<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1998
REGISTRATION NO. 333-51145
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INSILCO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 367, 346, 274, 359 06-0635844
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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425 METRO PLACE NORTH
FIFTH FLOOR
DUBLIN, OHIO 43017
(614) 792-0468
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH H. KOCH
VICE PRESIDENT AND GENERAL COUNSEL
INSILCO CORPORATION
425 METRO PLACE NORTH
FIFTH FLOOR
DUBLIN, OHIO 43017
(614) 791-3137
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
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AVIVA DIAMANT JOHN W. BUTTRICK
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON DAVIS POLK & WARDWELL
ONE NEW YORK PLAZA 450 LEXINGTON AVENUE
NEW YORK, NY 10004 NEW YORK, NY 10017
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time ("Effective Time") of the merger (the "Merger") of Silkworm
Acquisition Corporation ("MergerSub") with and into Insilco Holding Co.
("ExistingSub"), a wholly owned subsidiary of Insilco Corporation (the
"Company"), as described in the Agreement and Plan of Merger dated as of March
24, 1998, as amended.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1)(2) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(2)
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Common Stock, par value $0.001 per 140,031 N/A $0 $0
share
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</TABLE>
(1) This Registration Statement relates to shares of common stock, par value
$0.001 per share, which are the shares into which the shares of common
stock, par value $0.001 per share, of the Company (the "Shares") will be
converted in a reorganization merger pursuant to Section 251(a) of the
Delaware General Corporation Law (the "Reorganization Merger") (pursuant to
which the Company will become a wholly owned subsidiary of ExistingSub) and
which are to be retained by the holders thereof as a result of the Merger,
which will take place promptly following the Reorganization Merger.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, as amended, and
solely for purposes of calculating the registration fee, the registration
fee was computed on the basis of the last reported sale on the NASDAQ
National Market on the relevant date, less the amount of cash to be paid by
the Company in connection with the Merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
July 8, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Insilco Corporation (the "Company") at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, 27th Floor, New York, New York, on
August 13, 1998, at 11:00 a.m. (Eastern Time).
As you may know, on March 24, 1998, the Company and its wholly owned
subsidiary, INR Holding Co. (since renamed Insilco Holding Co.), entered into an
Agreement and Plan of Merger (which was amended as of June 8, 1998) (the "Merger
Agreement") with Silkworm Acquisition Corporation ("MergerSub"), an affiliate of
DLJ Merchant Banking Partners II, L.P. and affiliated funds and entities (the
"DLJMB Funds"). The DLJMB Funds are affiliates of Donaldson, Lufkin & Jenrette,
Inc. As more fully described in the accompanying Notice of Meeting and Proxy
Statement/Prospectus, the Merger Agreement contemplates that two mergers
(collectively, the "Mergers") will occur, one after the other. In the first
merger, the Company will become a wholly owned subsidiary of Insilco Holding Co.
In the second merger, MergerSub will be merged into Insilco Holding Co., with
Insilco Holding Co. continuing as the surviving corporation. In the Mergers,
stockholders of the Company (other than stockholders who validly perfect
appraisal rights under Delaware law) will receive $43.48 in cash and will retain
0.03378 of a share of common stock of Insilco Holding Co. in respect of each of
their shares of Common Stock of the Company. At the Special Meeting, you will be
asked to consider and vote on a proposal to approve the Merger Agreement and the
Mergers. To fully understand the Merger Agreement and the Mergers, I encourage
you to read the Proxy Statement/Prospectus carefully.
The transaction will be financed through, among other things, the issuance
by MergerSub of notes which will generate gross proceeds of approximately $110
million (which will become the obligations of Insilco Holding Co. upon the
effectiveness of the Mergers) and approximately $55 million of common stock and
warrants (which will be converted into common stock and warrants to purchase
common stock of Insilco Holding Co. in the Mergers), and through borrowings
under the Company's existing credit facility. Immediately following the Mergers,
the Company's existing stockholders will own approximately 10% of Insilco
Holding Co., and the DLJMB Funds will own the remaining 90%. However, the DLJMB
Funds have advised the Company that 399 Venture Partners, Inc., a wholly owned
indirect subsidiary of CitiBank, N.A., or one of its affiliates is expected to
purchase shares and warrants of MergerSub which would in the Merger be converted
into up to approximately 20% of the common stock of Insilco Holding Co. and
warrants to purchase common stock of Insilco Holding Co. If this occurs, the
DLJMB Funds' ownership would be reduced by a corresponding amount to
approximately 70% of the shares of Insilco Holding Co.
The Company has been advised that, at the present time, the DLJMB Funds do
not contemplate any material departure from the current operating plans of the
Company (although, in conjunction with management, they will continually
evaluate such operating plans after the Mergers), and have no intention of
eliminating the minority stockholders.
The Board of Directors has unanimously approved the Merger Agreement and
the Mergers and unanimously recommends that you vote FOR the approval and
adoption of the Merger Agreement and the Mergers. Approval and adoption of the
Merger Agreement and the Mergers require the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote at the Special Meeting.
It is very important that your shares be represented at the Special
Meeting, regardless of whether you plan to attend in person. A failure to vote,
either by not returning the enclosed proxy or by checking the "Abstain" box
thereon, will have the same effect as a vote against approval of the Merger
Agreement and the Mergers. To assure that your shares are represented in voting
on this very important matter, please sign, date and return the enclosed proxy
card in the enclosed postage-paid envelope whether or not you plan to attend the
Special Meeting. If you are a stockholder of record and do attend, you may, if
you wish, revoke your proxy and vote your shares in person at the Special
Meeting.
Sincerely,
Robert L. Smialek signature
Robert L. Smialek
President and Chief Executive Officer
<PAGE> 3
INSILCO CORPORATION
425 METRO PLACE NORTH
FIFTH FLOOR
DUBLIN, OHIO 43017
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
AUGUST 13, 1998
To the Stockholders of
Insilco Corporation:
Notice is hereby given that a special meeting of stockholders (the "Special
Meeting") of Insilco Corporation (the "Company") will be held at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, 27th Floor, New
York, New York, on August 13, 1998, at 11:00 a.m. (Eastern Time), for the
following purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 24, 1998, as amended as of
June 8, 1998 (the "Merger Agreement"), among the Company, INR Holding Co.
(since renamed Insilco Holding Co.) ("ExistingSub"), a Delaware corporation
and a wholly owned subsidiary of the Company, and Silkworm Acquisition
Corporation ("MergerSub"), a Delaware corporation and an affiliate of DLJ
Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and
entities (collectively, the "DLJMB Funds"). The DLJMB Funds are affiliates
of Donaldson, Lufkin & Jenrette Inc. The Merger Agreement provides for,
among other things, the formation by ExistingSub of a wholly owned
subsidiary ("ReorgSub"), to be followed by a merger of ReorgSub with and
into the Company, with the Company continuing as the surviving corporation
(the "Reorganization Merger"). Pursuant to the Reorganization Merger, (A)
each share of common stock, par value $0.001 per share, of the Company
("Shares") issued and outstanding immediately prior to the effective time
of the Reorganization Merger (the "Reorganization Merger Effective Time")
(other than Shares as to which appraisal rights have been validly
perfected) will be converted into (i) one share of common stock, par value
$0.001 per share, of ExistingSub ("ExistingSub Shares") and (ii) the right
to receive $0.01 in cash, and (B) each share of common stock, par value
$0.001 per share, of ReorgSub will be converted into one share of common
stock of the corporation surviving the Reorganization Merger. Thus, as a
result of the Reorganization Merger, (A) each stockholder of the Company
immediately prior to the Reorganization Merger Effective Time (other than a
holder of Shares as to which appraisal rights have been validly perfected)
will have his or her interest in the Company converted into the same
proportionate interest in ExistingSub, except for changes in interest
resulting from the valid perfection by any stockholder of appraisal rights,
and (B) ExistingSub, instead of being a wholly owned subsidiary of the
Company, will become the parent of, and will own all of the outstanding
stock of, the Company. Promptly following the Reorganization Merger,
MergerSub will merge with and into ExistingSub (the "Merger" and together
with the Reorganization Merger, the "Mergers"), with ExistingSub continuing
as the surviving corporation (the "Surviving Corporation"). Pursuant to the
Merger, each ExistingSub Share issued and outstanding immediately prior to
the effective time of the Merger will be converted into the right to (i)
receive $43.47 in cash and (ii) retain 0.03378 of a share of common stock,
par value $0.001 per share, of the Surviving Corporation ("Surviving
Corporation Shares"). Cash will be paid in lieu of any fractional Surviving
Corporation Share. Thus, as a result of the Mergers, each stockholder of
the Company immediately prior to the Reorganization Merger Effective Time
(other than stockholders who validly perfect their appraisal rights in the
Reorganization Merger) will have, in respect of each of his or her Shares,
the right to (i) receive $43.48 in cash and (ii) retain 0.03378 of a
Surviving Corporation Share. The Company's existing stockholders will
retain (assuming no stockholders validly perfect appraisal rights), in the
aggregate, approximately 10.3% of the Surviving Corporation Shares
outstanding immediately following the Merger (approximately 9.5% on a fully
diluted basis). Approval of this proposal will constitute approval and
adoption of the Merger Agreement and the Mergers.
<PAGE> 4
2. To consider and vote on such other matters incident to the conduct
of, and as may properly come before, the Special Meeting.
Only stockholders of record as of the close of business on June 15, 1998
will be entitled to notice of the Special Meeting and to vote at the Special
Meeting or at any adjournment or postponement thereof. A list of stockholders
entitled to vote at the Special Meeting will be available for inspection by any
stockholder, for any purpose relevant to the Special Meeting, during the Special
Meeting and during normal business hours for ten days prior to the Special
Meeting at the Company's offices located at 425 Metro Place North, Fifth Floor,
Dublin, OH 43017.
Approval and adoption of the Merger Agreement and the transactions
contemplated thereby require the affirmative vote of the holders of a majority
of the outstanding Shares entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGERS, ARE
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, HAS APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGERS.
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A STOCKHOLDER DECIDES TO ATTEND THE SPECIAL MEETING, HE OR SHE MAY,
IF SO DESIRED, REVOKE THE PROXY AND VOTE HIS OR HER SHARES IN PERSON.
By Order of the Board of Directors,
Kenneth H. Koch signature
Kenneth H. Koch
Corporate Secretary
July 8, 1998
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
INSILCO CORPORATION
425 METRO PLACE NORTH
FIFTH FLOOR
DUBLIN, OHIO 43017
PROXY STATEMENT/PROSPECTUS
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
AUGUST 13, 1998
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $0.001 per share ("Shares"), of Insilco Corporation, a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors") for use at the
special meeting of stockholders, and at any adjournment or postponement thereof
(the "Special Meeting"), to be held at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, 27th Floor, New York, New York on August
13, 1998 at 11:00 a.m. (Eastern Time). The Special Meeting has been called to
consider and vote on a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of March 24, 1998 (the "Original Merger Agreement"), as amended
as of June 8, 1998 (the Original Merger Agreement as amended, the "Merger
Agreement"), among the Company, INR Holding Co. (since renamed Insilco Holding
Co.) ("ExistingSub"), a Delaware corporation and a wholly owned subsidiary of
the Company, and Silkworm Acquisition Corporation ("MergerSub"), a Delaware
corporation and an affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJMB")
and affiliated funds and entities (collectively, the "DLJMB Funds"). The DLJMB
Funds are affiliates of Donaldson, Lufkin & Jenrette Inc. Stockholders will also
consider and vote on such other matters incident to the conduct of, and as may
properly come before, the Special Meeting.
Pursuant to the Merger Agreement, each stockholder of the Company (other
than stockholders who validly perfect their appraisal rights) will have, in
respect of each of his or her Shares, the right to (i) receive $43.48 in cash
and (ii) retain 0.03378 of a Surviving Corporation Share (as defined below). The
Company's existing stockholders will retain (assuming no stockholders validly
perfect appraisal rights), in the aggregate, approximately 10.3% of the
Surviving Corporation Shares outstanding immediately following the Merger (as
defined below) (approximately 9.5% on a fully diluted basis), and the DLJMB
Funds will own approximately 89.7% of the Surviving Corporation Shares
outstanding immediately following the Merger (90.5% on a fully diluted basis),
although the DLJMB Funds have advised the Company that 399 Venture Partners,
Inc., a wholly owned indirect subsidiary of Citibank, N.A., or one of its
affiliates ("CVC") is expected to purchase shares of common stock of MergerSub
("MergerSub Stock") which shares would in the Merger be converted into up to
19.6% of the Surviving Corporation Shares outstanding immediately following the
Merger (19.7% on a fully diluted basis) and warrants to purchase shares of
MergerSub Stock ("Warrants") which would convert into warrants to purchase
Surviving Corporation Shares ("Surviving Corporation Warrants"), in which event
the DLJMB Funds' equity interest in the Surviving Corporation will be reduced to
70.1% (70.8% on a fully diluted basis). The transaction is structured as a
leveraged recapitalization.
The Merger Agreement provides for the transaction to occur by the formation
by ExistingSub of a wholly owned subsidiary ("ReorgSub"), to be followed by a
merger of ReorgSub with and into the Company, with the Company continuing as the
surviving corporation (the "Reorganization Merger"). Pursuant to the
Reorganization Merger, (A) each Share issued and outstanding immediately prior
to the effective time of the Reorganization Merger (the "Reorganization Merger
Effective Time") (other than Shares as to which appraisal rights have been
validly perfected) will be converted into (i) one share of common stock, par
value $0.001 per share, of ExistingSub ("ExistingSub Shares") and (ii) the right
to receive $0.01 in cash, and (B) each share of common stock, par value $0.001
per share, of ReorgSub will be converted into one share of common stock of the
corporation surviving the Reorganization Merger. Thus, as a result of the
Reorganization Merger, (A) each stockholder of the Company immediately prior to
the Reorganization Merger Effective Time (other than a holder of Shares as to
which appraisal rights have been validly perfected) will have his or her
interest in the Company converted into the same proportionate interest in
ExistingSub, except for changes in interest resulting from the valid perfection
by any stockholder of appraisal rights, and (B) ExistingSub, instead of being a
wholly owned subsidiary of the Company, will become the parent of, and will own
all of the outstanding stock of, the Company. Promptly following the
Reorganization Merger, MergerSub will merge with and into ExistingSub (the
"Merger" and together with the Reorganization Merger, the "Mergers"), with
ExistingSub continuing as the surviving corporation (the "Surviving
Corporation"). Pursuant to the
(Continued on next page)
STOCKHOLDERS ARE URGED TO READ THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 16 OF THIS PROXY STATEMENT/PROSPECTUS.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the 140,031 ExistingSub Shares to be retained (assuming no stockholders validly
perfect appraisal rights in respect of the Reorganization Merger) by existing
stockholders of the Company in the Merger.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to the Company's stockholders on or about July 9, 1998.
NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
This Proxy Statement/Prospectus does not cover any resales of Surviving
Corporation Shares retained by any person who may be deemed to be an affiliate
of the Company and no such affiliate is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
The date of this Proxy Statement/Prospectus is July 8, 1998.
<PAGE> 6
Merger, each ExistingSub Share issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will be converted into the
right to (i) receive $43.47 in cash and (ii) retain 0.03378 of a share of common
stock, par value $0.001 per share, of the Surviving Corporation ("Surviving
Corporation Shares"). The aggregate per share consideration to be paid in the
Merger plus the $0.01 to be paid in the Reorganization Merger are herein
referred to as the "Merger Consideration." Cash will be paid in lieu of any
fractional Surviving Corporation Share.
The aggregate amount of the Merger Consideration (based on a nominal value
of $45.00 per Share) is approximately $186.5 million, of which the cash
component is equal to $180.2 million. Funds to pay the cash portion of the
Merger Consideration will be provided from the issuance by MergerSub of discount
notes which will generate gross proceeds to MergerSub of approximately $110
million (which notes will become the obligation of the Surviving Corporation
upon the effectiveness of the Merger), borrowings by the Company of
approximately $42.8 million under the Company's existing Credit Facility (as
defined below) and the purchase by the DLJMB Funds (or by the DLJMB Funds and
CVC) of approximately $55 million of equity in MergerSub (which will become
equity of the Surviving Corporation upon the effectiveness of the Merger).
The Company has been advised that, at the present time, the DLJMB Funds do
not contemplate any material departure from the current operating plans of the
Company (although, in conjunction with management, they will continually
evaluate such operating plans after the Mergers), and have no intention of
eliminating the minority stockholders.
<PAGE> 7
TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 2
SUMMARY..................................................... 3
The Company............................................... 3
MergerSub................................................. 3
The Special Meeting....................................... 3
Security Ownership of Certain Stockholders and
Management............................................. 4
The Mergers and the Merger Consideration.................. 5
Voting Agreement.......................................... 7
Merger Financing.......................................... 7
Conflicts of Interest of Certain Persons.................. 8
Accounting Treatment...................................... 10
United States Federal Income Tax Consequences............. 10
Risk Factors.............................................. 10
Appraisal Rights.......................................... 10
Regulatory Considerations................................. 10
Subsequent Event.......................................... 10
Summary Historical and Unaudited Pro Forma Condensed
Consolidated Financial and Operating Data.............. 11
Market Price of Shares.................................... 15
RISK FACTORS................................................ 16
Control by the DLJMB Funds................................ 16
Substantial Leverage...................................... 16
Potential Dilution of Company Stockholders................ 17
Loss of Liquidity......................................... 18
Possible Termination of Registration under Section 12(g)
of the Exchange Act.................................... 18
THE SPECIAL MEETING......................................... 19
Matters to Be Considered at the Special Meeting........... 19
Required Vote............................................. 19
Voting and Revocation of Proxies.......................... 19
Record Date; Stock Entitled to Vote; Quorum............... 20
Appraisal Rights.......................................... 20
Solicitation of Proxies................................... 20
Recommendation of the Company's Board of Directors;
Opinion of Investment Banker........................... 20
THE COMPANY................................................. 22
Certain Forecasts as to Future Results.................... 23
Subsequent Event.......................................... 24
THE MERGERS................................................. 25
Background of the Mergers................................. 25
Recommendation of the Board of Directors; Reasons for the
Mergers................................................ 28
Opinion of Investment Banker.............................. 30
The DLJMB Funds' Reasons for the Merger................... 34
The DLJMB Funds' Business Strategy after the Effective
Time................................................... 34
Merger Consideration...................................... 34
Effective Time of the Mergers............................. 35
Effect on Stock Options and Employee Benefit Matters...... 35
</TABLE>
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<TABLE>
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United States Federal Income Tax Consequences............. 36
Accounting Treatment...................................... 37
Conflicts of Interest of Certain Persons.................. 38
Resale of Shares Following the Merger..................... 39
Water Street Registration Rights.......................... 40
Merger Financing.......................................... 40
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................. 42
The Mergers and the Merger Consideration.................. 42
Procedures for Exchange of Certificates................... 43
The Surviving Corporation................................. 44
Representations and Warranties............................ 45
Certain Pre-Closing Covenants............................. 45
No Solicitation of Transactions........................... 46
Expense Reimbursement..................................... 47
Resignations of Directors................................. 47
Indemnification and Insurance............................. 48
Merger Financing.......................................... 48
NASDAQ Listing............................................ 48
Bankruptcy Claims......................................... 48
Cooperation and Reasonable Best Efforts................... 48
Conditions to the Consummation of the Mergers............. 49
Termination............................................... 50
Amendment and Waiver...................................... 51
CERTAIN PROVISIONS OF THE VOTING AGREEMENT.................. 51
Voting.................................................... 51
No Solicitation........................................... 52
Appraisal Rights.......................................... 52
Transfer Restrictions..................................... 52
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 53
General................................................... 53
Shares.................................................... 53
Capital Stock of the Surviving Corporation Following the
Merger................................................. 53
Other Stockholder Arrangements............................ 54
Section 203 of Delaware General Corporation Law........... 54
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA... 55
MANAGEMENT FOLLOWING THE MERGERS............................ 62
Board of Directors........................................ 62
Executive Officers........................................ 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 62
Security Ownership of Certain Beneficial Owners........... 62
Security Ownership of Directors and Executive Officers.... 63
REGULATORY CONSIDERATIONS................................... 64
MERGERSUB................................................... 64
DISSENTING STOCKHOLDERS' RIGHTS............................. 65
STOCKHOLDER PROPOSALS....................................... 67
OTHER MATTERS............................................... 67
EXPERTS..................................................... 67
LEGAL MATTERS............................................... 67
</TABLE>
ii
<PAGE> 9
Annex A -- Agreement and Plan of Merger and Amendment
Annex B -- Opinion of Lazard Freres & Co. LLC
Annex C -- Voting Agreement among Water Street Corporate Recovery Fund I, L.P.,
Insilco Corporation and Silkworm Acquisition Corporation and
Amendment
Annex D -- Section 262 of the General Corporation Law of the State of Delaware
iii
<PAGE> 10
AVAILABLE INFORMATION
The Company has filed the Registration Statement, of which this Proxy
Statement/Prospectus is part, with the Commission. As permitted by the rules and
regulations of the Commission, this Proxy Statement/ Prospectus does not contain
all of the information included in the Registration Statement. Statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document referred to herein or therein and filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Mergers, reference is hereby made to the Registration Statement,
including the exhibits and schedules thereto.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Center, Suite 1400, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional
Office, Suite 1300, 13th Floor, 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding the Company. The Shares are quoted on the NASDAQ National
Market ("NASDAQ"), and copies of the aforementioned materials may also be
inspected at the office of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended and restated on Form 10-K/A-2 dated July 8, 1998 (the
"Company's 1997 Form 10-K"), the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, as amended and restated on Form 10-Q/A dated July
8, 1998, and the Company's Current Reports on Form 8-K dated April 29, 1998, May
14, 1998 and June 9, 1998, respectively, all previously filed by the Company
with the Commission, are incorporated by reference in this Proxy
Statement/Prospectus and shall be deemed to be a part hereof.
Each document filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement/Prospectus and prior to the termination of any offering of
securities made by this Proxy Statement/Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
such document. Any statement contained herein, or in a document all or a portion
of which is incorporated or deemed to be incorporated by reference herein, shall
be deemed to be modified or superseded for purposes of this Proxy Statement/
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified shall not be deemed, except as so modified, to constitute a part of
this Proxy Statement/Prospectus and any such statement so superseded shall not
be deemed to constitute a part of this Proxy Statement/Prospectus.
The Company will provide without charge to any person to whom a copy of
this Proxy Statement/ Prospectus is delivered, upon written or oral request, a
copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Requests for such
documents should be made to the Company at 425 Metro Place North, Fifth Floor,
Dublin, Ohio 43017 Attention: Corporate Secretary or to the Corporate Secretary
at (614) 791-3137. In order to ensure timely delivery of such documents, any
requests should be made no later than five business days prior to the date of
the Special Meeting.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/ PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
COVERED BY THIS PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the Company's business
segments; changes in prevailing interest rates and the availability of and terms
of financing to fund the anticipated growth of the Company's business;
inflation; changes in costs of goods and services; economic conditions in
general and in the Company's specific market areas; changes in or failure to
comply with federal, state, local or foreign government regulation; liability
and other claims asserted against the Company; changes in operating strategy or
development plans; the ability to attract and retain qualified personnel; the
significant indebtedness of the Company; labor disturbances; changes in the
Company's acquisition and capital expenditure plans; and other factors
referenced herein. In addition, such forward-looking statements are necessarily
dependent upon assumptions, estimates and dates that may be incorrect or
imprecise and involve known and unknown risks, uncertainties and other factors.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," "anticipates" or "intends" or the negative of
any thereof, or other variations thereon or comparable terminology, or by
discussions of strategy, intentions, projections or forecasts. Given these
uncertainties, stockholders are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus, is not intended to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement/Prospectus and the Annexes hereto.
Stockholders are urged to review this entire Proxy Statement/Prospectus,
including the Annexes hereto, carefully.
THE COMPANY
The Company, directly and through its subsidiaries, is a diversified
producer of automotive, telecommunications and electronics components, and is a
leading specialty publisher of student yearbooks. The Company, with three
reporting segments (the Automotive Components Group, the Technologies Group, and
Specialty Publishing), conducts its business in eight separate operating units,
including both divisions and subsidiaries. See "The Company."
The Company's principal executive offices are located at 425 Metro Place
North, Fifth Floor, Dublin, Ohio 43017, and its telephone number is (614)
792-0468. Its stock is traded on NASDAQ under the symbol "INSL."
MERGERSUB
MergerSub was incorporated on March 18, 1998. It was formed for the express
purpose of entering into the Merger Agreement and consummating the transactions
contemplated thereby. MergerSub does not have any assets or liabilities, and it
has not carried on any activities to date, other than those incident to its
formation and the accomplishment of the purpose of its formation.
At the present time, all of the outstanding capital stock of MergerSub is
owned by DLJMB. DLJMB and the other DLJMB Funds are affiliates of Donaldson,
Lufkin & Jenrette Inc. As part of the Merger Financing (as defined below), the
DLJMB Funds and, it is expected, CVC will purchase additional shares of
MergerSub Stock and Warrants. Assuming no stockholders validly perfect appraisal
rights, at the Effective Time and upon the conversion of the outstanding shares
of MergerSub Stock and Warrants into Surviving Corporation Shares in the Merger,
the DLJMB Funds will own approximately 89.7% (or, if CVC purchases the number of
shares of MergerSub Stock it is currently expected to purchase, the DLJMB Funds
will own 70.1%, and CVC will own 19.6%) of the outstanding Surviving Corporation
Shares. See "MergerSub."
MergerSub's offices are located at 277 Park Avenue, New York, New York
10172, and its telephone number is (212) 892-3000.
THE SPECIAL MEETING
Time and Place of Meeting; Matters to Be Considered. The Special Meeting
will be held at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New
York Plaza, 27th Floor, New York, New York on August 13, 1998 at 11:00 a.m.
(Eastern Time). At the Special Meeting, holders of Shares will be asked to
approve and adopt the Merger Agreement and the Mergers. Stockholders will also
consider and vote on such other matters incident to the conduct of, and as may
properly come before, the Special Meeting. See "The Special Meeting," "The
Mergers" and "Certain Provisions of the Merger Agreement".
