Partners, L.P. ("Arcadian Partners") and Arcadian's public offering of Arcadian
Common Stock in August 1995 as if they had occurred on January 1, 1995. The pro
forma adjustments include amortization of goodwill resulting from the Arcadian
Merger, the decrease in interest expense as a result of Arcadian's redemption of
its 16% Junior Subordinated Exchange Debentures due December 15, 2004, the
elimination of the non-controlling interest in Arcadian Partners and its
subsidiaries represented by the Preference Units, and the income tax effect of
the pro forma adjustments. The pro forma adjustments made to the historical
financial statements are as follows:
<TABLE>
<S> <C>
Elimination of non-controlling interest..................... $82,270
Amortization of goodwill.................................... 1,421
Increase in income tax provision............................ 33,727
Reduction in interest expense............................... 7,906
</TABLE>
NOTE 12:
The unaudited pro forma consolidated statement of income of PCS for the
year ended December 31, 1995 gives effect to the acquisition of Texasgulf Inc.
as if it had occurred on January 1, 1995. The historical statement of income was
adjusted for the results of operations of Texasgulf Inc. for the period from
January 1, 1995 through April 10, 1995 (the date of acquisition by PCS), as
noted below, which included certain additional interest expense ($13,300) and
income tax effects ($5,320) relating to the acquisition:
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales........................................ $961,805 $135,473 $1,097,278
Cost of goods sold............................... 597,355 102,331 699,686
-------- -------- ----------
Gross margin..................................... 364,450 33,142 397,592
-------- -------- ----------
Research and development......................... 1,553 -- 1,553
Selling, distribution and administrative......... 111,893 3,821 115,714
Other taxes...................................... 43,388 -- 43,388
Interest income.................................. (4,598) -- (4,598)
Other income..................................... (12,035) -- (12,035)
-------- -------- ----------
140,201 3,821 144,022
-------- -------- ----------
Operating income................................. 224,249 29,321 253,570
Interest expense................................. 41,817 13,643 55,460
-------- -------- ----------
Income before income taxes....................... 182,432 15,678 198,110
Income taxes..................................... 4,348 1,939 6,287
-------- -------- ----------
Net income....................................... $178,084 $ 13,739 $ 191,823
======== ======== ==========
</TABLE>
The unaudited pro forma consolidated statement of income of PCS for the
year ended December 31, 1995 does not include the results of operations of White
Springs Agricultural Chemicals Inc. for the period
61
<PAGE> 69
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
from January 1, 1995 through October 31, 1995 (the date of acquisition by PCS).
PCS believes that such results, although profitable, would not have a material
impact on the pro forma results of operations of PCS in 1995.
NOTE 13:
Pro forma earnings per share have been calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C> <C>
(a) Pro forma net income............................... $302,997 $246,992
======== ========
(b) PCS average outstanding shares (in thousands)...... 44,292 45,989
Add shares assumed to be issued on acquisition
(in thousands)..................................... 8,033 8,033
-------- --------
Total average outstanding shares (in thousands).... 52,325 54,022
======== ========
(c) Earnings per share (a/b)........................... $ 5.79 $ 4.57
======== ========
</TABLE>
Since pro forma net income combines the net income reported in the
historical financial statements for the entire year, the estimated 8,033 shares
to be issued to finance part of the acquisition have been recorded as
outstanding for the entire year.
Pro forma fully diluted earnings per share have not been disclosed as there
are no material dilutive elements.
Pro forma earnings per share ("EPS") for the ranges of Stock Consideration
set out in Note 2 are:
<TABLE>
<S> <C> <C> <C> <C>
Arcadian comparable price.......................... $25.00 $26.00 $27.00 $27.00
Final PCS Common Stock price....................... $60.00 $77.63 $83.54 $90.00
EPS -- Year Ended December 31, 1995................ $ 5.62 $ 5.78 $ 5.79 $ 5.86
EPS -- Nine Months Ended September 30, 1996........ $ 4.44 $ 4.56 $ 4.57 $ 4.62
</TABLE>
NOTE 14:
PCS expects that it will incur nonrecurring costs relating to severance,
relocation and other restructuring costs. These costs are not quantifiable at
this time.
62
<PAGE> 70
BENEFICIAL OWNERSHIP OF SECURITIES
PCS
The following table sets forth certain information regarding the beneficial
ownership of PCS Common Stock at December 31, 1996, by (a) each director of PCS,
(b) each executive officer of PCS, and (c) all directors and executive officers
of PCS as a group. PCS is not aware of any beneficial owner of more than 5% of
the outstanding shares of PCS Common Stock. Unless otherwise indicated, each
person identified below has sole voting and investment power with respect to the
shares beneficially owned by such person. Shares of PCS Common Stock issuable
upon the exercise of options that are vested or will vest within 60 days after
December 31, 1996, are deemed to be beneficially owned by the holders of such
options and are treated as vested in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF COMMON STOCK
---------------------------
PERCENTAGE
NUMBER OF OF
NAME OF DIRECTOR OR EXECUTIVE OFFICER SHARES CLASS(1)
------------------------------------- --------- ----------
<S> <C> <C>
Charles E. Childers......................................... 168,539(2) *
William J. Doyle............................................ 112,482(3) *
John Gugulyn................................................ 55,746(4) *
James J. Bubnick............................................ 44,700(5) *
Barry E. Humphreys.......................................... 39,053(6) *
Wayne R. Brownlee........................................... 25,741(7) *
Garth W. Moore.............................................. 21,804(8) *
Betty-Ann L. Heggie......................................... 21,554(9) *
Denis J. Cote............................................... 17,185(10) *
Honourable Willard Z. Estey, Q.C............................ 16,700(11) *
Thomas J. Wright............................................ 15,000(12) *
Isabel Anderson............................................. 15,833(13) *
John L.M. Hampton........................................... 13,064(14) *
Dallas Howe................................................. 14,000(15) *
Douglas J. Bourne........................................... 13,400(16) *
Peter Braun................................................. 11,859(17) *
Paul S. Wise................................................ 12,750(18) *
E. Robert Stromberg......................................... 9,640(19) *
Jack G. Vicq................................................ 9,593(20) *
Daryl K. Seaman............................................. 9,000(21) *
Barrie A. Wigmore........................................... 9,000(22) *
James F. Lardner............................................ 8,400(23) *
Donald E. Phillips.......................................... 4,000(24) *
Paul J. Schoenhals.......................................... 2,100(25) *
All directors and executive officers as a group (24
persons).................................................. 671,143(2-25) 1.5
</TABLE>
- ---------------
* Less than 1%
(1) At December 31, 1996, there were 45,581,864 outstanding shares of PCS
Common Stock.
(2) Includes 1,037 shares of PCS Common Stock held jointly by Mr. Childers and
his wife and 167,500 shares of PCS Common Stock issuable upon the exercise
of vested options granted to Mr. Childers.
(3) Includes 102,500 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Doyle.
(4) Includes 194 shares of PCS Common Stock held by Mr. Gugulyn's wife and
55,500 shares of PCS Common Stock issuable upon the exercise of vested
options granted to Mr. Gugulyn.
(5) Includes 100 shares of PCS Common Stock held by Mr. Bubnick's wife and
44,000 shares of PCS Common Stock issuable upon the exercise of vested
options granted to Mr. Bubnick.
63
<PAGE> 71
(6) Includes 39,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Humphreys.
(7) Includes 25,500 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Brownlee.
(8) Includes 21,750 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Moore.
(9) Includes 21,500 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Ms. Heggie.
(10) Includes 13,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Cote.
(11) Includes 2,000 shares of PCS Common Stock held by Mr. Estey's wife and
13,000 shares of PCS Common Stock issuable upon the exercise of vested
options granted to Mr. Estey.
(12) Includes 15,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Wright.
(13) Includes 83 shares of PCS Common Stock held jointly by Ms. Anderson and her
husband and 13,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Ms. Anderson.
(14) Includes 10 shares of PCS Common Stock held by Mr. Hampton's minor children
and 13,000 shares of PCS Common Stock issuable upon the exercise of vested
options granted to Mr. Hampton.
(15) Includes 13,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Howe.
(16) Includes 13,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Bourne.
(17) Includes 11,750 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Braun.
(18) Includes 10,500 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Wise.
(19) Includes 8,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Stromberg.
(20) Includes 9,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Vicq.
(21) Includes 8,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Seaman.
(22) Includes 8,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Wigmore.
(23) Includes 8,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Lardner.
(24) Includes 3,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Phillips.
(25) Includes 2,000 shares of PCS Common Stock issuable upon the exercise of
vested options granted to Mr. Schoenhals.
64
<PAGE> 72
ARCADIAN
The following table sets forth certain information regarding the beneficial
ownership of Arcadian Common Stock and Arcadian Preferred Stock at December 31,
1996, by (a) each person known to Arcadian to be the beneficial owner of more
than 5% of the outstanding shares of Arcadian Common Stock or Arcadian Preferred
Stock, (b) each director of Arcadian, (c) each executive officer of Arcadian,
and (d) all directors and executive officers of Arcadian as a group. Unless
otherwise indicated, each person indicated below has sole voting and investment
power with respect to the shares beneficially owned by such person. Shares of
Arcadian Common Stock issuable upon the exercise of options and warrants that
are vested or will vest within 60 days after December 31, 1996, are deemed to be
beneficially owned by the holders of such options and warrants and are treated
as vested in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------------------
COMMON STOCK PREFERRED STOCK
-------------------------- --------------------------
NAME OF DIRECTOR OR EXECUTIVE OFFICER OR NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS(1) SHARES OF CLASS(2)
---------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Gordon A. Cain............................. 2,311,750(3) 6.0% -- --
8 Greenway Plaza, Suite 702
Houston, Texas 77046-0803
James A Shirley............................ 334,284 * 1,870 *
William A. McMinn.......................... 206,375(4) * 2,500(15) *
Herbert W. Kirby........................... 189,482(5) * 10,000(16) *
Charles W. Lance, Jr....................... 153,317(6) * -- --
J. D. Campbell............................. 136,653(7) * -- --
James F. Dietz............................. 87,788(8) * -- --
A. L. Williams............................. 54,647(9) * -- --
Allan R. Dragone........................... 52,500(10) * -- --
Friedrich D. Bertz......................... 44,947(11) * 935(17) *
Peter H. Kesser............................ 24,947(12) * -- --
Lee W. Gooch............................... 25,447(13) * 1,934(18) *
Chester B. Vanatta......................... 15,000 * -- --
Gary E. Carlson............................ 12,788 * -- --
William P. Copenhaver...................... 5,300(14) * 3,085(19) *
John R. Block.............................. 2,500 * -- --
All directors and executive officers
as a group (16 persons).................. 3,657,725(3-14) 9.4 20,324(15-19) *
</TABLE>
- ---------------
* Less than 1%.
(1) At December 31, 1996, there were 38,799,844 outstanding shares of Arcadian
Common Stock.
(2) At December 31, 1996, there were 5,541,281 outstanding shares of Arcadian
Preferred Stock.
(3) Includes 106,290 shares of Arcadian Common Stock held by TSG, Inc., of
which Mr. Cain is Chairman of the Board and owner of 50% of the outstanding
shares of capital stock; 3,750 shares held by Mr. Cain's wife; 18,750
shares held by the custodian of a profit sharing plan for the benefit of
Mr. Cain; and 40,717 shares issuable upon the exercise of 17,226.3 AAC
Warrants held by Mr. Cain.
(4) Includes 9,375 shares of Arcadian Common Stock held by Mr. McMinn's wife
and 105,000 shares issuable upon exercise of vested options granted to Mr.
McMinn.
(5) Consists of 22,500 shares of Arcadian Common Stock held by Mr. Kirby, as
custodian for his grandchildren; 120,000 shares held by Mr. Kirby's wife
and son, as trustees of a trust for the benefit of Mr. Kirby and his
family; and 46,982 shares issuable upon the exercise of 19,876.5 AAC
Warrants held by Mr. Kirby, as trustee of a charitable remainder trust.
(6) Includes 75,000 shares of Arcadian Common Stock held by Mr. Lance's wife.
65
<PAGE> 73
(7) Includes 97,100 shares of Arcadian Common Stock held by Mr. Campbell, as
trustee of a trust for the benefit of Mr. Campbell and his family.
(8) Includes 2,000 shares of Arcadian Common Stock held by Mr. Dietz's wife and
73,000 shares issuable upon exercise of vested options granted to Mr.
Dietz.
(9) Includes 30,000 shares of Arcadian Common Stock issuable upon exercise of
vested options granted to Mr. Williams.
(10) Includes 45,000 shares of Arcadian Common Stock issuable upon exercise of
vested options granted to Mr. Dragone.
(11) Includes 9,000 shares of Arcadian Common Stock held by Mr. Bertz's wife and
19,000 shares issuable upon exercise of vested options granted to Mr.
Bertz.
(12) Includes 7,500 shares of Arcadian Common Stock issuable upon exercise of
vested options granted to Mr. Kesser.
(13) Includes 9,000 shares of Arcadian Common Stock held jointly by Mr. Gooch
and his wife and 10,000 shares issuable upon exercise of vested options
granted to Mr. Gooch.
(14) Includes 300 shares of Arcadian Common Stock held by Mr. Copenhaver's wife.
(15) Consists of 2,500 shares of Arcadian Preferred Stock held by Mr. McMinn's
wife.
(16) Consists of 10,000 shares of Arcadian Preferred Stock held jointly by Mr.
Kirby and his wife.
(17) Consists of 935 shares of Arcadian Preferred Stock held by Mr. Bertz's
wife.
(18) Includes 1,654 shares of Arcadian Preferred Stock held jointly by Mr. Gooch
and his wife.
(19) Includes 935 shares of Arcadian Preferred Stock held by Mr. Copenhaver's
wife.
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DESCRIPTION OF PCS CAPITAL STOCK
The statements in this section concerning PCS's Restated Articles of
Incorporation dated October 31, 1989, as amended (the "PCS Articles"), and the
Rights Plan (as defined herein), are brief summaries, do not purport to be
complete, and are qualified by reference to the PCS Articles and the Rights
Plan.
GENERAL
The authorized capital stock of PCS consists of an unlimited number of
common shares (the "PCS Common Stock") and an unlimited number of preferred
shares issuable in series (the "PCS Preferred Stock"). At the close of business
on December 31, 1996, there were 45,581,864 outstanding shares of PCS Common
Stock and no outstanding shares of PCS Preferred Stock.
PCS COMMON STOCK
Holders of shares of PCS Common Stock have the right to cast one vote per
share held at all meetings of PCS shareholders other than meetings at which only
holders of another class or series are entitled to vote under the PCS Articles
or applicable law.
Subject to prior rights of holders of PCS Preferred Stock and of holders of
any other PCS shares ranking prior to shares of PCS Common Stock, holders of
shares of PCS Common Stock have the right to receive such dividends as PCS's
Board of Directors may declare.
Subject to prior rights of holders of PCS Preferred Stock and of holders of
any other PCS shares ranking prior to shares of PCS Common Stock, holders of
shares of PCS Common Stock have the right to receive the remaining property of
PCS upon a dissolution.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for PCS Common Stock in Canada is The R-M
Trust Company, 1080-2002 Victoria Avenue, Regina, Saskatchewan S4P OR7, and in
the United States is ChaseMellon Shareholder Services, L.L.C., 85 Challenger
Road, Overpeck Center, Ridgefield Park, New Jersey 07660.
PCS PREFERRED STOCK
The Board of Directors of PCS has the authority to provide for the issuance
from time to time of PCS Preferred Stock in series and, as to each series, to
fix the designation, rights, privileges, restrictions and conditions to attach
thereto, such as the dividend rate, voting rights (if any), redemption
provisions (including pricing) (if any), and conversion rights (if any). The PCS
Preferred Stock of each series would rank on parity with the PCS Preferred Stock
of any other series and prior to the shares of PCS Common Stock with respect to
the payment of dividends and the return of capital and may carry voting rights.
Cumulative dividends, dividend preferences, and conversion, exchange and
redemption provisions, to the extent that any of these features may be present
when PCS Preferred Stock is issued, could have an adverse effect on the
availability of earnings for distribution to the holders of shares of PCS Common
Stock or for other corporate purposes. The Board of Directors of PCS, without
shareholder approval but subject to its fiduciary duties, could issue PCS
Preferred Stock with voting rights that could adversely affect the voting power
of the holders of PCS Common Stock and, thus, to some extent impede a change of
control of PCS.
RIGHTS
The Board of Directors of PCS adopted a Shareholder Rights Plan on November
10, 1994, which was amended by the Board of Directors on March 28, 1995, and May
4, 1995, and approved by the shareholders of PCS on May 11, 1995 (the "Rights
Plan"). Under the Rights Plan, the Board of Directors of PCS declared a dividend
distribution of one right (a "Right") for each share of PCS Common Stock to
holders of record. The Rights Plan provides that, in respect of subsequent
issuances of shares of PCS Common Stock, each share of PCS Common Stock so
issued shall have one Right associated with it.
The Rights Plan generally provides that, in the event that a person becomes
an Acquiring Person (as defined herein) pursuant to a transaction or event, each
Right shall constitute, effective from and after the close of business on the
tenth day following the date on which it is publicly announced that a person has
become an Acquiring Person or such later date as the Board of Directors may
determine, the right to purchase from PCS that number of shares of PCS Common
Stock having a market price equal to CDN$400 for an
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amount in cash equal to the exercise price of CDN$200, subject to adjustment in
order to avoid anti-dilutive effects.
The Rights Plan does not affect the acquisition of up to 20% of the
outstanding shares of PCS Common Stock and other voting shares of PCS ("Voting
Shares"). If a person, other than an investment manager, trust company or
pension plan, seeks to acquire greater than 20% of the outstanding Voting Shares
(an "Acquiring Person"), such Acquiring Person would be required to make a
take-over bid pursuant to the Permitted Bid or Competing Permitted Bid (each as
defined herein) requirements of the Rights Plan. Alternatively, an Acquiring
Person may seek approval of the Board of Directors of PCS for a particular
take-over bid. If an Acquiring Person acquires more than 20% of the outstanding
Voting Shares other than (a) by means of a Permitted Bid or Competing Permitted
Bid or (b) with the approval of the PCS Board of Directors, the operation of the
Rights Plan may substantially dilute such Acquiring Person's holdings by voiding
the Rights held by the Acquiring Person or otherwise beneficially owned by the
Acquiring Person.
Under the Rights Plan, a "Permitted Bid" is a take-over bid that provides
for a minimum deposit period of at least 60 days and is made to the holders of
all Voting Shares. A Permitted Bid may be made for less than all of the
outstanding Voting Shares. A Permitted Bid also must satisfy certain
requirements provided for in the Rights Plan, including the requirement that
more than 50% of the then outstanding Voting Shares held by holders independent
of any Acquiring Person or offeror be deposited in acceptance of the Permitted
Bid, in which case the Permitted Bid must then be extended for a further period
of 10 days.
Under the Rights Plan, a "Competing Permitted Bid" is a take-over bid which
is made after a Permitted Bid has been made and prior to the expiration of the
Permitted Bid. A Competing Permitted Bid may be made for less than all of the
outstanding Voting Shares. A Competing Permitted Bid also must satisfy certain
requirements provided for in the Rights Plan, including the requirements that
(a) the Competing Permitted Bid be made to the holders of all Voting Shares, (b)
it provide for a minimum deposit period for at least 60 days from the latest
date of any other Permitted Bid or Competing Permitted Bid in existence when the
take-over bid is made, and (c) more than 50% of the then outstanding Voting
Shares held by holders independent of any Acquiring Person or offeror be
deposited in acceptance of the Competing Permitted Bid, in which case the
Competing Permitted Bid must then be extended for a further period of 10 days.
The Rights Plan is operative for a three-year period expiring no later than
the 1998 Annual General Meeting of PCS.
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COMPARISON OF STOCKHOLDER RIGHTS
The statements set forth herein with respect to certain provisions of The
Business Corporations Act (Saskatchewan) (the "SBCA"), the PCS Articles, the PCS
By-Laws, the Rights Agreement, the General Corporation Law of the State of
Delaware (the "DGCL"), the Restated Certificate of Incorporation of Arcadian, as
amended (the "Arcadian Certificate"), and the Amended and Restated Bylaws of
Arcadian (the "Arcadian Bylaws"), are brief summaries thereof, do not purport to
be complete and are qualified in their entirety by reference to the relevant
provisions of such laws and documents.
The following summary compares certain rights of the holders of Arcadian
Common Stock under the DGCL, the Arcadian Certificate and the Arcadian Bylaws
with the rights of holders of PCS Common Stock under the SBCA, the PCS Articles
and the PCS By-Laws. PCS is incorporated under the laws of the Province of
Saskatchewan, Canada. Arcadian is incorporated under the laws of the State of
Delaware, United States of America. If the Merger is consummated, the Arcadian
stockholders will become stockholders of PCS. As stockholders of a Saskatchewan
corporation, their rights will differ in certain respects from those of
stockholders of a Delaware corporation. In addition, the rights of Arcadian
stockholders who become stockholders of PCS following the Merger will be
governed by the provisions of the PCS Articles and the PCS By-Laws rather than
the provisions of the Arcadian Certificate and the Arcadian Bylaws.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA, certain extraordinary corporate The DGCL requires the affirmative vote of a
actions, such as certain amalgamations, continuances, majority of the outstanding stock entitled
sales, leases or exchanges of all or substantially to vote thereon to authorize any merger,
all of the property of a corporation other than in consolidation, dissolution or sale of
the ordinary course of business, and other substantially all of the assets of a
extraordinary corporate actions such as liquidations corporation, except that, no authorizing
and dissolutions, are required to be approved by stockholder vote is required of a
special resolution. A special resolution is a corporation surviving a merger if (a) such
resolution passed by not less than two-thirds of the corporation's certificate of incorporation
votes cast by the shareholders entitled to vote on is not amended in any respect by the merger,
the resolution. In most cases, a special resolution (b) each share of stock of such corporation
to approve an extraordinary corporate action is also outstanding immediately prior to the
required to be approved separately by the holders of effective date of the merger will be an
a class or series of shares, including the holders of identical outstanding share of the surviving
non-voting shares. corporation after the effective date of the
merger and (c) the number of shares to be
A corporation may also apply to a court for an order issued in the merger does not exceed 20% of
approving an arrangement (which includes an such corporation's outstanding common stock
amalgamation, a transfer of all or substantially all immediately prior to the effective date of
the property of a corporation to another body the merger. Stockholder approval is also not
corporate in exchange for property, money or required under the DGCL for mergers or
securities of the body corporate, or liquidation and consolidations in which a parent corporation
dissolution) where it is not insolvent and is unable merges or consolidates with a subsidiary of
to make such change in accordance with the provisions which it owns at least 90% of the
of the SBCA. The court may make any interim or final outstanding shares of each class of stock.
order it sees fit with respect to such proposed
arrangement. Such matters as tender offers or self
tenders, going- private transactions and
Such matters as take-over bids, issuer bids or self similar transactions are subject to
tenders, going-private transactions and transactions regulation under United States securities
with directors, officers, significant shareholders laws, regulations and policies.
and other related parties to which PCS is a party
will be
</TABLE>
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<TABLE>
<S> <C>
subject to regulation by Canadian provincial
securities legislation and administrative policies of
Canadian securities administrators.
</TABLE>
CUMULATIVE VOTING AND CLASSIFICATION OF BOARD OF DIRECTORS
<TABLE>
<S> <C>
Saskatchewan Delaware
PCS's Articles and PCS's By-Laws do not provide for a Arcadian's Certificate and Arcadian's Bylaws
classified board of directors or for cumulative do not provide for a classified board of
voting in director elections. directors or for cumulative voting in
director elections.
</TABLE>
AMENDMENT TO GOVERNING DOCUMENTS
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA, any amendment to the articles The DGCL requires a vote of the
generally requires the approval by special corporation's board of directors followed by
resolution, which is a resolution passed by not less the affirmative vote of a majority of the
than two-thirds of the votes cast by shareholders outstanding stock of each class entitled to
entitled to vote on the resolution. Certain vote for any amendment to the certificate of
amendments which affect the shares are also required incorporation. If an amendment alters the
to be approved separately by the holders of each powers, preferences or special rights of a
class of shares (or in certain cases, of a series of particular class or series of stock so as to
shares), including the holders of non-voting shares. affect them adversely, that class or series
Under the SBCA, unless the articles or by-laws shall be given the power to vote as a class
otherwise provide, the directors may, by resolution, whether or not entitled to vote thereon
make, amend or repeal any by-law that regulates the under the certificate of incorporation. The
business or affairs of a corporation. Where the DGCL also states that the power to adopt,
directors make, amend or repeal a by-law, they are amend or repeal the by-laws of a corporation
required under the SBCA to submit the by-law, shall be in the stockholders entitled to
amendment or repeal to the shareholders at the next vote, provided that the corporation in its
meeting of shareholders, and the shareholders may certificate of incorporation may confer such
confirm, reject or amend the by-law amendment or power on the board of directors in addition
repeal by an ordinary resolution, which is a to the stockholders. The Arcadian
resolution passed by a majority of the votes cast by Certificate expressly authorizes the board
shareholders entitled to vote on the resolution. of directors to adopt, amend or repeal the
Arcadian Bylaws but the stockholders may
alter or repeal any by-law whether adopted
by them or otherwise.
</TABLE>
APPRAISAL RIGHTS
<TABLE>
<S> <C>
Saskatchewan Delaware
The SBCA provides that shareholders of a SBCA Under the DGCL, holders of shares of any
corporation entitled to vote on certain matters are class or series have the right, in certain
entitled to exercise dissent rights and to be paid circumstances, to dissent from a merger or
the fair value of their shares in connection consolidation of the corporation by
therewith. The SBCA does not distinguish for this demanding payment in cash for the shares
purpose between listed and unlisted shares. Such equal to the fair value (excluding any
matters include (a) any amalgamation with a appreciation or depreciation as a
corporation (other than with certain subsidiary consequence, or in expectation, of the
corporations); (b) an amendment to the corporation's transaction) of such shares, as determined
articles to add, change or remove any provisions by a court in an action timely brought by
restricting or constraining the issue, transfer or the corporation or the dissenters. The DGCL
ownership of grants appraisal rights only in the case of
mergers or consolidations and not in the
case of a sale or
</TABLE>
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<TABLE>
<S> <C>
shares; (c) an amendment to the corporation's articles transfer of assets or a purchase of assets for
to add, change or remove any restriction upon the stock regardless of the number of shares being
business or businesses that the corporation may carry issued. Further, no appraisal rights are
on or upon the powers that the corporation available for shares of any class or series
may exercise; (d) a continuance under the listed on a national securities
laws of another jurisdiction; (e) a sale, lease or exchange or designated as a national market
exchange of all or substantially all of the property system security on an interdealer quotation
of the corporation other than in the ordinary course system by The National Association of
of business; or (f) a court order permitting a Securities Dealers, Inc., or held of record
shareholder to dissent in connection with an by more than 2,000 stockholders unless the
application to the court for an order approving an agreement of merger or consolidation
arrangement proposed by the corporation. converts such shares into anything other
Notwithstanding the foregoing, a shareholder is not than (a) stock of the surviving corporation,
entitled to dissent if an amendment to the articles (b) stock of another corporation which is
is effected by a court order approving the either listed on a national securities
reorganization or by a court order made in connection exchange or designated as a national market
with an action for an oppression remedy. Under the system security on an interdealer quotation
SBCA, a shareholder may, in addition to exercising system by The National Association of
dissent rights, seek an oppression remedy, as Securities Dealers, Inc., or held of record
described below. by more than 2,000 stockholders, (c) cash in
lieu of fractional shares, or (d) some
combination of the above. In addition,
appraisal rights are not available for any
shares of the surviving corporation if the
merger did not require the vote of the
stockholders of the surviving corporation.
</TABLE>
OPPRESSION REMEDY
<TABLE>
<S> <C>
Saskatchewan Delaware
The SBCA provides an oppression remedy that enables The DGCL does not provide for an oppression
the court to make any order, both interim and final, remedy.
to rectify the matters complained of, if the court is
satisfied upon application by a complainant (as
defined below) that (a) any act or omission of the
corporation or an affiliate effects a result; (b) the
business or affairs of the corporation or an
affiliate are or have been carried on or conducted in
a manner; or (c) the powers of the directors of the
corporation or an affiliate are or have been
exercised in a manner; that is oppressive or unfairly
prejudicial to, or that unfairly disregards the
interest of any security holder, creditor, director
or officer of the corporation. A complainant includes
(a) a present or former registered holder or
beneficial owner of securities of a corporation or
any of its affiliates; (b) a present or former
officer or director of the corporation or any of its
affiliates; (c) the Director of Corporations Branch
as appointed under the SBCA; and (d) any other person
who, in the discretion of the court, is a proper
person to make such application. Because of the
breadth of the conduct which can be complained of and
the scope of the court's remedial powers, the
oppression remedy is very flexible and is frequently
relied upon to safeguard the interest of shareholders
and other
</TABLE>
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<TABLE>
<S> <C>
complainants which have a sufficient interest
in the corporation. Under the SBCA, it is not
necessary to prove that the directors of a
corporation acted in bad faith in order to seek an
oppression remedy. Furthermore, the court may order
the corporation or its subsidiary to pay the interim
expenses of a complainant seeking an oppression
remedy, but the complainant may be held accountable
for such interim costs on final disposition of the
complaint (as in the case of derivative action). The
complainant is not required to give any security for
costs.
</TABLE>
DERIVATIVE ACTION
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA, a complainant (as defined above) may Derivative actions may be brought in
apply to the court for leave to bring an action in Delaware by a stockholder on behalf of, and
the name of and on behalf of a corporation or any for the benefit of, the corporation. The
subsidiary, or intervene in an existing action to DGCL provides that a stockholder must aver
which any such body corporate is a party, for the in the complaint that he or she was a
purpose of prosecuting, defending or discontinuing stockholder of the corporation at the time
the action on behalf of the body corporate. Under the of the transaction of which he or she
SBCA, no action may be brought and no intervention in complains. A stockholder may not sue
an action may be made unless the court is satisfied derivatively unless he or she first makes
that (a) the complainant has given reasonable notice demand on the corporation that it bring suit
to the directors of the corporation or its subsidiary and such demand has been refused, unless it
of the complainant's intention to apply to the court is shown that such demand would have been
if the directors of the corporation or its subsidiary futile.
do not bring, diligently prosecute or defend or
discontinue the action; (b) the complainant is acting
in good faith; and (c) it appears to be in the
interests of the corporation or its subsidiary that
the action be brought, prosecuted, defended or
discontinued.
Under the SBCA, the court in a derivative action may
make any order it thinks fit including, without
limitation, (a) an order authorizing the complainant
or any other person to control the conduct of the
action; (b) an order giving directions for the
conduct of the action; (c) an order directing that
any amount adjudged payable by a defendant in the
action shall be paid, in whole or in part, directly
to former and present security holders of the
corporation or its subsidiary instead of to the
corporation or its subsidiary; and (d) an order
requiring the corporation or its subsidiary to pay
reasonable legal fees and any other costs reasonably
incurred by the complainant in connection with the
action. Additionally, under the SBCA, a court may
order a corporation or its subsidiary to pay the
</TABLE>
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<TABLE>
<S> <C>
complainant's interim costs, including legal fees and
disbursements. Although the complainant may be held
accountable for the interim costs on final
disposition of the complainant, it is not required to
give security for costs in a derivative action.
</TABLE>
STOCKHOLDER CONSENT IN LIEU OF MEETING
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA, shareholder action without a meeting Under the DGCL, unless otherwise provided in
may not be taken by written resolution signed by less the certificate of incorporation, any action
than all shareholders who would be entitled to vote required to be taken or which may be taken
thereon at a meeting. at an annual or special meeting of
stockholders may be taken without a meeting
if a consent in writing is signed by holders
of outstanding stock having not less than
the minimum number of votes that would be
necessary to authorize such action at a
meeting at which all shares entitled to vote
were present and voted. The Arcadian
Certificate does not contain any provision
relating to action by written consent.
</TABLE>
DIRECTOR RESIDENCY REQUIREMENTS
<TABLE>
<S> <C>
Saskatchewan Delaware
A majority of the directors of an SBCA corporation The DGCL does not have any residency
generally must be resident Canadians, but where a requirements.
holding corporation earns in Canada directly or
through its subsidiaries less than five per cent of
the gross revenues of the holding corporation and all
of its subsidiary bodies, then not more than
one-third of the directors of the holding corporation
are required to be resident Canadians. The SBCA also
requires that a corporation whose securities are or
were part of a distribution to the public have not
fewer than three directors, at least two of whom are
not officers or employees of the corporation or any
of its affiliates.
</TABLE>
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FIDUCIARY DUTIES OF DIRECTORS
<TABLE>
<S> <C>
Saskatchewan Delaware
Pursuant to section 117 of the SBCA, directors and Under the DGCL, the business and affairs of
officers are required to act honestly and in good a corporation are managed by or under the
faith with a view to the best interests of the direction of its board of directors. In
corporation, and to exercise the care, diligence and exercising their powers, directors are
skill that a reasonably prudent person would exercise charged with a fiduciary duty to protect the
in comparable circumstances. interests of the corporation and to act in
the best interests of its stockholders. In
Notwithstanding any of the above, a director is not recognition of the managerial prerogatives
liable if he relies in good faith upon (a) the granted to the directors of a Delaware
financial statements of the corporation represented corporation, Delaware law presumes that, in
to him or her by an officer of the corporation or in making a business decision, such directors
a written report of the auditor of the corporation to are disinterested and act on an informed
reflect the financial condition of the corporation, basis, in good faith and in the honest
or (b) a report of a lawyer, accountant, engineer, belief that the action taken was in the best
appraiser or other professional person. interests of such corporation, which
presumption is known as the "business
judgment rule." A party challenging the
propriety of a decision of a board of
directors bears the burden of rebutting the
applicability of the presumption of the
business judgment rule by demonstrating
that, in reaching their decision, the
directors breached one or more of their
fiduciary duties -- good faith, loyalty and
due care. If the presumption is not
rebutted, the business judgment rule
attaches to protect the directors and their
decisions, and their business judgments will
not be second guessed. Where, however, the
presumption is rebutted, the directors bear
the burden of demonstrating the entire
fairness of the relevant transaction.
Notwithstanding the foregoing, Delaware
courts subject directors' conduct to
enhanced scrutiny in respect of defensive
actions taken in response to a threat to
corporate control and approval of a
transaction resulting in a sale of such
control.
</TABLE>
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA and pursuant to the PCS By-Laws, The DGCL provides that a corporation may
except in respect of an action by or on behalf of the indemnify its present and former directors,
corporation to procure a judgment in its favour, PCS officers, employees and agents (each an
may indemnify a director or officer, a former "indemnitee") against all reasonable
director or officer or a person who acts or acted at expenses (including attorneys' fees) and,
the corporation's request as a director or officer of except in actions initiated by or in the
a body corporate of which the corporation is or was a right of the corporation, against all
shareholder or creditor, and his or her heirs and judgments, fines and amounts paid in
legal representatives (an "Indemnifiable Person"), settlement in actions brought against them,
against all costs, charges and expenses, including an if such indemnitee acted in good faith and
amount paid to settle an action or satisfy a in a manner which he or she reasonably
judgment, reasonably incurred by him or her in believed to be in, or not opposed to, the
respect of any civil, criminal or administrative best interests of the corporation, and in
action or proceeding to which he or she is made a the case of a criminal proceeding, had no
party by reason of being or having been a director or reasonable cause to believe that his or her
officer of the corporation or such body corporate, if conduct was unlawful. The corporation is
(a) he or she acted honestly and in good faith with a required to indemnify an indemnitee to the
view to the best interests of the corporation; and extent that he or she is successful on the
(b) in the case of a criminal or administrative merits or otherwise in the defense of any
action or proceeding that is enforced by a monetary claim, issue or matter associated with an
penalty, he or she had reasonable grounds for action, if the foregoing standards are
believing that his or her conduct was lawful. A satisfied. The Arcadian Certificate provides
corporation may, with the approval of a court, also for indemnification of directors and
indemnify an Indemnifiable Person in respect of an officers to the extent permitted by the
action by or on behalf of the corporation to procure DGCL. The Arcadian Bylaws and various other
a judgment in its favour, to which such person is Arcadian governing documents and contracts
made a party by reason of being or having been a require such indemnifications.
director or officer of the corporation, if he or she
fulfils the conditions set out in clauses (a) and (b)
above.
Notwithstanding the above, any interested person may
apply to court for an order that an Indemnifiable
Person is entitled to indemnity from the corporation
in respect of all costs, charges and expenses
reasonably incurred by him or her in connection with
the defence of any civil, criminal or administrative
action or proceeding to which he or she is made a
party by reason of being or having been a director or
officer of the corporation or body corporate if the
court is satisfied that the Indemnifiable Person (i)
was substantially successful on the merits of his or
her defense of the action or proceeding and (ii) he
or she fulfills the conditions set out in clauses (a)
and (b) above.
</TABLE>
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DIRECTOR LIABILITY
<TABLE>
<S> <C>
Saskatchewan Delaware
The SBCA does not permit any limitation of a The DGCL provides that the charter of the
director's liability. corporation may include a provision which
limits or eliminates the liability of
directors to the corporation or its
stockholders of monetary damages for breach
of fiduciary duty as a director, provided
such liability does not arise from certain
proscribed conduct, including acts or
omissions not in good faith or which involve
intentional misconduct or a knowing
violation of law, breach of the duty of
loyalty, the payment of unlawful dividends
or expenditure of funds for unlawful stock
repurchases or redemptions or transactions
from which such director derived an improper
personal benefit. The Arcadian Certificate
contains a provision limiting the liability
of its directors to the fullest extent
permitted by the DGCL.
</TABLE>
DIRECTOR REMOVAL AND VACANCIES
<TABLE>
<S> <C>
Saskatchewan Delaware
The shareholders of a corporation may, by resolution Under the DGCL, any director or the entire
passed by a majority of the votes cast by the board of directors of a Delaware corporation
shareholders who voted in respect of the resolution may be removed with or without cause by the
at a special meeting, remove any director or holders of a majority of the shares then
directors from office, and fill the vacancy created entitled to vote at an election of
by such removal. Pursuant to the SBCA, a quorum of directors. Pursuant to the DGCL and the
directors may, with certain exceptions, fill a Arcadian Bylaws, vacancies on the board of
vacancy among the directors. directors may be filled by a majority of
directors remaining in office.
</TABLE>
STOCKHOLDER RIGHTS PLAN
<TABLE>
<S> <C>
Saskatchewan Delaware
PCS has adopted the Rights Plan. The Rights Plan and Arcadian has not adopted a stockholder
the Rights are described in "Description of PCS rights plan.
Capital Stock -- Rights."
</TABLE>
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STOCKHOLDER INSPECTION RIGHTS
<TABLE>
<S> <C>
Saskatchewan Delaware
Shareholders of a public corporation and their agents Under the DGCL, stockholders, upon the
and legal representatives are entitled to examine, demonstration of a proper purpose, have the
and may take extracts of, among other things, the right to inspect a corporation's stock
articles, by-laws, minutes of meetings and ledger, stockholder list and other books and
resolutions of shareholders, and the securities records. Under the DGCL, a "proper purpose"
register. Such persons are also entitled, upon is any purpose reasonably related to the
meeting certain requirements, including the payment interest of the inspecting person as a
of a reasonable fee, to demand a list of shareholders stockholder.
and persons holding options or rights to acquire
shares in the Corporation.
</TABLE>
QUORUM REQUIREMENTS; MEETINGS OF STOCKHOLDERS
<TABLE>
<S> <C>
Saskatchewan Delaware
Pursuant to the SBCA, unless the by-laws otherwise Pursuant to the DGCL, the certificate of
provide, a quorum of shareholders is present at a incorporation or by-laws may specify a
meeting of shareholders if the holders of a majority quorum for, and the votes that shall be
of the shares entitled to vote at the meeting are necessary for, the transaction of any
present in person or represented by proxy. Pursuant business, but in no event shall a quorum
to the PCS By-Laws, a quorum for any meeting of consist of less than one-third of the shares
shareholders shall be a person or persons present and entitled to vote at the meeting. Pursuant to
holding or representing by proxy not less than 5% of the Arcadian Bylaws, at any meeting of the
the total number of issued shares of PCS having stockholders, the holders of a majority of
voting rights at such meeting. all of the shares of the stock entitled to
vote at the meeting, present in person or by
proxy, shall constitute a quorum.