Record Date; Vote Required. Holders of record of Shares at the close of
business on June 15, 1998 (the "Record Date") have the right to receive notice
of and to vote at the Special Meeting. On the Record Date, there were 4,145,372
Shares outstanding and entitled to vote and 740 stockholders of record. Each
Share is entitled to one vote on each matter that is properly presented to
stockholders for a vote at the Special Meeting. The affirmative vote of the
holders of a majority of the Shares entitled to vote thereon is required to
approve and adopt the Merger Agreement and the Mergers.
Recommendation of the Company's Board of Directors. On March 24, 1998, by
unanimous vote, the Board of Directors determined that the Original Merger
Agreement and the transactions contemplated
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thereby, including the Mergers, were fair to and in the best interests of the
stockholders of the Company, approved the Original Merger Agreement and the
transactions contemplated thereby, including the Mergers, and recommended that
stockholders vote to approve and adopt the Original Merger Agreement and the
Mergers. On June 8, 1998, by unanimous vote, the Board of Directors, having
considered a jury verdict rendered in favor of one of the Company's subsidiaries
and the proposed increase of $0.50 per Share in cash in the merger consideration
payable under the Original Merger Agreement (the "Original Merger
Consideration"), has determined that the Merger Agreement and the transactions
contemplated thereby, including the Mergers, are fair to and in the best
interests of the stockholders of the Company, has approved the Merger Agreement
and the transactions contemplated thereby, including the Mergers, and recommends
that stockholders vote to approve and adopt the Merger Agreement and the
Mergers. A copy of the Merger Agreement is attached hereto as Annex A. See
"Summary -- Subsequent Event," "The Mergers -- Background of the Mergers" and
"The Mergers -- Recommendation of the Board of Directors; Reasons for the
Mergers."
Opinion of Investment Banker to the Company's Board of Directors. Lazard
Freres & Co. LLC ("Lazard") rendered its oral opinion on March 24, 1998, which
was subsequently confirmed by a written opinion dated March 24, 1998
(collectively, the "Original Lazard Opinion"), to the Board of Directors to the
effect that, based upon and subject to the matters stated therein, as of the
date of the Original Lazard Opinion, the Original Merger Consideration taken as
a whole was fair to holders of Shares (other than MergerSub and its affiliates)
from a financial point of view. On June 8, 1998, Lazard rendered its oral
opinion, which was subsequently confirmed by a written opinion dated June 8,
1998 (collectively, the "Lazard Opinion"), to the Board of Directors to the
effect that, based upon and subject to the matters stated therein, as of the
date of the Lazard Opinion, the Merger Consideration taken as a whole is fair to
holders of Shares (other than MergerSub and its affiliates) from a financial
point of view. A copy of the Lazard Opinion is attached hereto as Annex B. See
"The Mergers -- Opinion of Investment Banker" and Annex B.
SECURITY OWNERSHIP OF CERTAIN STOCKHOLDERS AND MANAGEMENT
The Company's largest stockholder is Water Street Corporate Recovery Fund
I, L.P. ("Water Street"), an investment partnership of which Goldman, Sachs &
Co. ("Goldman Sachs") is the general partner. Two of the Company's directors,
Terence M. O'Toole and Barry S. Volpert, are Managing Directors of Goldman
Sachs, and a third director of the Company, James J. Gaffney, is a consultant to
an affiliate of Goldman Sachs. On March 24, 1998, Water Street owned 1,783,878
Shares (the "Water Street Shares"), and on April 1, 1998, Water Street acquired
beneficial ownership of an additional 80,000 Shares upon the exercise of
director options, increasing the beneficial ownership of Water Street to
approximately 45% of the then outstanding Shares. See "Security Ownership of
Certain Beneficial Owners and Management." Water Street has entered into a
Voting Agreement, dated as of March 24, 1998 (which was amended as of June 8,
1998), with MergerSub and the Company (the "Voting Agreement") pursuant to
which, among other things, Water Street has agreed to vote the Water Street
Shares in favor of the approval and adoption of the Merger Agreement and the
Mergers. A copy of the Voting Agreement is attached hereto as Annex C. See
"Summary -- Voting Agreement," "Certain Provisions of the Voting Agreement" and
Annex C.
As of June 15, 1998, directors and executive officers of the Company
beneficially owned an aggregate of 93,566 Shares (excluding Shares subject to
purchase pursuant to outstanding stock options and excluding Shares beneficially
owned by Water Street), representing approximately 2.3% of the outstanding
Shares. The directors and executive officers of the Company have indicated that
they intend to vote their Shares in favor of the approval and adoption of the
Merger Agreement and the Mergers.
As of June 15, 1998, Water Street and the directors and executive officers
of the Company collectively beneficially owned an aggregate of 1,957,444 Shares
(excluding Shares subject to purchase pursuant to outstanding stock options),
representing approximately 47.2% of the outstanding Shares entitled to vote at
the Special Meeting.
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THE MERGERS AND THE MERGER CONSIDERATION
General. On March 24, 1998, the Company and ExistingSub entered into the
Original Merger Agreement, providing for the acquisition by the DLJMB Funds of a
controlling interest in the Company in a transaction in which stockholders of
the Company would receive the Original Merger Consideration of $42.98 in cash
and 0.03419 of a Surviving Corporation Share in respect of each of their Shares.
The Original Merger Agreement was amended on June 8, 1998 to provide that
stockholders of the Company would receive $43.48 in cash and retain 0.03378 of a
Surviving Corporation Share in respect of each of their Shares. The Company
entered into the Original Merger Agreement because it believed the transaction
was advantageous to the Company's stockholders in that they would receive an
attractive value for their Shares while also being able to participate in the
long-term growth of the Company through their continued, albeit reduced, equity
interest in the Surviving Corporation. The Mergers were structured in a manner
so as to (a) enable the transaction to be accounted for as a recapitalization
for financial reporting purposes, (b) afford the Company's stockholders the
opportunity to vote on the merits of the Mergers and (c) make appraisal rights
available to the Company's stockholders. See "The Mergers -- Background of the
Mergers" and "The Mergers -- Recommendation of the Board of Directors; Reasons
for the Mergers."
Structure. The Merger Agreement provides for, among other things, the
formation by ExistingSub of a wholly owned subsidiary, ReorgSub, to be followed
by the Reorganization Merger of ReorgSub with and into the Company, with the
Company continuing as the surviving corporation. Pursuant to the Reorganization
Merger, (A) each Share issued and outstanding immediately prior to the
Reorganization Merger Effective Time (other than Shares as to which appraisal
rights have been validly perfected) will be converted into (i) one ExistingSub
Share and (ii) the right to receive $0.01 in cash, and (B) each share of common
stock of ReorgSub will be converted into one share of common stock of the
corporation surviving the Reorganization Merger. Thus, as a result of the
Reorganization Merger, (A) each stockholder of the Company immediately prior to
the Reorganization Merger Effective Time (other than a holder of Shares as to
which appraisal rights have been validly perfected) will have his or her
interest in the Company converted into the same proportionate interest in
ExistingSub, except for changes in interest resulting from the valid perfection
by any stockholder of appraisal rights, and (B) ExistingSub, instead of being a
wholly owned subsidiary of the Company, will become the parent of, and will own
all of the outstanding stock of, the Company. Promptly following the
Reorganization Merger, the Merger will take place, pursuant to which MergerSub
will merge with and into ExistingSub with ExistingSub continuing as the
Surviving Corporation. Pursuant to the Merger, each ExistingSub Share issued and
outstanding immediately prior to the Effective Time will be converted into the
right to (i) receive $43.47 in cash and (ii) retain 0.03378 of a Surviving
Corporation Share. Cash will be paid in lieu of any fractional Surviving
Corporation Share. Thus, as a result of the Mergers, each stockholder of the
Company immediately prior to the Reorganization Merger Effective Time (other
than stockholders who validly perfect their appraisal rights in the
Reorganization Merger) will have, in respect of each of his or her Shares, the
right to (i) receive $43.48 in cash and (ii) retain 0.03378 of a Surviving
Corporation Share. The Company's existing stockholders will retain (assuming no
stockholders validly perfect appraisal rights in respect of the Reorganization
Merger), in the aggregate, approximately 10.3% of the Surviving Corporation
Shares outstanding immediately following the Merger (approximately 9.5% on a
fully diluted basis).
The Merger Agreement provides that immediately prior to the Reorganization
Merger Effective Time, each outstanding option to acquire Shares granted to
employees and directors, whether or not vested (the "Options"), will be canceled
and, in lieu thereof, each holder of an Option will receive a cash payment in an
amount equal to (x) the excess, if any, of $45.00 over the exercise price of the
Option multiplied by (y) the number of Shares subject to the Option, less
applicable withholding (the "Option Cash Proceeds"). See "The Mergers -- Effect
on Stock Options and Employee Benefit Matters" and "The Mergers -- Conflicts of
Interest of Certain Persons."
Effective Time of the Mergers. The Reorganization Merger will become
effective upon the filing of an agreement and plan or certificate of merger with
respect thereto with the Secretary of State of the State of Delaware or at such
later time as is specified in such agreement and plan or certificate of merger.
The filing of such agreement and plan or certificate of merger will occur as
soon as practicable after satisfaction or waiver (if legally permissible) of all
of the conditions to the Mergers, unless another date is agreed to in writing by
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<PAGE> 15
the Company and MergerSub. The Reorganization Merger cannot occur any earlier
than the receipt of the approval by the Company's stockholders of the Merger
Agreement and the Mergers (which condition may not be waived) and receipt by
MergerSub of the funds necessary to consummate the transactions. See "Certain
Provisions of the Merger Agreement -- Conditions to the Consummation of the
Mergers." The Merger will occur promptly following the Reorganization Merger,
and will become effective upon the filing of a certificate of merger with
respect thereto with the Secretary of State of the State of Delaware. Subject to
certain limitations, the Merger Agreement may be terminated by either party if
the Merger has not been consummated on or before September 30, 1998. See
"Certain Provisions of the Merger Agreement -- Termination."
No Solicitation of Transactions. The Merger Agreement provides that the
Company may not (a) solicit or take any action knowingly to facilitate the
submission of inquiries or offers from any Third Party (as defined below)
relating to (i) any acquisition of 20% or more of the consolidated assets of the
Company and its subsidiaries or of over 20% of any class of equity securities of
the Company or of any of its subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of the Company,
(ii) any tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 20% or more of
any class of equity securities of the Company or of any of its subsidiaries
whose assets, individually or in the aggregate, constitute more than 20% of the
consolidated assets of the Company, (iii) any merger, sale of substantially all
assets, recapitalization or similar transaction involving the Company or any of
its subsidiaries whose assets, individually or in the aggregate, constitute more
than 20% of the consolidated assets of the Company, or (iv) any other
transaction the consummation of which would or could reasonably be expected to
interfere with, prevent or materially delay the Mergers (collectively,
"Acquisition Proposals"), or agree to or endorse any Acquisition Proposal, (b)
enter into any discussions or negotiations regarding any of the foregoing, or
furnish to any Third Party any information with respect to the Company in order
to facilitate any attempt by any Third Party to do any of the foregoing or
otherwise knowingly assist any attempt by any Third Party to do any of the
foregoing, or (c) grant any waiver under any standstill or similar agreement
with respect to any class of equity securities of the Company or any of its
subsidiaries; provided, however, that the foregoing provisions do not prohibit
the Company from (i) furnishing information pursuant to an appropriate
confidentiality letter (which letter may not be less favorable to the Company in
any material respect than the confidentiality agreement between DLJMB and the
Company (the "Confidentiality Agreement"), and a copy of which will be provided,
for informational purposes only, to MergerSub with the name of the Third Party
redacted) to a Third Party who has made a bona fide Acquisition Proposal, (ii)
engaging in discussions or negotiations with a Third Party who has made a bona
fide Acquisition Proposal, (iii) following receipt of a bona fide Acquisition
Proposal, taking and disclosing to its stockholders a position as contemplated
by Rule 14e-2(a) or Rule 14d-9 under the Exchange Act or otherwise making
disclosure to its stockholders, (iv) following receipt of a bona fide
Acquisition Proposal, failing to make or withdrawing or modifying its
recommendation with respect to the Merger Agreement and the Mergers and/or (v)
taking any non-appealable, final action ordered to be taken by the Company by
any court of competent jurisdiction, but in each case referred to in the
foregoing clauses (i) through (iv) only to the extent that the Board of
Directors has concluded in good faith on the basis of advice from outside
counsel that the failure to take such action would result in a breach of the
fiduciary duties of the Board of Directors to the stockholders of the Company
under applicable law. A "Third Party" means any person, corporation, entity or
"group," as defined in Section 13(d) of the Exchange Act, other than MergerSub
or any of its affiliates. See "Certain Provisions of the Merger Agreement -- No
Solicitation of Transactions."
Certain Fees and Expenses. The Company has agreed in the Merger Agreement
that, if a Payment Event (as defined below) occurs, the Company will pay to
MergerSub, within two business days following such Payment Event, a fee of $6
million. A Payment Event means (i) the termination of the Merger Agreement by
MergerSub if the Board of Directors withdraws or modifies, in a manner adverse
to MergerSub, its approval of the Merger Agreement and the Mergers; (ii) the
termination of the Merger Agreement by the Company in contemplation of a merger
agreement or a tender or exchange offer or any transaction of the type listed in
clause (iv) below, on terms more favorable to the Company's stockholders from a
financial point of view than the Merger; (iii) the termination of the Merger
Agreement by MergerSub by reason of a breach by the Company of a covenant or
warranty or representation but only if the breach in question arises out of the
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bad faith or willful misconduct of the Company; or (iv) the occurrence of any of
the following events within 12 months of the termination of the Merger Agreement
due to a failure to obtain the requisite stockholder approval and adoption of
the Mergers, whereby stockholders of the Company receive, pursuant to such
event, cash, securities or other consideration having an aggregate value, when
taken together with the value of any securities of the Company or its
subsidiaries otherwise held by the stockholders of the Company after such event,
in excess of $45.00 per Share: the Company is acquired by merger or otherwise by
a Third Party; a Third Party acquires more than 50% of the total assets of the
Company and its subsidiaries, taken as a whole; a Third Party acquires more than
50% of the outstanding Shares; or the Company adopts and implements a plan of
liquidation, recapitalization or share repurchase relating to more than 50% of
the outstanding Shares or an extraordinary dividend relating to more than 50% of
the outstanding Shares or 50% of the assets of the Company and its subsidiaries,
taken as a whole. See "Certain Provisions of the Merger Agreement -- No
Solicitation of Transactions." In addition, the Merger Agreement provides for
reimbursement of expenses of MergerSub in an aggregate amount not to exceed $5
million upon the occurrence of a Payment Event or in the event of a termination
of the Merger Agreement by reason of the failure by the Company's stockholders
to approve and adopt the Merger Agreement and the Mergers or by reason of the
failure of the transactions to be consummated because indebtedness of the
Company immediately prior to the Reorganization Merger Effective Time exceeded
$290 million. See "Certain Provisions of the Merger Agreement -- Expense
Reimbursement."
Amendment and Waiver. Any provision of the Merger Agreement may be amended
or waived by the parties thereto; provided, however, that, after the approval
and adoption of the Merger Agreement by the stockholders of the Company, no such
amendment or waiver may, without the further approval of such stockholders,
alter or change the amount or kind of consideration to be received in exchange
for any ExistingSub Shares, any term of the certificate of incorporation of the
Surviving Corporation or any of the terms or conditions of the Merger Agreement
if such alteration or change would adversely affect the holders of any shares of
capital stock of ExistingSub. See "Certain Provisions of the Merger
Agreement -- Amendment and Waiver."
VOTING AGREEMENT
Pursuant to the Voting Agreement, Water Street has agreed, until the
earliest of (i) the Effective Time, (ii) the date which is 90 days after the
termination of the Merger Agreement under certain circumstances, and (iii) the
date of termination of the Merger Agreement for any other reason, among other
things, (a) to vote the Water Street Shares to approve and adopt the Merger
Agreement and the Mergers, (b) not to vote the Water Street Shares in favor of
certain competing transactions, (c) subject to certain exemptions, not to take
any action to solicit, initiate, encourage or facilitate any acquisition
proposal or engage in negotiations or discussions with, or furnish or disclose
any nonpublic information relating to the Company or any of its subsidiaries or
afford access to the properties, books or records of the Company or any of its
subsidiaries to, or otherwise assist, facilitate or encourage, any third party
that Water Street believes may be considering making, or has made, an
acquisition proposal and (d) not to exercise any appraisal rights with respect
to the Merger. Water Street may, however, if any person commences a tender or
exchange offer to purchase Shares and the Merger Agreement has been terminated
under certain circumstances, tender its Shares three business days prior to any
scheduled expiration of the offer. Upon the terms and subject to the conditions
of the Voting Agreement, the tender by Water Street into such a tender or
exchange offer gives rise to a nonassignable option of MergerSub to purchase all
of the Water Street Shares at a price of $45.00 per share. In addition, Water
Street may not transfer its Shares, except as permitted by the Voting Agreement.
See "Certain Provisions of the Voting Agreement."
MERGER FINANCING
The total amount of cash required to consummate the transactions
contemplated by the Merger Agreement (the "Merger Financing"), including payment
of the $43.48 aggregate cash component of the Merger Consideration, the Option
Cash Proceeds (plus applicable withholding taxes) and transaction fees and
expenses (assuming no participation in the Rollover described in
"Summary -- Conflicts of Interest of
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<PAGE> 17
Certain Persons"), is estimated to be approximately $208.5 million. The Merger
Financing will be funded by (i) the issuance by MergerSub of either (x) Senior
Discount Notes due 2008 which will generate gross proceeds of approximately $110
million (the "Discount Notes") or (y) $110 million of senior pay-in-kind
increasing rate notes (the "Bridge Notes") to DLJ Bridge Finance, Inc., (ii) the
issuance by MergerSub to DLJMB and the other DLJMB Funds, and, it is expected,
to CVC, for aggregate consideration of $54,999,990, of 1,222,222 shares of
MergerSub Stock and Warrants to purchase 110,453 shares of MergerSub Stock at an
exercise price of not less than $0.01 per share, and (iii) approximately $42.8
million of new borrowings under the Company's existing $200 million credit
facility with various lenders and issuing banks (the "Credit Facility").
The Merger will constitute an Event of Default (as defined in the Credit
Facility) under the terms of the Credit Facility, and will also require the
Surviving Corporation to make an Offer to Purchase (as defined in the indenture
relating to the 10.25% Senior Subordinated Notes due 2007 of the Company (the
"Subordinated Notes")) for all of the outstanding Subordinated Notes at 101% of
their aggregate principal amount, plus accrued interest. There is an aggregate
of $150 million principal amount of Subordinated Notes outstanding. It is
anticipated that prior to the Merger, the lender banks will consent to the
Merger, that the Company and its lender banks will amend the Credit Facility,
effective on consummation of the Merger (which amendment will include a waiver
of the Event of Default under the Credit Facility and the right to acquire up to
$5 million of Subordinated Notes in the Offer to Purchase), and that the Credit
Facility as amended will remain outstanding after the consummation of the
Merger. Based on current market prices of the Subordinated Notes, it is further
anticipated that the holders of the Subordinated Notes will not require the
Company to repurchase their Subordinated Notes in such Offer to Purchase.
However, DLJ Capital Funding Inc. has committed to lend up to $350 million to
the Company (the "Backstop Facility"), which the Company believes would be
sufficient, if the banks require repayment of amounts outstanding under the
Credit Facility or holders of more than $5 million of Subordinated Notes require
the Company to repurchase their Subordinated Notes as a result of the Merger.
See "The Mergers -- Merger Financing."
CONFLICTS OF INTEREST OF CERTAIN PERSONS
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Mergers. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under "The Mergers -- Recommendation of the Board of Directors: Reasons for the
Mergers" and "Summary -- Security Ownership of Certain Stockholders and
Management."
Certain officers of the Company, including the Chief Executive Officer,
have employment and other employment-related agreements with the Company that
provide them with certain benefits in connection with the Mergers. See "The
Mergers -- Conflicts of Interest of Certain Persons" and "Management Following
the Mergers." Further, following the Mergers, the Surviving Corporation intends
to enter into employment agreements with certain of the executive officers of
the Company; however, the terms of these arrangements have not yet been
determined and DLJMB has not had discussions with any executive officers
concerning such arrangements. In addition, the Surviving Corporation intends to
establish a new stock option plan for members of management, although the terms
and the size of the option plan have not been determined and option recipients
have not been identified.
The Merger Agreement provides that immediately prior to the Reorganization
Merger Effective Time, all Options, whether or not vested, will be canceled and
the holders of such Options will receive the Option Cash Proceeds. As of June
15, 1998, Options to purchase 607,418 Shares were outstanding. The Company
estimates that the aggregate amount of the Option Cash Proceeds will be
approximately $9.1 million less applicable withholding taxes.
In December 1996, the Company entered into a value appreciation agreement
(as amended, the "Value Appreciation Agreement") with certain of its officers.
The Value Appreciation Agreement provides that these officers will be entitled
to receive a payment from the Company in certain circumstances following a
transaction giving rise to a change in control. The payment is conditioned on
achieving a threshold price per
8
<PAGE> 18
Share in any such transaction and the amount of the payment is determined based
on the amount realized per Share in excess of the threshold price, taking into
account increases in the Company's enterprise value since December 1996. The
Value Appreciation Agreement has a term of two years. If the Mergers are
consummated, the aggregate payment payable to such officers will be
approximately $2.6 million.
DLJMB has advised the Company that it will give certain holders of Options
and persons entitled to payments under the Value Appreciation Agreement the
opportunity to receive stock options, phantom equity awards or Surviving
Corporation Shares in lieu of the cash amounts otherwise payable, up to an
aggregate of $5 million (the "Rollover"). Specific terms of the Rollover,
including the identity of the persons who may participate therein, have not yet
been determined. To the extent required under the securities laws, the Surviving
Corporation will file a registration statement on Form S-8 with respect to the
securities issued in the Rollover. To the extent persons entitled to receive
Option Cash Proceeds or amounts payable under the Value Appreciation Agreement
participate in the Rollover, the aggregate amounts payable by the Company will
be reduced.
The Company has Income Protection Agreements with certain officers, which
provide that if an officer's employment is terminated by the Company without
cause or, in certain circumstances including a "Change in Control" as defined in
the Agreements (which will occur upon the consummation of the Mergers), by the
officer, the officer will be entitled to receive certain severance benefits as
follows: (i) one year's base salary and target bonus; (ii) a pro rated bonus for
the year in which employment is terminated; (iii) continued participation in the
Company's benefit plans for the duration of the severance period; (iv)
accelerated vesting of all stock options and stock appreciation rights; (v)
continuation of any rights to indemnification from the Company; and (vi) certain
outplacement services. The Income Protection Agreements have three-year terms
and automatically renew for subsequent one-year terms, unless terminated by
either party.
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
cause the Company, and the Company has agreed, (a) to indemnify all present and
former directors and officers of the Company or any of its subsidiaries in
respect of acts or omissions occurring at or prior to the Effective Time, and
(b) for six years after the Effective Time, to maintain directors' and officers'
liability insurance containing terms and conditions which are not less favorable
to the directors and officers than those under the policy currently in effect,
provided that in satisfying the aforementioned obligation, the Company will not
be obligated to pay premiums in excess of 150% of the amount per annum the
Company paid in its last full fiscal year preceding the Effective Time. See
"Certain Provisions of the Merger Agreement -- Indemnification and Insurance."
Upon consummation of the Mergers, Goldman Sachs will receive an investment
banking fee of $2 million arising out of its engagement in 1996 as the Company's
financial advisor to assist the Company in its review of strategic alternatives.
See "The Mergers -- Background of the Mergers."
ExistingSub and MergerSub have agreed to enter into a registration rights
agreement (the "Registration Rights Agreement") with Water Street in which,
among other things, Water Street will be granted the right to one demand
registration of the Surviving Corporation Shares retained by Water Street in the
Merger. Such right will be exercisable at any time from the date commencing six
months after the Effective Time and continuing through the first anniversary of
the Effective Time. In addition, pursuant to the terms of the Registration
Rights Agreement, for the period commencing six months after the Effective Time
and continuing through the first anniversary of the Effective Time, Water Street
will be granted the opportunity to participate, on the same terms and
conditions, in any offering of (or including) Surviving Corporation Shares
(other than certain registrations relating to Surviving Corporation Shares
issued in certain business combinations or pursuant to certain employee benefit
plans). To the extent any affiliates of Water Street may acquire Surviving
Corporation Shares held by Water Street at the Effective Time, such affiliates
will be permitted to participate in any registration contemplated by the
Registration Rights Agreement on the same terms as Water Street. See "The
Mergers -- Resale of Shares Following the Merger."
The aggregate benefits that will be received in connection with the Mergers
by Water Street are $81,041,415 in cash and 62,962 Surviving Corporation Shares.
The aggregate benefits that will be received in connection with the Mergers by
the executive officers and directors of the Company as a group (excluding
amounts attributable to two directors but which are payable to Water Street are
$10,372,630 in cash and 3,161
9
<PAGE> 19
Surviving Corporation Shares. For more detailed information as to such benefits
and the components thereof, as well as to the benefits and the components
thereof payable in the Mergers to individual executive officers and directors
and two former executive officers of the Company who are receiving in excess of
$100,000 of such benefits, see "The Mergers -- Conflicts of Interest of Certain
Persons."
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization for financial
reporting purposes. Accordingly, the historical basis of the Company's assets
and liabilities will not be affected by the transaction.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Given that approximately 97% of the Merger Consideration consists of cash,
stockholders will recognize (and be taxed on) substantially all, if not all, of
the gain or loss inherent in their Shares as a result of the Mergers. For a more
detailed summary of the material United States Federal income tax consequences
of the Mergers, see "The Mergers -- United States Federal Income Tax
Consequences."