</TABLE>
DIVIDENDS
<TABLE>
<S> <C>
Saskatchewan Delaware
Pursuant to the SBCA, a corporation shall not declare Subject to any restriction contained in a
or pay a dividend if there are reasonable grounds for corporation's certificate of incorporation,
believing that (a) the corporation is, or would after the DGCL generally provides that a
the payment be, unable to pay its liabilities as they corporation may declare and pay dividends
become due or (b) the realizable value of the out of surplus, defined as net assets minus
corporation's assets would thereby be less than the stated capital or, where no surplus exists,
aggregate of its liabilities and stated capital of out of net profits for the fiscal year in
all classes. which the dividend is declared and/or for
the preceding fiscal year. Dividends may not
be paid out of net profits if the capital of
the corporation is less than the amount of
capital represented by the issued and
outstanding stock of all classes having a
preference upon the distribution of assets.
</TABLE>
77
<PAGE> 85
INTERESTED DIRECTOR TRANSACTIONS
<TABLE>
<S> <C>
Saskatchewan Delaware
Under the SBCA, a material contract between a The DGCL provides that no transaction
corporation and one or more of its directors or between a corporation and one or more of its
officers, or between a corporation and another entity directors or officers, or an entity in which
of which the director or officer of the corporation one or more of its directors or officers are
is a director or officer or in which he or she has a directors or officers, or have a financial
material interest, is neither void or voidable by interest, shall be void or voidable solely
reason only of that relationship or by reason only for that reason, or solely because the
that a director with an interest in the contract is director or officer is present at,
present at or is counted to determine the presence of participates in, or votes at the meeting of
a quorum at a meeting of directors or committee of the board of directors or committee which
directors that authorized the contract, if the authorizes the transaction. In order that
director or officer disclosed his interest in such a transaction not be found void or
accordance with the SBCA, and the contract was voidable, it must, after disclosure of
approved by the directors or the shareholders and it material facts, be approved by the
was reasonable and fair to the corporation at the disinterested directors, a committee of
time it was approved. disinterested directors or the stockholders,
or the transaction must be fair as to the
The shareholders can also, by special resolution corporation.
passed at a meeting, approve a material or proposed
material contract that the directors are otherwise
unable to approve by reason of the material interest
of some or all of the directors in the contract.
</TABLE>
"ANTI-TAKEOVER" STATUTE
<TABLE>
<S> <C>
Saskatchewan Delaware
The SBCA contains no provisions similar to section Section 203 of the DGCL prohibits certain
203 of the DGCL. transactions between a Delaware corporation
and an "interested stockholder." For
purposes of this provision, an "interested
stockholder" is a stockholder that is
directly or indirectly a beneficial owner of
15% or more of the voting power of the
outstanding voting stock of a Delaware
corporation (or its affiliate or associate).
This provision prohibits certain business
combinations between an interested
stockholder and a corporation for a period
of three years after the date the interested
stockholder acquired its stock, unless (a)
the business combination is approved by the
corporation's board of directors prior to
the stock acquisition date; (b) the
interested stockholder acquired at least 85%
of the voting stock of the corporation in
the transaction in which it became an
interested stockholder; or (c) the business
combination is approved by a majority of the
board of the board of directors and the
affirmative vote of two-thirds of
disinterested stockholders.
</TABLE>
78
<PAGE> 86
POWER TO CALL SPECIAL MEETINGS
<TABLE>
<S> <C>
Saskatchewan Delaware
Pursuant to the SBCA, the directors may at any time Under the DGCL, a special meeting of
call a special meeting of shareholders. Additionally, stockholders may be called by the board of
the holders of not less than 5% of the issued shares directors or any other person authorized to
of a corporation that carry the right to vote at a do so in the corporation's certificate of
meeting sought to be held may requisition the incorporation or by-laws. Under the Arcadian
directors to call a meeting of shareholders for the Bylaws, special meetings of the stockholders
purposes stated in the requisition. for any purpose may be called by the board
of directors or the chief executive officer.
</TABLE>
LEGAL MATTERS
The legality of the PCS Common Stock offered hereby will be passed upon for
PCS by Stikeman, Elliott, counsel to PCS. Bracewell & Patterson, L.L.P., counsel
to Arcadian, and Goodman Phillips & Vineberg (New York), U.S. tax counsel to
PCS, will each deliver an opinion concerning certain United States federal
income tax consequences of the Merger, and Goodman Phillips & Vineberg S.E.N.C.
(Montreal), Canadian tax counsel to PCS, will deliver an opinion concerning
certain Canadian federal income tax consequences of the ownership and
disposition of shares of PCS Common Stock. Certain matters involving the laws of
the United States will be passed upon for PCS by Arent Fox Kintner Plotkin &
Kahn, counsel to PCS.
EXPERTS
The consolidated financial statements and schedules of Arcadian and its
subsidiaries as of December 31, 1994 and 1995, and for each of the three years
in the period ended December 31, 1995, incorporated by reference herein and in
the Registration Statement of which this Proxy Statement is a part, have been so
incorporated in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, and Coopers & Lybrand, independent chartered
accountants, incorporated by reference herein and therein, and upon the
authority of said firms as experts in accounting and auditing.
With respect to the unaudited interim consolidated financial information of
Arcadian and its subsidiaries as of and for the periods ended March 31, 1996,
June 30, 1996, and September 30, 1996, incorporated by reference herein and in
the Registration Statement of which this Proxy Statement is a part, KPMG Peat
Marwick LLP, independent certified public accountants, have reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports included in
Arcadian's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996, and September 30, 1996, and incorporated by reference herein and
therein, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited interim consolidated financial information, because those reports
are not "reports" or "part" of the Registration Statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities
Act.
The consolidated financial statements of PCS and its subsidiaries as of
December 31, 1994 and 1995, and for each of the three years in the period ended
December 31, 1995, incorporated by reference herein and in the Registration
Statement of which this Proxy Statement is a part, have been audited by Deloitte
& Touche, independent chartered accountants, as stated in their reports
incorporated by reference herein and therein, and are so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Texasgulf Inc., at December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994, included in Amendment No. 2 to PCS's Registration Statement on Form F-10
(No. 33-98616) and incorporated by reference in this Proxy Statement and
79
<PAGE> 87
Registration Statement, have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
If the Merger Agreement is not consummated, proposals of Arcadian
stockholders that are intended to be presented by such stockholders at
Arcadian's 1997 Annual Meeting of Stockholders must have been received by
Arcadian at its principal executive offices no later than November 29, 1996, in
order that they may be considered for possible inclusion in the proxy statement
and the form of proxy relating to that meeting. Stockholder nominations of
candidates for election to the Arcadian Board must be made no later than 90 days
in advance of each annual meeting of stockholders, and must contain the
information required by Arcadian's Amended and Restated Bylaws.
EXCHANGE RATE INFORMATION
The exchange rates for 1994 and 1995 and the nine months ended September
30, 1996, were as follows (such rates are expressed in Deutsche Marks ("DM") per
U.S.$1.00, at the noon buying rates (the "Noon Buying Rates") in New York City
for cable transfers as certified for customs purposes by the Federal Reserve
Bank of New York):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
End of period........................................ 1.5495 1.4345 1.5210
Average for period*.................................. 1.6119 1.4261 1.5024
High for period...................................... 1.7627 1.5612 1.5477
Low for period....................................... 1.4920 1.3565 1.4354
</TABLE>
- ---------------
* Based on the average of the Noon Buying Rates on the last business day of each
month during the period presented.
On January 27, 1997, the Noon Buying Rate was DM 1.6424 per U.S.$1.00
(equivalent to DM 1.00 = U.S.$0.6089).
80
<PAGE> 88
ANNEXES TO PROXY STATEMENT
<TABLE>
<S> <C>
Annex I Agreement and Plan of Merger dated as of September 2, 1996,
as amended, among Potash Corporation of Saskatchewan Inc.,
Arcadian Corporation, and PCS Nitrogen, Inc.
Annex II Fairness Opinion of Credit Suisse First Boston Corporation
dated January 28, 1997
Annex III Excerpt from the General Corporation Law of the State of
Delaware Relating to Appraisal Rights
</TABLE>
<PAGE> 89
ANNEX I
AGREEMENT AND PLAN OF MERGER,
AS AMENDED,
BY AND AMONG
POTASH CORPORATION OF SASKATCHEWAN INC.,
ARCADIAN CORPORATION
AND
PCS NITROGEN, INC.
SEPTEMBER 2, 1996
<PAGE> 90
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger.................................................. 1
SECTION 1.02. Exchange Agent; Payment of Merger Consideration............. 2
SECTION 1.03. Transfers after the Effective Time.......................... 3
SECTION 1.04. Withholding................................................. 3
SECTION 1.05. Fractional Shares........................................... 3
SECTION 1.06. Options, SARs, CESARs and Restricted Stock.................. 3
SECTION 1.07. Certain Adjustments......................................... 4
SECTION 1.08. Dissenting Shares........................................... 4
SECTION 1.09. Cash/Stock Adjustment....................................... 4
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. The Surviving Corporation................................... 5
ARTICLE 3
STOCKHOLDER APPROVAL; EFFECTIVE TIME
SECTION 3.01. Stockholder Approval........................................ 5
SECTION 3.02. Effective Time.............................................. 5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PCS AND MERGER SUB
SECTION 4.01. Organization, Standing and Power............................ 6
SECTION 4.02. Corporate Authorization..................................... 6
SECTION 4.03. Governmental Authorization.................................. 7
SECTION 4.04. Non-Contravention........................................... 7
SECTION 4.05. Capitalization.............................................. 7
SECTION 4.06. Disclosure Documents........................................ 7
SECTION 4.07. Compliance with Laws........................................ 8
SECTION 4.08. No Undisclosed Liabilities.................................. 8
SECTION 4.09. Litigation.................................................. 8
SECTION 4.10. Environmental Matters....................................... 8
SECTION 4.11. Proxy Statement; Registration Statement..................... 9
SECTION 4.12. Absence of Certain Changes.................................. 9
SECTION 4.13. Liabilities of Merger Sub................................... 9
SECTION 4.14. Merger-Related Tax Matters.................................. 9
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF ARCADIAN
SECTION 5.01. Organization, Standing and Power............................ 10
SECTION 5.02. Corporate Authorization..................................... 10
SECTION 5.03. Governmental Authorization.................................. 11
</TABLE>
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<PAGE> 91
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.04. Non-Contravention........................................... 11
SECTION 5.05. Capitalization.............................................. 11
SECTION 5.06. SEC Documents............................................... 12
SECTION 5.07. Compliance with Laws........................................ 12
SECTION 5.08. No Undisclosed Liabilities.................................. 12
SECTION 5.09. Litigation.................................................. 12
SECTION 5.10. Environmental Matters....................................... 12
SECTION 5.11. ERISA....................................................... 13
SECTION 5.12. Proxy Statement; Registration Statement..................... 16
SECTION 5.13. Absence of Certain Changes.................................. 16
SECTION 5.14. Taxes....................................................... 17
SECTION 5.15. Fairness Opinion............................................ 19
SECTION 5.16. Takeover Statutes........................................... 19
SECTION 5.17. Merger-Related Tax Matters.................................. 19
SECTION 5.18. Brokers or Finders.......................................... 20
SECTION 5.19. Additional Matters.......................................... 20
SECTION 5.20. Certain Voting Agreements................................... 20
ARTICLE 6
COVENANTS
SECTION 6.01. Conduct of Arcadian's Business.............................. 20
SECTION 6.02. Investigation............................................... 22
SECTION 6.03. Cooperation................................................. 22
SECTION 6.04. Affiliates.................................................. 23
SECTION 6.05. Insurance Extension......................................... 23
SECTION 6.06. Filings; Other Action....................................... 23
SECTION 6.07. Further Assurances.......................................... 23
SECTION 6.08. Takeover Statute............................................ 23
SECTION 6.09. No Solicitation............................................. 23
SECTION 6.10. Public Announcements........................................ 24
SECTION 6.11. Indemnification and Insurance............................... 24
SECTION 6.12. Accountants' Letters........................................ 24
SECTION 6.13. Arcadian Preferred Stock.................................... 24
SECTION 6.14. Additional Reports.......................................... 24
SECTION 6.15. Arcadian Warrants........................................... 24
SECTION 6.16. No Purchase................................................. 25
SECTION 6.17. Employee Benefit Plans...................................... 25
SECTION 6.18. Conduct of PCS's Business................................... 26
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Merger........................................ 26
SECTION 7.02. Additional Conditions of PCS and Merger Sub................. 27
SECTION 7.03. Additional Conditions of Arcadian........................... 27
ARTICLE 8
TERMINATION, WAIVER, AMENDMENT AND CLOSING
SECTION 8.01. Termination or Abandonment.................................. 27
SECTION 8.02. Amendment or Supplement..................................... 28
</TABLE>
-ii-
<PAGE> 92
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 8.03. Extension of Time, Waiver, Etc.............................. 28
SECTION 8.04. Closing..................................................... 29
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. No Survival of Representations and Warranties............... 29
SECTION 9.02. Expenses.................................................... 29
SECTION 9.03. Counterparts; Effectiveness................................. 29
SECTION 9.04. Governing Law; Consent to Jurisdiction...................... 29
SECTION 9.05. Notices..................................................... 30
SECTION 9.06. Assignment; Binding Effect.................................. 30
SECTION 9.07. Severability................................................ 30
SECTION 9.08. Enforcement of Agreement.................................... 30
SECTION 9.09. Miscellaneous............................................... 31
SECTION 9.10. Headings.................................................... 31
</TABLE>
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<PAGE> 93
TABLE OF DEFINITIONS
AAC Warrant......................6.15(b)(ii)
AAC Warrant Agreement.............6.15(b)(i)
Affiliate Agreement.....................6.04
Agreement...........................Preamble
Arcadian............................Preamble
Arcadian Benefit Arrangements........5.11(e)
Arcadian Common Stock................5.05(a)
Arcadian Employee Plans..............5.11(a)
Arcadian International Plan..........5.11(k)
Arcadian Preferred Stock............Preamble
Arcadian SEC Documents..................5.06
Arcadian Title IV Plan...............5.11(b)
Canadian GAAP...........................4.06
Canadian Securities Laws..........4.01(b)(v)
Certificate of Designation..........Preamble
Certificate of Merger...................3.02
CESAR................................1.06(c)
CESAR Plan...........................1.06(c)
Change in Control....................6.17(a)
Change of Control....................6.17(a)
Code................................Preamble
Common Conversion Option............Preamble
Confidentiality Agreement...............6.02
Current Employees....................6.17(b)
Delaware Law.........................1.01(a)
Determination Date................1.01(b)(v)
Effective Date.......................7.01(f)
Effective Time..........................3.02
Employment Agreements................5.13(j)
Environmental Claim.....................4.10
Environmental Laws......................4.10
Environmental Permits...................4.10
ERISA................................5.11(a)
ERISA Affiliate......................5.11(b)
Exchange Act............................4.03
Exchange Agent.......................1.02(a)
Final PCS Common Stock Price......1.01(b)(v)
Five Percent Holder.....................1.09
GAAP....................................5.06
Holders..............................1.02(a)
HSR Act.................................4.03
Lien....................................4.04
Material Adverse Effect.........4.01(b)(iii)
Merger...............................1.01(a)
Merger Cash..........................1.02(a)
Merger Consideration.................1.02(a)
Merger Shares........................1.02(a)
Merger Sub..........................Preamble
Multiemployer Plan...................5.11(b)
NYSE..............................1.01(b)(v)
Old Certificate......................1.02(b)
Option Plan..........................1.06(a)
Optionees............................1.06(a)
Options..............................1.06(a)
PCS.................................Preamble
PCS Common Stock.....................4.05(a)
PCS Disclosure Documents................4.06
PCS DRIP........................4.05(a)(iii)
Pension Plans........................5.11(a)
Per Share Cash Amount............1.01(b)(iv)
Per Share Stock Amount...........1.01(b)(iv)
Person...........................4.01(b)(ii)
Proxy Statement.........................4.11
Registration Statement...............6.03(a)
Restricted Stock Plan................1.06(d)
SAR..................................1.06(b)
SAR Plan.............................1.06(b)
SBCA.............................4.01(b)(iv)
Series B Warrant.................6.15(b)(iv)
Series B Warrant Agreement......6.15(b)(iii)
Severance Program....................5.13(j)
Special Meeting.........................3.01
Subsidiary........................4.01(b)(i)
Surviving Corporation................1.01(a)
Tax..................................5.14(m)
Tax Return...........................5.14(m)
Taxes................................5.14(m)
Taxing Authorities...................5.14(m)
Termination Date........................6.01
Third Party Acquisition Proposal........6.09
Total Consideration.....................1.09
Treasury Regulation..................5.14(m)
Valuation Period..................1.01(b)(v)
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<PAGE> 94
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), dated as of September
2, 1996, and amended on December 12, 1996 and January , 1997 but effective as
of September 2, 1996, is by and among Potash Corporation of Saskatchewan Inc., a
Saskatchewan corporation ("PCS"), Arcadian Corporation, a Delaware corporation
("Arcadian"), and PCS Nitrogen, Inc., a Delaware corporation and a wholly-owned
subsidiary of PCS ("Merger Sub").
W I T N E S S E T H
WHEREAS, the Boards of Directors of PCS and Arcadian have deemed that it is
advisable and in the best interests of the security holders of PCS and Arcadian,
respectively, that PCS acquire Arcadian pursuant to the merger of Arcadian with
and into Merger Sub as set forth herein; and
WHEREAS, in connection with the Merger described herein, Arcadian will
exercise the "Common Conversion Option" set forth in the Certificate of
Designation (the "Certificate of Designation") creating Arcadian's Mandatorily
Convertible Preferred Stock, Series A ("Arcadian Preferred Stock"), so that (a)
all shares of Arcadian Preferred Stock outstanding immediately prior to the
Merger will be converted into shares of Arcadian Common Stock immediately prior
to the Merger as provided in the Certificate of Designation, and (b) all such
shares of Arcadian Common Stock resulting from such conversion of the Arcadian
Preferred Stock will be treated in the Merger identically to all other shares of
Arcadian Common Stock outstanding immediately prior to the Merger; and
WHEREAS, the parties hereto intend that the merger of Arcadian with and
into Merger Sub shall be accomplished in a manner that will qualify as a
reorganization under Section 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the agreements and
conditions specified in this Agreement, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. (a) At the Effective Time, Arcadian shall be
merged (the "Merger") with and into Merger Sub in accordance with the provisions
of the General Corporation Law of the State of Delaware, as amended ("Delaware
Law"), whereupon the separate existence of Arcadian shall cease, and Merger Sub
shall be the surviving corporation (the "Surviving Corporation"). From and after
the Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of Arcadian and Merger Sub, all as provided under
Delaware Law.
(b) Pursuant to the Merger, at the Effective Time:
(i) each share of Arcadian Common Stock outstanding immediately prior
to the Effective Time shall, except as otherwise provided in Section
1.01(b)(ii), Section 1.05, Section 1.08, or Section 1.09, be converted into
cash equal to the Per Share Cash Amount and that fraction of a share of PCS
Common Stock equal to the Per Share Stock Amount;
(ii) each share of Arcadian Common Stock held by Arcadian or any
Subsidiary of Arcadian or owned by PCS or any Subsidiary of PCS immediately
prior to the Effective Time shall be canceled, and no payment shall be made
with respect thereto;
(iii) each share of common stock of Merger Sub outstanding immediately
prior to the Effective Time shall be converted into and become one share of
common stock of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted and shall constitute the only
outstanding share of capital stock of the Surviving Corporation; except for
such additional common stock as will be issued to PCS by Surviving
Corporation in consideration of PCS agreeing to deliver the Merger Shares
to the Exchange Agent. The share certificates evidencing the common stock
of Merger Sub shall be canceled and a new share certificate of the
Surviving Corporation shall be issued to PCS.
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<PAGE> 95
(iv) for purposes hereof, the term "Per Share Cash Amount" shall mean
$12.25; the term "Per Share Stock Amount" shall mean the number of shares
(or a fraction thereof) of PCS Common Stock (expressed as a decimal and
with the result rounded up or down to the nearest one one-thousandth,
0.0005 being rounded up to 0.001) equal to:
(A) if the Final PCS Common Stock Price is at least $72.00 but not
greater than $83.25, then 0.17713;
(B) if the Final PCS Common Stock Price is less than $72.00, then
the lesser of (1) 0.21250 and (2) the quotient of (x) $12.75 divided by
(y) the Final PCS Common Stock Price; and
(C) if the Final PCS Common Stock Price is greater than $83.25,
then the greater of (1) 0.16389 and (2) the quotient of (x) $14.75
divided by (y) the Final PCS Common Stock Price;
(v) for purposes hereof, the term "Final PCS Common Stock Price" shall
mean the quotient obtained by dividing (A) the sum of the averages of the
daily high and low trading prices of the PCS Common Stock on the New York
Stock Exchange (the "NYSE") for each trading day during the Valuation
Period by (B) the number of trading days in the Valuation Period; the term
"Valuation Period" shall mean the 20 consecutive days on which shares of
PCS Common Stock are traded on the NYSE ending on the second business day
immediately prior to the anticipated Effective Time; and the term
"Determination Date" shall mean the last day of the Valuation Period; and
(vi) for purposes hereof, the term "dollars" and the symbol "$" shall
both mean United States dollars.
SECTION 1.02. Exchange Agent; Payment of Merger Consideration.
(a) As soon as reasonably practicable after the Effective Time, and subject
to the provisions of Section 1.09, (i) PCS shall deposit or cause to be
deposited with ChaseMellon Shareholder Services, L.L.C. or such other
institution as may be designated by PCS, as exchange agent (including any
co-exchange agent, the "Exchange Agent"), for the benefit of the holders of
Arcadian Common Stock (collectively, the "Holders"), certificates representing
the number of whole shares of PCS Common Stock (collectively, the "Merger
Shares") to which each Holder has become entitled pursuant to Section 1.01, and
(ii) Merger Sub shall deposit (A) cash equal to the aggregate Per Share Cash
Amount to which the Holders have become entitled pursuant to Section 1.01 (the
"Merger Cash"), and (B) the cash to which the Holders are entitled as provided
in Section 1.05 (the Merger Shares, the Merger Cash and any cash to which a
Holder is entitled as provided in Section 1.05 together being the "Merger
Consideration"). In consideration of PCS agreeing to deliver the Merger Shares
to the Exchange Agent, Surviving Corporation shall issue to PCS common stock of
Surviving Corporation having a value equal to the Merger Shares.
(b) As soon as reasonably practicable after the Effective Time, and in any
event within 30 days after the Effective Time, the Exchange Agent shall mail to
each Holder of record as of the Effective Time, a form of letter of transmittal
and instructions for use in effecting the surrender of the certificates
representing Arcadian Common Stock or Arcadian Preferred Stock, as the case may
be (each such certificate, an "Old Certificate"), in exchange for the Merger
Consideration. Upon the proper delivery and surrender to the Exchange Agent of
an Old Certificate, together with a duly completed and executed letter of
transmittal, the record holder of such Old Certificate shall be entitled to
receive, and the Exchange Agent (pursuant to irrevocable instructions from PCS)
shall deliver to such record holder, in exchange therefor, subject to Section
1.09, (i) a certificate representing the Merger Shares to which such Holder
shall have become entitled pursuant to Section 1.01, (ii) the Merger Cash to
which such Holder shall have become entitled pursuant to Section 1.01, and (iii)
if applicable, cash in lieu of fractional shares as provided in Section 1.05.
Any Old Certificate delivered to the Exchange Agent with a duly completed and
executed letter of transmittal shall forthwith be canceled. Until so delivered,
each Old Certificate shall, after the Effective Time, represent for all purposes
only the right to receive the Merger Consideration as set forth in this
Agreement. No interest will be paid or will accrue on any portion of the Merger
Consideration payable on the surrender of an Old Certificate. Any Holder whose
Old Certificate has been lost or destroyed may nevertheless obtain the Merger
Consideration into which the
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<PAGE> 96
Arcadian Common Stock, represented by such lost Old Certificate would have been
converted pursuant to Section 1.01, provided such Holder delivers to PCS and the
Exchange Agent a statement certifying such loss or destruction and providing for
indemnity reasonably satisfactory to PCS and the Exchange Agent against any loss
or expense either of them may incur as a result of such lost or destroyed Old
Certificate being thereafter surrendered to the Exchange Agent or PCS. In the
event of a transfer of ownership of any Arcadian Common Stock which is not
registered in the transfer records of Arcadian, the Merger Consideration may be
delivered to a transferee if the Old Certificate representing such Arcadian
Common Stock so transferred is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable transfer taxes have been paid or are not payable.
(c) No dividends payable with respect to any Merger Shares shall be paid to
persons entitled to receive such Merger Shares until such persons have
surrendered their Old Certificates (or certification with respect to lost or
destroyed Old Certificates) to the Exchange Agent in accordance with Section
1.02(b). After such surrender, there shall be paid to the person in whose name
the Merger Shares shall be issued any dividends on such Merger Shares that have
a record date prior to such surrender. If the payment date for such dividend is
after the date of such surrender, payment shall be made on such payment date. In
no event will any person entitled to receive Merger Shares be entitled to
interest on any dividend declared with respect to Merger Shares.
(d) Any of the Old Certificates, and any certification with respect to lost
or destroyed Old Certificates, that have not been surrendered or delivered to
the Exchange Agent within six months after the Effective Time may be delivered
to PCS, and any Holder who has not theretofore complied with Section 1.02(b)
shall thereafter look only to PCS for payment of the Merger Consideration.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable for any cash or securities delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(e) All deliveries and payments in respect of Arcadian Common Stock that
are made in accordance with the terms hereof shall be deemed to have been made
in full satisfaction of all rights pertaining to such securities, except as may
be otherwise required by law.
SECTION 1.03. Transfers after the Effective Time. No transfers of Arcadian
Common Stock or Arcadian Preferred Stock shall be made on the transfer books of
the Surviving Corporation at or after the Effective Time.
SECTION 1.04. Withholding. PCS shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
Holder such amounts as PCS may be required to deduct and withhold with respect
to the making of such payment under the Code or any provision of state, local or
foreign tax law. To the extent that such amounts are so withheld by PCS, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the Holder in respect of whom such deduction and withholding were
made.
SECTION 1.05. Fractional Shares. No fractional shares of PCS Common Stock
shall be issued in connection with the Merger, but in lieu thereof each holder
of Arcadian Common Stock otherwise entitled to a fractional share of PCS Common
Stock (considering all Old Certificates held of record by such holder together)
will be entitled to receive a cash payment (rounded up or down to the nearest
$.01, $.005 being rounded up to $.01) in an amount equal to such fractional part
of a share of PCS Common Stock multiplied by the Final PCS Common Stock Price.
SECTION 1.06. Options, SARs, CESARs and Restricted Stock. (a) As soon as
reasonably practicable after receiving written instructions from PCS and before
the Effective Time, Arcadian shall take all necessary and appropriate actions to
implement the provisions of clause (1) or (3) of Section 6(j) of Arcadian's
Stock Option Plan, as amended (the "Option Plan"), with respect to the
outstanding options to purchase shares of Arcadian Common Stock (the "Options")
granted under the Option Plan. Arcadian and PCS understand and agree that
subject to certain conditions set forth in the Option Plan, (i) said clause (1)
of Section 6(j) permits Arcadian to accelerate the time at which the then
outstanding Options may be exercised in full for a limited period of time on or
before a specified date (which, in the case of the Merger, will permit the
holders of the
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Options (the "Optionees") to participate in the Merger with the shares of
Arcadian Common Stock received upon the exercise of such Options) to be fixed by
the Committee (as defined in the Option Plan), after which specified date all
unexercised Options and all rights of the Optionees thereunder shall terminate,
and (ii) said clause (3) permits Arcadian to require the mandatory surrender to
Arcadian of the then outstanding Options, as of a date before or not later than
sixty (60) days after the Effective Time as specified by the Committee, in which
event such Options shall be canceled and Arcadian shall pay to each Optionee an
amount of cash equal to the excess of the fair market value (as determined in
accordance with the Option Plan) of the aggregate shares of Arcadian Common
Stock subject to such Option over the aggregate option price of such shares.
(b) As soon as reasonably practicable before the Effective Time, Arcadian
shall take all necessary and appropriate actions to further amend Arcadian's
Stock Appreciation Rights Plan, as amended (the "SAR Plan"), to provide that at
the Effective Time, each stock appreciation right unit granted under the SAR
Plan ("SAR") that is outstanding immediately prior to the Effective Time shall
be converted into (i) cash equal to the Per Share Cash Amount less the
applicable Award Price (as set forth in the applicable SAR agreement) of such
SAR and (ii) a fraction of a share of PCS Common Stock equal to the Per Share
Stock Amount or cash of equal value.
(c) As soon as reasonably practicable before the Effective Time, Arcadian
shall take such action, if any, as may be necessary or appropriate with regard
to Arcadian's Cash Equivalent Stock Appreciation Rights Plan (the "CESAR Plan")
so that at the Effective Time, each cash equivalent stock appreciation right
unit granted under the CESAR Plan ("CESAR") that is outstanding immediately
prior to the Effective Time shall be converted into (i) cash equal to the Per
Share Cash Amount less $6.67 and (ii) a fraction of a share of PCS Common Stock
equal to the Per Share Stock Amount or cash of equal value.
(d) Immediately prior to the Effective Time, all restrictions relating to
all shares of Arcadian Common Stock theretofore granted pursuant to Arcadian's
Restricted Stock Plan (the "Restricted Stock Plan") shall lapse, and all
conditions to the holders' receipt of such shares free of any such restrictions
shall be deemed satisfied. At the Effective Time, each share of Arcadian Common
Stock theretofore granted pursuant to the Restricted Stock Plan shall be
converted into the Merger Consideration pursuant to Section 1.01(b).
SECTION 1.07. Certain Adjustments. If at any time during the period between
the date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of Arcadian shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Merger Consideration shall be appropriately adjusted; provided,
however, that none of (a) the exercise between the date of this Agreement and
the Effective Time of Stock Options outstanding on the date of this Agreement,
(b) the issuance of shares of Arcadian Common Stock pursuant to the Restricted
Stock Plan, (c) the conversion of shares of Arcadian Preferred Stock in or at
any time prior the Merger, shall require any such adjustment.
SECTION 1.08. Dissenting Shares. Notwithstanding any of the foregoing
provisions of this Article 1, shares of Arcadian Common Stock and Arcadian
Preferred Stock outstanding immediately prior to the Effective Time and held by
a Holder who has not voted in favor of the Merger or consented thereto in
writing and who has demanded appraisal for such shares in accordance with
Delaware Law shall not be converted into a right to receive the Merger
Consideration, unless such Holder fails to perfect or withdraws or otherwise
loses his right to appraisal. If after the Effective Time such holder fails to
perfect or withdraws or loses his or her right to appraisal, such shares of
Arcadian Common Stock shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration. Arcadian shall
give PCS prompt notice of any demands received by Arcadian for appraisal of
shares of Arcadian Common Stock or Arcadian Preferred Stock, and PCS shall have
the right to participate in all negotiations and proceedings with respect to
such demands.
SECTION 1.09. Cash/Stock Adjustment. In the event that holders of Arcadian
Common Stock, in the aggregate, would not receive PCS Common Stock in the Merger
without the adjustment described herein, in an amount representing at least
47.94% of the Total Consideration, then the Per Share Stock Amount shall be
increased and the Per Share Cash Amount shall be decreased by the same dollar
value, so that at least 47.94% of the Total Consideration is represented by PCS
Common Stock. As used herein, the term "Total
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Consideration" means the sum of (a) the aggregate Merger Consideration (but
excluding the value of shares of Arcadian Common Stock as to which appraisal
rights have been demanded and not waived or otherwise lost), (b) the value of
the shares of Arcadian Common Stock as to which appraisal rights have been
demanded and not waived or otherwise lost, and (c) any amount paid in redemption
of Arcadian Common Stock and Arcadian Preferred Stock, other than redemptions
undertaken in the ordinary course of business and not in contemplation of the
Merger, within one year prior to the effective date of the Merger. Solely for
purposes of the foregoing computation, shares of PCS Common Stock to be received
by any Five Percent Holder (other than any Five Percent Holder who has delivered
to Arcadian a statement satisfactory to Arcadian to the effect that such Five
Percent Holder then has no intention to dispose of the shares of PCS Common
Stock to be received by such Five Percent Holder in the Merger for a period of
two years after the effective date of the Merger) shall be considered to be
cash, and shall not be considered to be shares of PCS Common Stock. As used
herein, the term "Five Percent Holder" means any stockholder of Arcadian who,
immediately prior to the Effective Time, is the owner of five percent or more of
(a) the aggregate number of shares of Arcadian Common Stock then outstanding
plus (b) the aggregate number of shares of Arcadian Common Stock into which the
Arcadian Preferred Stock then outstanding will be converted immediately prior to
the Merger pursuant to Arcadian's exercise of the Common Conversion Option.
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. The Surviving Corporation. (a) The certificate of
incorporation of Merger Sub in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
(b) The bylaws of Merger Sub in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
law.
(c) From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable law, (i) the directors of
Merger Sub at the Effective Time shall be the directors of the Surviving
Corporation, and (ii) the officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE 3
STOCKHOLDER APPROVAL; EFFECTIVE TIME
SECTION 3.01. Stockholder Approval. Subject to the terms and conditions
contained herein, this Agreement and the transactions contemplated hereby, shall
be submitted for approval to the holders of shares of Arcadian Common Stock and
Arcadian Preferred Stock at a meeting to be duly held for such purpose by
Arcadian (the "Special Meeting"). PCS and Arcadian shall coordinate and
cooperate with respect to the timing of such meeting and shall endeavor to hold
such meeting as soon as practicable after the date hereof. Arcadian's Board of
Directors shall recommend unanimously that its stockholders approve and adopt
this Agreement and the transactions contemplated hereby and such recommendation
shall be contained in the Proxy Statement; provided that nothing herein shall
prevent the Board of Directors of Arcadian from withdrawing or modifying this
recommendation if, in the good faith judgment of such Board of Directors after
consultation with legal counsel and financial advisors, such Board's fiduciary
duties require such withdrawal or modification.
SECTION 3.02. Effective Time. On the first business day on or after both
(a) this Agreement has been duly approved by the requisite vote of the holders
of shares of Arcadian Common Stock and Arcadian Preferred Stock and (b) the
closing of the Merger shall have occurred, a Certificate of Merger relating to
the Merger (the "Certificate of Merger"), specifying that the Merger shall
become effective at such date and time as are specified therein, shall be filed
in accordance with Delaware Law, and the Merger shall become
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effective in accordance with the terms of the Certificate of Merger (such time
and date are referred to as the "Effective Time").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PCS AND MERGER SUB
PCS and Merger Sub jointly and severally represent and warrant to Arcadian
as follows:
SECTION 4.01. Organization, Standing and Power. (a) Each of PCS and its
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and has
all requisite power and authority to carry on its business as now conducted.
Each of PCS and its Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure to so qualify
would not, individually or in the aggregate, have a Material Adverse Effect on
PCS. PCS has furnished to Arcadian complete and correct copies of its charter
documents and By-laws.
(b) As used in this Agreement:
(i) "Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned
by such Person;
(ii) "Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof; and
(iii) "Material Adverse Effect" means, as to any Person, a material
adverse effect on the business, assets, condition (financial or otherwise)
or results of operations of such Person and its Subsidiaries, taken as a
whole, which effect shall be measured net of, and only after giving the
Person the benefit of, any payments under any insurance, indemnity,
reimbursement, contribution, compensation or other similar rights which
reduce, offset, compensate or otherwise limit the impact thereof on the
Person and its Subsidiaries.
(iv) "SBCA" means The Business Corporations Act (Saskatchewan).
(v) "Canadian Securities Laws" means the SBCA, the Securities Act,
1988 (Saskatchewan) and the equivalent legislation in the other provinces
of Canada, all as now enacted or as the same may from time to time be
amended, re-enacted or replaced, and the applicable rules, regulations,
rulings, orders and forms made or promulgated under such statutes and the
published policies of the regulatory authorities administering such
statutes, as well as the rules, regulations, bylaws and policies of the
Montreal Exchange and The Toronto Stock Exchange.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by PCS and Merger Sub of this Agreement and the consummation by PCS
and Merger Sub of the transactions contemplated hereby are within their
corporate powers and have been duly authorized by all necessary corporate
action. Without limiting the generality of the foregoing, the Board of Directors
(or the Executive Committee) of PCS and the Board of Directors of Merger Sub
have unanimously adopted resolutions adopting and approving this Agreement, the
transaction contemplated hereby and the Merger. No vote of any class or series
of PCS's capital stock is necessary to approve and adopt this Agreement and the
transactions contemplated hereby. PCS, as sole stockholder of Merger Sub, has
approved and adopted this Agreement and the transactions contemplated hereby,
including the Merger. This Agreement has been duly executed and delivered by PCS
and Merger Sub and constitutes the valid and binding agreements of PCS and
Merger Sub, enforceable against PCS and Merger Sub in accordance with its terms,
subject to (a) bankruptcy, insolvency, moratorium
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and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (b) general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by PCS and Merger Sub of this Agreement and the consummation of the
Merger by PCS and Merger Sub require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than (a) the
filing of a Certificate of Merger in accordance with Delaware Law, (b)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (c) compliance with any
applicable requirements of the Canadian Securities Laws, the Securities Act and
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"), (d) approval of the
NYSE, (e) blue sky filings, and (f) applicable environmental protection
clearances.
SECTION 4.04. Non-Contravention. Except as previously disclosed in writing
to Arcadian or as disclosed in any of the PCS Disclosure Documents, the
execution, delivery and performance by PCS and Merger Sub of this Agreement and
the consummation by PCS and Merger Sub of the transactions contemplated hereby
do not and will not (a) contravene or conflict with the charter documents or
By-laws of PCS or Merger Sub, (b) assuming compliance with the matters referred
to in Section 4.03, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to PCS or any of its Subsidiaries, (c) constitute a default
(or an event which with notice, the lapse of time or both would become a
default) under or give rise to a right of termination, cancellation or
acceleration of any right or obligation to which PCS or any of its Subsidiaries
is entitled under any provision of any agreement, contract or other instrument
binding upon PCS or any of its Subsidiaries, or (d) result in the creation or
imposition of any Lien on any asset of PCS or any of its Subsidiaries, except
for such contraventions, conflicts or violations referred to in clause (b) or
defaults or rights of termination, cancellation or acceleration referred to in
clause (c) or creations or impositions of any Lien referred to in clause (d)
that would not, individually or in the aggregate, have a Material Adverse Effect
on PCS. For purposes of this Agreement, "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset.
SECTION 4.05. Capitalization. (a) As of the date hereof, the authorized
capital stock of PCS consists of an unlimited number of common shares without
par value (the "PCS Common Stock"), and an unlimited number of preferred shares,
issuable in series without par value. At the close of business on July 31, 1996,
(i) 45,544, 896 shares of PCS Common Stock were issued and outstanding, (ii)
1,288,325 shares of PCS Common Stock were reserved for issuance pursuant to
options issued by PCS, and (iii) no preferred shares were issued or outstanding.