RISK FACTORS
See "Risk Factors" beginning on page 16 for a more detailed discussion of
certain matters that should be considered by stockholders of the Company in
evaluating whether to vote in favor of the approval and adoption of the Merger
Agreement and the Mergers, including the control by the DLJMB Funds of the
Surviving Corporation and the ability of the DLJMB Funds (subject to any
agreement they may have with CVC; see "Management Following the Merger -- Board
of Directors") to elect the entire Board of Directors; the substantial leverage
of the Surviving Corporation and the significant additional operating and
financial restrictions that will be imposed on the Surviving Corporation as a
result of the Merger Financing; the potential dilution of the equity ownership
percentage of the Company's stockholders should any of the warrants to be issued
in connection with the Merger Financing be exercised or should additional
Surviving Corporation Shares be issued or options to purchase such shares be
granted; the decrease in liquidity of the Surviving Corporation Shares; and the
possible termination of the registration of the Surviving Corporation Shares
under Section 12(g) of the Exchange Act.
APPRAISAL RIGHTS
Stockholders of the Company will have appraisal rights in respect of the
Reorganization Merger under the Delaware General Corporation Law (the "DGCL").
See "The Special Meeting -- Appraisal Rights." Under the DGCL, holders of
ExistingSub Shares do not have statutory appraisal rights in respect of the
Merger.
REGULATORY CONSIDERATIONS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules promulgated thereunder (the "HSR Act"), certain merger
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission ("FTC") and certain applicable
waiting periods have expired. The Merger is subject to the requirements of the
HSR Act. Pursuant to the requirements of the HSR Act, the Company and DLJMB
filed Notification and Report Forms with respect to the Merger with the
Antitrust Division and the FTC. The waiting period applicable to the Merger was
terminated on May 22, 1998.
SUBSEQUENT EVENT
On January 14, 1997, the Company's subsidiary, Taylor Publishing Company
("Taylor"), sued one of its principal competitors in the yearbook business,
Jostens, Inc. ("Jostens"), in the U.S. District Court for the Eastern District
of Texas, alleging violations of the federal antitrust laws as well as various
claims arising under state law. On May 13, 1998 the jury in that case awarded
Taylor the amount of $8 million with respect to Taylor's claim under Section 2
of the Sherman Antitrust Act, which award is subject to automatic trebling
10
<PAGE> 20
to $24 million under the federal antitrust laws, and an aggregate of $12 million
on Taylor's various other claims (the "Taylor Verdict"). Taylor has stipulated
with Jostens that the amount of legal fees and costs recoverable by the Company
is $1.225 million and that the awards on the other claims overlap with the award
made with respect to the federal antitrust law claim and will not be recoverable
in addition to the $24 million. On June 12, 1998, the judge presiding over the
litigation in the U.S. District Court rendered his judgment in the amount of
$25.225 million plus interest at the rate of 5.434 percent. Jostens has
announced that it will seek to overturn the Taylor Verdict in post trial motions
or on appeal. See "The Company -- Subsequent Event."
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical consolidated financial data presented below as of
and for each of the years in the three year period ended December 31, 1997 are
derived from, and should be read in conjunction with, the Company's related
audited consolidated financial statements and accompanying notes included in the
Company's 1997 Form 10-K, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants (the "Consolidated Financial
Statements"). The Consolidated Financial Statements and the report thereon are
included in the Company's 1997 Form 10-K.
The unaudited pro forma condensed consolidated financial data of the
Company and its subsidiaries for the quarter ended March 31, 1998 and the year
ended December 31, 1997 ("Pro Forma Financial Data") are based upon historical
consolidated financial statements of the Company as adjusted to give effect to
the Mergers, including the Merger Financing and application of the proceeds
thereof. In addition, the 1997 operating results have been adjusted to give
effect to the financing transactions described more fully below (the "1997
Transactions"). The Reorganization Merger will be accounted for as a
reorganization of entities under common control, and the Merger will be
accounted for as a recapitalization. As a result, the Mergers will have no
impact on the historical basis of the assets or liabilities of the Company. A
summary of these adjustments follows.
The Mergers include the following transactions:
- The issuance of Discount Notes by MergerSub which will generate gross
proceeds to MergerSub of approximately $110 million, and new borrowings
under the Company's Credit Facility of approximately $42.8 million, of
which $24.4 million will be paid as a dividend from the Company to
ExistingSub to fund a portion of the Merger Consideration.
- The initial capitalization of MergerSub through the issuance of 1,222,222
shares of MergerSub Stock and Warrants to purchase 110,453 shares of
MergerSub Stock for aggregate consideration of $55 million.
- Payment of the Merger Consideration for each Share outstanding
immediately prior to the Mergers (4,145,372 Shares based on the number of
Shares outstanding as of June 15, 1998 and assuming no stockholders
validly perfect appraisal rights) consisting of $43.48 in cash and
0.03378 of a Surviving Corporation Share.
- Payment of fees and expenses associated with the issuance of the Discount
Notes, the waiver of certain Events of Default under the Credit Facility,
and the Mergers.
- Vesting of all outstanding Options and payment of the Option Cash
Proceeds (and applicable withholding taxes) and payments pursuant to
employment related agreements and assuming no participation in the
Rollover.
The 1997 Transactions consist of the following:
- Refinancing -- The Company entered into the Credit Facility as of July 3,
1997 that, among other things, provides for (i) a $200 million revolving
credit facility, (ii) a $50 million sublimit for commercial and standby
letters of credit and (iii) a $50 million sublimit for advances in
selected foreign currencies.
11
<PAGE> 21
- The issuance of Subordinated Notes -- On August 12, 1997, the Company
issued $150 million aggregate principal amount of the Subordinated Notes.
- Share Repurchase -- On July 10, 1997, the Company, using the proceeds of
its sale of the Rolodex Business, purchased an aggregate of 2,857,142
Shares for $109,999,967. On August 12, 1997, the Company completed a
tender offer pursuant to which it purchased an additional 2,857,142
Shares for $109,999,967. The purchase of Shares in the tender offer was
paid for with proceeds received through the issuance by the Company of
the Subordinated Notes.
The unaudited pro forma condensed consolidated balance sheet data as of
March 31, 1998 have been prepared as if the Mergers occurred on that date. The
unaudited pro forma condensed consolidated income statements have been prepared
as if the Mergers and the 1997 Transactions all occurred on January 1 of the
relevant periods; however, the expenses directly related to the aforementioned
transactions (other than interest expense) are excluded from the unaudited pro
forma condensed consolidated income statements. The Pro Forma Financial Data are
based on certain assumptions and estimates, and therefore do not purport to be
indicative of the results that would have been obtained had the transactions
been completed as of such dates or indicative of future results of operations
and financial position.
12
<PAGE> 22
The following table sets forth summary historical and unaudited pro forma
condensed consolidated financial and operating data (dollars in thousands,
except per share data) derived from the Company's Consolidated Financial
Statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales.......................... $449,506 492,405 528,233 528,233 106,544 117,305 117,305
Operating income(1)................ 38,881 48,433 51,102 51,102 9,389 9,775 9,775
Other income (expense):
Interest expense................. (19,546) (18,378) (20,562) (46,568) (3,643) (6,877) (11,060)
Interest income.................. 1,472 724 2,837 746 449 51 51
Other income, net(2)............. 13,893 7,706 3,441 3,441 509 1,329 1,329
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before income taxes and
extraordinary item............... 34,700 38,485 36,818 8,721 6,704 4,278 95
Income tax expense................. (16,694) (13,272) (13,404) (3,074) (2,343) (1,497) (5)
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before extraordinary item........ 18,006 25,213 23,414 5,647 4,361 2,781 90
Income (loss) from discontinued
operations, net of tax(3)........ (15,431) 13,840 58,958 -- 58,958 -- --
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
items............................ 2,575 39,053 82,372 5,647 63,319 2,781 90
Extraordinary item, net of tax..... -- -- (728) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income......................... $ 2,575 39,053 81,644 5,647 63,319 2,781 90
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 44,920 51,436 39,508 130,914 57,262 60,640
Total assets....................... 340,129 348,393 302,673 432,520 323,404 330,736
Total debt......................... 186,489 161,042 257,743 168,700 268,798 421,549
Stockholders' equity (deficit)..... (15,779) 33,402 (102,328) 97,460 (96,201) (238,242)
CONSOLIDATED CASH FLOW DATA:
Net cash provided by (used in)
operating activities............. $ 37,744 55,423 45,511 49,476 (4,212) (11,222) (11,660)
Net cash provided by (used in)
investing activities............. (14,678) (29,783) 95,217 (17,400) 108,684 (4,620) (4,620)
Net cash provided by (used in)
financing activities............. (21,862) (32,053) (133,256) (20,646) 7,772 13,002 13,002
PER SHARE DATA:
Basic income per share from
continuing operations............ $ 1.83 2.65 3.25 4.15 0.45 0.68 0.07
Diluted income per share from
continuing operations............ 1.77 2.55 3.19 3.83 0.44 0.66 0.06
Book value per share............... (1.64) 3.52 (25.08) n.a..... 10.15 (22.97) (174.89)
OTHER DATA:
Depreciation and amortization...... $ 13,352 15,357 18,377 18,377 3,871 4,240 4,240
Amortization of Reorganization
Goodwill......................... 16,205 -- -- -- -- -- --
EBITDA(4).......................... 68,438 63,790 69,479 69,479 13,260 14,015 14,015
Cash interest expense.............. 17,946 16,710 19,326 31,059 3,340 6,526 7,301
Capital expenditures............... 20,190 20,009 23,583 23,583 4,505 5,813 5,813
</TABLE>
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<PAGE> 23
The Notes to the summary historical and unaudited pro forma condensed
consolidated financial and operating data follow:
(1) Operating income in 1995 includes the deduction for the amortization of the
Company's reorganization value over the aggregate fair value of its tangible
and identified intangible assets at March 31, 1993 ("Reorganization
Goodwill").
Operating income in 1995 includes a gain of $4.3 million related to a change
in the Company's pension plan (see Note 12 to the Consolidated Financial
Statements included in the Company's 1997 Form 10-K).
(2) Other income, net in 1996 includes a $2.2 million adjustment related to the
satisfaction of certain of the Company's environmental liabilities following
completion of a site clean-up for an amount less than previously estimated.
Other income, net in 1995 included favorable adjustments of $3.6 million
related to the Company's environmental liabilities, $1.5 million related to
the resolution of several legal disputes and a $4 million gain on the sale
of idle corporate assets.
(3) On March 5, 1997, the Company completed the sale of its Office Products
Business with the divestiture of the Rolodex Business for $112.6 million,
net of transaction costs, resulting in a gain of $57.8 million, net of taxes
of $37.2 million. The divestiture of the Rolodex Business was preceded in
1996 by the divestiture of the Rolodex electronics product line ("Rolodex
Electronics") and the Company's computer accessories business ("Curtis").
The proceeds from these sales aggregated $21.8 million (see Note 20 to the
Consolidated Financial Statements included in the Company's 1997 Form 10-K
for unaudited pro forma financial information with respect to these
divestitures).
On July 8, 1998, the Company amended its Form 10-K to account for the sale
of the Office Products Business as a discontinued operation and,
accordingly, the accompanying consolidated statements of operations and cash
flows for the periods prior to the sale have been reclassified. Revenues
associated with the discontinued Office Products Business for the years
1997, 1996, and 1995 were $10.8 million, $80.1 million and $111.7 million,
respectively.
(4) "EBITDA" represents net income before net interest expense, income taxes,
depreciation and amortization, and other income and net gain or net loss on
sale of assets. EBITDA is not intended to represent and should not be
considered more meaningful than, or an alternative to, operating income,
cash flows from operating activities or other measures of performance in
accordance with generally accepted accounting principles. EBITDA data are
included because the Company understands that such information is used by
certain investors as one measure of an issuer's historical ability to
service debt. While EBITDA is frequently used as a measure of operations and
the ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies due to the
potential inconsistencies in the method of calculation.
This summary historical and unaudited pro forma condensed consolidated
financial and operating data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in the Company's 1997 Form 10-K.
14
<PAGE> 24
MARKET PRICE OF SHARES
The Shares are listed and have traded on NASDAQ under the symbol "INSL"
since November 29, 1993. The following table sets forth, for the periods
indicated, the high and low sale prices per Share as reported by NASDAQ. The
number of record holders of the Shares on June 15, 1998 was 740.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter............................................. $28.625 $23.250
Second Quarter............................................ 38.125 26.750
Third Quarter............................................. 39.000 34.125
Fourth Quarter............................................ 41.250 30.000
1996
First Quarter............................................. 36.500 27.125
Second Quarter............................................ 37.000 33.500
Third Quarter............................................. 37.375 31.000
Fourth Quarter............................................ 42.000 35.500
1997
First Quarter............................................. 43.000 34.000
Second Quarter............................................ 39.000 36.750
Third Quarter............................................. 41.000 36.000
Fourth Quarter............................................ 38.500 33.000
1998
First Quarter............................................. 43.625 32.000
Second Quarter............................................ 44.625 42.875
Third Quarter (through July 7, 1998)...................... 44.813 43.813
</TABLE>
On March 23, 1998, the last full trading day prior to the first public
announcement by the Company of the entering into of the Original Merger
Agreement, the reported high and low sale prices per Share were $43.00 and
$42.75, respectively.
On July 6, 1998, the reported high and low sale prices per Share were
$44.875 and $43.813, respectively. There was no trade reported for the Shares on
July 7, 1998. Stockholders should obtain current market price quotations in
connection with voting their Shares.
15
<PAGE> 25
RISK FACTORS
In addition to the other information set forth herein, stockholders of the
Company should carefully consider the following information in evaluating
whether to vote in favor of the approval and adoption of the Merger Agreement
and the Mergers.
CONTROL BY THE DLJMB FUNDS
Following the Mergers, up to 70.1% of the outstanding Surviving Corporation
Shares (up to 70.8% on a fully diluted basis) will be held by the DLJMB Funds
(assuming that no stockholders validly perfect appraisal rights and assuming
further that CVC purchases MergerSub Stock which converts in the Merger into
19.6% of the outstanding Surviving Corporation Shares (19.7% on a fully diluted
basis) and Warrants). As a result of their stock ownership, following the
Effective Time the DLJMB Funds will control the Surviving Corporation and will
have the power (subject to any agreement they may have with CVC; see "Management
Following the Merger -- Board of Directors") to elect all of the directors,
appoint new management and approve any action requiring the approval of the
holders of Surviving Corporation Shares, including adopting certain amendments
to the Surviving Corporation's certificate of incorporation and approving
mergers or sales of all or substantially all of the Surviving Corporation's
assets. As noted above, the DLJMB Funds could elect all or a majority of the
Board of Directors, and those directors would have the authority to make
decisions affecting the capital structure of the Surviving Corporation,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. Moreover, the existence of
a controlling stockholder will have the effect of making it impossible for a
third party to acquire the Surviving Corporation on an unsolicited or hostile
basis. A third party would be required to negotiate any acquisition transaction
with the DLJMB Funds, and the interests of the DLJMB Funds may differ from the
interests of other holders of Surviving Corporation Shares.
The general partners of each of the DLJMB Funds are affiliates or employees
of Donaldson, Lufkin & Jenrette, Inc., as are DLJ Capital Funding, Inc. and DLJ
Bridge Finance, Inc., which have committed to DLJMB to provide various
components of the Merger Financing.
SUBSTANTIAL LEVERAGE
Upon consummation of the Mergers, the Surviving Corporation will have
substantial consolidated indebtedness. The Company currently has substantial
indebtedness pursuant to the Credit Facility ($117.5 million at March 31, 1998)
and the indenture governing the Subordinated Notes ($150 million at March 31,
1998). These agreements include significant operating and financial restrictions
on the Company and require the Company to maintain certain financial ratios,
including interest coverage and leverage ratios. All of the borrowings under the
Credit Facility are subject to variable interest rates. In connection with
consummating the transactions contemplated by the Merger Agreement, MergerSub
will issue notes which will generate approximately $110 million of gross
proceeds (in the form of Discount Notes or Bridge Notes, as applicable), which
will become a liability of the Surviving Corporation upon the effectiveness of
the Merger, and the Company will incur approximately $42.8 million of new
borrowings under the Credit Facility (assuming no participation in the Rollover)
to (i) fund payment of the cash portion of the Merger Consideration and the
Option Cash Proceeds and (ii) pay the fees and expenses incurred by the Company,
MergerSub and the DLJMB Funds in connection with the Mergers and the Merger
Financing. Although the definitive terms of the Merger Financing have not been
finalized as of the date of this Proxy Statement/Prospectus, the Company expects
that such terms will include additional operating and financial restrictions,
such as limitations on the Company's and the Surviving Corporation's ability to
incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and pay dividends. The Bridge Notes, if they
are issued in place of the Discount Notes, will be subject to variable interest
rates, and the Backstop Facility, to the extent it is drawn, will be subject to
variable interest rates. See "The Mergers -- Merger Financing."
As of March 31, 1998, after giving pro forma effect to the Mergers,
including the Merger Financing and the application of the proceeds thereof, the
Surviving Corporation would have had (i) total consolidated indebtedness of
approximately $421.5 million, (ii) $31.5 million of additional borrowings
available under the
16
<PAGE> 26
Credit Facility and (iii) a stockholders' deficit of $238.2 million (although to
the extent persons participate in the Rollover, the amount of total indebtedness
would be reduced, the amount of additional borrowings available under the Credit
Facility would be increased, and stockholders' deficit would be reduced, in each
case by a corresponding amount up to $5 million). In addition, subject to the
restrictions in the Credit Facility and the indentures governing the other
indebtedness outstanding from time to time, the Surviving Corporation expects
that it or the Company may incur additional indebtedness from time to time in
connection with the pursuit of strategic acquisitions and its intended expansion
through internal growth.
The level of the Surviving Corporation's consolidated indebtedness could
have important consequences to the Surviving Corporation and the Company,
including: (i) limiting cash flow available for general corporate purposes, such
as acquisitions and capital expenditures, because a substantial portion of the
Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Surviving Corporation or the Company's ability to obtain (or obtain
on favorable terms) additional debt financing in the future for working capital,
capital expenditures or acquisitions; (iii) limiting the Surviving Corporation's
or the Company's flexibility in reacting to competitive and other changes in the
industry and economic conditions generally; (iv) exposing the Surviving
Corporation and the Company to a risk that a substantial decrease in net
operating cash flows could make it difficult to meet debt service requirements;
(v) making the Surviving Corporation and the Company more vulnerable to a
downturn in business or the economy generally; and (vi) exposing the Surviving
Corporation and the Company to risks inherent in interest rate fluctuations
because certain of the borrowings may be at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates.
The Surviving Corporation's and the Company's ability to make scheduled
payments of principal of, to pay interest on, or to refinance, their
indebtedness and to satisfy their other debt obligations will depend upon the
future operating performance of the Company, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond its control. If the Company were unable to meet its consolidated
debt service obligations, it could be forced to reduce or defer acquisitions or
capital expenditures, sell assets, and reduce operating expenses. It could also
attempt to restructure or refinance its indebtedness or effect a public offering
or a private sale of its capital stock. There can be no assurance that the
Company and the Surviving Corporation would be able to effect any of the
foregoing on satisfactory terms, if at all. Based on its current level of
operations and anticipated growth, the Company believes that it will be
necessary for the Surviving Corporation to refinance the Discount Notes (or
Bridge Notes, if issued) upon their maturity, and there can be no assurance that
the Surviving Corporation will be able to do so on satisfactory terms, if at
all. If the Company or the Surviving Corporation were to default in respect of
its obligations to pay its indebtedness (including the failure by the Surviving
Corporation to pay the Discount Notes (or Bridge Notes, if issued), when due)
such default could cause the entire consolidated indebtedness, together with
accrued interest thereon, to be due and payable. If the Company or the Surviving
Corporation is unable to pay such amounts when due, the value of the Company's
and the Surviving Corporation's assets will likely be insufficient to satisfy
the claims of their creditors.
POTENTIAL DILUTION OF COMPANY STOCKHOLDERS
In connection with the Merger, MergerSub will issue the Warrants, which
will convert in the Merger into Surviving Corporation Warrants, exercisable for
an aggregate of up to 110,453 Surviving Corporation Shares (or approximately
7.5% of the outstanding Surviving Corporation Shares on a fully diluted basis)
at an exercise price of not less than $0.01 per Surviving Corporation Share. In
addition, the terms of the Bridge Notes would, if issued, require the Surviving
Corporation to issue additional warrants if the Surviving Corporation were
unable to refinance the Bridge Notes within one year of issuance. See "The
Mergers -- Merger Financing." Exercise of the Surviving Corporation Warrants or
the additional warrants would dilute the equity ownership percentage of the
Company's stockholders. In addition, the Company intends to establish a stock
option plan and to grant options thereunder to purchase Surviving Corporation
Shares to members of the Company's management, although the aggregate number of
Surviving Corporation Shares expected to be reserved for issuance pursuant to
the stock option plan, the other terms of the stock option plan and the identity
of the recipients of options have not been determined. Also, the Surviving
Corporation will issue up to
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<PAGE> 27
an aggregate of $5 million of stock options, phantom equity awards or Surviving
Corporation Shares in the Rollover. Any issuances of securities in the Rollover
and any exercise of stock options granted in the Rollover or otherwise under the
Stock Option Plan will dilute the equity ownership percentage of Surviving
Corporation stockholders and the DLJMB Funds equally. See "The
Mergers -- Conflicts of Interest of Certain Persons."
LOSS OF LIQUIDITY
Because the number of Surviving Corporation Shares which will be owned by
the public will be significantly smaller following the Merger, the liquidity of
the Surviving Corporation Shares may be adversely affected. In the Merger
Agreement, MergerSub has agreed that the Surviving Corporation will not take any
action, for at least three years after the Effective Time, to cause the
Surviving Corporation Shares to be de-listed from or to fail to meet any of the
listing standards of NASDAQ (except in connection with a transaction which
results in the termination of registration of the Surviving Corporation Shares
under the Exchange Act); however, the Surviving Corporation is not required to
take any affirmative action to prevent the Surviving Corporation Shares from
being de-listed by NASDAQ if such shares cease to meet the listing standards.
For continued listing on NASDAQ, NASDAQ requires, among other things, a listed
company to maintain (i) at least 300 round lot holders and (ii) at least 500,000
publicly held shares with a market value of at least $1 million. Following the
Mergers, there will be fewer than 300 round lot holders and fewer than 500,000
publicly held Surviving Corporation Shares. Consequently, the Company believes
that, following the Mergers, it may be de-listed by NASDAQ.
Upon any de-listing, the Surviving Corporation Shares would trade only on
the over-the-counter market. Although prices in respect of trades would be
published by the National Association of Securities Dealers, Inc. periodically
in the "pink sheets," quotes for such shares will likely not be readily
available. As a result, it is anticipated that the Surviving Corporation Shares
will trade less frequently as compared to the trading volume of the Shares prior
to the Merger, and stockholders may experience difficulty selling their
Surviving Corporation Shares.
POSSIBLE TERMINATION OF REGISTRATION UNDER SECTION 12(G) OF THE EXCHANGE ACT
Following the Mergers, there will be fewer than 300 holders of record of
Surviving Corporation Shares. Accordingly, if the Surviving Corporation chose to
do so, it could, under existing rules of the Commission, terminate the
registration of the Surviving Corporation Shares under Section 12(g) of the
Exchange Act and, as a result, it would not have to comply with Section 14 of
the Exchange Act and its directors, executive officers and shareholders would
not have to comply with Sections 13(d) and 16 of the Exchange Act, to the extent
otherwise applicable. However, even in the case of such a termination, the
indenture governing the Discount Notes, if it is entered into, will require the
Surviving Corporation to file the reports required by Section 13(a) of the
Exchange Act. Additionally, MergerSub has agreed in the Merger Agreement that,
for at least three years following the Effective Time, the Surviving Corporation
will make available the information required pursuant to Rule 144(c) under the
Securities Act.
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<PAGE> 28
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Shares will consider and vote upon a
proposal to approve and adopt the Merger Agreement and the Mergers. Stockholders
will also consider and vote on such other matters incident to the conduct of,
and as may be properly brought before, the Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Shares entitled to
vote thereon is required to approve and adopt the Merger Agreement and the
Mergers.
The Company's largest stockholder is Water Street, an investment
partnership of which Goldman Sachs is the general partner. On March 24, 1998,
Water Street owned the 1,783,878 Water Street Shares, and on April 1, 1998,
Water Street acquired beneficial ownership of an additional 80,000 Shares upon
the exercise of options issued pursuant to the Insilco Corporation 1993
Non-Employee Director Stock Incentive Plan (the "1993 Director Plan"),
increasing the beneficial ownership of Water Street to approximately 45% of the
then outstanding Shares. See "Security Ownership of Certain Beneficial Owners
and Management." Water Street has entered into the Voting Agreement pursuant to
which Water Street has agreed to vote the Water Street Shares in favor of
approval and adoption of the Merger Agreement and the Mergers. A copy of the
Voting Agreement is attached to this Proxy Statement/Prospectus as Annex C. See
"Certain Provisions of the Voting Agreement" and Annex C.
As of June 15, 1998, directors and executive officers of the Company
beneficially owned an aggregate of 93,566 Shares (excluding Shares subject to
purchase pursuant to outstanding stock options and excluding the Shares
beneficially owned by Water Street), representing approximately 2.3% of the
outstanding Shares. The directors and executive officers of the Company have
indicated that they intend to vote their Shares in favor of the approval and
adoption of the Merger Agreement and the Mergers.
As of June 15, 1998, Water Street and the directors and executive officers
of the Company collectively beneficially owned 1,957,444 Shares (excluding
Shares subject to purchase pursuant to outstanding stock options), representing
approximately 47.2% of the outstanding Shares entitled to vote at the Special
Meeting.
VOTING AND REVOCATION OF PROXIES
Shares that are entitled to vote and are represented by a proxy properly
signed and received at or prior to the Special Meeting, unless subsequently
properly revoked, will be voted in accordance with the instructions indicated
thereon. If a proxy is signed and returned without any voting instructions
indicated thereon, Shares represented by such proxy will be voted FOR the
proposal to approve and adopt the Merger Agreement and the Mergers. AS NOTED
BELOW UNDER "THE SPECIAL MEETING -- APPRAISAL RIGHTS," A VOTE IN FAVOR OF THE
MERGER AGREEMENT AND THE MERGERS WILL CAUSE A FORFEITURE OF APPRAISAL RIGHTS
UNDER THE DGCL.