All outstanding shares of capital stock of PCS have been validly issued and are
fully paid and nonassessable. Except for the options referred to above, and
shares to be issued under PCS's Dividend Reinvestment Plan (the "PCS DRIP"), as
of the date hereof, there are no options, warrants, calls, rights, commitments
or agreements to which PCS or any of its Subsidiaries is a party or by which it
is bound, obligating PCS or any of its Subsidiaries to issue, deliver, sell,
purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or other voting
securities of PCS or any of its Subsidiaries or obligating PCS or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
(b) Except as disclosed in any of the PCS Disclosure Documents, all of the
outstanding capital stock of, or other ownership interests in, each Subsidiary
of PCS is owned by PCS, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
SECTION 4.06. Disclosure Documents. PCS has previously furnished to
Arcadian true and complete copies of:
(a) PCS Annual Reports to Shareholders for each of the years ended
December 31, 1993 through 1995;
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(b) PCS Annual Reports on Form 10-K or Annual Information Forms for
each of the years ended December 31, 1993 through 1995;
(c) PCS Quarterly Financial Statements for the quarters ended March 31
and June 30, 1996 and Reports on Form 10-Q furnished in respect of such
periods;
(d) each definitive proxy statement of PCS since December 31, 1993;
(e) each final prospectus filed by PCS since December 31, 1993; and
(f) all Material Change Reports filed by PCS since December 31, 1995.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, the "PCS Disclosure Documents") (i) complied as to
form in all material respects with the applicable requirements of the Canadian
Securities Laws and, to the extent applicable, the Securities Act and the
Exchange Act, and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited consolidated interim financial statements included in the PCS
Disclosure Documents (including any related notes and schedules) fairly present
the financial position of PCS and its consolidated Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods or as of
the dates then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and generally
accepted accounting principles in Canada ("Canadian GAAP") consistently applied
during the periods involved (except as otherwise disclosed in the notes
thereto). Since December 31, 1993, PCS has timely filed all reports,
registration statements and other filings required to be filed by it under the
applicable requirements of the Canadian Securities Laws.
SECTION 4.07. Compliance with Laws. The businesses of PCS and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity (provided that no representation or
warranty is made in this Section 4.07 with respect to Environmental Laws),
except as disclosed in any of the PCS Disclosure Documents and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on PCS.
SECTION 4.08. No Undisclosed Liabilities. As of June 30, 1996, neither PCS
nor any of its Subsidiaries had any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by
Canadian GAAP to be reflected on a consolidated balance sheet of PCS and its
Subsidiaries (including the notes thereto), except (a) liabilities or
obligations reflected in any of the PCS Disclosure Documents and (b) liabilities
or obligations which would not, individually or in the aggregate, have a
Material Adverse Effect on PCS.
SECTION 4.09. Litigation. Except as previously disclosed in writing to
Arcadian or as disclosed in any of the PCS Disclosure Documents, there is no (i)
class action litigation pending or, to the best knowledge of PCS, threatened
against or affecting PCS or any of its Subsidiaries, (ii) other suit, action or
proceeding pending or, to the best knowledge of PCS, threatened against or
affecting PCS or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect on PCS, or (iii) judgment, decree, injunction, or, to
the best knowledge of PCS, any rule or order of any governmental entity or
arbitrator outstanding against PCS or any of its Subsidiaries, that is
reasonably likely to have a Material Adverse Effect on PCS.
SECTION 4.10. Environmental Matters. Except as previously disclosed in
writing to Arcadian, as described in the PCS Disclosure Documents, (a) PCS and
each of its Subsidiaries are in material compliance with all applicable federal,
state, provincial, local and foreign laws, regulations, rules, common law,
orders, decrees, ordinances, treaties, judicial and administrative decisions,
judgments, injunctions, consent agreements, permits and governmental
restrictions relating to pollution or protection of human health and safety or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface and subsurface strata) (collectively, "Environmental
Laws"), except for non-compliance which would not, individually or in the
aggregate, have a Material Adverse Effect on PCS and, to the best knowledge of
PCS, there are no existing or reasonably foreseeable circumstances, conditions,
events or occurrences that are
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reasonably likely to materially prevent or interfere with such compliance in the
next three years, (b) PCS and each of its Subsidiaries have obtained and
maintained in effect (or are in the process of obtaining) all permits, licenses,
certificates and other governmental authorizations required under applicable
Environmental Laws ("Environmental Permits") with respect to their properties,
assets, businesses, and operations except where the failure to do so would not
have a Material Adverse Effect on PCS; (c) neither PCS nor any of its
Subsidiaries has received written notice of, or, to the best knowledge of PCS,
is the subject of, any action, cause of action, claim, investigation, demand,
notice, request for information, complaint, suit or proceeding by any Person
alleging liability under or in connection with or non-compliance with any
Environmental Law, including, without limitation, toxic tort, nuisance, trespass
and similar claims (collectively, "Environmental Claim"), which is reasonably
likely to, individually or in the aggregate, have a Material Adverse Effect on
PCS; (d) as of June 30, 1996, neither PCS nor any of its Subsidiaries had any
liabilities or obligations of any nature, whether accrued, contingent or
otherwise, and whether relating to PCS, any of its Subsidiaries or any
predecessor entities of PCS or any of its Subsidiaries, arising under or
relating to any Environmental Law or Environmental Claim, except for liabilities
or obligations which would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on PCS; and (e) neither PCS nor any
of its Subsidiaries owns, leases or operates or, since January 1, 1986, has
owned, leased or operated, any real property in New Jersey or Connecticut, or
conducts or, since January 1, 1986, has conducted, any operations in New Jersey
or Connecticut.
SECTION 4.11. Proxy Statement; Registration Statement. Neither the Proxy
Statement nor the Registration Statement will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement or any amendments or supplements thereto, at the time of
the Special Meeting, and at the Effective Time, or, in the case of the
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact relating to PCS, its Subsidiaries or the Merger, or
omit to state any material fact required to be stated therein relating to PCS,
its Subsidiaries or the Merger, or necessary in order to make the statements
therein relating to PCS, its Subsidiaries or the Merger, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act, and the Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act. The letter to
stockholders, notice of meeting, proxy statement/prospectus and forms of proxies
to be distributed to stockholders of Arcadian in connection with the Special
Meeting, and any schedules required to be filed with the SEC in connection
therewith, are collectively referred to herein as the "Proxy Statement".
SECTION 4.12. Absence of Certain Changes. Except as permitted by this
Agreement, as disclosed in any of the PCS Disclosure Documents, or as
specifically permitted by Section 6.18, since June 30, 1996, PCS and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or facts which has or have had, or is or are
reasonably expected to have, a Material Adverse Effect on PCS;
(b) any amendment of any term of any outstanding security of PCS or
any Subsidiary of PCS; or
(c) any change in the capitalization of PCS as described in Section
4.05, except for the exercise of employee stock options and shares issued
pursuant to the PCS DRIP.
SECTION 4.13. Liabilities of Merger Sub. Merger Sub has no liabilities or
obligations of any nature, whether accrued, contingent or otherwise, except its
obligations under this Agreement and has conducted no business activities. As of
the date hereof, the authorized capital stock of Merger Sub consists solely of
1,000 shares of Common Stock, no par value, one share of which is outstanding.
All of Merger Sub's issued and outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable.
SECTION 4.14. Merger-Related Tax Matters. (a) Neither PCS nor, to the
knowledge of PCS, any of its affiliates has taken or agreed to take any action
that would prevent the Merger from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code.
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(b) PCS and Merger Sub will each pay their respective expenses, if any,
incurred in connection with the Merger. Neither PCS nor Merger Sub will pay any
of the expenses of any Arcadian stockholder incurred in connection with the
Merger.
(c) There is no intercorporate indebtedness existing between Arcadian and
PCS or between Arcadian and Merger Sub that was issued, acquired, or will be
settled at a discount.
(d) Neither PCS nor Merger Sub is under the jurisdiction of a court in a
title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(e) The fair market value of the PCS stock and other consideration received
by each Arcadian stockholder in the Merger will be approximately equal to the
fair market value of the Arcadian stock surrendered in the exchange.
(f) Prior to the Merger, PCS will be in control of Merger Sub within the
meaning of section 368(c)(2) of the Code.
(g) Following the Merger, Surviving Corporation will not issue additional
shares of its stock that would result in PCS losing control of Surviving
Corporation within the meaning of section 368(c) of the Code.
(h) PCS has no present plan or intention to reacquire any of its stock
issued in the Merger.
(i) PCS has no plan or intention to liquidate Surviving Corporation; to
merge Surviving Corporation with and into another corporation in a manner that
would cause the Merger to fail to qualify under Section 368 of the Code; to sell
or otherwise dispose of the stock of Surviving Corporation in a manner that
would cause the Merger to fail to qualify under Section 368 of the Code; or to
cause Surviving Corporation to sell or otherwise dispose of any of the assets of
Arcadian acquired in the Merger, except for dispositions made in the ordinary
course of business or transfers described in section 368(a)(2)(C) of the Code.
(j) Following the Merger, Surviving Corporation will continue the historic
business of Arcadian or use a significant portion of Arcadian's business assets
in a business.
(k) Neither PCS nor Merger Sub is an investment company as defined in
section 368(a)(2)(F)(iii) or (iv) of the Code.
(l) No stock of Merger Sub will be issued in the Merger except as described
herein.
(m) PCS is not aware of any plan or intention by any stockholder of
Arcadian to sell, exchange, transfer by gift or otherwise dispose of any PCS
Common Stock to be received by them in the Merger. In addition, PCS is not aware
of any transfer of Arcadian stock by any Arcadian stockholder prior to the
Merger having been made in contemplation of the Merger.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF ARCADIAN
Arcadian represents and warrants to PCS and Merger Sub as follows:
SECTION 5.01. Organization, Standing and Power. Each of Arcadian and its
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and has
all requisite power and authority to carry on its business as now conducted.
Each of Arcadian and its Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure to so qualify
would not, individually or in the aggregate, have a Material Adverse Effect on
Arcadian. Arcadian has furnished to PCS complete and correct copies of its
Restated Certificate of Incorporation, as amended, and its Amended and Restated
Bylaws.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by Arcadian of this Agreement and the consummation by Arcadian of
the transactions contemplated hereby are within Arcadian's
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corporate powers and, except for approval by Arcadian's stockholders in
connection with the consummation of the Merger, have been duly authorized by all
necessary corporate action. Without limiting the generality of the foregoing,
the Board of Directors of Arcadian has unanimously adopted a resolution adopting
and approving this Agreement. The affirmative vote of a majority of the
outstanding shares of Arcadian Common Stock and Arcadian Preferred Stock
entitled to vote thereon, voting as a single class, is the only vote of any
class or series of Arcadian's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Arcadian and constitutes a valid and binding agreement
of Arcadian, enforceable against Arcadian in accordance with its terms, subject
to (a) bankruptcy, insolvency, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and (b)
general principles of equity (regardless of whether considered in a proceeding
at law or in equity).
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Arcadian of this Agreement and the consummation of the Merger by
Arcadian require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a Certificate
of Merger in accordance with Delaware Law; (b) compliance with any applicable
requirements of the HSR Act; (c) compliance with any applicable requirements of
the Securities Act and the Exchange Act; and (d) compliance with any applicable
requirements of Environmental Law relating to Environmental Permits and any
other applicable environmental protection clearances.
SECTION 5.04. Non-Contravention. Except as previously disclosed in writing
to PCS or as disclosed in any of the Arcadian SEC Documents, the execution,
delivery and performance by Arcadian of this Agreement and the consummation by
Arcadian of the transactions contemplated hereby do not and will not (a)
contravene or conflict with the Restated Certificate of Incorporation, as
amended, or the Amended and Restated Bylaws of Arcadian, (b) assuming compliance
with the matters referred to in Section 5.03, contravene or conflict with or
constitute a violation of any provision of any law, ordinance, regulation,
judgment, injunction, order or decree binding upon or applicable to Arcadian or
any of its Subsidiaries, (c) constitute a default (or an event which with
notice, the lapse of time or both would become a default) under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
to which Arcadian or any of its Subsidiaries is entitled under any provision of
any agreement, contract or other instrument binding upon Arcadian or any of its
Subsidiaries, or (d) result in the creation or imposition of any Lien on any
asset of Arcadian or any of its Subsidiaries, except for such contraventions,
conflicts or violations referred to in clause (b) or defaults or rights of
termination, cancellation or acceleration referred to in clause (c) or creations
or impositions of any Lien referred to in clause (d) that would not,
individually or in the aggregate, have a Material Adverse Effect on Arcadian.
SECTION 5.05. Capitalization. (a) As of the date hereof, the authorized
capital stock of Arcadian consists of 150,000,000 shares of common stock, par
value $0.01 per share (the "Arcadian Common Stock"), and 50,000,000 shares of
preferred stock, par value $0.01 per share. At the close of business on August
29, 1996, (i) 38,540,261 shares of Arcadian Common Stock were issued and
outstanding, (ii) 7,680,640 shares of Arcadian Common Stock were reserved for
issuance pursuant to options granted or available for grant by Arcadian,
warrants issued by Arcadian, pursuant to the Restricted Stock Plan, and upon
conversion of the Arcadian Preferred Stock, and (iii) 5,534,157 shares of
Arcadian Preferred Stock were issued and outstanding and 12,593 shares of
Arcadian Preferred Stock were reserved for issuance. All outstanding shares of
capital stock of Arcadian have been validly issued and are fully paid and
nonassessable. Except as set forth above, as of the date hereof, there are no
options, warrants, calls, rights, commitments or agreements to which Arcadian or
any of its Subsidiaries is a party or by which it is bound, obligating Arcadian
or any of its Subsidiaries to issue, deliver, sell, purchase, redeem or acquire,
or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of capital stock or other voting securities of Arcadian or any
of its Subsidiaries or obligating Arcadian or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
(b) Except as disclosed in Schedule 5.05 or any of the Arcadian SEC
Documents, all of the outstanding capital stock of, or other ownership interests
in, each Subsidiary of Arcadian is owned by Arcadian, directly or
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indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests).
SECTION 5.06. SEC Documents. Arcadian has previously furnished to PCS true
and complete copies of:
(a) Arcadian Annual Reports on Form 10-K filed with the SEC for each
of the years ended December 31, 1993 through 1995;
(b) Arcadian Quarterly Reports on Form 10-Q filed with the SEC for the
quarters ended March 31 and June 30, 1996;
(c) each definitive proxy statement filed by Arcadian with the SEC
since December 31, 1993;
(d) each final prospectus filed by Arcadian with the SEC since
December 31, 1993, except any final prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by Arcadian with the SEC
since December 31, 1995.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, the "Arcadian SEC Documents") (i) complied as to
form in all material respects with the applicable requirements of the Securities
Act and the Exchange Act and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial statements included in
the Arcadian SEC Documents (including any related notes and schedules) fairly
present the financial position of Arcadian and its consolidated Subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods or as of the dates then ended (subject, where appropriate, to normal
year-end adjustments), in each case in accordance with past practice and
generally accepted accounting principles in the United States ("GAAP")
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto). Since December 31, 1993, Arcadian has timely filed all
reports, registration statements and other filings required to be filed by it
with the SEC under rules and regulations of the SEC.
SECTION 5.07. Compliance with Laws. The businesses of Arcadian and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity (provided that no representation or
warranty is made in this Section 5.07 with respect to Environmental Laws),
except as disclosed in any of the Arcadian SEC Documents and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on Arcadian.
SECTION 5.08. No Undisclosed Liabilities. As of June 30, 1996, neither
Arcadian nor any of its Subsidiaries had any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by GAAP to be reflected on a consolidated balance sheet of Arcadian and its
Subsidiaries (including the notes thereto), except for (a) the liabilities or
obligations reflected in any of the Arcadian SEC Documents, (b) the liabilities
and obligations described on Schedule 5.08, and (c) the liabilities or
obligations which would not, individually or in the aggregate, have a Material
Adverse Effect on Arcadian.
SECTION 5.09. Litigation. Except as previously disclosed in writing to PCS
or as disclosed in any of the Arcadian SEC Documents, there is no (i) class
action litigation pending or, to the best knowledge of Arcadian, threatened
against or affecting Arcadian or any of its Subsidiaries, (ii) other suit,
action or proceeding pending or, to the best knowledge of Arcadian, threatened
against or affecting Arcadian or any of its Subsidiaries that is reasonably
likely to have a Material Adverse Effect on Arcadian or (iii) judgment, decree,
injunction, rule or order of any governmental entity or arbitrator outstanding
against Arcadian or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect on Arcadian.
SECTION 5.10. Environmental Matters. Except as previously disclosed in
writing to PCS, as described in the Arcadian SEC Documents, or as disclosed in
Schedule 5.10, (a) Arcadian and each of its Subsidiaries are in compliance with
all applicable Environmental Laws except for non-compliance which would not,
individually or in the aggregate, have a Material Adverse Effect on Arcadian
and, to the best knowledge of
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Arcadian, there are no existing or reasonably foreseeable circumstances,
conditions, events or occurrences that are reasonably likely to materially
prevent or interfere with such compliance in the next three years; (b) Arcadian
and each of its Subsidiaries have obtained and maintained in effect, or are in
the process of obtaining, all Environmental Permits required with respect to
their properties, assets, businesses, and operations, except where the failure
to do so would not, individually or in the aggregate, have a Material Adverse
Effect on Arcadian; (c) neither Arcadian nor any of its Subsidiaries has
received written notice of, or, to the best knowledge of Arcadian, is the
subject of, any Environmental Claim which is reasonably likely to, individually
or in the aggregate, have a Material Adverse Effect on Arcadian; (d) as of June
30, 1996, neither Arcadian nor any of its Subsidiaries had any liabilities or
obligations of any nature, whether accrued, contingent or otherwise, and whether
relating to Arcadian, any of its Subsidiaries or any predecessor entities of
Arcadian or any of its Subsidiaries, arising under or relating to any
Environmental Law or Environmental Claim, except for liabilities or obligations
which would not, individually or in the aggregate, be reasonably expected to
result in losses (excluding capital expenditures) in excess of $5,000,000 during
the five-year period from the date hereof or (ii) individually or in the
aggregate, have a Material Adverse Effect on Arcadian; and (e) neither Arcadian
nor any of its Subsidiaries owns, leases or operates or, since January 1, 1986,
has owned, leased or operated, any real property in New Jersey or Connecticut,
or conducts or, since January 1, 1986, has conducted, any operations in New
Jersey or Connecticut.
SECTION 5.11. ERISA. (a) Schedule 5.11 contains a list identifying each
"employee benefit plan", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), which (i) is subject to any provision of
ERISA and (ii) is maintained, administered or contributed to by Arcadian or any
Subsidiary of Arcadian and covers any employee or former employee of Arcadian or
any Subsidiary of Arcadian or under which Arcadian or any Subsidiary of Arcadian
has any liability. Copies of such plans (and, if applicable, related trust
agreements and/or insurance contracts) and all amendments thereto and written
interpretations thereof have been furnished to PCS together with (A) the three
most recent annual reports (Form 5500 including, if applicable, Schedule A or
Schedule B thereto or both) prepared in connection with any such plan, (B) the
most recent annual actuarial valuation report prepared in connection with any
such plan, and (c) the summary plan description (as defined in ERISA), if any,
and, all modifications thereto, prepared in connection with any such plan. Such
plans are referred to collectively herein as the "Arcadian Employee Plans". The
only Arcadian Employee Plans which individually or collectively would constitute
an "employee pension benefit plan (the "Pension Plans"), as defined in Section
3(2) of ERISA, are identified as such in the list referred to above.
(b) Except as set forth in Schedule 5.11, no Arcadian Employee Plan (i)
constitutes a "Multiemployer Plan", as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"), (ii) is maintained in connection with any trust described
in Section 501(c)(9) of the Code, or (iii) is subject to Title IV of ERISA.