The Board of Directors is not currently aware of any business to be acted
upon at the Special Meeting other than as described herein. If, however, other
matters incident to the conduct of the Special Meeting are properly brought
before the Special Meeting or any adjournments or postponements thereof, the
persons appointed as proxies will have the discretion to vote or act thereon in
accordance with their best judgment, unless authority to do so is withheld in
the proxy. The persons appointed as proxies may not exercise their discretionary
voting authority to vote any proxy in favor of any adjournments or postponements
of the Special Meeting if instruction is given in such proxy to vote against the
approval and adoption of the Merger Agreement and the Mergers.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the Shares represented by such proxy are voted at
the Special Meeting by (a) attending and voting in person at the Special
Meeting, (b) giving notice of revocation of the proxy at the Special Meeting, or
(c) delivering to the Secretary of the Company (i) a written notice of
revocation or (ii) a duly executed proxy relating to the same Shares and matters
to be considered at the Special Meeting and bearing a date later than the proxy
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<PAGE> 29
previously executed. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Insilco Corporation, 425 Metro Place North, Fifth Floor, Dublin, Ohio
43017, Attention: Corporate Secretary, and must be received before the taking of
the votes at the Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Shares at the close of business on June 15, 1998, the
Record Date, will be entitled to receive notice of and to vote at the Special
Meeting. At the close of business on the Record Date, there were outstanding and
entitled to vote 4,145,372 Shares, and there were 740 holders of record. The
presence, in person or by proxy, at the Special Meeting of the holders of at
least a majority of the votes entitled to be cast at the Special Meeting is
necessary to constitute a quorum for the transaction of business. Abstentions
and broker non-votes will be counted as present for the purposes of determining
whether a quorum is present but will not be counted as votes cast. The approval
and adoption of the Merger Agreement and the Mergers requires the affirmative
vote of a majority of the votes entitled to be cast at the Special Meeting.
Accordingly, abstentions and broker non-votes will have the same effect as a
negative vote thereon.
APPRAISAL RIGHTS
Under the DGCL, Shares which are issued and outstanding immediately prior
to the Reorganization Merger Effective Time and which are held by a holder who
has delivered a written demand for appraisal of such Shares in the manner
provided by the DGCL ("Dissenting Shares") will not be converted into the right
to receive ExistingSub Shares. Instead, such holder will be entitled to receive
payment of the fair value of his or her Dissenting Shares as appraised by the
Delaware Court of Chancery; provided, however, that, if any such holder of
Dissenting Shares fails to establish an entitlement to appraisal rights as
provided in Section 262 of the DGCL or effectively withdraws his or her demand
for appraisal of such Dissenting Shares or loses the right to appraisal under
Section 262 of the DGCL or if neither any holder of Dissenting Shares nor the
Surviving Corporation files a petition demanding a determination of the value of
all Dissenting Shares within the time provided in Section 262 of the DGCL, such
holder will forfeit the right to appraisal of his or her Dissenting Shares, and
each such Dissenting Share will be converted into the right to receive the
Merger Consideration. Under the DGCL, holders of ExistingSub Shares do not have
statutory appraisal rights in respect of the Merger.
A STOCKHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS IF THE MERGER
AGREEMENT AND THE MERGERS ARE APPROVED AND ADOPTED MUST TAKE THE ACTIONS SET
FORTH IN SECTION 262 OF THE DGCL, INCLUDING FILING A WRITTEN DEMAND FOR
APPRAISAL WITH THE COMPANY PRIOR TO THE DATE OF THE SPECIAL MEETING. MOREOVER,
SINCE, UNDER SECTION 262 OF THE DGCL, A VOTE IN FAVOR OF THE MERGER AGREEMENT
AND THE MERGERS WILL CAUSE THE STOCKHOLDER TO FORFEIT HIS OR HER APPRAISAL
RIGHTS, ANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS SHOULD NOT VOTE
IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGERS.
SEE "DISSENTING STOCKHOLDERS' RIGHTS" AND ANNEX D, WHICH SETS OUT THE FULL TEXT
OF SECTION 262 OF THE DGCL.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by telephone by
officers and directors and a small number of regular employees of the Company
who will not be specially compensated for such services. The Company also will
request banks and brokers to solicit proxies from their customers, where
appropriate, and will reimburse such persons for reasonable expenses incurred in
that regard.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; OPINION OF INVESTMENT BANKER
THE BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGERS, ARE
FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, HAS
APPROVED THE MERGER AGREEMENT AND THE TRANSAC-
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<PAGE> 30
TIONS CONTEMPLATED THEREBY, INCLUDING THE MERGERS, AND RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGERS.
Lazard rendered the Original Lazard Opinion, orally, on March 24, 1998,
which was subsequently confirmed by a written opinion dated March 24, 1998, to
the Board of Directors to the effect that, based upon and subject to the matters
stated therein, as of the date of the Original Lazard Opinion, the Original
Merger Consideration taken as a whole was fair to holders of Shares (other than
MergerSub and its affiliates) from a financial point of view. Lazard rendered
the Lazard Opinion, orally, on June 8, 1998, which was subsequently confirmed by
a written opinion dated June 8, 1998, to the Board of Directors to the effect
that, based upon and subject to the matters stated therein, as of the date of
the Lazard Opinion, the Merger Consideration taken as a whole is fair to holders
of Shares (other than MergerSub and its affiliates) from a financial point of
view.
21
<PAGE> 31
THE COMPANY
The Company is a diversified producer of automotive, telecommunications and
electronics components, and is a leading specialty publisher of student
yearbooks. The Company has three reporting segments: (i) the Automotive
Components Group, which manufactures transmission components and assemblies and
heat exchangers and heat exchanger tubing; (ii) the Technologies Group, which
manufactures high performance data-grade connectors for the telecommunications
and networking markets, cable and wire assemblies primarily for the
telecommunications market, and precision metal stampings and power transformers
primarily for the electronics market; and (iii) Specialty Publishing, which
publishes student yearbooks. The Company's primary focus is to tailor its
products for customer specific applications in niche markets. This strategy
includes customizing products for particular accounts and applications and
developing technology in order to produce the highest quality products in each
of its product lines, and thereby maintain long term, often sole-supplier,
customer relationships. The Company believes that this niche market focus
results in more stable revenues and higher margins. The Company's portfolio of
businesses serves several market segments, which the Company believes tends to
dampen cyclicality and diversify business risk. The Company's broad base of more
than 17,000 customers includes automotive and non-automotive original equipment
manufacturers ("OEMs"), telecommunications, networking and electronics companies
and student yearbook departments nationwide.
The following chart depicts the organizational structure of the Company:
[THE COMPANY CHART]
The Automotive Components Group consists of three operating units, Thermal
Components, Steel Parts and Romac and a joint venture, Thermalex. Thermal
Components produces aluminum- and copper-based heat exchanger tubing for
automotive OEMs and Tier 1 suppliers, and also manufactures radiators, air
conditioning condensers and other heat exchangers for automotive and industrial
applications. Steel Parts is the leading supplier of automatic transmission
clutch plates to Ford Motors and produces other stamped components for OEMs and
Tier 1 suppliers. Romac produces stainless steel tubing for marine,
architectural, industrial and automotive applications. Thermalex, a joint
venture owned equally by the Company and Mitsubishi Aluminum Co., Ltd., is the
nation's leading producer of precision extruded multi-port aluminum heat
exchanger tubing used in automotive air-conditioning condensers. Management
believes that the impact of the automotive cycle on the Automotive Components
Group's financial performance is mitigated by sales to the automotive
aftermarket and non-automotive OEMs, which represented 16% and 27%,
respectively, of the Automotive Components Group's 1997 net sales.
The Technologies Group generally focuses on niche products which are
designed for specific customer applications, and the Group seeks to supply all
or a substantial portion of its customers' requirements. The Technologies Group
has four operating units: Escod Industries, the leading outside supplier of
cable and wire assemblies to Northern Telecom and Siemens; Stewart Connector, a
leading producer of high performance data-grade connectors for the computer
networking and telecommunications markets; Stewart Stamping, a producer of
highly customized precision stamped metal parts, primarily for the electronics
industry; and Signal Transformer, the leading non-captive producer of 50-60 Hz
power transformers used in a variety of product applications.
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<PAGE> 32
Specialty Publishing consists of Taylor, one of the nation's leading
publishers of student yearbooks. The Company believes that Taylor's digital
pre-press technology (which eliminates many manual cutting, pasting and
rescaling operations) offers yearbook customers superior quality and greater
design and revision flexibility. The student yearbook business benefits from
very limited cyclicality, low customer turnover and pre-paid sales.
CERTAIN FORECASTS AS TO FUTURE RESULTS
The Company prepared certain nonpublic forecasts reflecting management's
estimates as to the possible future performance of the Company over the six
fiscal years ending in 2003. This information was provided to each of the three
parties that were evaluating a possible acquisition of the Company, including
DLJMB (see "The Mergers -- Background of the Mergers") and to Lazard. The
following table summarizes the forecasts:
<TABLE>
<CAPTION>
FORECASTS
--------------------------------------------------------
ITEM 1998 1999 2000 2001 2002 2003
- ---- ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $558.1 $591.1 $623.6 $656.1 $689.0 $723.1
Operating Income............. $ 54.9 $ 58.9 $ 62.7 $ 66.2 $ 69.7 $ 74.0
EBITDA(1).................... $ 76.4 $ 81.5 $ 87.8 $ 94.0 $100.1 $106.4
Earnings per Share(2)........ $ 4.55 $ 5.22 $ 5.89 $ 6.49 $ 7.26 $ 8.11
</TABLE>
- ---------------
(1) EBITDA represents the Company's projected net income before projected net
interest expense, income taxes, depreciation and amortization, other income
and net gain or net loss on the sale of assets. EBITDA data were provided to
each of the three parties that were evaluating a possible acquisition of the
Company, including DLJMB, and to Lazard because such information is
frequently used by investors as a measure of operations. While EBITDA is
frequently used as a measure of operations, it is not necessarily comparable
to other similarly titled captions of other companies due to the potential
inconsistencies in the method of calculation. EBITDA is not intended to
represent and should not be considered more meaningful than or alternative
to, operating income, cash flows from operating activities or other measures
of performance in accordance with generally accepted accounting principles.
(2) Based on average shares outstanding ranging from 4.36 million in 1998 to
4.63 million in 2003.
The forecasts were generated by consolidating individual business unit
projections. The key assumptions that underlie the forecasts were (i) modest
growth of net sales, ranging from 5.0% to 5.9%, resulting primarily from
economic growth together with internal growth from new products and further
penetration of current and alternate channels of distribution, and (ii) EBITDA
margins increasing from 13.7% to 14.7% of revenue over the period resulting both
from anticipated margin improvement in Specialty Publishing and, to a lesser
extent, from an increasing percentage of total Company revenues being generated
by certain higher margin business units. The Company has projected essentially
constant gross margins while other operating expenses are forecasted to grow
with sales, but at a slightly slower rate.
The forecasts do not assume that any acquisitions or divestitures would
occur during the periods presented.
THE FORECASTS REFERRED TO ABOVE WERE PREPARED INITIALLY FOR INTERNAL
PLANNING PURPOSES AND THEN WERE UPDATED AND EXTENDED TO COVER SIX YEARS IN
CONNECTION WITH REQUESTS MADE BY THE INTERESTED PARTIES EVALUATING A POTENTIAL
ACQUISITION OF THE COMPANY (SEE "THE MERGERS -- BACKGROUND OF THE MERGERS"), AND
NOT WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES
ESTABLISHED BY THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS REGARDING PROJECTIONS. THE FORECASTS ARE INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS SOLELY BECAUSE SUCH INFORMATION WAS PROVIDED TO DLJMB AND
THE OTHER PARTIES INTERESTED IN A POTENTIAL ACQUISITION OF THE COMPANY AND TO
LAZARD. WHILE PRESENTED WITH NUMERICAL SPECIFICITY THE FORECASTS WERE BASED UPON
NUMEROUS ASSUMPTIONS RELATING TO COMMERCIAL ACCEPTANCE OF THE COMPANY'S
PRODUCTS, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS, THE
BUSINESS OF THE COMPANY AND OTHER MATTERS, ALL OF WHICH MAY NOT BE REALIZED AND
ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT RESULTS
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<PAGE> 33
FORECAST WILL BE REALIZED, AND ACTUAL RESULTS MAY BE HIGHER OR LOWER THAN THOSE
ESTIMATED. SEE "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS" AND
"RISK FACTORS." NEITHER THE COMPANY'S AUDITORS NOR ANY OTHER INDEPENDENT
ACCOUNTANTS HAVE COMPILED, EXAMINED OR PERFORMED ANY PROCEDURES WITH RESPECT TO
THE FORECASTS, NOR HAVE THEY EXPRESSED ANY OPINION OR GIVEN ANY OTHER FORM OF
ASSURANCE ON SUCH INFORMATION OR ITS ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY
FOR, AND DISCLAIM ANY ASSOCIATION WITH, THE PROSPECTIVE FINANCIAL INFORMATION.
THE INCLUSION OF THE FORECASTS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION
THAT DLJMB, MERGERSUB OR THE COMPANY CONSIDERS IT AN ACCURATE PREDICTION OF
FUTURE EVENTS. NONE OF DLJMB, MERGERSUB OR THE COMPANY INTENDS PUBLICLY TO
UPDATE OR OTHERWISE REVISE THE FORECASTS SET FORTH ABOVE EVEN IF EXPERIENCE OR
FUTURE CHANGES MAKE IT CLEAR THAT THE FORECASTS WILL NOT BE REALIZED.
The forecasts do not give effect to the Mergers and should be read in
conjunction with "Risk Factors" and "Unaudited Condensed Consolidated Pro Forma
Financial Data," and in conjunction with "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" as set forth in the Company's
1997 Form 10-K and the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998, each of which is incorporated herein by reference.
SUBSEQUENT EVENT
On January 14, 1997, Taylor sued one of its principal competitors in the
yearbook business, Jostens, in the U.S. District Court for the Eastern District
of Texas, alleging violations of the federal antitrust laws as well as various
claims arising under state law. On May 13, 1998 the jury in that case awarded
Taylor the amount of $8 million with respect to Taylor's claim under Section 2
of the Sherman Antitrust Act, which award is subject to automatic trebling to
$24 million under the federal antitrust laws, and an aggregate of $12 million on
Taylor's various state law claims. Taylor has stipulated with Jostens that the
amount of legal fees and costs recoverable by Taylor is $1.225 million and that
the awards on the other claims overlap with the award made with respect to the
federal antitrust law claim and will not be recoverable in addition to the $24
million. On June 12, 1998, the judge presiding over the litigation in the U.S.
District Court rendered his judgment in the amount of $25.225 million plus
interest at the rate of 5.434 percent. Jostens has announced that it will seek
to overturn the Taylor Verdict in post trial motions or on appeal.
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<PAGE> 34
THE MERGERS
BACKGROUND OF THE MERGERS
In the second half of 1996, the Company was advised by its largest
stockholder, Water Street, that the term of the Water Street partnership would
end on June 15, 1997 and that under the partnership agreement, Goldman Sachs, as
the sole general partner of Water Street, was required to dispose of or
distribute all of the partnership's assets, or the proceeds from the disposition
thereof, by June 15, 1998 (although the one-year period could be extended with
the consent of a majority of the partnership interests in Water Street). Given
that, at the time, Water Street owned approximately 62% of the Shares, the Board
of Directors was concerned that the market price of the Shares could be
adversely affected if Water Street were to distribute the Shares it owned to its
partners and all or a substantial number of the recipients were to attempt to
sell their Shares in the open market.
In light of this concern, the Company retained Goldman Sachs in November
1996 to act as its financial advisor to evaluate various strategic alternatives
to maximize stockholder value. As noted above, Goldman Sachs is the general
partner of Water Street, which at that time owned approximately 62% of the
Shares. Among the strategic alternatives the Board of Directors and Goldman
Sachs considered at that time were (i) selling the entire Company to a single
purchaser, (ii) selling each of the Company's operating units separately and
(iii) refinancing the Company's existing indebtedness, incurring new debt and
repurchasing Shares.
In late 1996 through early 1997, Goldman Sachs, on behalf of the Company,
identified and contacted a number of prospective buyers to solicit expressions
of interest in purchasing the Company. However, based on the results of such
solicitation, which yielded very few interested buyers, and none at a price that
the Company's Board of Directors, relying in part on the advice of its financial
advisor, believed reflected the Company's value, the Board of Directors
determined that a sale of the entire Company to a single purchaser would not
maximize stockholder value. The Board of Directors also concluded that selling
each of the Company's remaining operating units separately would not maximize
stockholder value because individual sales would entail substantial transaction
costs and would result in significant cash tax payments on the realized gains,
reducing the amounts available upon liquidation to pay down debt and to make
distributions to stockholders.
The Board of Directors decided to effect a repurchase of Shares in the
amount of approximately $220 million (the "Share Repurchase"). The Share
Repurchase was consummated on August 12, 1997. In connection with the Share
Repurchase, the Company amended its existing secured indebtedness, substituting
the Credit Facility for the then existing $155 million term loan and $130
million revolving credit facility, and incurred $150 million in new debt in the
form of the Subordinated Notes.
Following the Share Repurchase, a financial buyer that had indicated an
interest in early 1997 in buying the Company (the "First Interested Party"),
initiated sporadic discussions with Goldman Sachs and Robert L. Smialek, the
Company's President, Chief Executive Officer and Chairman of the Board,
regarding the possible purchase of all or a substantial percentage of the
Company. These discussions commenced in September 1997, and continued
intermittently thereafter.
In December 1997, the Company received an unsolicited inquiry from a second
interested party (the "Second Interested Party"). Officers of the Company met
with the Second Interested Party in December 1997 and made a presentation to it
of certain public information concerning the Company. The Company continued to
have intermittent contacts with the Second Interested Party thereafter.
On February 3, 1998, at the request of a representative of Donaldson,
Lufkin & Jenrette, Inc., representatives of that firm and of DLJMB met with the
Company's officers. At this meeting, William F. Dawson, Jr., a Principal of
DLJMB, disclosed that DLJMB might have an interest in acquiring the Company and
that one purpose of the meeting was to evaluate the Company's interest in
pursuing a potential transaction, as the Company had not previously been
approached by DLJMB, and the feasibility of various
25
<PAGE> 35
transaction structures. At the conclusion of this initial meeting, the parties
agreed to continue their discussions and to permit DLJMB access to additional
information regarding the Company and its businesses.
During the week of February 2, 1998, Mr. Smialek and Thompson Dean, the
Managing Partner of DLJMB, informed Mr. O'Toole, a member of the Company's Board
of Directors and a Managing Director of Goldman Sachs, of DLJMB's expressed
interest in a potential transaction with the Company. Separately, Mr. Smialek
also updated Mr. O'Toole with respect to the other two parties' interest in the
Company. Mr. O'Toole and Mr. Smialek concluded that Mr. Smialek should continue
his discussions with DLJMB and the other parties.
On February 10, 1998, Company officers met with Messrs. Dean and Dawson.
The principal purpose of the meeting was to inform DLJMB that the Company would
continue with discussions concerning DLJMB's potential interest in acquiring the
Company and to discuss generally the form that a transaction might take. On the
same day, the Company had a substantially similar meeting with representatives
of the Second Interested Party.
Subsequent to the meeting on February 10, 1998, DLJMB and the Company
executed the Confidentiality Agreement in connection with the delivery to DLJMB
of additional information concerning the Company. Confidentiality Agreements
with the two other interested parties were already in effect.
Several meetings or teleconferences were held over the next two weeks with
each of the interested parties, and each was provided with supplemental
nonpublic financial information.
On February 27, 1998, the Company's senior management made a detailed
presentation to DLJMB at the Company's offices concerning the Company's
businesses, financial results, prospects and forecasts. On March 4, 1998, the
senior management of the Company and the operating heads of each of the
Company's operating units met with the First Interested Party at the Company's
offices and made a management presentation to it covering substantially the same
material covered the previous week in the meeting with DLJMB. On March 5, 1998,
Company management made a substantially identical presentation at the Company's
offices to the Second Interested Party. During the week of March 9, 1998,
representatives of DLJMB visited each of the Company's significant manufacturing
operations and met with the management of each of the Company's various business
units. At approximately the same time, both DLJMB and the First Interested Party
commenced financial, accounting, legal and environmental due diligence.
During the week of March 9, 1998, Mr. Smialek contacted each of the members
of the Board of Directors to report on the interest expressed by each of the
parties regarding the Company, and to make a recommendation that the Company
retain an independent investment banker to assist the Company in this process.
The Board concurred, and Mr. Smialek contacted Lazard to discuss retaining
Lazard as the Company's investment banker. On March 11, 1998, Mr. Smialek and
other officers of the Company and the Company's outside legal advisor, Fried,
Frank, Harris, Shriver & Jacobson ("Fried Frank"), met with various
representatives of Lazard to discuss the potential sale transaction and to
develop a process and proposed timetable subject to approval by the Board of
Directors.
Lazard recommended, and the Company agreed, that a process and timetable
should be developed for the receipt of potential bids. It was determined that
each of the three interested parties be informed that its bid would be due by no
later than 12:00 noon on Friday, March 20, 1998. Through Lazard, the Company
advised each of the three parties of the process, the fact that there were other
potential bidders for the Company, and the date for receipt of definitive
offers. The Company also decided that Lazard should contact an additional party
that, in early 1997, had expressed an interest in acquiring the Company to see
whether that party had any renewed interest in acquiring the Company. The party
was contacted but declined to participate.
On March 16, 1998, Mr. Smialek met with Messrs. Dean and Dawson, at their
request, to discuss the level of DLJMB's interest in acquiring the Company. At
that meeting, DLJMB indicated a possible price range of $40 to $42 per share,
subject to actually submitting a proposal, and stated that any transaction would
need to be effected in a manner so as to qualify for recapitalization accounting
treatment, which would require existing Company stockholders to retain a
continuing equity ownership in the Company after the consummation of the
transaction. DLJMB further stated that, as conditions to its willingness to
proceed with the
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transaction, and subject to agreement as to terms and definitive documentation,
it would require the Company to agree to a non-solicitation agreement with a
customary "break-up" fee, and Water Street to execute a voting agreement to vote
in favor of the proposed merger. DLJMB also indicated its desire to retain
current management of the Company in any proposed transaction.
On March 17 and 18, 1998, representatives of the Second Interested Party
visited each of the Company's significant manufacturing operations, met with the
management of each of the Company's various business units, and were given
management presentations substantially identical to those made to DLJMB during
the preceding week.
The Board of Directors held a special meeting by teleconference on March
19, 1998 to receive a status report on the process and the level of interest of
the three interested parties. Each member of the Board of Directors participated
in the teleconference, together with the Company's senior management and
representatives of Lazard and Fried Frank.
On March 20, 1998, DLJMB submitted an acquisition proposal in the form of a
leveraged recapitalization of the Company at a nominal value of $44.00 per Share
in cash and stock of the surviving corporation. DLJMB's proposal was subject to,
among other things, the Company's agreement to a break-up fee and reimbursement
of expenses in prescribed circumstances, and Water Street's execution of a
satisfactory voting agreement. The high and low sale prices per Share as
reported by NASDAQ on March 19, 1998 were $40.50 and $39.75, respectively. On
March 21, 1998, the Company's management and financial advisors informed the
Board of Directors of the results of the process and the terms of the DLJMB
acquisition proposal. After considering the proposal, the Board of Directors
approved the initiation of formal discussions with DLJMB, but required that the
final terms of the proposal and a definitive merger agreement be submitted to
the Board of Directors for its review prior to execution.
Negotiations between the Company and DLJMB commenced on March 22, 1998 and
continued until the morning of March 24, 1998. During these negotiations, DLJMB
agreed to improve the economic terms of its proposal, including increasing the
price to a nominal value of $44.50 per Share, consisting of $42.98 in cash and
0.03419 of a Surviving Corporation Share. The terms of the Voting Agreement were
negotiated separately among DLJMB, Water Street, and, to a limited extent, the
Company.
The Board of Directors held a meeting on the afternoon of March 23, 1998 to
receive a status report on the progress of negotiations with DLJMB. Following
the status report, Lazard presented a valuation analysis of the Company, using
various methodologies. Based on the status report and the valuation analysis,
the Board reiterated its interest in proceeding to negotiate a transaction with
DLJMB.
On the morning of March 24, 1998, the Board of Directors convened to
discuss the proposed transaction with DLJMB. All members of the Board of
Directors participated either in person or by conference call. Also in
attendance were officers of the Company and representatives of Lazard, Goldman
Sachs, and Fried Frank. Lazard updated the Board on the status of negotiations
with DLJMB, including a review of the final economic and other terms of the
DLJMB proposal. Counsel then reviewed with the Board the terms and conditions of
the proposed definitive Original Merger Agreement and the proposed definitive
Voting Agreement. At the conclusion of the presentation, representatives of
Lazard provided the Original Lazard Opinion, in oral form (subsequently
confirmed in writing), to the effect that, as of that date and based upon and
subject to the matters stated therein, the Original Merger Consideration taken
as a whole was fair to holders of Shares (other than MergerSub and its
affiliates) from a financial point of view. After the presentation from Lazard,
and after discussion of such matters as the members of the Board of Directors
deemed relevant, the Board of Directors unanimously (i) determined that the
Original Merger Agreement and the transactions contemplated thereby, including
the Mergers, were fair to and in the best interests of the Company's
stockholders, (ii) approved the Original Merger Agreement and the Voting
Agreement and the transactions contemplated thereby, including the Mergers,
(iii) authorized the execution and delivery of the Original Merger Agreement and
the Voting Agreement, and (iv) resolved to recommend the approval and adoption
of the Original Merger Agreement and the Mergers to the stockholders of the
Company.
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On May 13, 1998, the Taylor Verdict was rendered. Following the Company's
public announcement of the Taylor Verdict, the Company received a number of
inquiries from stockholders as to whether current stockholders of the Company
would be paid any portion of the proceeds of the Taylor Verdict. The Company
advised each of the callers that the Original Merger Agreement did not permit
any portion of any proceeds of the Taylor Verdict to be paid to current
stockholders of the Company.
On May 28, 1998, Mr. Smialek and other members of senior management of the
Company spoke with Messrs. Dean and Dawson regarding whether the DLJMB Funds
would be prepared to increase the Original Merger Consideration in light of the
Taylor Verdict. Messrs. Dean and Dawson stated that they were not prepared to
respond at that time and noted that the receipt by the Company of any amount
with respect to the Taylor Verdict would not occur for several years and was
contingent on the Company's prevailing on Jostens' post trial motions and
appeals.