Neither Arcadian nor any ERISA Affiliate, as defined below, of Arcadian has (A)
engaged in, or is a successor to an entity that has engaged in, a transaction
described in Sections 4069 or 4212(c) of ERISA or (B) incurred, or reasonably
expects to incur prior to the Effective Time, (1) any liability under Title IV
of ERISA arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA or
(2) any liability under Section 4971 of the Code that in either case could
become a liability of PCS or any of its Affiliates after the Effective Time.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Arcadian Employee Plan has or will make Arcadian
or any Subsidiary of Arcadian, or any officer or director of Arcadian or any
Subsidiary of Arcadian, subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code that could have a
Material Adverse Effect on Arcadian. As of December 31, 1995, the present value
of all benefits accrued under each Arcadian Employee Plan subject to Title IV of
ERISA, other than a Multiemployer Plan (an "Arcadian Title IV Plan"), determined
on an ongoing basis using the assumptions used in the most recently prepared
annual actuarial valuation report, did not exceed the fair market value of the
assets of such Arcadian Title IV Plan as of such date (excluding for these
purposes any accrued but unpaid contributions) by more than $1,000,000. As of
December 31, 1995, there was no aggregate unfunded liability of Arcadian and any
Subsidiary of Arcadian in respect of all Arcadian Employee Plans or Arcadian
Benefit Arrangements described under Sections 4(b)(5) or 401 (a)(1) of ERISA,
computed using reasonable actuarial assumptions and determined as if all
benefits under such plans were vested and payable as
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of such date. All contributions or payments required to be made or accrued on
behalf of any Arcadian Employee Plan maintained by Arcadian, any of its
Subsidiaries, or any ERISA Affiliate, before the Effective Time, under the terms
of any Arcadian Employee Plan, will have been made or accrued by Arcadian, or by
its Subsidiaries, or any ERISA Affiliate, as applicable, by the Effective Time.
No Arcadian Employee Plan subject to Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in ERISA), whether or not waived.
For purposes of this Section 5.11. "ERISA Affiliate" shall mean any entity which
is considered one employer with Arcadian under Section 4001 of ERISA or Section
414 of the Code.
(c) With respect to each Arcadian Employee Plan which is intended to be
qualified under Section 401(a) of the Code, Arcadian has received a favorable
determination letter that the plan is so qualified and that each trust forming a
part thereof is exempt from tax pursuant to Section 501(a) of the Code and, to
the best knowledge of Arcadian, no event has occurred since the date of such
determination that would adversely affect such qualification and exception.
Arcadian has furnished to PCS copies of the most recent Internal Revenue Service
determination letters with respect to each such Plan. Each Arcadian Employee
Plan has been maintained in all material respects in compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Plan.
(d) Except as set forth in Schedule 5.11, there is no contract, agreement,
plan or arrangement covering any employee or former employee of Arcadian or any
Subsidiary of Arcadian that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Sections 162(a)(1), 162(m) or 280G of the Code.
(e) Schedule 5.11 contains a list of each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Arcadian Employee Plan, (ii) is entered into,
maintained or contributed to, as the case may be, by Arcadian or any of its
Subsidiaries and (iii) covers any United States employee or former employee of
Arcadian or any of its Subsidiaries. Such contracts, plans and arrangements as
are described above, copies (or descriptions, in the case of oral arrangements)
of all of which have been furnished or made available previously to PCS are
referred to collectively herein as the "Arcadian Benefit Arrangements". Each
Arcadian Benefit Arrangement has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Arcadian Benefit Arrangement.
(f) Neither Arcadian nor any Subsidiary of Arcadian has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or current employees of
Arcadian or any Subsidiary of Arcadian, except as required to avoid excise tax
under Section 4980B of the Code. No condition exists that would prevent Arcadian
or any Subsidiary of Arcadian from amending or terminating any Arcadian Employee
Plan or Arcadian Benefit Arrangement providing health or medical benefits in
respect of any active or former employee of Arcadian or any Subsidiary other
than limitations imposed under the terms of a collective bargaining agreement.
(g) Except as set forth in Schedule 5.11 or as described in Section
5.13(j), there has been no amendment to, written interpretation or announcement
(whether or not written) by Arcadian or any of its Subsidiaries relating to, or
change in employee participation or coverage under, any Arcadian Employee Plan
or Arcadian Benefit Arrangement which would increase materially the expense of
maintaining such Arcadian Employee Plan or Arcadian Benefit Arrangement above
the level of the expense incurred in respect thereof for the fiscal year ended
on December 31, 1995.
(h) Except as set forth in Schedule 5.11, neither Arcadian nor any
Subsidiary of Arcadian is a party to or subject to (i) any employment contract
or arrangement providing for annual future cash compensation of $250,000 or more
with any officer, director or employee, or (ii) any collective bargaining
agreement or union contract.
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(i) Arcadian has provided to PCS a list of (a) the names, titles, annual
salaries and other compensation of all officers of Arcadian or its Subsidiaries
and all other employees of Arcadian or its Subsidiaries whose annual base salary
exceeds $250,000 and (b) the wage rates for non-salaried employees of Arcadian
and its Subsidiaries (by classification). None of the employees referred to in
clause (a) and no other key employee of Arcadian or its Subsidiaries has
disclosed to Arcadian and its Subsidiaries that he or she intends to resign or
retire as a result of the transactions contemplated by this Agreement, or
otherwise for any other reason within one year after the date of this Agreement.
(j) Arcadian and its Subsidiaries are in compliance with all currently
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice, failure to comply with which or engagement in which, as the case
may be, would reasonably be expected to have a Material Adverse Effect on
Arcadian. There is no unfair labor practice complaint pending or, to the best
knowledge of Arcadian, threatened against Arcadian or any Subsidiary of Arcadian
before the National Labor Relations Board which would reasonably be expected to
have a Material Adverse Effect on Arcadian.
(k) Schedule 5.11 identifies each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
which (i) is not an Arcadian Employee Plan or Arcadian Benefit Arrangement, (ii)
is entered into, maintained or contributed to, as the case may be, by Arcadian
or any of its Subsidiaries and (iii) covers any employee or former employee of
Arcadian or any of its Subsidiaries (each an "Arcadian International Plan").
Arcadian has furnished to PCS copies of each Arcadian International Plan. Each
Arcadian International Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations (including any special provisions
relating to qualified plans where such Plan was intended to so qualify) and has
been maintained in good standing with applicable regulatory authorities. There
has been no amendment to, written interpretation of or announcement (whether or
not written) by Arcadian or any Subsidiary relating to, or change in employee
participation or coverage under, any Arcadian International Plan that would
increase materially the expense of maintaining such International Plan above the
level of expense incurred in respect thereof for the most recent fiscal year
ended prior to the date hereof. According to the actuarial assumptions and
valuations most recently used for the purpose of funding each Arcadian
International Plan (or, if the same has no such assumptions and valuations or is
unfunded, according to reasonable actuarial assumptions and valuations), as of
December 31, 1994, the total amount or value of the funds available under such
Plan to pay benefits accrued thereunder or segregated in respect of such accrued
benefits, together with any reserve or accrual with respect thereto, was not
less than the present value of all benefits (actual or contingent) accrued as of
such date of all participants and past participants therein in respect of which
Arcadian or any Subsidiary has or would have after the Closing any obligation.
From and after the Closing Date, PCS and its Affiliates will get the full
benefit of any such funds, accruals or reserves, to the extent permitted by
applicable law.
(l) Except as previously disclosed in writing to PCS, there is no issue
with respect to any Arcadian Employee Plan or Benefit Arrangement that is now,
or within the last twelve months has been, under examination by the Internal
Revenue Service or the Department of Labor and no audit with respect to any
Arcadian Employee Plan or Benefit Arrangement by either the Internal Revenue
Service or the Department of Labor has occurred. There are no pending
investigations by any governmental or regulatory agency or authority involving
or relating to any Arcadian Employee Plan or Benefit Arrangement, no threatened
or pending claims (except for claims for benefit payable in the normal
operations of the Arcadian Employee Plans or Benefit Arrangement), suits or
proceedings against any Arcadian Employee Plan or Benefit Arrangement or
asserting any rights or claims to benefits under any Arcadian Employee Plan or
Benefit Arrangement which could reasonably be expected to have a Material
Adverse Effect on Arcadian.
(m) Neither Arcadian nor any of its Subsidiaries nor any ERISA Affiliate
has provided, or is required to provide, security to any Arcadian Employee Plan
pursuant to Section 401(a)(29) of the Code.
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SECTION 5.12. Proxy Statement; Registration Statement. Neither the Proxy
Statement nor the Registration Statement will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement or any amendments or supplements thereto, at the
time of the Special Meeting, and at the Effective Time, or, in the case of the
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact relating to Arcadian, its Subsidiaries or the
Merger or omit to state any material fact required to be stated therein relating
to Arcadian, its Subsidiaries or the Merger or necessary in order to make the
statements therein relating to Arcadian, its Subsidiaries or the Merger, in
light of the circumstances under which they were made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act.
SECTION 5.13. Absence of Certain Changes. Except as disclosed elsewhere
herein or in any of the Arcadian SEC Documents, as set forth on Schedule 5.13,
or as specifically permitted by Section 6.01, since June 30, 1996, Arcadian and
its Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or facts which has had or is reasonably
expected to have a Material Adverse Effect on Arcadian;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Arcadian (other
than payment of Arcadian's regular quarterly dividend on Arcadian Common
Stock in an amount not exceeding $0.10 per share and on the Arcadian
Preferred Stock), or any repurchase, redemption or other acquisition by
Arcadian or any Subsidiary of Arcadian of any outstanding shares of capital
stock or other securities of, or other ownership interests in, Arcadian,
which repurchase, redemption or other acquisition, individually or in the
aggregate, is material to Arcadian and its Subsidiaries, taken as a whole;
(c) any amendment of any term of any outstanding security of Arcadian
or any Subsidiary of Arcadian;
(d) any incurrence, assumption or guarantee by Arcadian or any
Subsidiary of Arcadian of any indebtedness from any third party for
borrowed money other than in the ordinary course of business and in amounts
and on terms consistent with past practices;
(e) any creation or assumption by Arcadian or any Subsidiary of
Arcadian of any Lien on any material asset other than in the ordinary
course of business consistent with past practices;
(f) any making of any loan, advance or capital contribution to or
investment in any Person other than (i) loans, advances or capital
contributions to or investments in Subsidiaries of Arcadian, (ii)
investments in securities consistent with past practice or (iii) other
loans, advances, capital contributions or investments in an aggregate
amount not exceeding $25,000,000;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Arcadian or any
Subsidiary of Arcadian which, individually or in the aggregate, is or may
reasonably be expected to have a Material Adverse Effect on Arcadian;
(h) except in the ordinary course of business consistent with past
practice, any transaction or commitment made, or any contract or agreement
entered into, by Arcadian or any Subsidiary of Arcadian relating to its
assets or business (including, without limitation, the acquisition or
disposition of any assets) or any relinquishment by Arcadian or any
Subsidiary of Arcadian of any contract, license or other right, other than
transactions, commitments, contracts or agreements contemplated by this
Agreement;
(i) any change in any method of accounting or accounting principle or
practice by Arcadian or any Subsidiary of Arcadian, except for any such
change required by reason of a concurrent change in GAAP;
(j) except (i) in the ordinary course of business, (ii) for Arcadian's
adoption of the Arcadian Corporation Severance Program and the Arcadian
Corporation Severance Program for Key Employees (collectively, the
"Severance Program"), a copy of which has been furnished to PCS, (iii) for
Arcadian's execution and delivery of certain Employment Agreements with the
persons listed on Schedule 5.13 (the
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"Employment Agreements"), a copy of the form of which has been furnished to
PCS, and (iv) for Arcadian's adoption of the Restricted Stock Plan, (A) any
grant by Arcadian or any of its Subsidiaries of any severance or
termination pay to, or entry into any employment, termination or severance
arrangement with, any employee or director of Arcadian; (B) any amendment
in any material respect of any employment, termination or severance
arrangement with any directors, officers or employees (it being understood
that any increase or acceleration of benefits under any such agreement or
arrangement shall be deemed material); (C) any establishment, adoption,
entry into, or amendment or action to accelerate or enhance any rights or
benefits under, (i) any plan providing for options, stock, performance
awards or other forms of incentive or deferred compensation or (ii) any
collective bargaining, bonus, profit sharing, thrift, compensation,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any of its directors, officers or employees;
or (D) any increase in the compensation or benefits of any other employees
or payment of any benefit not required by any plan or arrangement as in
effect on June 30, 1996;
(k) except such contracts as would not be material to Arcadian and its
Subsidiaries as a whole, any entry by Arcadian or any of its Subsidiaries
into any contract limiting the right of Arcadian or any of its Subsidiaries
at any time on or after the date of this Agreement or PCS or any of its
Subsidiaries or affiliates at or after the Effective Time, to engage in, or
to compete with any Person in, any business; or
(l) any entry by Arcadian or any of its Subsidiaries into any
acquisition or joint venture which is material to Arcadian and its
Subsidiaries, taken as a whole.
SECTION 5.14. Taxes. (a) All Tax Returns required to be filed (taking into
account all extensions heretofore granted) on or before the Effective Time by or
on behalf of Arcadian or any of its Subsidiaries have been filed with the
appropriate Taxing Authorities within the time and in the manner prescribed by
law, other than those Tax Returns the failure of which to file in the aggregate
would not have a Material Adverse Effect on Arcadian.
(b) All such Tax Returns are true, correct and complete in all material
respects. Except as listed on Schedule 5.14, no such Tax Return for tax years
beginning after September 1, 1988 contains a disclosure statement under Section
6662(d)(2)(B)(ii)(I) of the Code or any similar provision of state, local or
foreign law. For each taxable year of Arcadian and its Subsidiaries beginning
after December 31, 1989, Arcadian will furnish or make available (or cause to be
furnished or made available) to PCS or its representatives, immediately after
the date hereof, true and complete copies of all Tax Returns filed by Arcadian
and its Subsidiaries.
(c) All Taxes shown to be due and payable by Arcadian and any of its
Subsidiaries on all such Tax Returns have been paid, or withheld or collected
and remitted or deposited in full to or with the appropriate Taxing Authorities,
and Arcadian and its Subsidiaries have made appropriate provision in their June
30, 1996 financial statements for any Taxes owed but not yet paid.
(d) Except as set forth on Schedule 5.14, (i) all applicable statutes of
limitations for the assessment, reassessment, or collection of material Taxes
against Arcadian and any of its Subsidiaries have expired, (ii) no deficiency
payment of any Taxes for any period has been asserted or raised by any Taxing
Authority which remains unpaid at the date hereof except for deficiencies which
would not have a Material Adverse Effect on Arcadian, (iii) no adjustment,
assessment, reassessment or collection for Taxes applicable to Arcadian or any
of its Subsidiaries has been proposed or, to the knowledge of Arcadian and its
Subsidiaries, threatened by any Taxing Authorities, except for adjustments,
assessments, reassessments or collections that would not, individually, or in
the aggregate, have a Material Adverse Effect on Arcadian; (iv) no closing
agreement is in effect for any period with respect to any Tax applicable to
Arcadian or any of its Subsidiaries; (v) no power of attorney has been granted
by Arcadian or any of its Subsidiaries with respect to any matter relating to
Taxes, which is currently in force; (vi) any material adjustment or material
assessment of federal Taxes prior to the Effective Time which is required to be
reported by Arcadian or any of its Subsidiaries to the appropriate Taxing
Authorities has been reported and any additional amount due and payable with
respect thereto has
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been paid in full; and (vii) there is, and there will be, no valid basis for the
Internal Revenue Service to request an extension of the statute of limitation
with respect to any federal income Tax Return of Arcadian or any of its
Subsidiaries beyond the limitations period which generally expires three years
after the filing of any such Tax Return as a result of a more than 25% omission
from gross income in connection with such Tax Return. Schedule 5.14 lists all
Tax Returns filed with respect to Arcadian and any of its Subsidiaries for the
taxable periods beginning on or after January 1, 1989 that have been audited,
and indicates those Tax Returns that currently are the subject of audit.
(e) Except for Tax Returns required to be filed with respect to the 1995
taxable year, neither Arcadian nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return which has not yet been
filed.
(f) There are no material Liens applicable to either Arcadian or any of its
Subsidiaries or any property or assets of Arcadian or any of its Subsidiaries
for Taxes except for Liens in respect of Taxes (i) not yet due, or (ii) which
are being contested in good faith and by appropriate proceedings (and for the
payment of which adequate reserves have been provided) and which are reflected
in the Arcadian SEC Documents, and neither Arcadian nor any of its Subsidiaries
has received any notice of such Liens for Taxes.
(g) Except as set forth on Schedule 5.14, there is no claim, audit, action,
suit, proceeding or investigation now pending or threatened against or with
respect to Arcadian or any of its Subsidiaries in respect of any Taxes, except
for any such matters as would not, individually or in the aggregate, have a
Material Adverse Effect on Arcadian.
(h) Neither Arcadian nor any of its Subsidiaries has any contractual
obligations under any tax sharing or similar agreement or arrangement or tax
indemnity agreement with any individual or entity which is not a member, as of
the date hereof, of the affiliated group of corporations (within the meaning of
Section 1504 of the Code) filing a consolidated federal income Tax Return of
which Arcadian is the common parent. Neither Arcadian nor any of its
Subsidiaries is or has been a member of an affiliated group (within the meaning
of Section 1504 of the Code) filing a consolidated federal income Tax Return
during any part of any consolidated Tax Return year within any part of such year
any corporation other than Arcadian and its Subsidiaries also was a member of
such affiliated group. Neither Arcadian nor any of its Subsidiaries has any
liability for the taxes of any person (other than Arcadian or any of its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract or otherwise.
(i) There are no requests for rulings, determinations or information or
subpoenas in respect of any material Tax pending between Arcadian or any of its
Subsidiaries and any Taxing Authorities, and to the knowledge of Arcadian and
its Subsidiaries, no such requests or subpoenas are threatened or contemplated
by any Taxing Authority.
(j) Neither Arcadian or any of its Subsidiaries owns any interest in real
property in the State of New York or in any other jurisdiction in which a Tax is
imposed on the transfer of a controlling interest in an entity that owns any
interest in real property.
(k) Except as set forth on Schedule 5.14, (i) neither Arcadian nor any of
its Subsidiaries has income reportable for a period ending after the Effective
Time but attributable to a transaction (e.g., an installment sale) occurring in
or a change in accounting method made for a period ending on or prior to the
Effective Time which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (other than a deferred
intercompany transaction), or deferred gain or loss arising out of any deferred
company transaction; (ii) neither Arcadian nor any of its Subsidiaries has filed
a consent under Section 341 of the Code; (iii) neither Arcadian nor any of its
Subsidiaries has entered into any compensatory contract, agreement or other
arrangement (whether formally or informally) with respect to the performance of
services which contain terms that would cause any payments thereunder made after
the Effective Time to result in a nondeductible expense to Arcadian or any of
its Subsidiaries (or their successors) pursuant to Section 162(m) or 280G of the
Code or an excise tax to the recipient of such payment pursuant to Section 4999
of the Code; (iv) neither Arcadian nor any of its Subsidiaries is the borrower
or guarantor of any outstanding industrial revenue bonds, and neither Arcadian
nor any of its Subsidiaries is a tenant, principal
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user or related person to any principal user (within the meaning of Section
144(a) of Code) of any property which is currently financed or improved with the
proceeds of any industrial revenue bonds; (v) neither Arcadian nor any of its
Subsidiaries is a party to any safe harbor lease within the meaning of Section
168(f) of the Code, as in effect prior to its amendment by the Tax Equity and
Fiscal Responsibility Act of 1982; and (vi) neither Arcadian nor any of its
Subsidiaries has participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code.
(l) Neither Arcadian nor any of its Subsidiaries is a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(m) In this Section 5.14, (i) "Tax" or "Taxes" shall mean any and all
taxes, fees, levies, duties, assessments and any other charges of any kind
whatsoever (whether payable directly or by withholding), together with any and
all interest, penalties, fines, additions to tax and additional amounts imposed
with respect thereto, imposed by any Taxing Authorities which relate to or
affect Arcadian or its Subsidiaries; (ii) "Tax Return" shall mean all returns,
reports, information statements, declarations, estimates, filings and other
information (including any schedules, attachments and additional or supporting
material), and any amendments thereto, filed or maintained, or required to be
filed or maintained, in respect of Taxes; (iii) "Taxing Authorities" shall mean
any federal, state, local, foreign or other governmental, administrative,
regulatory or self-regulating authority, agency, body or official; and (iv)
"Treasury Regulation" shall mean a final or temporary Treasury Regulation
promulgated under the Code.
SECTION 5.15. Fairness Opinion. Arcadian has received the opinion of CS
First Boston to the effect that, as of the date hereof, the consideration to be
received by the holders of Arcadian Common Stock in the Merger is fair to such
holders from a financial point of view.