On June 3, 1998, the Board of Directors of the Company convened to discuss
the Taylor Verdict and its impact on the Board's March 24, 1998 recommendation
to the stockholders that the Mergers were fair to and in the best interest of
the Company's stockholders. At that meeting, the Board directed management to
request Lazard to seek an increase of the Original Merger Consideration and also
to request Lazard to render an updated opinion as to the fairness, from a
financial point of view, to the holders of Shares (other than MergerSub and its
affiliates) of the Original Merger Consideration (or any increase in merger
consideration) taken as a whole.
On June 5, 1998, following negotiations between Lazard and Mr. Dean, Mr.
Dean advised Lazard that the DLJMB Funds were prepared to increase the Original
Merger Consideration by $0.50 per Share in cash.
On June 8, 1998, the Board of Directors of the Company reconvened to
discuss the proposed increase in the Original Merger Consideration and to
consider whether it was the Board's continued belief that the Mergers are fair
to and in the best interest of the Company's stockholders. At that meeting,
Lazard delivered the Lazard Opinion (subsequently confirmed in writing), to the
effect that, as of that date and based upon and subject to the matters stated
therein, the Merger Consideration taken as a whole is fair to holders of Shares
(other than MergerSub and its affiliates) from a financial point of view. After
the presentation from Lazard, and after discussion of such matters as the
members of the Board of Directors deemed relevant, the Board of Directors
unanimously (i) determined that the Merger Agreement and the transactions
contemplated thereby, including the Mergers, are fair to and in the best
interests of the Company's stockholders, (ii) authorized the execution and
delivery of the Amendment to the Original Merger Agreement providing for the
increase in the Original Merger Consideration and (iii) resolved to recommend
the approval and adoption of the Merger Agreement and the Mergers to the
stockholders of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGERS
As discussed above, the Board of Directors, at its meeting on March 24,
1998, determined that the Original Merger Agreement and the Mergers were fair to
and in the best interests of the stockholders of the Company and recommended
that the Company's stockholders approve and adopt the Original Merger Agreement
and the Mergers. Such action was taken by the unanimous vote of the Board of
Directors. In its deliberations, the Board of Directors consulted with the
Company's legal and financial advisors and considered a number of factors,
including the following principal factors that were material to the Board's
decision:
1. The oral and written presentations of Lazard and the Original
Lazard Opinion;
2. The Board's belief that it was unlikely that there were additional
parties interested in acquiring the Company or that the Company could
obtain a greater price (which belief was based in part on the fact that in
the past 18 months the Company and its financial advisors had contacted
what they believed to be the most likely purchasers);
3. The fact that the Original Merger Consideration represented an
approximately 13.4% premium over the average trading price of a Share for
the 30 trading days preceding March 24, 1998;
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4. The fact that the Original Merger Consideration, consisting of
$42.98 in cash and 0.03419 of a Surviving Corporation Share had, in the
Board of Directors' view, an implied aggregate value of between $44 and $45
per share;
5. The fact that Water Street, as the beneficial owner of
approximately 45% of the outstanding Shares, favored the transaction and
had agreed to vote the Water Street Shares in favor of the Mergers pursuant
to the terms of the Voting Agreement;
6. The fact that the term of the Water Street partnership ended on
June 15, 1997, and that the partnership agreement required Goldman Sachs to
dispose of or distribute all of the partnership assets by June 15, 1998
(although the one-year period could be extended with the consent of the
majority of partnership interests), and that the market price of the Shares
could be adversely affected if the Water Street Shares were sold to a third
party or distributed to the partners who might then attempt to sell their
Shares in the open market;
7. The terms and conditions of the Original Merger Agreement, which
had been negotiated at arm's length, including the "no solicitation"
provisions of the Original Merger Agreement, the fees and expense
reimbursements payable to MergerSub (which could require payments of up to
approximately $11 million in the aggregate), the circumstances in which
such fees are payable, the termination provisions of the Original Merger
Agreement, and the terms of the related Voting Agreement. The Board of
Directors sought to balance the concerns of DLJMB, which the Board of
Directors believed had made an attractive acquisition proposal to the
Company conditioned on receipt of a break-up fee and reimbursement of
expenses in certain circumstances, against the likelihood of there being a
subsequent better offer to the Company's stockholders which might be
deterred by such payments. While the Merger Agreement prohibits the Company
from soliciting third-party offers, it allows the Board to fulfill its
fiduciary duties if a third party makes or expresses interest in making an
unsolicited offer, including negotiating with a third party or furnishing
third parties with information about the Company, and permits the
termination of the Merger Agreement (subject to payment of fees and
reimbursement of expenses) if an offer more favorable to stockholders from
a financial point of view than that contained in the Merger Agreement is
received from a third party;
8. The fact that the Company's stockholders would be entitled to
dissent from the Reorganization Merger and demand payment of the "fair
value" of their Shares by complying with the applicable requirements of the
DGCL;
9. The experience and success of DLJMB in structuring and closing
transactions similar to the Mergers, the strength and favorable terms of
the financing commitment letters delivered by DLJMB pursuant to the Merger
Agreement (which Merger Agreement is conditioned on financing) and the fact
that DLJMB has funds available to assist the Company in making acquisitions
and has expressed a strong interest in investing in growth opportunities
for the Company; and
10. The fact that the receipt of an opinion as to the solvency of the
Surviving Corporation upon consummation of the Mergers is a condition to
the Company's obligation to consummate the Mergers.
The Board also considered the fact that, if the Mergers took place, the
Company's stockholders would no longer be participating at their current
ownership level in the long-term growth of the Company, and that the
stockholders would potentially suffer from the loss of liquidity for, and the
potential delisting from NASDAQ of, the Surviving Corporation Shares, and that
the Company would become more highly leveraged, with the risks attendant
substantial leverage. See "Risk Factors -- Loss of Liquidity" and "Risk
Factors -- Substantial Leverage."
As discussed above, following the Taylor Verdict, the Board of Directors
met twice to consider the impact of the Taylor Verdict and the proposed increase
in the Original Merger Consideration on the Board's March 24, 1998
recommendation to the stockholders that the Mergers were fair to and in the best
interest of the Company's stockholders. At its meeting on June 8, 1998, the
Board of Directors, by unanimous vote, determined that the Merger Agreement and
the Mergers were fair to and in the best interests of the stockholders of the
Company and recommended that the Company's stockholders approve and adopt the
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Merger Agreement and the Mergers. In its deliberations, the Board of Directors
consulted with the Company's legal and financial advisors and considered a
number of factors, including the following principal factors that were material
to the Board's decision:
1. The presentation of Lazard, and the Lazard Opinion described below.
See "The Mergers -- Opinion of Investment Banker" for a discussion of the
factors considered in rendering the Lazard Opinion. The Lazard Opinion,
which is subject to limitations, qualifications and assumptions, is
included as Annex B hereto, and should be read in its entirety;
2. The uncertainty inherent in predicting the outcome of any appeal of
the Taylor Verdict, the fact that payment, if any, of the Taylor Verdict
might not be received by the Company for a number of years given Josten's
stated intention to appeal, and the rate of interest (5.434%) at which the
Taylor Verdict would accrue, by statute, until payment, if any;
3. The fact that the Taylor Verdict, if received, will be taxed to the
Company at an estimated combined effective Federal, state and local tax
rate of approximately 38% (assuming present tax rates);
4. The fact that, if the Mergers are consummated, the current
stockholders of the Company will retain a 10.3% interest in the Surviving
Corporation and, consequently, will participate in the Taylor Verdict to
the extent of their continuing ownership of shares in the Surviving
Corporation; and
5. The Board's belief that it was unlikely that other parties were
interested in acquiring the Company or that the Company could obtain a
better price for its stock (which belief was based in part on the fact that
the Company had not seen any significant increase in its stock price, or
received any unsolicited third party offers to purchase the Company, since
the Taylor Verdict was publicly announced).
The Board also noted that, pursuant to the Original Merger Agreement, (i)
if the holders of a majority of the outstanding Shares were to vote against the
Mergers, MergerSub would be entitled to reimbursement from the Company of its
out-of-pocket fees and expenses (including reasonable fees and expenses of its
counsel) not to exceed $5 million (plus an additional break-up fee of $6 million
if the Company were to be acquired within 12 months of termination of the Merger
Agreement and the consideration paid exceeded the Original Merger
Consideration), and (ii) if the Board determined in the exercise of its
fiduciary duties as advised by counsel not to recommend the Mergers to the
stockholders of the Company, MergerSub would have the right (but would not be
required) to terminate the Merger Agreement and receive a "break-up" fee of $6
million as well as reimbursement of fees and expenses of up to $5 million.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Mergers, the Board of Directors did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board of
Directors may have given different weights to different factors.
OPINION OF INVESTMENT BANKER
The Company retained Lazard to act as its investment banker with respect to
the Mergers. At a meeting of the Board of Directors held on March 24, 1998,
Lazard rendered to the Board of Directors orally the Original Lazard Opinion
(subsequently confirmed in writing) that, as of that date and based upon and
subject to the matters stated therein, the Original Merger Consideration taken
as a whole was fair to the holders of Shares (other than MergerSub and its
affiliates) from a financial point of view. The Board of Directors subsequently
requested that Lazard update the Original Lazard Opinion. At a meeting of the
Board of Directors held on June 8, 1998, Lazard rendered to the Board of
Directors orally the Lazard Opinion (subsequently confirmed in writing) that, as
of that date and based upon and subject to the matters stated therein, the
Merger Consideration taken as a whole was fair to the holders of Shares (other
than MergerSub and its affiliates) from a financial point of view.
The full text of the Lazard Opinion, which sets forth the assumptions made,
matters considered and limits of the review undertaken in connection with the
Lazard Opinion, is attached hereto as Annex B and is
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incorporated herein by reference. The Lazard Opinion was delivered to the Board
of Directors for its use in connection with its consideration of the Mergers and
does not constitute a recommendation to any stockholder of the Company as to how
such stockholder should vote with respect to the Merger Agreement or the
Mergers. The summary of the Lazard Opinion set forth herein is qualified in its
entirety by reference to the full text of the Lazard Opinion. STOCKHOLDERS ARE
URGED TO READ THE LAZARD OPINION IN ITS ENTIRETY.
In connection with the preparation of the Lazard Opinion, Lazard (i)
reviewed the financial terms and conditions of the Merger Agreement; (ii)
analyzed certain historical business and financial information relating to the
Company; (iii) reviewed various financial forecasts and other data provided to
Lazard by the Company relating to its businesses and financial performance; (iv)
reviewed the financial assessment of management of the Company with respect to
the Taylor Verdict; (v) held discussions with members of the senior management
of the Company with respect to the businesses and prospects of the Company; (vi)
reviewed certain public financial and stock market information for certain other
companies, although Lazard did not identify any publicly traded companies which
it deemed to be comparable; (vii) reviewed the historical stock prices and
trading volumes of the Shares; and (viii) considered such other information,
financial studies, analyses and investigations and financial, economic, market
and trading criteria that Lazard deemed appropriate.
In rendering the Lazard Opinion, Lazard assumed that the Mergers would be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company, and that obtaining any
necessary regulatory or third party approvals for the Mergers will not have an
adverse effect on the Company. The Lazard Opinion did not address the future
trading value of the Surviving Corporation Shares following the Mergers.
In preparing the Lazard Opinion, Lazard relied upon the accuracy and
completeness of the information reviewed by Lazard for purposes of the Lazard
Opinion, and Lazard did not assume any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or any independent financial or
other assessment of the Taylor Verdict. Lazard did not opine or provide any
advice with respect to the impact of the Mergers on the solvency, viability or
financial condition of the Company or its ability to satisfy its obligations as
they become due. With respect to financial forecasts, Lazard assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. With respect to the financial assessment
of the Taylor Verdict, Lazard assumed that it was reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
the Company. Lazard expressed no view as to the financial forecasts or the
financial assessment of the Taylor Verdict, or the assumptions on which they
were based. The Lazard Opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to Lazard as of, the date of the Lazard Opinion. In addition, the Lazard Opinion
did not address the Company's underlying business decision to enter into the
Original Merger Agreement or the Merger Agreement. Lazard considered the impact
of the contemplated liquidation of Water Street, which beneficially owned
approximately 45% of the outstanding Shares as of June 8, 1998, and the efforts
undertaken by the Company and its advisors within the 18 months preceding the
execution of the Original Merger Agreement to solicit third party offers to
acquire all of the Company. Lazard was not requested to, and did not, solicit
any third party offers to acquire all or any part of the Company other than the
one party previously described in "The Mergers -- Background of the Mergers."
At a meeting of the Board of Directors held on March 23, 1998, Lazard
presented certain financial analyses, accompanied by written materials, in
connection with the Original Lazard Opinion. In addition, at a meeting of the
Board of Directors held on June 8, 1998, Lazard presented certain financial
analyses in connection with the Lazard Opinion. The following is a summary of
the material financial and comparative analyses performed by Lazard in arriving
at the Lazard Opinion.
Hypothetical Blended Valuation of Consideration Received. The
consideration to be received by holders of Shares consists of $43.48 in cash and
0.03378 of a Surviving Corporation Share. Since a portion of the consideration
to be received by holders of Shares consists of Surviving Corporation Shares,
Lazard analyzed
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<PAGE> 41
the hypothetical public trading values for the Surviving Corporation Shares to
be outstanding following the Effective Time in order to determine the
hypothetical blended valuation of the consideration to be received. Lazard
analyzed the hypothetical public trading values for the Surviving Corporation
Shares to be outstanding following the Effective Time derived from an
application of various multiples to the Company's pro forma earnings per share
and pro forma EBITDA giving effect to the Mergers (based on projections prepared
by management of the Company and management's financial assessment of the Taylor
Verdict). This calculation indicated that (i) applying price-earnings multiples
ranging from 9.0x to 11.0x to pro forma earnings per share in 2000 and 2002 and
equity discount rates of 20% and 25% to the resulting hypothetical stock price
in such years resulted in a net present value hypothetical public market trading
value per share as of March 31, 1998 ranging from $39.53 to $63.91 and (ii)
applying EBITDA multiples ranging from 5.0x to 6.0x to pro forma EBITDA in 2000
and 2002 and equity discount rates of 20% and 25% to the resulting hypothetical
stock price in such years resulted in a net present value hypothetical public
market trading value per share as of March 31, 1998 ranging from $28.66 to
$73.64. Using this hypothetical value range, Lazard calculated that a holder of
Shares receiving $43.48 in cash and retaining 0.03378 of a Surviving Corporation
Share for each Share would receive consideration pursuant to the Mergers having
a hypothetical valuation ranging from approximately $44.50 to $45.50 for each
Share. Lazard noted that the actual future trading prices of the Surviving
Corporation Shares may be outside the estimated range and will depend upon, and
fluctuate with, changes in interest rates, market conditions, the terms of
financing for the Mergers, the condition and prospects, financial and otherwise,
of the Surviving Corporation and other factors which generally influence the
prices of securities. In addition, Lazard noted that the reduced public float of
Surviving Corporation Shares may adversely affect the liquidity of such shares
and result in greater volatility in trading prices following the Effective Time
(in addition to increased volatility resulting from the increased leverage of
the Surviving Corporation) as compared to trading prices prior to the Effective
Time.
Historical Stock Price Review. Lazard reviewed information regarding
historical stock price and trading volume for the Shares. Lazard noted that
between June 5, 1997 and June 5, 1998 the trading range for the Shares was from
a closing low of $32.00 per share to a closing high of $44.00 per share. Lazard
noted that issues affecting the valuation of the Shares include, among other
things, extremely limited liquidity, lack of analyst coverage, high leverage and
the small size of the Company and each of its individual businesses.
Hypothetical Public Trading Value Analysis. Lazard calculated the
hypothetical public trading values that the Company could attain assuming that
the Shares were to become widely distributed and had appropriate research
coverage and trading support from brokerage houses for a company of its size.
For the purpose of this analysis, Lazard reviewed certain publicly available
financial and stock market information relating to four selected companies
(General Signal Corporation, Mark IV Industries, Inc., United Dominion
Industries Limited and U.S. Industries, Inc.) (the "Selected Companies"), which
were diversified conglomerates, although Lazard did not deem the Selected
Companies comparable to the Company in that, among other things, each such
company has a substantially larger market capitalization and liquidity, a more
conservative capital structure and significantly greater analyst coverage than
the Company. The analysis considered hypothetical share prices for midyear 1999
based on applying price-earnings multiples ranging from 9.0x to 11.0x to 1999
estimated earnings per share for the Company (based on projections prepared by
management of the Company and management's financial assessment of the Taylor
Verdict) and discounting those projected midyear 1999 per share values at equity
discount rates ranging from 15% to 25%. The calculation resulted in a net
present value hypothetical public market trading value per share for a widely
distributed stock ranging from $34.58 to $47.90. The actual future trading
prices of the Surviving Corporation Shares may be outside the estimated range
and will depend upon, and fluctuate with, changes in interest rates, market
conditions, the terms of financing for the Mergers, the condition and prospects,
financial and otherwise, of the Surviving Corporation and other factors which
generally influence the prices of securities.
Discounted Cash Flow Analysis. Lazard derived ranges of implied equity
values for the Company based upon the present value of the Company's projected
cash flow for the years 1998 through 2003, inclusive, and the projected 2003
terminal values based upon a range of multiples of projected 2003 EBITDA and
upon a range of free cash flow perpetual growth rates. Lazard performed such
analysis based on management projections for both a base case and a downside
case and based on management's financial assessment of the
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Taylor Verdict. Lazard applied discount rates ranging from 12.5% to 13.5%,
terminal multiples of EBITDA ranging from 5.0x to 5.5x and free cash flow
perpetual growth rates ranging from 3.5% to 4.0%. Based on this analysis, for
the base case Lazard calculated a range of present values of $41.42 to $55.79
per share and for the downside case Lazard calculated a range of present values
of $26.17 to $39.98 per share.
Break-up Value Analysis. Lazard analyzed the potential after-tax proceeds
that were likely to be realized if the Company were to separately sell its
operating units that make up the three reporting segments of the Company. Based
on a segment-by-segment valuation, Lazard projected that the Company's three
lines of business (and its joint venture interest in the Thermalex joint
venture) were likely to yield gross values of between $485 million and $540
million. Lazard also noted that such sales of assets would necessitate capital
gains tax payments ranging from $100 million to $119 million assuming standard
rates. Adjusting for the payment of estimated taxes on the gains from such
sales, the recovery of the Taylor Verdict (based on management's financial
assessment of the Taylor Verdict) and the repayment of existing indebtedness
(excluding potential prepayment penalties), Lazard projected net cash proceeds
to stockholders ranging from $30.95 to $40.11 per share.
Leveraged Buy-Out Analysis. Lazard analyzed the projected range of values
that could likely be attained in the sale of the Company to a non-strategic
financial buyer in a highly leveraged transaction. Lazard assumed that the
acquisition would be structured as a recapitalization transaction and would be
partially financed by pay-in-kind increasing rate notes at a holding company
level. Lazard's analysis took into account (i) the gross amount of debt that
could be financed based on the projected cash flows of the Company as implied by
recent highly leveraged transactions and (ii) the amount of additional equity
that a non-strategic financial buyer could contribute with the reasonable
expectation of making a return ranging from 20% to 30% per year upon the sale of
the Company within five years. Based on the projections of the Company's
management and management's financial assessment of the Taylor Verdict, Lazard
projected the net proceeds that could be realized upon the sale of the Company
in 2002 at values ranging from 5.0x to 6.0x projected 2002 EBITDA and 9.0x to
11.0x projected 2002 net income. Based on these projected exit values for the
Company, Lazard estimated that a non-strategic financial buyer might be able to
pay a maximum price ranging from $41.50 to $46.50 per share. Lazard noted that
the actual price which a party would be willing to pay in a recapitalization
transaction is dependent on various factors not included in this methodology
and, therefore, this analysis is not necessarily indicative of actual prices
realizable or of rates of return of the Surviving Corporation Shares retained in
the Mergers, which rates of return may be more or less favorable than those
indicated in this analysis, are dependent on many contingencies and, therefore,
are speculative.
The summary set forth above does not purport to be a complete description
of the analyses performed by Lazard, although it is a summary of the material
financial and comparative analyses performed by Lazard in arriving at the Lazard
Opinion. 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 processes
underlying the Lazard Opinion. In arriving at its fairness determination, Lazard
considered the results of all such analyses and did not assign relative weights
to any of the analyses.
The analyses were prepared solely for the purpose of Lazard providing the
Lazard Opinion and do not purport to be an appraisal or necessarily reflect the
prices at which businesses or securities actually may be sold, which are
inherently subject to uncertainty and may be significantly more or less
favorable than as set forth in the analyses. In connection with the analyses,
Lazard made, and was provided estimates and forecasts by the Company's
management based upon, numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company and Lazard. Similarly, 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. All of such estimates and forecasts represent the subjective
views of the management of the Company and are based upon information then
available and assumptions made as of the time the estimates and forecasts were
prepared. Because such estimates and forecasts are inherently subject to
uncertainty, their inclusion in this Proxy Statement/Prospectus should not be
regarded as an indication that the Company or Lazard believes that future
results or actual values will not be materially different from such forecasts or
assumptions.
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<PAGE> 43
The opinion and presentation of Lazard to the Board of Directors was only
one of many factors taken into consideration by the Board of Directors in making
its determination to approve the Merger Agreement. In addition, the terms of the
Merger Agreement were determined through arm's-length negotiations between the
Company and MergerSub and its affiliates and were approved by the Board of
Directors.
The Company selected Lazard to act as its investment banker because of
Lazard's expertise and reputation in investment banking and mergers and
acquisitions. Lazard is an internationally recognized investment banking firm
and is continually engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, recapitalizations and valuations for estate, corporate and other
purposes.
In connection with the services of Lazard as investment banker to the
Company with respect to the Mergers, the Company has agreed to pay Lazard (i) a
fee of $250,000 in connection with its retention as investment banker to the
Company, (ii) a fee of $500,000 upon execution of the Merger Agreement and (iii)
a fee of $2,000,000 upon consummation of the Mergers (against which the fees
described in clauses (i) and (ii) of this sentence will be credited). In
addition, the Company has agreed to reimburse Lazard for its reasonable
out-of-pocket expenses (including the fees and disbursements of its attorneys)
and to indemnify Lazard and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, arising out of
its engagement.
THE DLJMB FUNDS' REASONS FOR THE MERGER
DLJMB continuously evaluates investment opportunities on both a domestic
and an international basis. As a result of its own independent evaluation of the
Company and not at the request or invitation of the Company, DLJMB concluded
that the Company might be an attractive candidate for a possible investment by
the DLJMB Funds. The DLJMB Funds based their decision to proceed with the
proposed transaction on their assessment of the values inherent in the Company
and the potential investment returns that a transaction of the type ultimately
negotiated and described herein could yield for the DLJMB Funds.
THE DLJMB FUNDS' BUSINESS STRATEGY AFTER THE EFFECTIVE TIME
The Company has been advised that, at the present time, the DLJMB Funds do
not contemplate any material departure from the current operating plans of the
Company. However, the DLJMB Funds and the Surviving Corporation's management
will continually evaluate the business strategies of the Surviving Corporation
after the Effective Time. Resources and investment capital will be allocated
among the Surviving Corporation's various business lines in light of prevailing
economic and industry conditions, with a goal of maximizing the profitability
and growth potential of the Surviving Corporation as a whole. The means for
achieving this goal may include, among other things, acquisitions, divestitures,
and alterations to the Surviving Corporation's various product and geographic
markets. The Company has also been advised that the DLJMB Funds do not have any
present intention of eliminating the minority interest represented by the
continuing interest which the Company's stockholders will have in the Surviving
Corporation following the Mergers.
MERGER CONSIDERATION
Under the Merger Agreement, (A) at the Reorganization Merger Effective
Time, each Share outstanding immediately prior to the Reorganization Merger
Effective Time (other than Shares as to which appraisal rights have been validly
perfected) will be converted into one ExistingSub Share and the right to receive
$0.01 in cash and (B) at the Effective Time, each issued and outstanding
ExistingSub Share will be converted into the right to receive $43.47 in cash and
to retain 0.03378 of a Surviving Corporation Share. Thus, as a result of the
Mergers, each stockholder of the Company immediately prior to the Reorganization
Merger Effective Time (other than stockholders who validly perfect their
appraisal rights in the Reorganization Merger) will have, in respect of each of
his or her Shares, the right to (i) receive $43.48 in cash and (ii) retain
0.03378 of a Surviving Corporation Share. The Company's existing stockholders
will retain (assuming no stockholders
34
<PAGE> 44
validly perfect appraisal rights), in the aggregate, approximately 10.3% of the
Surviving Corporation Shares outstanding immediately following the Merger
(approximately 9.5% on a fully diluted basis).
No certificates or scrip representing fractional Surviving Corporation
Shares will be issued upon the surrender for exchange of certificates
representing ExistingSub Shares, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of the
Surviving Corporation. Each beneficial owner of ExistingSub Shares exchanged
pursuant to the Merger who would otherwise have been entitled to retain a
fraction of a Surviving Corporation Share (after taking into account all
ExistingSub Shares delivered by such beneficial owner) will receive, in lieu
thereof, a cash payment (without interest) equal to such fraction multiplied by
$45.00 (inclusive of the $0.01 to be paid in the Reorganization Merger).
EFFECTIVE TIME OF THE MERGERS
The Reorganization Merger will become effective upon the filing of an
agreement and plan or certificate of merger with respect thereto with the
Secretary of State of the State of Delaware or at such later time as is
specified in such agreement and plan or certificate of merger. The filing of
such agreement and plan or certificate of merger will occur as soon as
practicable after satisfaction or waiver (if legally permissible) of all of the
conditions to the Mergers unless another date is agreed to in writing by the
Company and MergerSub. The Reorganization Merger cannot occur any earlier than
the receipt of the approval by the Company's stockholders of this Merger
Agreement and the Mergers (which condition may not be waived) and the receipt by
MergerSub of the Merger Financing. See "Certain Provisions of the Merger
Agreement -- Conditions to the Consummation of the Mergers." The Merger will
occur promptly following the Reorganization Merger and will become effective
upon the filing of a certificate of merger with respect thereto with the
Secretary of State of the State of Delaware. Subject to certain limitations, the
Merger Agreement may be terminated by either party if, among other reasons, the
Mergers have not been consummated by September 30, 1998. See "Certain Provisions
of the Merger Agreement -- Termination."
EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFIT MATTERS
Immediately prior to the Reorganization Merger Effective Time, each
outstanding Option granted to employees and directors of the Company, whether or
not vested, will be canceled. In lieu thereof, immediately prior to the
Reorganization Merger Effective Time, each holder of an Option will receive a
cash payment from the Company of the Option Cash Proceeds in an amount equal to
(i) the total number of Shares subject to such Option multiplied by (ii) the
excess of $45.00 over the exercise price per Share subject to such Option, less
any applicable withholding.
Prior to the Reorganization Merger Effective Time, the Company will (i) use
its reasonable best efforts to obtain any necessary consents from holders of
Options to the cancellation of the Options in consideration for the Option Cash
Proceeds and (ii) make any amendments to the terms of any stock option or
compensation plans or arrangements necessary and permitted to effect the
cancellation of the Options. Payment may be withheld in respect of any Option
until any necessary consents are obtained.
In December 1996, the Company entered into the Value Appreciation Agreement
with certain of its officers. The Value Appreciation Agreement provides that
these officers will be entitled to receive a payment from the Company in certain
circumstances following a transaction giving rise to a change in control. The
payment is conditioned on achieving a threshold price per Share in any such
transaction and the amount of the payment is determined based on the amount
realized per Share in excess of the threshold price, taking into account
increases in the Company's enterprise value since December 1996. The Value
Appreciation Agreement has a term of two years. If the Mergers are consummated,
the aggregate payment payable to such officers will be approximately $2.6
million.
DLJMB has advised the Company that it will give certain holders of Options
and persons entitled to payments under the Value Appreciation Agreement the
opportunity to receive stock options, phantom equity awards or Surviving
Corporation Shares in lieu of the cash amounts otherwise payable, up to an
aggregate of $5 million. Specific terms of the Rollover, including the identity
of the persons who may participate therein,
35
<PAGE> 45
have not yet been determined. To the extent required under the securities laws,
the Surviving Corporation will file a registration statement on Form S-8 with
respect to the securities issued in the Rollover. To the extent persons entitled
to Option Cash Proceeds or amounts payable under the Value Appreciation
Agreement participate in the Rollover, the aggregate amounts payable by the
Company will be reduced.
The Merger Agreement provides that, from and after the Effective Time,
subject to applicable law, the Surviving Corporation will cause the Company and
its subsidiaries to, and the Company and its subsidiaries will, honor the
obligations of the Company and its subsidiaries incurred prior to the Effective
Time under all of the Company's and its subsidiaries' existing employee benefit
plans and benefit arrangements. In addition, for a period of at least one year
from the Effective Time, subject to applicable law, the Surviving Corporation
will cause the Company and its subsidiaries to, and the Company and its
subsidiaries will, provide benefits to their employees which, in the aggregate,
will be comparable to those currently provided by the Company and its
subsidiaries to their employees. The Company will also grant to all persons who
are, as of the Effective Time, employees of the Company or any of its
subsidiaries, past service credit for purposes of vesting, participation,
eligibility for benefit commencement and benefit accrual, and will, among other
things, waive any waiting periods, pre-existing conditions and actively-at-work
exclusions with respect to such employees and their dependents under benefit
plans and benefit arrangements providing medical, dental or life insurance
benefits after the Effective Time.
The Company has Income Protection Agreements with certain officers, which
provide that if an officer's employment is terminated by the Company without
cause, or, in certain circumstances including a "Change in Control" as defined
in the Agreements (which will occur upon the consummation of the Mergers), by
the officer, the officer will be entitled to receive certain severance benefits
as follows: (i) one year's base salary and target bonus; (ii) a pro rated bonus
for the year in which employment is terminated; (iii) continued participation in
the Company's benefit plans for the duration of the severance period; (iv)
accelerated vesting of all stock options and stock appreciation rights; (v)
continuation of any rights to indemnification from the Company; and (vi) certain
outplacement services. The Income Protection Agreements have three-year terms
and automatically renew for subsequent one year terms, unless terminated by
either party.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain of the anticipated material
United States Federal income tax consequences of the Mergers to stockholders of
the Company. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), applicable income tax regulations, published rulings,
administrative pronouncements and court decisions, all as in effect on the date
hereof and all of which are subject to change or differing interpretations at
any time and in some circumstances with retroactive effect. This summary does
not discuss all aspects of Federal income taxation that may be relevant to a
particular stockholder in light of the stockholder's particular circumstances,
or to certain types of stockholders subject to special treatment under the
Federal income tax laws (including, but not limited to, financial institutions,
tax-exempt organizations, insurance companies, stockholders who are not U.S.
Holders (as defined below), regulated investment companies, brokers, dealers,
persons holding Shares as part of a "straddle," "conversion" or hedging
transaction, or persons whose functional currency (as defined in section 985 of
the Code) is not the United States dollar). Moreover, this discussion does not
address the tax treatment of stockholders who exercise dissenters' rights in the
Reorganization Merger, nor does it address the tax treatment of any stockholders
who own, directly, or indirectly, an interest in the DLJMB Funds. In addition,
this summary does not consider the effect of any foreign, state, local or other
tax laws, or any other United States tax consequence other than income tax
consequences (e.g., estate or gift tax consequences), that may be applicable to
particular stockholders. This summary also assumes that the Shares are held as
capital assets. Each holder of the Shares should consult his or her own tax
advisor concerning the application of United States Federal income tax laws to
his or her particular situation as well as any consequences of the Mergers
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of Shares
that is, for United States Federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision
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<PAGE> 46
thereof, (iii) an estate the income of which is subject to United States Federal
income taxation regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust.
While the Company believes that the Mergers will be treated as a single
integrated transaction for United States Federal income tax purposes (and the
discussion that follows assumes that this will be the case), the treatment of
stockholders exchanging Shares in the Mergers is not clear. This is because it
is unclear whether or not, for purposes of Section 351 of the Code, the funds
contributed to the equity of MergerSub by the DLJMB Funds will be treated as a
transfer of property to the Surviving Corporation in the Mergers, so as to cause
Section 351 to apply to stockholders.
1. DLJMB Funds Are Not Treated as Transferors under Section 351. If
the DLJMB Funds are not treated as transferring property to the Surviving
Corporation in the Mergers, so that Section 351 does not apply to the
Mergers, then stockholders of the Company will recognize capital gain or
loss with respect to each Share exchanged equal to the difference between
(i) $43.48 plus the fair market value of the fraction of a Surviving
Corporation Share received in exchange for such share (based upon the
trading price of an ExistingSub Share at the Reorganization Merger
Effective Time) and (ii) the stockholder's tax basis in such Share. Any
such gain recognized will, in the case of stockholders who are individuals,
be subject to taxation at reduced rates if the stockholder's holding period
for the Shares exceeds 12 months, subject to further reduction in the case
of Shares held for more than 18 months. Legislation is currently pending
which would, if enacted into law in its current form, make Shares, so long
as they were held for more than 12 months, eligible for the lowest capital
gains rate otherwise available. A stockholder's tax basis in each Surviving
Corporation Share received in the Mergers will be equal to the fair market
value of such Surviving Corporation Share at the Effective Time. The
holding period for the Surviving Corporation Share will begin the day after
the Reorganization Merger.
2. DLJMB Funds Are Treated as Transferors under Section 351. If the
DLJMB Funds are treated for purposes of Section 351 as transferring
property to the Surviving Corporation in the Mergers, then the Company
believes that the stockholders of the Company will be treated as
transferring their Shares to the Surviving Corporation in a transaction
governed by Sections 351 and 304 of the Code. In such event, stockholders
will recognize gain or loss with respect to the percentage of each Share
exchanged for cash (i.e., the percentage that the cash portion of the
Merger Consideration received by stockholders bears to the total Merger
Consideration (approximately 97%)) equal to the difference between $43.48
and the same percentage of the stockholder's tax basis in such Share. As
described above, any such gain recognized will, in the case of individual
stockholders, be subject to tax at reduced rates, depending on the
stockholder's holding period for the Shares. Stockholders will not
recognize any gain or loss with respect to the percentage of each Share
exchanged for stock of the Surviving Corporation. A stockholder's tax basis
in each Surviving Corporation Share received in the Mergers will be equal
to the stockholder's aggregate tax basis in the portion of each of the
Shares exchanged for the Surviving Corporation Share. The holding period
for a Surviving Corporation Share will include the holding period of the
Shares exchanged for such Surviving Corporation Share. Although the Company
believes that if Section 351 applies to the Mergers the treatment described
in this paragraph is correct, other treatment is possible (including
treatment pursuant to which losses will not be recognized).
In sum, under alternative 1 (Section 351 of the Code is not applicable to
the Mergers) a stockholder will recognize 100% of any gain or loss in his or her
Shares, whereas under alternative 2 (Section 351 of the Code is applicable) a
stockholder will recognize only approximately 97% of any gain or loss in his or
her Shares. Whether or not Section 351 of the Code is applicable to the Mergers
is unclear and each stockholder should consult his or her own tax advisor in
this regard.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization for financial
reporting purposes. Accordingly, the historical basis of the Company's assets
and liabilities will not be affected by the transaction.
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<PAGE> 47
CONFLICTS OF INTEREST OF CERTAIN PERSONS
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Mergers. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under "The Mergers -- Recommendation of the Board of Directors; Reasons for the
Mergers."
Certain officers of the Company, including the Chief Executive Officer,
have employment and other employment-related agreements with the Company that
provide them with certain benefits in connection with the Mergers. See "The
Mergers -- Effect on Stock Options and Employee Benefit Matters" and "Management
Following the Mergers." Further, following the Mergers, the Surviving
Corporation intends to enter into employment agreements with certain of the
executive officers of the Company; however, the terms of these arrangements have
not yet been determined and DLJMB has not had discussions with any executive
officers concerning such arrangements. In addition, the Surviving Corporation
intends to establish a new stock option plan for members of management, although
the terms and size of the option plan have not been determined and option
recipients have not been identified.
The Merger Agreement provides that immediately prior to the Reorganization
Merger Effective Time, all Options, whether or not vested, will be canceled and
the holders of Options will receive a cash payment equal to the Option Cash
Proceeds. As of June 15, 1998, Options to purchase 607,418 Shares were
outstanding. The Company estimates that the aggregate amount of the Option Cash
Proceeds will be approximately $9.1 million, less applicable withholding taxes,
although to the extent persons entitled to receive Option Cash Proceeds
participate in the Rollover, the aggregate amount of Option Cash Proceeds will
be reduced.
In addition, if the Mergers are consummated, certain officers will receive
payments pursuant to the Value Appreciation Agreement in the aggregate amount of
$2.6 million, although to the extent persons entitled to receive payments under
the Value Appreciation Agreement participate in the Rollover, the aggregate
amount payable by the Company under the Value Appreciation Agreement will be
reduced. Certain officers will be entitled to the benefits of their Income
Protection Agreements if such officer is terminated from, or elects to
terminate, employment with the Company following the Mergers. See "The
Mergers -- Effect on Stock Options and Employee Benefit Matters."
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
cause the Company, and the Company has agreed, (a) to indemnify all present and
former directors and officers of the Company or any of its subsidiaries in
respect of acts or omissions occurring at or prior to the Effective Time, and
(b) for six years after the Effective Time, to maintain directors' and officers'
liability insurance containing terms and conditions which are not less favorable
to the directors and officers than those under the policy currently in effect,
provided that in satisfying the aforementioned obligation, the Company will not
be obligated to pay premiums in excess of 150% of the amount per annum the
Company paid in its last full fiscal year preceding the Effective Time. See
"Certain Provisions of the Merger Agreement -- Indemnification and Insurance."
In connection with the Merger Agreement and the Mergers, Goldman Sachs will
receive an investment banking fee of $2 million, payable on consummation of the
Mergers, arising out of its engagement in 1996 as the Company's financial
advisor to assist the Company in its review of strategic alternatives. See "The
Mergers -- Background of the Mergers."
ExistingSub and MergerSub have agreed to enter into the Registration Rights
Agreement with Water Street, and have agreed, among other things, to grant Water
Street certain rights to registration of the Surviving Corporation Shares
retained by Water Street in the Merger. See "The Mergers -- Water Street
Registration Rights."
The following table sets forth the value of all benefits that will be
received in connection with the Mergers (i) by Water Street, (ii) by the
executive officers and directors of the Company as a group, and (iii) by each
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<PAGE> 48
executive officer or director and two former executive officers of the Company
that will receive in excess of $100,000 in such benefits.
<TABLE>
<CAPTION>
TOTAL BENEFITS
-------------------------
CASH COMPONENT VALUE SURVIVING
OF MERGER STOCK OPTION APPRECIATION CASH CORPORATION
CONSIDERATION PAYMENT AGREEMENT PAYMENTS SHARES(1)
-------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Water Street(2)(4).............. $81,041,415 $ 0 $ 0 $81,041,415 62,962
Executive Officers and Directors
as a Group(3)................. 4,068,250 5,131,780 1,172,600 10,372,630 3,161
Robert L. Smialek(5)............ 3,263,870 4,120,000 0 7,383,870 2,536
Terence M. O'Toole/
Barry S. Volpert(4)........... 81,041,415 0 0 81,041,415 62,962
James J. Gaffney................ 347,840 0 0 347,840 270
Thomas E. Petry................. 347,840 0 0 347,840 270
Leslie G. Jacobs(5)............. 17,392 371,780 384,800 773,972 14
David A. Kauer(5)............... 34,784 322,500 397,800 755,084 27
Kenneth H. Koch(5).............. 56,524 317,500 390,000 764,024 44
Robert F. Heffron............... (6) 883,750 678,600 1,562,350(6) (6)
Philip K. Woodlief.............. (7) 0 343,829 343,829(7) (7)
</TABLE>
- ---------------
(1) Less than 1% of the Surviving Corporation Shares outstanding immediately
following the Mergers, except for Water Street, which will own approximately
4.6% of the Surviving Corporation Shares outstanding immediately following
the Mergers.
(2) As noted above, Goldman Sachs, an affiliate of Water Street, will receive a
$2 million investment banking fee upon consummation of the Mergers.
(3) Does not include amounts attributed to Messrs. O'Toole and Volpert but which
are payable to Water Street.
(4) Water Street owns the Shares attributed to Messrs. O'Toole and Volpert and
will receive the Merger Consideration and other benefits listed above.
(5) Does not include payments to these officers under the Income Protection
Agreements or, in the case of Mr. Smialek, under his employment agreement
with the Company, as those payments are owing only if their employment is
terminated. See "The Mergers -- Effect on Stock Options and Employee Benefit
Matters" for information as to how payments under the Income Protection
Agreements are to be calculated.
(6) Mr. Heffron terminated his employment with the Company on February 24, 1998
and is no longer a reporting person under Section 16 of the Exchange Act.
Consequently, the Company does not know his current ownership of Shares.
(7) Mr. Woodlief terminated his employment with the Company on May 8, 1998 and
is no longer a reporting person under Section 16 of the Exchange Act.
Consequently, the Company does not know his current ownership of Shares.
RESALE OF SHARES FOLLOWING THE MERGER
The Surviving Corporation Shares to be retained in connection with the
Merger will be freely transferable, except that Surviving Corporation Shares
retained by any stockholder who may be deemed to be an "affiliate" (as defined
under the Securities Act and generally including, without limitation, directors,
certain executive officers and beneficial owners of 10% or more of a class of
capital stock) of the Company for purposes of Rule 145 under the Securities Act
will not be transferable except in compliance with the Securities Act. This
Proxy Statement/Prospectus does not cover resales of Surviving Corporation
Shares retained by any person who may be deemed to be an affiliate of the
Company.
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<PAGE> 49
WATER STREET REGISTRATION RIGHTS
ExistingSub, MergerSub and Water Street have agreed to enter into a
Registration Rights Agreement granting Water Street, among other things, the
right to demand registration of the Surviving Corporation Shares retained by
Water Street in the Merger or thereafter issued by the Surviving Corporation in
respect of such Surviving Corporation Shares by way of conversion, exchange,
stock dividend, split or combination, recapitalization, merger, consolidation,
other reorganization or otherwise (the "Registrable Securities").
Under the Registration Rights Agreement, Water Street is entitled to
require that the Surviving Corporation register some or all of the Registrable
Securities for a period of up to 180 days (or such lesser period as is necessary
to complete such offering) (a "Demand Registration"). Water Street is limited to
one such Demand Registration, which it may exercise at any time from the date
commencing six months after the Effective Time and continuing through the first
anniversary of the Effective Time. In addition, pursuant to the terms of the
Registration Rights Agreement, for the period commencing six months after the
Effective Time and continuing through the first anniversary of the Effective
Time, if the Surviving Corporation proposes to file a registration statement
under the Securities Act with respect to any offering of (or including)
Surviving Corporation Shares (other than certain registrations relating to
Surviving Corporation Shares issued in certain business combinations or pursuant
to certain employee benefit plans), then the Surviving Corporation will provide
Water Street an opportunity to register its Registrable Securities on the same
terms and conditions (a "Piggyback Registration"). To the extent any affiliates
of Water Street may hold or acquire Surviving Corporation Shares, such
affiliates will be permitted to participate in any registration contemplated by
the Registration Rights Agreement on the same terms as Water Street.
In connection with any Demand Registration or Piggyback Registration, the
Surviving Corporation will be responsible for all expenses incurred in
connection with such registration, except that Water Street (or such other
participating holders, if any) will pay any underwriting discounts or
commissions that may be payable in connection with the sale of its Registrable
Securities. In addition, the Surviving Corporation will indemnify Water Street
and the underwriters and each of their employees and affiliates against certain
liabilities, including liabilities under the Securities Act, or will contribute
to payments Water Street may be required to make in respect thereof. The
Registration Rights Agreement terminates, except with respect to rights to
indemnification, upon the earliest to occur of the sale of all of the
Registrable Securities, the first anniversary of the Effective Time and the
mutual consent of the parties.
The foregoing summarizes the material provisions of the Registration Rights
Agreement, but does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the text of the Registration Rights Agreement.
MERGER FINANCING
The total amount of cash required to consummate the transactions
contemplated by the Merger Agreement, including payment of the cash component of
the Merger Consideration, the Option Cash Proceeds (and applicable withholding
taxes), and transaction fees and expenses (assuming no participation in the
Rollover) is estimated to be approximately $208.5 million. The Merger Financing
will be funded with (i) the issuance by MergerSub of either (x) Discount Notes
which will generate gross proceeds to MergerSub of approximately $110 million or
(y) $110 million of the Bridge Notes to DLJ Bridge Finance, Inc., (ii) the
issuance by MergerSub to DLJMB and the other DLJMB Funds, and, it is expected,
to CVC, for aggregate consideration of $54,999,990, of 1,222,222 shares of
MergerSub Stock and Warrants to purchase 110,453 shares of MergerSub Stock at an
exercise price of not less than $0.01 per share, and (iii) approximately $42.8
million of new borrowings under the Credit Facility. Set forth below is a
description of the general terms of the Merger Financing:
- MergerSub expects to issue Discount Notes which will generate gross
proceeds to MergerSub of approximately $110 million to qualified
institutional investors in the United States pursuant to Rule 144A under
the Securities Act and outside the United States in accordance with
Regulation S under the Securities Act. The specific terms and conditions
of the Discount Notes will depend on market conditions at the time of
issuance. Nevertheless, it is expected that the Discount Notes will
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<PAGE> 50
contain (i) a right to require the Surviving Corporation (as successor
to MergerSub in the Merger) to repurchase those securities upon a
change of control of the Surviving Corporation and (ii) customary
covenants that will, among other things, limit the ability of the
Surviving Corporation and certain of its subsidiaries to: incur
indebtedness or liens, make payments in respect of capital stock,
sell assets and engage in mergers, consolidations and other
extraordinary transactions. MergerSub has retained Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of DLJMB, to manage the
placement of these securities.
- If MergerSub is unable to consummate the issuance and sale of the
Discount Notes on acceptable terms due to market conditions or otherwise,
DLJ Bridge Finance, Inc. has committed, subject to certain terms and
conditions, to purchase up to $110 million of the Bridge Notes. The sale
of the Bridge Notes by MergerSub to DLJ Bridge Finance, Inc. is expected
to be exempt from registration under Section 4(2) of the Securities Act.
The Bridge Notes would initially accrue interest at the prime rate plus
300 basis points and would contain terms and conditions that are
customary for securities of this nature. If MergerSub were to issue the
Bridge Notes to DLJ Bridge Finance, Inc., it is contemplated that,
subject to prevailing market conditions, the Surviving Corporation (as
successor to MergerSub in the Merger) would refinance these obligations
at the earliest possible time with securities substantially similar to
the Discount Notes. If the Surviving Corporation is unable to refinance
the Bridge Notes within one year, holders of the Bridge Notes will be
entitled to receive warrants to purchase a percentage of the Surviving
Corporation Shares that will increase from 0.50% to 10.0% on a fully
diluted basis for each 90-day period between the first and the third
anniversaries of the Effective Time that the Bridge Notes remain
outstanding.
- MergerSub will issue 1,222,222 shares of MergerSub Stock and the Warrants
for aggregate consideration of $54,999.990.00. Although no preliminary or
definitive agreement has been executed, the DLJMB Funds expect that, of
the foregoing equity, CVC will purchase MergerSub Stock in an amount
which when converted into Surviving Corporation Shares in the Merger will
give CVC a 19.6% interest in the Surviving Corporation and a
proportionate amount of the Warrants, and the DLJMB Funds will purchase
the balance of the equity. See "Risk Factors -- Potential Dilution of
Company Stockholders," "Description of Company Capital Stock -- Capital
Stock of the Surviving Corporation Following the Merger," and
"MergerSub."
- Subject to the receipt of a waiver under the Credit Facility (although to
the extent persons participate in the Rollover such borrowings will be
correspondingly reduced) discussed below, it is anticipated that the
Company will incur $42.8 million of borrowings under the Credit Facility.
The Credit Facility provides for $200 million of total borrowing capacity
under which $117.5 million was drawn as of March 31, 1998.
- The Merger will constitute an Event of Default under the terms of the
Credit Facility, and will also require the Surviving Corporation to make
an Offer to Purchase (as defined in the indenture relating to the
Subordinated Notes) for all of the outstanding Subordinated Notes at 101%
of their aggregate principal amount, plus accrued interest. There is an
aggregate of $150 million principal amount of Subordinated Notes
outstanding. It is anticipated that prior to the Merger, the lender banks
will consent to the Merger, that the Company and its lender banks will
amend the Credit Facility, effective on consummation of the Merger (which
amendment will include a waiver of the Event of Default under the Credit
Facility and the right to acquire up to $5 million of Subordinated Notes
pursuant to the Offer to Purchase), and that the Credit Facility as
amended will remain outstanding after the consummation of the Merger. It
is further anticipated that, based on the current market price of the
Subordinated Notes, the holders of the Subordinated Notes will not
require the Company to repurchase their Subordinated Notes in such Offer
to Purchase. However, DLJ Capital Funding Inc. has committed to lend
(pursuant to the Backstop Facility) up to $350 million to the Company,
which the Company believes would be sufficient, if the banks require
repayment of amounts outstanding under the Credit Facility or holders of
more than $5 million of Subordinated Notes require the Company to
repurchase their Subordinated Notes as a result of the Merger.
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If the amendment to the Credit Facility referred to above is signed by the
requisite number of lenders, the Credit Facility will, after the Effective Time,
(i) restrict the Company's ability to incur additional indebtedness in excess of
$30 million outside of the Credit Facility, (ii) restrict the Company's ability
to assume indebtedness in excess of $15 million in connection with acquisitions,
(iii) limit the amount that the Company may spend on capital expenditures in any
fiscal year, ranging from a maximum of $30 million in 1998 to $36 million in
2003, (iv) prohibit the Company from permitting its assets to be pledged to
secure additional indebtedness other than in connection with purchase-money
indebtedness not in excess of $15 million in the aggregate, (v) prohibit a
change of control of the Company, (vi) require that the Company use the proceeds
of certain asset sales in excess of $10 million in the aggregate to make
mandatory prepayments of certain amounts owed under the Credit Facility, and
(vii) prohibit the Company from making acquisitions in excess of $50 million, in
any one case, or $100 million in the aggregate. The Credit Facility will also,
after the Effective Time, require the Company to meet an Interest Coverage Ratio
(which will increase from 1.9:1 in the third quarter of 1998 to 3.25:1 in the
second quarter of 2003), a Fixed Charge Coverage Ratio (which will increase from
1.1:1 in the third quarter of 1998 to 2:1 in the second quarter of 2003) and a
Leverage Ratio (which will decrease from 5.5:1 in the third quarter of 1998 to
3:1 in the second quarter of 2003).
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following summarizes the material provisions of the Merger Agreement, a
copy of which is attached as Annex A to this Proxy Statement/Prospectus and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement.
THE MERGERS AND THE MERGER CONSIDERATION
General. The transactions contemplated by the Merger Agreement will take
place as follows: The Merger Agreement provides for, among other things, the
formation by ExistingSub of a wholly owned subsidiary, ReorgSub, to be followed
by the Reorganization Merger of ReorgSub with and into the Company, with the
Company continuing as the surviving corporation. Pursuant to the Reorganization
Merger, (A) each Share issued and outstanding immediately prior to the
Reorganization Merger Effective Time (other than Shares as to which appraisal
rights have been validly perfected) will be converted into (i) one ExistingSub
Share and (ii) the right to receive $0.01 in cash and (B) each share of common
stock, par value $0.001 per share, of ReorgSub will be converted into one share
of common stock of the corporation surviving the Reorganization Merger. Thus, as
a result of the Reorganization Merger, (A) each stockholder of the Company
immediately prior to the Reorganization Merger Effective Time (other than
holders of Shares as to which appraisal rights have been validly perfected) will
have his or her interest in the Company converted into the same proportionate
interest in ExistingSub, except for changes in interest resulting from the valid
perfection by any stockholder of appraisal rights, and (B) ExistingSub, instead
of being a wholly owned subsidiary of the Company, will become the parent of,
and will own all of the outstanding stock of, the Company. Promptly following
the Reorganization Merger, the Merger will take place, pursuant to which
MergerSub will merge with and into ExistingSub with ExistingSub continuing as
the Surviving Corporation. Pursuant to the Merger, each ExistingSub Share issued
and outstanding immediately prior to the Effective Time will be converted into
the right to (i) receive $43.47 in cash and (ii) retain 0.03378 of a Surviving
Corporation Share. Cash will be paid in lieu of any fractional Surviving
Corporation Share. Thus, as a result of the Mergers, each stockholder of the
Company immediately prior to the Reorganization Merger Effective Time (other
than a holder who validly perfects his or her appraisal rights in the
Reorganization Merger) will have, in respect of each of his or her Shares, the
right to (i) receive $43.48 in cash and (ii) retain 0.03378 of a Surviving
Corporation Share. The Company's existing stockholders will retain (assuming no
stockholders validly perfect appraisal rights in connection with the
Reorganization Merger), in the aggregate, approximately 10.3% of the Surviving
Corporation Shares immediately following the Merger (approximately 9.5% on a
fully diluted basis).