SECTION 5.16. Takeover Statutes. Assuming that none of PCS and its
Affiliates is an "Interested Stockholder" as such term is defined in Section 203
of the Delaware Law, no Takeover Statute, including, without limitation, Section
203 of the Delaware Law, applicable to Arcadian or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated hereby.
SECTION 5.17. Merger-Related Tax Matters.
(a) Neither Arcadian nor any of its affiliates has taken or agreed to take
any action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(b) Arcadian will deliver to PCS a letter from Mr. Gordon Cain prior to the
Effective Date to the effect that (i) Mr. Cain has no current intention to sell,
exchange, or otherwise dispose of, or reduce his risk of loss with respect to,
any PCS Common Stock received by him pursuant to the Merger, and (ii) Mr. Cain
agrees not to sell, exchange, or otherwise dispose of, or reduce his risk of
loss with respect to, 50% of the PCS Common Stock received by him in the Merger
for a period of two years after the Effective Date, and to Arcadian's knowledge,
there is no plan or intention by any stockholder of Arcadian who owns five (5)
percent or more of the Arcadian Common Stock, or the Arcadian Preferred Stock,
and to Arcadian's knowledge there is no plan or intention on the part of the
remaining holders of the Arcadian Common Stock, or of the Arcadian Preferred
Stock, to sell, exchange or otherwise dispose of a number of shares of PCS
Common Stock to be received in the Merger that would reduce the Arcadian
stockholders' ownership of the PCS Common Stock to a number of shares having a
value, as of the Effective Date, of less than fifty (50) percent of the value of
all of the Arcadian Common Stock and Arcadian Preferred Stock outstanding
immediately prior to the Effective Time. In making this determination, Arcadian
Common Stock and Arcadian Preferred Stock redeemed within one year prior to the
Merger and Arcadian Common Stock and Arcadian Preferred Stock exchanged for cash
or other property, surrendered by dissenters for cash or exchanged for cash in
lieu of fractional shares of PCS Common Stock will be included.
(c) The Surviving Corporation will acquire at least ninety (90) percent of
the fair market value of the net assets and at least seventy (70) percent of the
fair market of the gross assets held by Arcadian immediately prior to the
Merger. For purposes of this representation, amounts used by Arcadian to pay
Merger expenses
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and all redemptions and distributions (except for regular normal dividends) made
by Arcadian within one year preceding the Merger, will be included as assets of
Arcadian held immediately prior to the Merger.
(d) The liabilities of Arcadian to be assumed by the Surviving Corporation
and the liabilities to which the assets of Arcadian are subject were incurred by
Arcadian in the ordinary course of its business.
(e) Arcadian and the holders of Arcadian Common Stock and Arcadian
Preferred Stock will pay their own respective expenses, if any, incurred in
connection with the Merger.
(f) There is no indebtedness existing between PCS and Arcadian or between
Merger Sub and Arcadian that was issued, acquired, or will be settled at a
discount.
(g) Neither Arcadian nor any of its Subsidiaries is an investment company
as defined in Section 368(a)(2)(F)(iii) or (iv) of the Code.
(h) Arcadian is not under the jurisdiction of a court in a U.S.C. Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(i) The fair market value of the assets of Arcadian to be acquired by the
Surviving Corporation will equal or exceed the sum of the liabilities to be
assumed by the Surviving Corporation in the Merger, plus the amount of the
liabilities to which Arcadian's assets are subject.
SECTION 5.18. Brokers or Finders. Arcadian has not engaged any agent,
broker, investment banker, financial advisor or other firm or person who is or
will be entitled to any brokers' or finders' fee in connection with the
transactions contemplated by this Agreement other than CS First Boston.
SECTION 5.19. Additional Matters. Arcadian has delivered to PCS complete
and correct copies of certain resolutions adopted by the Board of Directors of
Arcadian prior to the date hereof.
SECTION 5.20. Certain Voting Agreements. Arcadian has delivered to PCS
commitments of each member of the Board of Directors to vote all shares of
Arcadian Common Stock and Arcadian Preferred Stock over which such member
exercises voting control in favor of the adoption of this Agreement and approval
of the Merger.
ARTICLE 6
COVENANTS
PCS, Merger Sub and Arcadian further agree as follows:
SECTION 6.01. Conduct of Arcadian's Business. Prior to the Effective Time
or the date, if any, on which this Agreement is earlier terminated pursuant to
Section 8.01 (the "Termination Date"), and except as may be permitted pursuant
to this Agreement, Arcadian:
(a) shall, and shall cause its Subsidiaries to, conduct its and their
operations in the ordinary and usual course of business in substantially the
same manner as heretofore conducted;
(b) shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact their respective
business organizations and goodwill in all material respects, keep available the
services of its officers and employees as a group, subject to changes in the
ordinary course, and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it;
(c) shall notify PCS of any material emergency or material change in the
normal course of its or its Subsidiaries' businesses or in the operation of
their properties and of any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated) if such
emergency, change, complaint, investigation or hearing would have a Material
Adverse Effect on Arcadian;
(d) except as expressly permitted by this Agreement, shall not, and shall
not permit any of its Subsidiaries which is not wholly-owned to, declare or pay
any dividends on or make any distribution with
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respect to its outstanding shares of capital stock other than Arcadian's regular
quarterly dividend on Arcadian Common Stock in an amount not exceeding $0.10 per
share and the dividend on the Arcadian Preferred Stock;
(e) except as contemplated by Section 5.13(j), and except in the ordinary
course of business, shall not (i) grant or permit any of its Subsidiaries to
grant any severance or termination pay to, or enter into any employment,
termination or severance arrangement with, its employee or directors, (ii) amend
in any material respect any employment, termination or severance arrangement
with any directors, officers or employees (it being understood that any increase
or acceleration of benefits under any such agreement or arrangement (other than
bonuses paid in the ordinary course of business consistent with past practice)
shall be deemed material); (iii) establish, adopt, enter into, or amend or take
action to accelerate or enhance any rights or benefits under, (A) any plan
providing for options, stock, performance awards or other forms of incentive or
deferred compensation or (B) any collective bargaining, bonus, profit sharing,
thrift, compensation, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any of its directors,
officers or employees; or (iv) increase the compensation or benefits of any
other employees or payment of any benefit not required by any plan or
arrangement as in effect on June 30, 1996;
(f) subject to Section 6.09, shall not, and shall not permit any of its
Subsidiaries to, authorize, propose or announce an intention to authorize or
propose, or enter into an agreement with respect to, any merger, consolidation
or business combination (other than the Merger and any partnership or joint
venture arrangements entered into in the ordinary course of business consistent
with past practice), any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or securities or any
release or relinquishment of any material contract rights not in the ordinary
course of business;
(g) except as otherwise contemplated herein, shall not, and shall not
permit any of its Subsidiaries to, issue any shares of capital stock except upon
exercise of rights pursuant to securities outstanding on June 30, 1996, or upon
exercise of rights or options issued pursuant to existing employee incentive and
benefit plans, programs or arrangements (including, without limitation, shares
issued in connection with stock grants or awards or the exercise of rights or
options granted in the ordinary course of business consistent with past practice
pursuant to such plans, programs or arrangements) or effect any stock split not
previously announced or otherwise change its capitalization as it existed on
June 30, 1996;
(h) shall not, and shall not permit any of its Subsidiaries to, grant,
confer or award any options, warrants, conversion rights or other rights, not
existing on the date hereof, to acquire any shares of its capital stock, except
grants of options pursuant to employee incentive and benefit plans, programs or
arrangements in existence on the date hereof in the ordinary course of business
consistent with past granting practices and policies;
(i) except as otherwise described herein shall not, and shall not permit
any of its Subsidiaries to, except in the ordinary course of business in
connection with employee incentive and benefit plans, programs or arrangements
in existence on the date hereof, purchase or redeem any shares of its capital
stock;
(j) shall not, and shall not permit any of its Subsidiaries to, incur,
assume or guaranty any indebtedness from any third party for borrowed money,
other than in the ordinary course of business consistent with past practice;
(k) shall not, and shall not permit any of its Subsidiaries to, amend any
term of any of their outstanding securities;
(l) shall not, and shall not permit any of its Subsidiaries to, create or
assume any Lien on any material asset other than in the ordinary course of
business consistent with past practices;
(m) shall not, and shall not permit any of its Subsidiaries to, make any
loan, advance or capital contribution to or investment in any Person other than
(i) loans, advances or capital contributions to or investments in its
Subsidiaries, (ii) investments in securities consistent with past practice or
(iii) other loans,
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advances, capital contributions or investments in an aggregate amount not
exceeding $25,000,000 since June 30, 1996;
(n) except in the ordinary course of business consistent with past
practice, shall not, and shall not permit any of its Subsidiaries to, enter into
any transaction, commitment, contract or agreement relating to their assets or
businesses (including, without limitation, the acquisition or disposition of any
assets) or to relinquish any contract, license or other right other than
transactions, commitments, contracts or agreements contemplated by this
Agreement;
(o) shall not, and shall not permit any of its Subsidiaries to, change any
of their respective methods of accounting or accounting principles or practices,
except for any such change required by reason of a concurrent change in GAAP;
(p) shall not, and shall not permit any of its Subsidiaries to enter into
any contract limiting the right of Arcadian, or any of its Subsidiaries at any
time on or after the date of this Agreement to engage in, or to compete with any
Person in, any business, except such contracts as would not be material to
Arcadian, and its Subsidiaries, taken as a whole;
(q) subject to Section 6.09, shall not, and shall not permit any of its
Subsidiaries to, agree, in writing or otherwise, to take any of the foregoing
actions or any action which would make any representation or warranty in Article
5 hereof untrue or incorrect in any material respect; and
(r) shall not propose or adopt any amendments to its Restated Certificate
of Incorporation, as amended, or its Amended and Restated Bylaws.
SECTION 6.02. Investigation. Each of PCS and Arcadian shall afford to one
another and to one another's officers, employees, accountants, counsel and other
authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
Termination Date, to its and its Subsidiaries' plants, properties, contracts,
commitments, books, and records (including but not limited to tax returns) and
any report, schedule or other document filed or received by it pursuant to the
requirements of federal or state securities laws, and shall use their reasonable
best efforts to cause their respective representatives to furnish promptly to
one another such additional financial and operating data and other information
as to its and its Subsidiaries' respective businesses and properties as the
other or its duly authorized representatives may from time to time reasonably
request; provided that nothing herein shall require either PCS or Arcadian or
any of their respective Subsidiaries to disclose any information to the other
that would cause significant competitive harm to such disclosing party or its
affiliates if the transactions contemplated by this Agreement are not
consummated. The parties hereby agree that each of them will treat any such
information in accordance with the confidentiality letter agreement effective
August 30, 1994 (the "Confidentiality Agreement"). Notwithstanding any provision
of this Agreement to the contrary, no party shall be obligated to make or
refrain from making any disclosure in violation of applicable laws or
regulations.
SECTION 6.03. Cooperation. PCS and Arcadian shall together, or pursuant to
an allocation of responsibility to be agreed upon by them:
(a) prepare and file with the SEC as soon as is reasonably practicable
the Proxy Statement and a registration statement on Form S-4 under the
Securities Act with respect to the PCS Common Stock issuable in the Merger
(the "Registration Statement"), and shall use their reasonable best efforts
to have the Registration Statement (including the Proxy Statement contained
therein) declared effective by the SEC under the Securities Act;
(b) as soon as is reasonably practicable take all such action as may
be required under state blue sky or securities laws in connection with the
transactions contemplated by this Agreement;
(c) promptly prepare and file with the NYSE and such other stock
exchanges as shall be agreed upon listing applications covering the shares
of PCS Common Stock issuable in the Merger and use its reasonable best
efforts to obtain, prior to the Effective Time, approval for the listing of
such PCS Common Stock, subject only to official notice of issuance; and
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(d) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein.
Subject to the limitations contained in Section 6.02, PCS and Arcadian
shall each furnish to one another and to one another's counsel all such
information as may be required or appropriate in order to effect the foregoing
actions.
SECTION 6.04. Affiliates. Arcadian shall, prior to the Effective Time,
deliver to PCS a list setting forth the names and addresses of all Persons who
are, in its opinion, at the time of the meeting of the Arcadian stockholders to
be held in accordance with Section 2.01, "affiliates" of Arcadian for purposes
of Rule 145 under the Securities Act. Arcadian shall furnish such information
and documents as PCS may reasonably request for the purpose of reviewing such
list. Arcadian shall use its reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished pursuant to this Section 6.04
to execute a written agreement on or prior to the Effective Time, in a form
satisfactory to PCS (an "Affiliate Agreement"), that such person will not offer
or sell or otherwise dispose of any of the shares of PCS Common Stock issued to
such Person pursuant to the Merger in violation of the Securities Act or the
rules and regulations promulgated by the SEC thereunder.
SECTION 6.05. Insurance Extension. PCS and Arcadian shall cooperate to
extend, renew or otherwise continue any existing insurance coverage (or to
provide new insurance coverage) on and after the Effective Time with respect to
claims arising from acts or omissions which occurred on or before the Effective
Time.
SECTION 6.06. Filings; Other Action. Subject to the terms and conditions
herein provided, PCS and Arcadian shall (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act,
(b) use reasonable best efforts to cooperate with one another in (i) determining
whether any filings are required to be made with, or consents, permits,
authorizations or approvals are required to be obtained from, any third party,
the United States or Canadian federal government or any agencies, departments or
instrumentalities thereof or governmental, provincial or regulatory authorities
of the several states, provinces and foreign jurisdictions in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby and (ii) timely making all such
filings and timely seeking all such consents, permits, authorizations or
approvals, and (c) use reasonable best efforts to take, or cause to be taken,
all other actions and do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective the transactions
contemplated hereby, including, without limitation, taking all such further
action as reasonably may be necessary to resolve such objections, if any, as the
Federal Trade Commission, the Antitrust Division of the Department of Justice,
state antitrust enforcement authorities or competition authorities of any other
nation or other jurisdiction or any other Person may assert under relevant
antitrust or competition laws with respect to the transactions contemplated
hereby.
SECTION 6.07. Further Assurances. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers or directors of PCS and the Surviving
Corporation shall take all such necessary action.
SECTION 6.08. Takeover Statute. If any Takeover Statute shall become
applicable to the transactions contemplated hereby, each of PCS and Arcadian
shall grant and use their respective reasonable best efforts to obtain such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
SECTION 6.09. No Solicitation. Unless and until this Agreement shall have
been terminated by either party pursuant to Section 8.01, neither PCS nor
Arcadian nor any of their respective Subsidiaries, officers, directors or agents
shall, directly or indirectly, take any action to solicit, initiate or encourage
any proposal or offer with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, it or any of its Subsidiaries (any
such proposal or offer being hereinafter referred to as a "Third Party
Acquisition Proposal"); provided, however, that the foregoing limitation shall
not apply if, in the good faith judgment of Arcadian's Board of Directors after
consultation with legal counsel and financial advisors, such Board's fiduciary
duties require such Board or
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Arcadian to take any such action. PCS and Arcadian each will promptly notify the
other of its receipt of any Third Party Acquisition Proposal, and will provide
the other with two business days' advance notice of any agreement to be entered
into with any Person making a Third Party Acquisition Proposal.
SECTION 6.10. Public Announcements. PCS and Arcadian will consult with each
other before issuing any press release relating to this Agreement or the
transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
SECTION 6.11. Indemnification and Insurance. For a period of six years
after the Effective Time, PCS shall cause to be maintained in effect (a) the
current provisions regarding indemnification of officers and directors contained
in the Restated Certificate of Incorporation and Amended and Restated Bylaws of
Arcadian, and (b) if available, the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by Arcadian
(provided that PCS may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from acts or omissions which occurred on or before the Effective Time; provided,
that PCS shall not be obligated to pay premiums in excess of 200% of the amount
per annum that Arcadian paid in the aggregate in its last fiscal year, it being
understood that PCS shall nevertheless be obligated to provide such coverage as
may be obtained for such amount. PCS shall assume all obligations of Arcadian
and any of its Subsidiaries under any indemnification or similar agreements with
any employee, officer or director of Arcadian in effect immediately prior to the
Effective Time, in each case without releasing the indemnitor under such
agreements.
SECTION 6.12. Accountants' Letters. PCS and Arcadian will each use
reasonable best efforts to cause to be delivered to each other letters from
their respective independent accountants, dated a date within two business days
before the effective date of the Registration Statement, in form and substance
reasonably satisfactory to the recipient and customary in scope and substance
for "comfort" or similar agreed upon procedures letters delivered by independent
accountants in connection with registration statements on Form S-4 under the
Securities Act.
SECTION 6.13. Arcadian Preferred Stock. In connection with the Merger,
Arcadian (i) will elect the "Common Conversion Option" (as defined in the
Certificate of Designation), and the holders of shares of Arcadian Preferred
Stock immediately prior to the conversion thereof pursuant to the exercise of
such Common Conversion Option shall be entitled to the benefits thereof, all as
set forth in the Certificate of Designation.
SECTION 6.14. Additional Reports. PCS and Arcadian shall each furnish to
the other copies of any reports of the type referred to in Sections 4.06 and
5.06 which it files with the SEC on or after the date hereof, and PCS or
Arcadian, as the case may be, represents and warrants that as of the respective
dates thereof, such reports will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statement therein, in light of the circumstances under which they
were made, not misleading. Any unaudited consolidated interim financial
statements included in such reports (including any related notes and schedules)
will fairly present the financial position of PCS or Arcadian, as the case may
be, and its consolidated Subsidiaries, as of the dates thereof and the results
of operations and changes in financial position or other information included
therein for the periods or as of the date then ended (subject, where
appropriate, to normal year-end adjustments), in each case in accordance with
past practice and GAAP or Canadian GAAP, as the case may be, consistently
applied during the periods involved (except as otherwise disclosed in the notes
thereto).
SECTION 6.15. Arcadian Warrants. (a) In connection with the Merger, (i)
each holder of outstanding AAC Warrants shall be entitled to receive the Merger
Consideration attributable to such AAC Warrants, less the exercise price of such
AAC Warrants, as contemplated by Section IV(A)(3) of the AAC Warrant Agreement,
and (ii) Arcadian shall take all action necessary under the Series B Warrant
Agreement so that at the Effective Time, each outstanding Series B Warrant
shall, pursuant to Sections 2.05 and 3.02 of the Series B Warrant Agreement, be
deemed to constitute a warrant having such terms and conditions as may be
required by the Series B Warrant Agreement.
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(b) As used in this Agreement:
(i) "AAC Warrant Agreement" means the Warrant Issuance Agreement dated
as of May 31, 1989, between Arcadian (formerly named Fertilizer Industries,
Inc.) and AAC Holdings, Inc., on behalf of the holders of the AAC Warrants;
(ii) "AAC Warrant" means a warrant issued pursuant to the AAC Warrant
Agreement;
(iii) "Series B Warrant Agreement" means the Warrant Agreement dated
as of December 22, 1989, between Arcadian and Chemical Bank, as Warrant
Agent, as amended; and
(iv) "Series B Warrant" means a warrant issued pursuant to the Series
B Warrant Agreement.
SECTION 6.16. No Purchase. Except for the transactions contemplated by this
Agreement, without the prior written consent of Arcadian, in the case of PCS, or
PCS, in the case of Arcadian, from the date hereof until the Effective Time,
neither PCS nor Arcadian shall (a) acquire, offer to acquire or agree to
acquire, directly or indirectly, by purchase or otherwise, any securities or
direct or indirect rights to acquire any securities of Arcadian, in the case of
PCS, or PCS in the case of Arcadian, or any of their respective Subsidiaries, or
of any successor to, or any assets of, Arcadian, in the case of PCS, or PCS, in
the case of Arcadian, or any of their respective Subsidiaries or divisions; or
(b) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the rules of the SEC) to
vote, or seek to advise or influence any Person with respect to the voting of,
any voting securities of Arcadian, in the case of PCS, or PCS, in the case of
Arcadian, or of any of their respective Subsidiaries, and PCS and Arcadian shall
each use reasonable efforts to cause their respective affiliates not to do any
of the foregoing. Arcadian shall promptly advise PCS, and PCS shall promptly
advise Arcadian, of any inquiry or proposal made to it with respect to any of
the foregoing. Notwithstanding clauses (a) and (b) of this Section 6.16, PCS and
Arcadian may make any proposals or communications to each other.