The Merger Agreement provides that immediately prior to the Reorganization
Merger Effective Time, each outstanding Option will be canceled, and, in lieu
thereof, each holder of an Option will receive a cash payment in an amount equal
to the product of (x) the excess, if any, of $45.00 over the exercise price of
the
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Option and (y) the number of Shares subject to the Option, less applicable
withholding. See "The Mergers -- Effect on Stock Options and Employee Benefit
Matters" and "The Mergers -- Conflicts of Interest of Certain Persons."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Reorganization Merger Effective Time, each outstanding Share (other
than Shares as to which appraisal rights have been validly perfected) will be
converted into one ExistingSub Share and the right to receive $0.01 in cash.
However, the certificates representing the Shares will continue to represent
ExistingSub Shares since the conversion will be on a one-for-one basis and since
the Merger will occur promptly after the Reorganization Merger, pursuant to
which ExistingSub Shares will be converted at the Effective Time into the right
to receive cash and to retain Surviving Corporation Shares.
MergerSub has retained National City Bank to act as Exchange Agent
following the Effective Time. As soon as practicable as of or after the
Effective Time, the Surviving Corporation will send, or will cause the Exchange
Agent to send, a letter of transmittal to each holder of ExistingSub Shares. The
letter of transmittal will contain instructions with respect to the surrender of
Share certificates in exchange for the $43.48 cash component of the Merger
Consideration, certificates representing Surviving Corporation Shares to be
retained in the Merger and cash, if any, in lieu of any fractional interest in a
Surviving Corporation Share.
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
Upon surrender to the Exchange Agent of certificates which prior to the
Effective Time represented ExistingSub Shares and acceptance thereof by the
Exchange Agent, each holder of such outstanding certificates will be entitled to
the amount of cash into which the number of ExistingSub Shares previously
represented by the certificates surrendered have been converted pursuant to the
Merger Agreement and a certificate representing the number of full Surviving
Corporation Shares to be retained by the holder thereof pursuant to the Merger
Agreement. The Exchange Agent will accept such certificates upon compliance with
such reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal exchange practices. After
the Reorganization Merger Effective Time, there will be no further transfer on
the records of the Company or its transfer agent of certificates representing
the Shares. After the Effective Time, there will be no further transfer of
certificates representing ExistingSub Shares on the records of ExistingSub or
its transfer agent and, if such certificates are presented to ExistingSub for
transfer, they will be canceled against delivery of cash and certificates for
Surviving Corporation Shares. Until surrendered as contemplated by the Merger
Agreement, each certificate for ExistingSub Shares will be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration. No interest will be paid or will accrue on
the cash component of the Merger Consideration or on the cash in lieu of any
fractional Surviving Corporation Shares. Any stockholder may request that the
cash component of the Merger Consideration payable to him or her be paid by wire
transfer of immediately available funds.
No certificates or scrip representing fractional Surviving Corporation
Shares will be issued upon the surrender for exchange of certificates
representing ExistingSub Shares, and such fractional share interests will not
entitle the owner thereof to vote or to any rights as a stockholder of the
Surviving Corporation. Each beneficial owner of ExistingSub Shares exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a Surviving Corporation Share (after taking into account all
ExistingSub Shares delivered by such beneficial owner) will receive, in lieu
thereof, a cash payment (without interest) representing such same fraction of
$45.00 (inclusive of the $0.01 to be paid in the Reorganization Merger).
If any portion of the Merger Consideration is to be paid to a person other
than the registered holder of the ExistingSub Shares represented by the
certificate surrendered in exchange therefor, it will be a condition to such
payment that the certificate so surrendered be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such payment pay to
the Exchange Agent any transfer or other taxes
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required as a result of such payment to a person other than the registered
holder of such ExistingSub Shares or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
To prevent backup U.S. Federal income tax withholding equal to 31% of the
gross proceeds (i.e., Surviving Corporation Shares and cash) payable pursuant to
the Mergers, each Company stockholder who does not otherwise establish an
exemption from backup withholding must notify the Exchange Agent of such
stockholder's correct taxpayer identification number (or certify that such
taxpayer is awaiting a taxpayer identification number) and provide certain other
information by completing, under penalties of perjury, a Substitute Form W-9
that will be included in the letter of transmittal. Noncorporate foreign
stockholders should generally complete and sign a Form W-8, Certificate of
Foreign Status, a copy of which may be obtained from the Exchange Agent, in
order to avoid backup withholding.
Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to the Merger Agreement that remains unclaimed by the holders of
ExistingSub Shares six months after the Effective Time will be returned to the
Surviving Corporation, upon demand, and any holder who has not exchanged his or
her ExistingSub Shares for the Merger Consideration in accordance with the
Merger Agreement may thereafter look only to the Surviving Corporation for
payment of the Merger Consideration in respect of his or her ExistingSub Shares.
The Surviving Corporation will not be liable to any holder of ExistingSub Shares
for any amount paid to a public official pursuant to applicable abandoned
property laws. Any amounts remaining unclaimed by holders of ExistingSub Shares
two years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) will, to the extent permitted by applicable law, become the
property of the Surviving Corporation free and clear of any claims or interest
of any person previously entitled thereto.
Dissenting Shares will not be converted into ExistingSub Shares and the
right to receive in cash $0.01 per Share (and, accordingly, will not receive the
Merger Consideration upon consummation of the Mergers) and the holder thereof
will be entitled only to such rights as are granted by Section 262 of the DGCL.
Each holder of Dissenting Shares who becomes entitled to payment for such
Dissenting Shares pursuant to Section 262 of the DGCL will receive payment
therefor from the Surviving Corporation (on behalf of the Company) in accordance
with the DGCL; provided, however, that (i) if any such holder of Dissenting
Shares fails to establish his or her entitlement to appraisal rights as provided
in Section 262 of the DGCL, (ii) if any such holder of Dissenting Shares
effectively withdraws his or her demand for appraisal of such Shares or loses
his or her right to appraisal and payment for his or her Shares under Section
262 of the DGCL or (iii) if neither the Surviving Corporation nor any holder of
Dissenting Shares has filed a petition demanding a determination of the value of
all Dissenting Shares within the time provided in Section 262 of the DGCL, such
holder will forfeit the right to appraisal of his or her Dissenting Shares and
each such Dissenting Share will be converted into the right to receive the
Merger Consideration. The Company will give MergerSub prompt notice of any
demands received by the Company for appraisal of Shares, and MergerSub will have
the right to participate in all negotiations and proceedings with respect to
such demands. The Company will not, except with the prior written consent of
MergerSub, make any payment with respect to, or settle or offer to settle, any
demands received by the Company for appraisal of Shares. Under the DGCL, holders
of ExistingSub Shares do not have statutory appraisal rights in respect of the
Merger.
THE SURVIVING CORPORATION
The Certificate of Incorporation of ExistingSub in effect immediately prior
to the Effective Time will be amended and restated as of the Effective Time, as
set forth in Exhibit A to the Merger Agreement, which is included in Annex A
attached hereto, and, as so amended and restated, will be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law. The bylaws of MergerSub in effect at the Effective Time will be
the bylaws of the Surviving Corporation until amended in accordance with such
bylaws or applicable law. From and after the Effective Time, until their
successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of MergerSub at the Effective Time will be the
directors of the Surviving Corporation, and (b) the officers of the Company at
the Effective Time will be the officers of the Surviving Corporation. See
"Management Following the Mergers."
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company, ExistingSub, and other
Company subsidiaries, to, among other things, (a) organization, standing and
similar corporate matters; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (c) the need for only
specified governmental authorization; (d) the ability of the Company and
ExistingSub to execute, deliver and perform the Merger Agreement and to
consummate the contemplated transactions without violating or conflicting with
certain laws and agreements; (e) the capital structure of the Company and its
subsidiaries; (f) documents filed by the Company with the Commission and the
accuracy of information contained therein; (g) the Company's financial
statements; (h) the accuracy of information supplied by the Company in
connection with this Proxy Statement/ Prospectus and documents filed by
MergerSub with the Commission; (i) the absence of certain changes or events
since the date of the most recent audited financial statements filed with the
Commission, including material adverse changes with respect to the Company, and
the absence of material undisclosed liabilities; (j) the absence of undisclosed
pending or threatened material litigation; (k) filing of tax returns and payment
of taxes; (l) benefit plans and other matters relating to ERISA and employment
matters; (m) certain labor matters and compliance with applicable laws; (n)
possession of required licenses and permits; (o) brokers' fees and expenses; (p)
ownership of or rights to use intellectual property of the Company or its
subsidiaries; (q) the stockholder vote necessary to approve and adopt the Merger
Agreement and the Mergers; and (r) compliance with environmental laws.
The Merger Agreement also contains customary representations and warranties
of MergerSub relating to, among other things, (a) organization, standing and
similar corporate matters; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (c)
the need for only specified governmental authorization; (d) the ability of
MergerSub to execute, deliver and perform the Merger Agreement and to consummate
the contemplated transactions without violating or conflicting with certain laws
and agreements; (e) the accuracy of information supplied by MergerSub in
connection with this Proxy Statement/Prospectus and accuracy of each document
required to be filed by MergerSub with the Commission in connection with the
Mergers; (f) brokers' fees and expenses; (g) financing commitments in connection
with the Mergers; (h) MergerSub's capital structure; and (i) MergerSub's belief
as to the availability of the Merger Financing, as to the solvency of the
Surviving Corporation after consummation of the transactions contemplated by the
Merger Agreement and as to the availability of recapitalization accounting
treatment for the Merger.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, without the prior written consent of MergerSub (which shall not
be unreasonably withheld), the Board of Directors will not approve or authorize
any action that would allow the Company and its subsidiaries to carry on their
respective businesses other than in the ordinary course of business and
consistent with past practice or any action that would prevent the Company and
its subsidiaries from using their reasonable best efforts to (a) preserve intact
their present business organization, (b) maintain in effect all material
licenses and permits, (c) keep available the services of their respective key
officers and key employees and (d) maintain satisfactory relationships with
their material customers, lenders, suppliers and others having material business
relationships with them. Without limiting the generality of the foregoing,
except as otherwise contemplated by the Merger Agreement, without the prior
written consent of MergerSub (which cannot be unreasonably withheld), prior to
the Effective Time, the Board of Directors will not, nor will it authorize or
direct the Company or any subsidiary to, among other things: (i) adopt any
change in its certificate of incorporation or bylaws; (ii) except pursuant to
existing agreements or arrangements (A) acquire any material business
organization, or dispose of a material subsidiary or a material amount of assets
(excluding inventory) or securities; (B) transfer any rights of material value,
except in the ordinary course of business, consistent with past practices; (C)
modify in any material respect any existing material contract or other document,
except in the ordinary course of business, consistent with past practices; (D)
except to refund or refinance commercial paper or with respect to borrowings in
the ordinary course of business consistent with past practices, incur,
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assume or prepay any amount of long-term or short-term debt; (E) become liable
for the obligations of any other person, except in the ordinary course of
business, consistent with past practices; (F) make any loans to, or investments
in, any other person, except in the ordinary course of business, consistent with
past practices; or purchase any property or assets of any other entity, except
in the ordinary course of business, consistent with past practices; (G) enter
into any interest rate, currency or other swap or derivative transaction, other
than in the ordinary course of business, consistent with past practices, and for
bona fide hedging purposes; or (H) except for capital expenditures provided for
in the Company's 1998 capital budget, incur any capital expenditure,
individually or in the aggregate, in excess of $3,000,000; (iii) split, combine
or reclassify any shares of its capital stock, declare or pay any dividend in
respect of its capital stock, other than cash dividends by a wholly owned
subsidiary of the Company to the Company or to a wholly owned subsidiary or in
the case of a joint venture vehicle, pro rata to all equity holders thereof, or
redeem or otherwise acquire any of its securities or any securities of its
subsidiaries except pursuant to the Reorganization Merger; (iv) adopt or amend
any employee benefit plan or arrangement, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any existing plan or arrangement (except for normal
actions in the ordinary course of business consistent with past practices and
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company or any of its subsidiaries); (v) revalue in
any material respect any of its assets (except as required by law or generally
accepted accounting principles); (vi) pay or satisfy any material claims other
than in the ordinary course of business, consistent with past practices; (vii)
make any tax election inconsistent with past practices, or settle or compromise
any material income tax liability; (viii) take any action other than in the
ordinary course of business and consistent with past practices with respect to
accounting policies or procedures; or (ix) agree or commit to do any of the
foregoing.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither the Company nor any of its
subsidiaries will (a) solicit, initiate or take any action knowingly to
facilitate the submission of inquiries, proposals or offers from any Third Party
relating to any Acquisition Proposal, namely: (i) any acquisition or purchase of
20% or more of the consolidated assets of the Company and its subsidiaries or of
over 20% of any class of equity securities of the Company or of any of its
subsidiaries whose assets, individually or in the aggregate, constitute more
than 20% of the consolidated assets of the Company, (ii) any tender offer
(including a self tender offer) or exchange offer that if consummated would
result in any Third Party beneficially owning 20% or more of any class of equity
securities of the Company or any of its subsidiaries whose assets, individually
or in the aggregate, constitute more than 20% of the consolidated assets of the
Company, (iii) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its subsidiaries whose assets,
individually or in the aggregate, constitute more than 20% of the consolidated
assets of the Company, or (iv) any other transaction the consummation of which
would or could reasonably be expected to impede, interfere with, prevent or
materially delay the Mergers, or agree to or endorse any Acquisition Proposal,
(b) enter into or participate in any discussions or negotiations regarding any
of the foregoing, or furnish to any Third Party any information with respect to
its business, properties or assets in order to facilitate or encourage any
effort or attempt by any Third Party to do or seek any of the foregoing, or
otherwise cooperate in any way with, or knowingly assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to do or seek
any of the foregoing, or (c) grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities of the Company
or any of its subsidiaries; provided, however, that the foregoing will not
prohibit the Company from (i) furnishing information pursuant to an appropriate
confidentiality letter (which letter will not be less favorable to the Company
in any material respect than the Confidentiality Agreement and a copy of which
will be provided, for informational purposes only, to MergerSub with the name of
the Third Party redacted) concerning the Company to a Third Party who has made a
bona fide Acquisition Proposal, (ii) engaging in discussions or negotiations
with a Third Party who has made a bona fide Acquisition Proposal, (iii)
following receipt of a bona fide Acquisition Proposal, taking and disclosing to
its stockholders a position contemplated by Rule 14e-2(a) or Rule 14d-9 under
the Exchange Act or otherwise making disclosure to its stockholders, (iv)
following receipt of a bona fide Acquisition Proposal, failing to make or
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withdrawing or modifying its recommendation with respect to the Merger Agreement
and the Mergers and/or (v) taking any non-appealable, final action ordered to be
taken by the Company by any court of competent jurisdiction, but in each case
referred to in the foregoing clauses (i) through (iv) only to the extent that
the Board of Directors has concluded in good faith on the basis of advice from
outside counsel that the failure to take such action would result in a breach of
the fiduciary duties of the Board of Directors to the stockholders of the
Company under applicable law; provided, further, that (A) the Board of Directors
will not take any of the foregoing actions referred to in clauses (i) through
(iv) until after reasonable notice to MergerSub with respect to such action, and
(B) if the Board of Directors receives an Acquisition Proposal, to the extent it
may do so without breaching its fiduciary duties as advised by counsel and as
determined in good faith and without violating any of the conditions of such
Acquisition Proposal, then the Company will promptly inform MergerSub of the
terms and conditions of such proposal and the identity of the person making it.
The Company has agreed in the Merger Agreement to immediately cease, and cause
its advisors, agents and other intermediaries to cease, any and all existing
activities, discussions or negotiations with any parties previously conducted
with respect to any of the foregoing, and shall use its reasonable best efforts
to cause any such parties in possession of confidential information that was
furnished by or on behalf of the Company to return or destroy all such
information.
If a Payment Event (as defined in the Merger Agreement) occurs, the Company
will pay to MergerSub, within two business days following such Payment Event, a
fee of $6 million. "Payment Event" means (i) the termination of the Merger
Agreement by MergerSub if the Board of Directors withdraws or modifies, in a
manner adverse to MergerSub, its approval of the Merger Agreement and the
Mergers, (ii) the termination of the Merger Agreement by the Company in
contemplation of a merger agreement or a tender or exchange offer or any
transaction of the type listed in clause (iv) below, on terms more favorable to
the Company's stockholders from a financial point of view than the Merger; (iii)
the termination of the Merger Agreement by MergerSub by reason of a breach by
the Company of a covenant or warranty or representation but only if the breach
in question arises out of the bad faith or willful misconduct of the Company; or
(iv) the occurrence of any of the following events, within 12 months of the
termination of the Merger Agreement, due to a failure to obtain the requisite
stockholder approval and adoption of the Mergers, whereby stockholders of the
Company receive, pursuant to such event, cash, securities or other consideration
having an aggregate value, when taken together with the value of any securities
of the Company or its subsidiaries otherwise held by the stockholders of the
Company after such event, in excess of $45.00 per Share: the Company is acquired
by merger or otherwise by a Third Party; a Third Party acquires more than 50% of
the total assets of the Company and its subsidiaries, taken as a whole; a Third
Party acquires more than 50% of the outstanding Shares or the Company adopts and
implements a plan of liquidation, recapitalization or share repurchase relating
to more than 50% of the outstanding Shares or an extraordinary dividend relating
to more than 50% of the outstanding Shares or 50% of the assets of the Company
and its subsidiaries, taken as a whole.
EXPENSE REIMBURSEMENT
Upon (i) the occurrence of a Payment Event or (ii) a termination by
MergerSub by reason of a failure to receive requisite stockholder approval of
the Merger Agreement and the Mergers or by reason of indebtedness of the Company
being in excess of $290 million immediately prior to the Reorganization Merger
Effective Time, the Company will reimburse MergerSub and its affiliates, not
later than two business days after submission of reasonable documentation
thereof, for 100% of their out-of-pocket fees and expenses (including the
reasonable fees and expenses of their counsel and fees payable to the financing
entities and their respective counsel), not to exceed $5 million, actually
incurred by any of them or on their behalf in connection with the Merger
Agreement and the transactions contemplated thereby.
RESIGNATIONS OF DIRECTORS
The Merger Agreement provides that prior to the Effective Time, the Company
will deliver to MergerSub evidence satisfactory to MergerSub of the resignation
of all directors of the Company and ExistingSub (other than Robert L. Smialek)
effective at the Effective Time.
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INDEMNIFICATION AND INSURANCE
Pursuant to the terms of the Merger Agreement, the Surviving Corporation
will cause the Company to, and the Company has agreed to, indemnify and hold
harmless the present and former officers and directors of the Company or any of
its subsidiaries in respect of acts or omissions or alleged acts or omissions
occurring at or prior to the Effective Time to the fullest extent permitted from
time to time by the DGCL or any other applicable laws as presently or hereafter
in effect or as provided under the Company's certificate of incorporation and
bylaws as in effect on March 24, 1998. The Merger Agreement further provides
that, for a period of six years after the Effective Time, the Surviving
Corporation will cause the Company to provide officers' and directors' liability
insurance covering each person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on March 24, 1998,
provided that in satisfying the aforementioned obligation, the Company will not
be obligated to pay premiums in excess of 150% of the amount per annum that the
Company paid in its last full fiscal year preceding the Effective Time.
MERGER FINANCING
Pursuant to the terms of the Merger Agreement, MergerSub must use its
reasonable best efforts to obtain and satisfy the conditions of the Merger
Financing. In the event that any portion of the Merger Financing becomes
unavailable, regardless of the reason therefor, MergerSub must use its
reasonable best efforts to obtain alternative financing on substantially
comparable or more favorable terms from other sources.
NASDAQ LISTING
The Surviving Corporation will not take any action, for at least three
years after the Effective Time, to cause the Surviving Corporation Shares to be
de-listed from, or fail to meet any of the listing standards of, NASDAQ;
provided, however, that the Surviving Corporation may cause or permit the
Surviving Corporation Shares to be de-listed in connection with a transaction
(other than the Merger) which results in the termination of registration of such
securities under Section 12 of the Exchange Act, and provided, further, that the
foregoing does not require the Surviving Corporation to take any affirmative
action to prevent the Surviving Corporation Shares from being de-listed by
NASDAQ if the Surviving Corporation Shares cease to meet the applicable listing
standards. For continued listing on NASDAQ, NASDAQ currently requires, among
other things, a listed company to maintain (i) at least 300 round lot holders
and (ii) at least 500,000 publicly held shares with a market value of at least
$1 million. The number of holders of record of Shares on June 15, 1998 was 740,
many of whom are not round lot holders. Following the Mergers, the Company
believes that it will have fewer than 300 round lot holders and fewer than
500,000 publicly held Shares. Consequently, the Company believes that, following
the Mergers, it may be de-listed by NASDAQ. MergerSub has agreed in the Merger
Agreement that for at least three years following the Effective Time, the
Surviving Corporation will make available the information required pursuant to
Rule 144(c) under the Securities Act.
BANKRUPTCY CLAIMS
The Surviving Corporation will cause the Company to, and the Company has
agreed to, honor the provisions of the order discharging the Company from the
protection of the United States Federal Bankruptcy Court in 1993 (the
"Bankruptcy Order") with respect to the issuance of the 66,682 Shares which, as
of June 15, 1998, were issuable or reserved for issuance for payment of
unasserted bankruptcy claims against the Company, except that, in lieu of
issuing any such Shares, payment will be made in cash in an amount equal to
$45.00 multiplied by the aggregate number of Shares which otherwise would become
issuable pursuant to the terms of the Bankruptcy Order.
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement, and subject to certain conditions and
limitations described therein, MergerSub and the Company have agreed to
cooperate with each other and to use their respective reasonable
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<PAGE> 58
best efforts to take certain specified and other actions, including cooperation
in the arrangement of the Merger Financing, so that the transactions
contemplated by the Merger Agreement may be consummated.
CONDITIONS TO THE CONSUMMATION OF THE MERGERS
The respective obligations of the Company and MergerSub to consummate the
Mergers are subject to the satisfaction of the following conditions: (a) the
Merger Agreement and the Mergers shall have been approved and adopted by a
majority of the outstanding Shares as of the record date for the Special
Meeting; (b) any applicable waiting period under the HSR Act relating to the
Mergers shall have expired or been terminated (which condition has been
satisfied); (c) no provision of any applicable law or regulation and no
judgment, order, decree or injunction shall prohibit or restrain the
consummation of the Mergers; provided, however, that the Company and MergerSub
will each use its reasonable best efforts to have any such judgment, order,
decree or injunction vacated; (d) all consents, approvals and licenses of any
governmental or other regulatory body required in connection with the execution,
delivery and performance of the Merger Agreement and for the Company and its
subsidiaries to conduct their business in substantially the manner now conducted
shall have been obtained, unless the failure to obtain such consents,
authorizations, orders or approvals would not have a material adverse effect on
the Company and its subsidiaries after giving effect to the transactions
contemplated by the Merger Agreement (including the Merger Financing); and (e)
the Registration Statement of which this Proxy Statement/Prospectus is a part
shall have been declared effective and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no proceeding
for such purpose shall be pending before or threatened by the Commission. On May
22, 1998, the Company was advised that the waiting period under the HSR Act with
respect to the Mergers had been terminated. None of the foregoing conditions,
other than the condition set forth in clause (d) of this paragraph, may be
waived by the parties.
The obligation of MergerSub to consummate the Merger is further subject to
the satisfaction of the following conditions: (a) the Company shall have
performed in all material respects all of its obligations required to be
performed by it at or prior to the Effective Time, the representations and
warranties of the Company contained in the Merger Agreement shall be true in all
material respects at and as of the Effective Time (provided that representations
made as of a specific date will be required to be true as of such date only) as
if made at and as of such time, and MergerSub shall have received a certificate
signed by an executive officer of the Company to that effect; (b) there shall
not be pending any action against the Company or any subsidiary by any
governmental authority or by any other person, in either case before any court
or governmental authority or agency that has a reasonable likelihood of success,
(i) challenging or seeking to make illegal, to delay materially or otherwise to
restrain or prohibit the consummation of the Merger or seeking to obtain
material damages or otherwise relating to the transactions contemplated by the
Merger Agreement, (ii) seeking to restrain or prohibit MergerSub's ownership or
operation of all or any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or to compel MergerSub to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its subsidiaries, taken as a whole, (iii) seeking to
impose material limitations on the ability of MergerSub effectively to control
the business or operations of the Company and its subsidiaries, taken as a
whole, or effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or owned by
MergerSub on all matters properly presented to the Surviving Corporation's
stockholders, or (iv) seeking to require divestiture by MergerSub of any Shares;
and no court or governmental body shall have issued any judgment, order, decree
or injunction, and there shall not be any statute, rule or regulation, that, in
the reasonable judgment of MergerSub is likely to result in any of the
consequences referred to in the preceding clauses (i) through (iv); (c) the
Reorganization Merger shall have occurred as contemplated by the Merger
Agreement; (d) the Merger Financing shall have been made available to MergerSub
and/or the Company as contemplated in the Merger Agreement; (e) the holders of
not more than 6% of the outstanding Shares shall have demanded appraisal of
their Shares in accordance with the DGCL; (f) MergerSub shall be reasonably
satisfied that the Merger will be recorded as a "recapitalization" for financial
reporting purposes; and (g) total indebtedness (long-term and short-term) of the
Company and its subsidiaries immediately preceding the Reorganization Merger
Effective Time shall not exceed $290 million. All of the foregoing conditions
may be waived by DLJMB.