SECTION 6.17. Employee Benefit Plans. (a) It is understood and agreed that
the Merger shall constitute a "Change of Control" or "Change in Control" within
the meaning assigned to such terms, as applicable, under certain employee
incentive plans, option plans, severance programs and employment contracts of
Arcadian and any agreements relating thereto.
(b) At the Effective Time or as soon thereafter as administratively
practicable, PCS shall cause those employees of Arcadian and its Subsidiaries
who are then employed by the Surviving Corporation or any of its Subsidiaries in
positions that are not covered by a collective bargaining agreement (the
"Current Employees") either (i) to be covered by the benefit plans and programs
of PCS and its Subsidiaries with substantially equivalent benefits in respect of
future service that accrue in respect of future services to the employees of PCS
and its Subsidiaries who are employed in comparable positions, or (ii) to be
covered by the benefit plans and programs of Arcadian and its Subsidiaries as in
effect immediately prior to the Effective Time; provided, however, that nothing
herein shall relieve the Surviving Corporation of its obligations under the
Severance Program or under any Employment Agreement or similar contractual
obligation. Current Employees shall be credited for their service with Arcadian
and its Subsidiaries and their predecessors for purposes of participation,
eligibility and vesting under the benefit plans and programs provided by PCS,
and benefit accrual purposes for vacation, severance, pension and retirement
benefits only, and PCS shall cause its group health plan that will provide
coverage to Current Employees to waive any limitations regarding pre-existing
conditions of Current Employees and their eligible dependents (except to the
extent that such limitations would have applied to any such individual under the
group health plan of Arcadian and its Subsidiaries). Upon request of PCS,
Arcadian and its Subsidiaries shall provide PCS's employees with reasonable
access prior to the Effective Time to the Current Employees for purposes of
enrolling such employees and their eligible dependents in the benefit plans and
programs of PCS and its Subsidiaries that are to be provided to such
individuals.
(c) PCS agrees that each officer and other employee of Arcadian or any of
its Subsidiaries who is a party to a written employment agreement with Arcadian
or any of its Subsidiaries, and who remains in the employment of PCS, Surviving
Corporation or any of its other Subsidiaries after the expiration of the term of
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such agreement, shall be entitled to the benefits of an employment agreement
with PCS in form and substance substantially similar to the employment
agreement, then in place between PCS and other employees of PCS holding
comparable positions.
SECTION 6.18. Conduct of PCS's Business. Prior to the Effective Time or the
Termination Date, and except as may be permitted pursuant to this Agreement,
PCS:
(a) shall, and shall cause its Subsidiaries to, conduct its and their
operations in the ordinary and usual course of business in substantially
the same manner as heretofore conducted;
(b) except as otherwise contemplated herein, shall not effect any
stock split or otherwise change its capitalization as it existed on June
30, 1996 (provided, however, that the exercise of employee stock options
and issuance of shares of PCS Common Stock pursuant to the PCS DRIP shall
not be considered to be a change in the capitalization of PCS); and
(c) shall not, and shall not permit any of its Subsidiaries to, amend
any term of any of its or their outstanding securities.
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Merger. The obligations of PCS, Merger Sub and
Arcadian to effect the Merger shall be subject to the following conditions:
(a) The holders of issued and outstanding shares of Arcadian Common
Stock and Arcadian Preferred Stock, voting as a single class, shall have
duly adopted this Agreement, all in accordance with applicable law.
(b) No statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority that prohibits the consummation of the
Merger substantially on the terms contemplated hereby. If any such order,
decree or injunction shall have been issued, each party shall use its
reasonable best efforts to remove such order, decree or injunction.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall be effective
at the Effective Time, and no stop order suspending such effectiveness
shall have been issued and remain in effect.
(d) The shares of PCS Common Stock issuable in the Merger shall have
been approved for listing on the NYSE, The Toronto Stock Exchange and the
Montreal Stock Exchange, subject only to official notice of issuance.
(e) Any applicable waiting period under the HSR Act shall have expired
or been terminated and any other approvals sets forth in Sections 4.03 and
5.03 shall have been obtained, except where the failure to obtain such
other approvals (other than the expiration or termination of the waiting
period under the HSR Act) would not have a Material Adverse Effect on PCS
or Arcadian, as the case may be.
(f) Arcadian shall have received an opinion of its tax counsel,
Bracewell & Patterson, L.L.P., in form and substance reasonably
satisfactory to it, and dated within five days prior to the date of the
Proxy Statement to the effect that neither it nor any of its stockholders
shall recognize gain or loss for United States federal income tax purposes
as a result of the Merger (other than the Merger Cash, cash paid in
connection with appraisal rights and any cash paid in lieu of fractional
shares) which opinion shall have been reconfirmed as of the date on which
the Effective Time occurs (the "Effective Date").
(g) PCS shall have received an opinion of its tax counsel, Goodman,
Phillips & Vineberg, in form and substance reasonably satisfactory to it,
and dated within five days prior to the date of the Proxy Statement, to the
effect that the Merger will constitute a tax-free reorganization under Code
section 368(a)(2)(D), which opinion shall have been reconfirmed as of the
Effective Date.
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SECTION 7.02. Additional Conditions of PCS and Merger Sub. The obligation
of PCS and Merger Sub to effect the Merger is further subject to the conditions
that (a) the representations and warranties of Arcadian contained herein shall
be true and correct in all respects (but without regard to any materiality
qualifications contained in any specific representation or warranty) as of the
Effective Time with the same effect as though made as of such time except for
changes specifically permitted by the terms of this Agreement and except where
any such failure of the representations and warranties in the aggregate to be
true and correct in all respects as of the Effective Time would not have a
Material Adverse Effect on Arcadian, and (b) Arcadian shall have performed in
all material respects all obligations and complied in all material respects with
all covenants required by this Agreement to be performed or complied with by it
prior to the Effective Time.
SECTION 7.03. Additional Conditions of Arcadian. The obligation of Arcadian
to effect the Merger is further subject to the conditions that (a) the
representations and warranties of PCS contained herein shall be true and correct
in all respects (but without regard to any materiality qualifications contained
in any specific representation or warranty) as of the Effective Time with the
same effect as though made as of the Effective Time except for changes
specifically permitted by the terms of this Agreement and except where any such
failure of the representations and warranties in the aggregate to be true and
correct in all respects as of the Effective Time would not have a Material
Adverse Effect on PCS, and (b) PCS and Merger Sub shall have performed in all
material respects all obligations and complied in all material respects with all
covenants required by this Agreement to be performed or complied with by it
prior to the Effective Time.
ARTICLE 8
TERMINATION, WAIVER, AMENDMENT AND CLOSING
SECTION 8.01. Termination or Abandonment. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may be terminated
and abandoned at any time prior to the Effective Time, whether before or after
approval of this Agreement by the stockholders of Arcadian:
(a) by the mutual written consent of PCS and Arcadian;
(b) by PCS or Arcadian if the Effective Time shall not have occurred
on or before April 30, 1997; provided, that the party seeking to terminate
this Agreement pursuant to this Section 8.01(b) shall not have breached in
any material respect its obligations under this Agreement in any manner
that shall have proximately contributed to the failure to consummate the
Merger on or before such date;
(c) by PCS or Arcadian if a United States federal or state court of
competent jurisdiction or United States governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions substantially on the terms
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this Section 8.01(c) shall
have used its reasonable best efforts to remove such restraint, injunction
or prohibition;
(d) by PCS if (i) the approvals of the stockholders of Arcadian
contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of
stockholders or any adjournment thereof or (ii) prior to the Special
Meeting, the Board of Directors of Arcadian shall have withdrawn or
modified, or resolved to withdraw or modify its approval or recommendation
of this Agreement;
(e) by Arcadian or PCS, by a written notice delivered to the other
party on or before 5:00 p.m. (Memphis time) on the 14th day after the date
of this Agreement, if Arcadian's or PCS's, as the case may be,
investigation of the business and operations of the other party shall have
revealed the existence of a fact or condition relating to such other party
or its Subsidiaries that (i) is not disclosed in the PCS Disclosure
Documents or the Arcadian SEC Documents, as the case may be, and (ii) in
the terminating party's reasonable, good-faith judgment has had or may
reasonably be expected to have a Material Adverse Effect on the other party
in excess of any provision made with respect thereto in the other party's
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December 31, 1995 or June 30, 1996 financial statements included in the PCS
Disclosure Documents or Arcadian SEC Documents, as the case may be. Any
such notice delivered pursuant to the first sentence of this Section
8.01(e) shall outline in reasonable detail the basis for such termination;
(f) by Arcadian, if its Board of Directors shall have determined, in
its good faith judgment after consultation with legal counsel and financial
advisors, that such Board's fiduciary duties require termination of this
Agreement;
(g) by Arcadian, if the approval of the stockholders of Arcadian
contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of such
stockholders or any adjournment thereof;
(h) by Arcadian or by PCS, if the Final PCS Common Stock Price is
either (i) less than $65.00 or (ii) greater than $90.00; and
(i) by PCS, by a written notice delivered to Arcadian on or before
5:00 p.m. Memphis time on the 14th day after the date of this Agreement
based on PCS's reasonable determination that the cost of causing Arcadian's
interests in Arcadian Trinidad Corporation, Arcadian Fertilizer
Corporation, AA Sulfuric Corporation, August Service Company Inc., Arcadian
LCD Corporation and Arcadian FMF, L.L.C. and any other interests in
corporations or limited liability companies held by Arcadian Partners, L.P.
or Arcadian Fertilizer L.P. to be held through a chain of corporations with
no partnership in the chain of ownership exceeds $25,000,000 in addition to
the costs of retiring debt (including, in the costs of retiring such debt,
all prepayment premiums payable thereon).
In the event of termination of this Agreement pursuant to this Section
8.01, this Agreement shall terminate, and there shall be no other liability
under this Agreement on the part of either party to the other party except that
(i) the obligations contained in Section 9.02 and in the Confidentiality
Agreement shall survive the termination hereof and (ii) no such termination
shall relieve either party of any liability or damages arising out of a breach
of this Agreement by that party.
SECTION 8.02. Amendment or Supplement. At any time before or after approval
of this Agreement by the stockholders of Arcadian and prior to the Effective
Time, this Agreement may be amended or supplemented in writing by PCS, Merger
Sub, and Arcadian with respect to any of the terms contained in this Agreement,
except that following approval by the stockholders of Arcadian there shall be no
amendment or change to the provisions hereof with respect to the conversion
ratio of shares of Arcadian Common Stock into shares of PCS Common Stock and the
Merger Cash as provided herein nor any amendment or change not permitted under
applicable law, without further approval by the stockholders of Arcadian.
SECTION 8.03. Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, either PCS or Arcadian may:
(a) extend the time for the performance of any of the obligations or
acts of the other;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant
hereto; or
(c) waive compliance with any of the agreements or conditions of the
other party contained herein.
Notwithstanding the foregoing, no failure or delay by PCS or Arcadian in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
SECTION 8.04. Closing. The closing of the transactions contemplated by this
Agreement and the Merger Agreement shall take place at the offices of Bracewell
& Patterson, L.L.P., South Tower Pennzoil Place, 711 Louisiana Street, Suite
2900, Houston, Texas 77002, at 10:00 a.m., local time, on the Effective Date or
at such other time and place as PCS and Arcadian shall agree.
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. No Survival of Representations and Warranties. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, except
for the agreements set forth in Article 3, the agreements of "affiliates" of
Arcadian to be delivered pursuant to Section 6.04, the provisions of Sections
6.07, 6.11 and 6.17 and this Article 9. Any of the current officers and
directors of Arcadian may enforce the agreements of PCS or Merger Sub set forth
in Sections 6.11 or 6.17.
SECTION 9.02. Expenses. (a) Except as provided in this Section 9.02,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement, and the transactions contemplated hereby and
thereby shall be paid by the party incurring such expenses, except that the
filing fee in connection with any HSR Act filing, the commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, and the expenses incurred in connection with
the printing and mailing of the Proxy Statement and the Registration Statement
and any expenses incurred by PCS relating to the issuance, registration and
listing of the PCS Common Stock and the qualification thereof under state blue
sky or securities laws, shall be shared equally by PCS and Arcadian.
(b) Arcadian agrees that if this Agreement is terminated pursuant to any of
the Sections described in clauses (i) through (iii) below, Arcadian will pay PCS
an amount equal to $20,000,000, plus all out-of-pocket expenses incurred by PCS
in connection with this Agreement, the Merger and all related transactions by
wire transfer of immediately available funds promptly, but in no event later
than two business days, after such termination (or, in the case of Section
9.2(b)(iii) below, no later than two business days after the consummation of the
Third Party Acquisition Proposal):
(i) Section 8.01(d)(ii);
(ii) Section 8.01(f); or
(iii) Section 8.01(d)(i) or 8.01(g) if, but only if, both (A) after
the date hereof but before the date of the Special Meeting, a Third Party
Acquisition Proposal is publicly disclosed, and (B) within one year after
the date of such public disclosure the transaction contemplated by such
Third Party Acquisition Proposal, or by any subsequent Third Party
Acquisition Proposal, is consummated.
SECTION 9.03. Counterparts; Effectiveness. This Agreement may be executed
in two or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (by telecopy or otherwise) to the other
parties.
SECTION 9.04. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without regard to the principles of conflicts of laws thereof. Each
party hereto irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of courts of the State of Delaware or any United States district
court located in the State of Delaware for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in such courts and
agrees not to plead or claim in any such court that such litigation brought
therein has been brought in an inconvenient forum.
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SECTION 9.05. Notices. All notices and other communications hereunder shall
be in writing (including telecopy or similar writing) and shall be effective (a)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 9.05 and the appropriate telecopy confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section 9.05:
To PCS or Merger Sub:
Potash Corporation of Saskatchewan Inc.
Suite 500
122-1st Avenue South
Saskatoon, Saskatchewan S7K 7G3
Canada
Attention: General Counsel
Telecopy: 306-933-8877
with a copy to:
James B. Halpern
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, NW
Washington, DC 20036-5339
Telecopy: 202-857-6395
To Arcadian:
Arcadian Corporation
6750 Poplar Avenue, Suite 600
Memphis, Tennessee 38138-7419
Attention: Peter H. Kesser, Esq.
Telecopy: 901-758-5201
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower, Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: John Bland, Esq.
Telecopy: 713-221-1212
SECTION 9.06. Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
SECTION 9.07. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
SECTION 9.08. Enforcement of Agreement. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that
in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or
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threatened beach, violation or default and to any other equitable relief,
including, without limitation, specific performance, without bond or other
security being required.
SECTION 9.09. Miscellaneous. This Agreement, including the Schedules
hereto:
(a) along with the Confidentiality Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings,
both written and oral, between the parties, or any of them, with respect to
the subject matter hereof and thereof; and
(b) except for the provisions of Sections 6.11 and 6.17, is not
intended to and shall not confer upon any Person other than the parties
hereto any rights or remedies hereunder.
SECTION 9.10. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
POTASH CORPORATION OF
SASKATCHEWAN INC.
By: /s/ C. E. CHILDERS
-----------------------------------
Name: C. E. Childers
Title: Chief Executive Officer
ARCADIAN CORPORATION
By: /s/ J. D. CAMPBELL
-----------------------------------
Name: J. D. Campbell
Title: President and Chief
Executive Officer
PCS NITROGEN, INC.
By: /s/ JOHN HAMPTON
-----------------------------------
Name: John Hampton
Title: Sole Incorporator
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ANNEX II
[CREDIT SUISSE/FIRST BOSTON LETTERHEAD]
January 28, 1997
Board of Directors
Arcadian Corporation
3175 Lenox Park Boulevard, Suite 400
Memphis, Tennessee 38115-4256
Dear Sirs:
You have asked us to advise you with respect to the fairness to the stockholders
of Arcadian Corporation (the "Company") from a financial point of view of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger, dated as of September 2, 1996, as amended (the
"Acquisition Agreement"), by and among the Potash Corporation of Saskatchewan
Inc. ("PCS"), the Company and PCS Nitrogen, Inc., a wholly owned subsidiary of
PCS (the "Sub"). The Acquisition Agreement provides, among other things, for the
merger (the "Merger") of the Company into the Sub pursuant to which each
outstanding share of common stock, par value $0.01 per share ("Company Common
Stock"), of the Company (other than shares of Company Common Stock held in the
treasury of the Company or by any subsidiary of the Company or by PCS or any
subsidiary of PCS and other than shares of Company Common Stock as to which
dissenters' rights of appraisal have been perfected) will be converted into
$12.25 in cash (the "Per Share Cash Amount") and the "Per Share Stock Amount."
The "Per Share Stock Amount" equals that fraction of a share of common stock of
the PCS equal to (x) 0.17713 if the Final PCS Common Stock Price (as defined in
the Acquisition Agreement) is at least $72.00 but not more than $83.25; (y) the
lesser of 0.21250 and the quotient obtained by dividing $12.75 by the Final PCS
Common Stock Price, if the Final PCS Common Stock Price is less than $72.00; or
(z) the greater of 0.16389 and the quotient obtained by dividing $14.75 by the
Final PCS Common Stock Price, if the Final PCS Common Stock Price is greater
than $83.25. The Acquisition Agreement provides that either the Company or PCS
may terminate such Agreement if the Final PCS Common Stock Price is less than
$65.00 or greater than $90.00. In addition, the Acquisition Agreement provides
that immediately prior to the Merger each outstanding share of Mandatorily
Convertible Preferred Stock, Series A, par value $0.01 per share ("Company
Preferred Stock"), of the Company will be called for redemption in accordance
with the terms of the Company's Certificate of Designation thereby causing all
outstanding shares of Company Preferred Stock to be converted into shares of
Company Common Stock and be treated in the Merger identically to all other
shares of Company Common Stock. The Acquisition Agreement also provides for an
adjustment to decrease the Per Share Cash Amount and increase the Per Share
Stock Amount to ensure that approximately 48% of the Total Consideration (as
defined in the Acquisition Agreement) is represented by PCS common stock so that
the Merger will qualify as a "reorganization" under Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code").
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company and PCS, as well as the
Acquisition Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company and PCS, and have
met with the Company's and PCS's managements to discuss the business and
prospects of the Company and PCS.
We have also considered certain financial and stock market data of the Company
and PCS, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and PCS, and we
have considered the financial terms of certain other business combinations and
other transactions which have recently been effected. We also considered such
other information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With
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respect to the financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's and PCS's managements as to the future financial
performance of the Company and PCS. In addition, we have assumed, with your
consent, that the Merger will qualify as a "reorganization" under Section
368(a)(2)(D) of the Code, and that it will be consummated in accordance with the
terms set forth in the Acquisition Agreement. We have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company or PCS, nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist and can be evaluated on the date hereof. We
are not expressing any opinion as to what the value of the shares of common
stock of PCS actually will be when issued to the Company's stockholders pursuant
to the Merger or the prices at which such common stock will trade subsequent to
the Merger. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company. However, on
August 5, 1996, the Company and Freeport-McMoRan Inc. ("Freeport") signed a
non-binding letter of intent with respect to the combination of their businesses
into a newly formed corporation ("Newco") pursuant to which (i) each outstanding
share of Company Common Stock would be converted into 0.658 shares of common
stock of Newco; (ii) each outstanding share of Company Preferred Stock would be
converted into one share of mandatorily convertible preferred stock of Newco,
with substantially equivalent rights and preferences as the Company Preferred
Stock; (iii) each outstanding share of common stock of Freeport would be
converted into one share of common stock of Newco; and (iv) the Company and
Freeport would become wholly owned subsidiaries of Newco. We understand that the
non-binding letter of intent between Freeport and the Company has been
terminated.
We have acted as financial advisor to the Company's Board of Directors in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We will also receive a fee for rendering this opinion.
In the ordinary course of our business, Credit Suisse First Boston Corporation
and its affiliates may actively trade the debt and equity securities of the
Company and the equity securities of PCS for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Company's Board
of Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes, without Credit Suisse First
Boston Corporation's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the stockholders of the Company in
the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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ANNEX III
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
sec. 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given
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prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or
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compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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