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<PAGE> 59
The obligation of the Company to consummate the Reorganization Merger and
the obligation of ExistingSub to consummate the Merger are subject to the
satisfaction of the following further conditions: (a) MergerSub shall have
performed in all material respects all of its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time; the
representations and warranties of MergerSub contained in the Merger Agreement
and in any certificate or other writing delivered by it pursuant to the Merger
Agreement shall be true in all material respects at and as of the Effective Time
(provided that representations made as of a specific date shall be required to
be true as of such date only) as if made at and as of such time; and the Company
shall have received a certificate signed by an executive officer of MergerSub to
the foregoing effect; and (b) the Board of Directors shall have received an
opinion, addressed and reasonably satisfactory to it, from an independent
advisor confirming the belief of MergerSub that, upon the consummation of the
transactions contemplated by the Merger Agreement, the Surviving Corporation (i)
will not become insolvent, (ii) will not be left with unreasonably small
capital, (iii) will not have incurred debts beyond its ability to pay such debts
as they mature, and (iv) will not have its capital impaired (the "Solvency
Condition"). The Company has engaged Houlihan, Lokey, Howard & Zukin Financial
Advisors, Inc. to render an opinion as to the foregoing.
All of the conditions may be waived by the parties, other than the
conditions set forth in clauses (a), (b), (c) and (e) of the first paragraph
under this caption. If the Company waives the Solvency Condition (which it does
not intend to do) or if any other condition is waived and the waiver will
materially affect the rights of the Company's stockholders, the Company will
resolicit the consent of stockholders to the Merger Agreement and the Mergers
and will file an updated Proxy Statement/Prospectus as a post-effective
amendment to the Registration Statement.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and MergerSub;
(b) by either the Company or MergerSub, if the Merger has not been
consummated by September 30, 1998, provided that the party seeking to
exercise such right is not then in breach in any material respect of any of
its obligations under the Merger Agreement;
(c) by either the Company or MergerSub, if MergerSub (in the case of
termination by the Company), or the Company (in the case of termination by
MergerSub) has breached in any material respect any of its obligations
under the Merger Agreement or any representation and warranty of MergerSub
(in the case of termination by the Company) or the Company (in the case of
termination by MergerSub) was incorrect in any material respect when made
or at any time prior to the Effective Time (unless such breach or failure
to be correct is capable of correction and, in such case, the breaching
party promptly effects such correction);
(d) by either the Company or MergerSub, if there is any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
MergerSub or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree becomes final and non-appealable;
(e) by MergerSub, if the Board of Directors has withdrawn or modified
or amended, in a manner adverse to MergerSub, its approval or
recommendation of the Merger Agreement and the Mergers or its
recommendation that stockholders of the Company approve and adopt the
Merger Agreement and the Mergers, or has approved, recommended or endorsed
any proposal for a transaction other than the Mergers (including a tender
or exchange offer for Shares) or if the Company has failed to call the
Special Meeting or failed as promptly as practicable after this Proxy
Statement/Prospectus is cleared by the Commission to mail this Proxy
Statement/Prospectus to its stockholders or failed to include in such
statement the recommendation referred to above;
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<PAGE> 60
(f) by the Company if prior to the Effective Time the Board of
Directors has withdrawn or modified or amended, in a manner adverse to
MergerSub, its approval or recommendation of the Merger Agreement and the
Mergers or its recommendation that stockholders of the Company approve and
adopt the Merger Agreement and the Mergers in order to permit the Company
to execute a definitive agreement providing for the acquisition of the
Company or in order to approve a tender or exchange offer for any or all of
the Shares, in either case, as determined by the Board of Directors to be
on terms more favorable from a financial point of view to the Company's
stockholders than the Mergers; and
(g) by either the Company or MergerSub if, at a duly held stockholders
meeting of the Company or any adjournment thereof at which the Merger
Agreement and the Mergers are voted upon, the requisite stockholder
approval has not been obtained.
If the Merger Agreement is terminated, it will become void and of no effect
with no liability on the part of any party thereto, except that the agreements
relating to payment of fees and expenses and the provisions relating to
preservation of confidentiality of the information disclosed by the Company to
MergerSub will survive, and except that no termination will relieve any party
from liability for breach of any of its respective covenants or agreements
contained in the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended or waived prior to the Effective Time
if such amendment or waiver is in writing and signed, in the case of an
amendment, by all of the parties or, in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the approval and
adoption of the Merger Agreement and the Mergers by the stockholders of the
Company, no such amendment or waiver shall, without the further approval of such
stockholders, alter or change (i) the amount or kind of consideration to be
received in exchange for ExistingSub Shares, (ii) any term of the certificate of
incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of the Merger Agreement if such alteration or change would adversely
affect the holders of any ExistingSub Shares.
CERTAIN PROVISIONS OF THE VOTING AGREEMENT
In connection with the Merger Agreement and the transactions contemplated
thereby, MergerSub and the Company entered into the Voting Agreement with Water
Street covering the Water Street Shares.
The following summarizes the material provisions of the Voting Agreement, a
copy of which appears as Annex C to this Proxy Statement/Prospectus and is
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Voting Agreement.
VOTING
During the period (the "Agreement Period") beginning on March 24, 1998 and
ending on the earliest of (i) the Effective Time, (ii) the date that is 90 days
after the termination of the Merger Agreement in accordance with Section
9.01(e), 9.01(f) or 9.01(g) thereof and payment in full of all amounts (if any)
payable to MergerSub pursuant to Section 5.04 of the Merger Agreement, and (iii)
the date of termination of the Merger Agreement for any other reason, Water
Street has agreed to vote the Water Street Shares to approve and adopt the
Merger Agreement and the Mergers (provided that Water Street will not be
required to vote in favor of the Merger Agreement or the Mergers if the Merger
Agreement has, without the written consent of Water Street, been amended in any
manner that is material and adverse to Water Street) and any actions directly
and reasonably related thereto at any meeting or meetings of the stockholders of
the Company, and at any adjournment thereof, at which such Merger Agreement, or
such other actions, are submitted for the consideration and vote of the
stockholders of the Company so long as such meeting is held and completed
(including any adjournment thereof) prior to the termination of the Agreement
Period.
If at any time (i) there is a tender or exchange offer (an "Offer")
commenced by any person to purchase Shares and (ii) the Merger Agreement has
been terminated pursuant to Section 9.01(e), 9.01(f) or 9.01(g) thereof, then
Water Street will have the right to validly tender any or all of the Water
Street Shares into the
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Offer three business days prior to any scheduled expiration of such Offer. Any
such tender or sale pursuant thereto will not be a breach of the provisions of
the Voting Agreement and the Agreement Period will be deemed to end upon
consummation of such Offer. In addition, nothing in the Voting Agreement
precludes Water Street from making, during the Agreement Period, any election
with respect to the form of consideration in respect of an Acquisition Proposal.
If Water Street elects to tender into the Offer, Water Street must notify
MergerSub of such election, and MergerSub will have the nonassignable option to
purchase all (but not less than all) of the Water Street Shares at a price of
$45.00 per share in cash.
Water Street has agreed that, during the Agreement Period, it will not vote
the Water Street Shares in favor of the approval of any other merger,
consolidation, sale of assets, reorganization, recapitalization, liquidation or
winding up of the Company or any other extraordinary transaction involving the
Company or any matters in connection therewith, or any corporate action the
consummation of which would either frustrate the purposes of, or prevent or
delay the consummation of, the transactions contemplated by the Merger
Agreement.
NO SOLICITATION
Water Street has agreed that, during the Agreement Period, it will not (i)
take any action to solicit or facilitate any Acquisition Proposal or (ii) engage
in negotiations or discussions with, or furnish any nonpublic information
relating to the Company to, or otherwise assist, facilitate or encourage, any
third party that Water Street believes may be considering making, or has made,
an Acquisition Proposal. Water Street will promptly notify MergerSub after
receipt of any Acquisition Proposal or any indication from any third party that
it is considering making an Acquisition Proposal and will keep MergerSub fully
informed of the status and details thereof. The Voting Agreement will not limit
actions taken, or require actions to be taken, (i) by any party related to Water
Street who is, or one or more of whose affiliates, directors, partners, officers
or employees is, a director or officer of the Company that are required or
restricted by such director's fiduciary duties or such officer's employment
duties, or permitted by the Merger Agreement, and that, in each case, are
undertaken solely in such person's capacity as a director or officer of the
Company and, in the case of an officer of the Company, as directed by the Board
of Directors or (ii) by an affiliate of Water Street, in such affiliate's
capacity as investment banker, investment broker or financial advisor to the
Company, to the extent such affiliate performs such actions at the request of
the Board of Directors in connection with the exercise by the Board of Directors
of its fiduciary obligations under applicable law consistent with the Company's
rights and obligations under the Merger Agreement.
APPRAISAL RIGHTS
Water Street has agreed not to exercise any rights (including, without
limitation, under Section 262 of the DGCL) to demand appraisal of any Shares
owned by Water Street. Furthermore, as Water Street has agreed to vote in favor
of the Merger Agreement and the Mergers, Water Street will not be entitled under
the DGCL to demand appraisal of any Shares owned by it with respect to the
Reorganization Merger upon such a vote.
TRANSFER RESTRICTIONS
Water Street has agreed, pursuant to the Voting Agreement, that it will not
sell, transfer, assign, encumber or otherwise dispose of any of the Water Street
Shares (whether to an affiliate or otherwise) until the expiration of the
Agreement Period, other than pursuant to the Reorganization Merger or pursuant
to the terms of the Voting Agreement.
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DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The Company is authorized by its Certificate of Incorporation, as amended,
to issue an aggregate of 15,000,000 Shares. The following is a summary of
certain of the rights and privileges pertaining to the Shares. For a full
description of the Company's capital stock, reference is made to the Company's
Certificate of Incorporation, as amended, currently in effect, a copy of which
is on file with the Commission. The rights of stockholders of the Surviving
Corporation after the Mergers will not be materially different than the rights
of stockholders of the Company before the Mergers.
SHARES
Voting Rights. The holders of Shares are entitled to one vote per Share on
all matters submitted for action by the stockholders. There is no provision for
cumulative voting with respect to the election of directors. Accordingly, the
holders of more than 50% of the Shares can, if they choose to do so, elect the
entire Board of Directors.
Dividend Rights. Holders of Shares are entitled to share equally in all
dividends declared on Shares, whether payable in cash, property or securities of
the Company.
Liquidation Rights; Other Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of Shares are entitled to share equally in the assets available for
distribution. Holders of Shares have no conversion, redemption or preemptive
rights.
CAPITAL STOCK OF THE SURVIVING CORPORATION FOLLOWING THE MERGER
Shares. If the Mergers are approved by the requisite vote of stockholders
at the Special Meeting, at the Effective Time the Certificate of Incorporation
of the Company, as amended, will be amended and restated as set forth as Exhibit
A to the Merger Agreement, which is included as Annex A attached hereto, and, as
so amended and restated, unless and until thereafter further amended, will be
the Certificate of Incorporation of the Surviving Corporation following the
Merger. The Surviving Corporation's Certificate of Incorporation following the
Merger will not be materially different from the Company's Certificate of
Incorporation as currently in effect. Immediately following the Effective Time
(assuming no stockholders validly exercise appraisal rights), there will be
1,362,253 Surviving Corporation Shares issued and outstanding, of which 955,556
Surviving Corporation Shares will be owned by the DLJMB Funds, 266,666 Surviving
Corporation Shares will be owned by CVC (assuming CVC makes the contemplated
investment; otherwise 1,222,222 Surviving Corporation Shares will be owned by
the DLJMB Funds) and the balance will be owned by persons who are stockholders
of the Company immediately prior to the Reorganization Merger Effective Time.
The relative ownership of Surviving Corporation Shares at the effective time
between the DLJMB Funds and CVC, on the one hand, and the stockholders of the
Company, on the other hand, is based on the exchange ratios in the Merger
pursuant to which (i) the DLJMB Funds and CVC will receive one Surviving
Corporation Share for each share of MergerSub Stock they hold and (ii) the
Company's stockholders at such time will receive the Merger Consideration which
includes the right to receive both $43.48 in cash and 0.03378 of a Surviving
Corporation Share for each ExistingSub Share held by them.
Warrants. Each Warrant, whether purchased by the DLJMB Funds or CVC, will
entitle the holder thereof to purchase one Surviving Corporation Share at an
exercise price of not less than $0.01 per share subject to customary
antidilution provisions and other customary terms. The Warrants will be
exercisable at any time prior to 5:00 p.m., New York City time, on the twelfth
anniversary of the Effective Time. The exercise of the Warrants also will be
subject to applicable federal and state securities laws.
Transfer Agent and Registrar. The transfer agent and registrar for the
Surviving Corporation Shares following the Merger will be National City Bank,
Cleveland, Ohio.
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OTHER STOCKHOLDER ARRANGEMENTS
Pursuant to the Registration Rights Agreement, ExistingSub and MergerSub
have agreed, among other things, to grant Water Street Demand Registration and
Piggyback Registration rights, upon the terms and subject to the conditions
contained therein. See "The Mergers -- Water Street Registration Rights."
The DLJMB Funds will be entitled to request four demand registrations with
respect to the Warrants and the Surviving Corporation Shares owned by them,
which demand registration rights will be immediately exercisable subject to
customary deferral and cutback provisions. In addition, the holders of the
Warrants will also be entitled to unlimited piggyback registration rights with
respect to any registration of Warrants or Surviving Corporation Shares subject
to customary deferral and cutback provisions. The Company will bear the costs
and expenses of registration, including the costs and expenses of one counsel
for the investors, and will provide customary indemnities in connection
therewith. If the Warrants are sold in connection with a registered sale or a
sale under Rule 144A under the Securities Act of the Discount Notes, the Company
will file a shelf registration statement covering the Surviving Corporation
Shares underlying such Warrants. The Company will use its reasonable best
efforts to assist the holders of the Warrants in the sale of any Warrants made
pursuant to their registration rights set forth above.
If CVC purchases Merger Sub Stock and Warrants, the DLJMB Funds and CVC are
expected to enter into a stockholders agreement that would require the DLJMB
Funds to vote for one CVC nominee to the Surviving Corporation's Board of
Directors. See "Management Following the Mergers." In addition, under the
stockholders agreement, CVC would have the right to participate pro rata in any
sale by the DLJMB Funds of their Surviving Corporation Shares above a threshold
amount to be agreed upon by CVC and the DLJMB Funds, and the DLJMB Funds would
have the right to require CVC to participate pro rata in certain sales by the
DLJMB Funds of their Surviving Corporation Shares. The stockholders agreement
would also grant CVC the right to participate in any demand registration made by
the DLJMB Funds, on a pro rata basis, and certain pre-emptive and other rights,
the specifics of which have not yet been determined.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the DGCL.
In general, Section 203 prevents an "interested stockholder" (defined generally
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined) with a Delaware corporation
for three years following the date such person became an interested stockholder,
subject to certain exceptions, such as transactions effected with the approval
of the Board of Directors or of the holders of at least two-thirds of the
outstanding shares of voting stock not owned by the interested stockholder. The
Board of Directors, in approving the Merger Agreement and the Mergers, rendered
the two-thirds stockholders vote provided for by Section 203 of the DGCL
inapplicable to the Mergers.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Pro Forma Financial Data are based upon historical consolidated
financial statements of the Company as adjusted to give effect to the Mergers,
including the Merger Financing and application of the proceeds thereof. In
addition, operating results for the first quarter 1997 and full year 1997 have
been adjusted to give effect to the 1997 Transactions. A summary of these
adjustments follows.
The Reorganization Merger will be accounted for as a reorganization of
entities under common control, which will have no impact on the historical basis
of the assets or liabilities of ExistingSub or the Company. The Merger is
accounted for as a recapitalization and will have no impact on the historical
basis of the assets or liabilities of ExistingSub or the Company.
The Mergers include the following transactions:
- The issuance of Discount Notes by MergerSub which will generate gross
proceeds to MergerSub of approximately $110 million, and new borrowings
under the Company's Credit Facility of approximately $42.8 million, of
which $24.4 million will be paid as a dividend from the Company to
ExistingSub to fund a portion of the Merger Consideration.
- The initial capitalization of MergerSub through the issuance of 1,222,222
shares of MergerSub Stock and Warrants to purchase 110,453 shares of
MergerSub Stock for aggregate consideration of $55.0 million.
- Payment of the Merger Consideration for each Share outstanding
immediately prior to the Mergers (4,145,372 Shares based on the number of
Shares outstanding as of June 15, 1998 and assuming no stockholders
validly perfect appraisal rights) consisting of $43.48 in cash and
0.03378 of a Surviving Corporation Share.
- Payment of fees and expenses associated with the issuance of the Discount
Notes, the waiver of certain Events of Default under the Credit Facility,
and the Mergers.
- Vesting of all outstanding Options and payment of the Option Cash
Proceeds (and applicable withholding taxes) and payments pursuant to
employment related agreements and assuming no participation in the
Rollover.
The 1997 Transactions consist of the following:
- Refinancing -- The Company entered into the Credit Facility as of July 3,
1997 that, among other things, provides for (i) a $200 million revolving
credit facility, (ii) a $50 million sublimit for commercial and standby
letters of credit and (iii) a $50 million sublimit for advances in
selected foreign currencies.
- The issuance of Subordinated Notes -- On August 12, 1997, the Company
issued $150 million aggregate principal amount of the Subordinated Notes.
- Share Repurchase -- On July 10, 1997, the Company, using the proceeds of
its sale of the Rolodex Business, purchased an aggregate of 2,857,142
Shares for $109,999,967. On August 12, 1997, the Company completed a
tender offer pursuant to which it purchased an additional 2,857,142
Shares for $109,999,967. The purchase of Shares in the tender offer was
paid for with proceeds received through the issuance by the Company of
the Subordinated Notes.
The unaudited pro forma condensed consolidated balance sheet data as of
March 31, 1998 have been prepared as if the Mergers occurred on that date. The
unaudited pro forma condensed consolidated income statements have been prepared
as if the Mergers and the 1997 Transactions all occurred on January 1 of the
relevant periods; however, the expenses directly related to the aforementioned
transactions (other than interest expense) are excluded from the unaudited pro
forma condensed consolidated income statements. The Pro Forma Financial Data are
based on certain assumptions and estimates, and therefore do not purport to be
indicative of the results that would have been obtained had the transactions
been completed as of such dates or indicative of future results of operations
and financial position.
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INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------- SURVIVING
MERGER MERGERSUB CORPORATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............ $ 7,777 --(1) 7,777 --(1) 7,777
Trade receivables, net............... 71,688 71,688 71,688
Other receivables.................... 5,850 5,850 5,850
Inventories.......................... 72,570 72,570 72,570
Deferred tax asset................... 371 371 371
Prepaid expenses and other........... 8,993 8,993 8,993
-------- ------- -------- -------- --------
Total current assets......... 167,249 -- 167,249 -- 167,249
-------- ------- -------- -------- --------
Property, plant and equipment, net..... 114,770 114,770 114,770
Deferred tax assets.................... 654 2,017(4)(7) 2,671 165(4)(7) 2,836
Other assets........................... 40,731 600(2) 41,331 4,550(2) 45,881
-------- ------- -------- -------- --------
Total assets................. $323,404 2,617 326,021 4,715 330,736
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt.... $ 1,113 1,113 1,113
Accounts payable..................... 39,118 39,118 39,118
Customer deposits.................... 34,792 34,792 34,792
Accrued expenses and other........... 34,964 (3,158)(4)(7) 31,806 (220)(4)(7) 31,586
-------- ------- -------- -------- --------
Total current liabilities.... 109,987 (3,158) 106,829 (220) 106,609
-------- ------- -------- -------- --------
Long-term debt, excluding current
portion.............................. 267,685 42,751(1)(3) 310,436 110,000(1)(3) 420,436
Other long-term obligations............ 41,933 41,933 41,933
-------- ------- -------- -------- --------
Total liabilities............ 419,605 39,593 459,198 109,780 568,978
Stockholders' deficit.................. (96,201) (13,316)(1)(4) (4,215)(1)(4)
731(1)(9) (180,241)(1)(5)
55,000(1)(6)
(24,391)(1)(8) (133,177) 24,391(1)(8) (238,242)
-------- ------- -------- -------- --------
Total liabilities and
stockholders' deficit...... $323,404 2,617 326,021 4,715 330,736
======== ======= ======== ======== ========
</TABLE>
56
<PAGE> 66
- ---------------
The notes to the unaudited pro forma condensed consolidated balance sheet
follow:
(1) The sources and uses of cash required to consummate the Mergers as of March
31, 1998 (and assuming no participation in the Rollover) follow (amounts in
thousands):
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY MERGERSUB CORPORATION
------- --------- -----------
<S> <C> <C> <C>
Sources:
Revolving credit facility................ $42,751 -- 42,751
Option exercise proceeds................. 731 -- 731
Discount Notes........................... -- 110,000 110,000
Dividend from the Company to ExistingSub
(into which MergerSub will merge at
the Effective Time)................... (24,391) 24,391 --
Common stock and warrants purchased...... -- 55,000 55,000
------- ------- -------
$19,091 189,391 208,482
======= ======= =======
Uses:
Cash merger consideration................ -- 180,241 180,241
Estimated fees and expenses.............. $19,091 9,150 28,241
------- ------- -------
$19,091 189,391 208,482
======= ======= =======
</TABLE>
(2) To record the estimated costs and expenses associated with issuing the
Discount Notes and borrowing on the Credit Facility, which will be
capitalized as debt issuance costs and amortized using the effective
interest method over the life of the respective financial instruments, as
follows (amounts in thousands):
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY MERGERSUB CORPORATION
------- --------- -----------
<S> <C> <C> <C>
Commitment fees and underwriting
discounts................................ $500 3,850 4,350
Professional fees.......................... 100 500 600
Miscellaneous fees and expenses............ -- 200 200
---- ----- -----
$600 4,550 5,150
==== ===== =====
</TABLE>
(3) To record the issuance and sale of Discount Notes by MergerSub which will
generate approximately $110 million of gross proceeds and $42.8 million of
additional borrowings by the Company under its Credit Facility.
(4) To record the estimated fees and expenses, net of the estimated tax
benefits, which will be expensed upon consummation of the transactions (the
remainder of the fees and expenses are capitalized -- see Note 2), as
follows (amounts in thousands). Statutory tax rates used to calculate the
tax benefit of (i) the Company was 38.5% (35.0% Federal rate and an
estimated 3.5% average state rate) and (ii) MergerSub was 35.0% Federal
rate:
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY MERGERSUB CORPORATION
------- --------- -----------
<S> <C> <C> <C>
Compensation Expenses:
Buyout of existing options............... $ 9,091 -- 9,091
Other.................................... 2,600 -- 2,600
Backstop and bridge facility commitments... 1,750 1,100 2,850
Professional fees.......................... 4,700 3,500 8,200
Other...................................... 350 -- 350
------- ----- ------
Total.................................... 18,491 4,600 23,091
Less tax benefit........................... (5,175) (385) (5,560)
------- ----- ------
Net expenses............................. $13,316 4,215 17,531
======= ===== ======
</TABLE>
57
<PAGE> 67
(5) To record the cash portion of the Merger Consideration of $43.48 per share
for all outstanding Shares (assuming that no appraisal rights are validly
perfected) (based on 4,145,372 Shares).
(6) To record the sale of 1,222,222 shares of MergerSub Stock and Warrants to
acquire 110,453 shares of MergerSub Stock.
(7) To record the tax benefit associated with the fees and expenses at statutory
rates (see Note 4 above).
(8) To record a dividend from the Company to ExistingSub (into which MergerSub
will merge at the Effective Time).
(9) To record cash proceeds and corresponding debt reduction from the exercise
of Options between March 31, 1998 and June 15, 1998.
58
<PAGE> 68
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------- SURVIVING
MERGER MERGERSUB CORPORATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales........................ $117,305 117,305 117,305
Cost of goods sold............... 85,618 85,618 85,618
Depreciation and amortization.... 4,240 4,240 4,240
Selling, general and
administrative................. 17,672 17,672 17,672
-------- ---- ------- ------ -------
Operating income............... 9,775 -- 9,775 -- 9,775
Interest expense:
Currently payable.............. (6,526) (775)(2) (7,301) (7,301)
Accretion...................... (48) (48) (3,300)(2) (3,348)
Amortization of debt
issuance.................... (303) (30)(2) (333) (78)(2) (411)
Interest income.................. 51 51 51
Equity in net income of
Thermalex...................... 716 716 716
Other expense, net............... 613 613 613
-------- ---- ------- ------ -------
Income before income taxes..... 4,278 (805) 3,473 (3,378) 95
Income tax expense............... (1,497) 310(3) (1,187) 1,182(3) (5)
-------- ---- ------- ------ -------
Net income..................... $ 2,781 (495) 2,286 (2,196) 90
======== ==== ======= ====== =======
Earnings per common share:
Basic.......................... $ 0.68 0.07
Basic shares................... 4,086 1,362
Diluted........................ $ 0.66 0.06
Diluted shares................. 4,195 1,473
</TABLE>
59
<PAGE> 69
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------------- SURVIVING
1997 MERGER MERGERSUB CORPORATION
HISTORICAL TRANSACTIONS SUBTOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $106,544 106,544 106,544 106,544
Cost of goods sold.......... 77,306 77,306 77,306 77,306
Depreciation and
amortization.............. 3,871 3,871 3,871 3,871
Selling, general and
administrative............ 15,978 15,978 15,978 15,978
-------- ------ ------- ---- ------- ------ -------
Operating income...... 9,389 -- 9,389 -- 9,389 -- 9,389
Interest expense:
Currently payable......... (3,340) (3,680)(1) (7,020) (775)(2) (7,795) (7,795)
Accretion................. (51) (51) (51) (3,300)(2) (3,351)
Amortization of debt
issuance................ (252) (252) (30)(2) (282) (78)(2) (360)
Interest income............. 449 (347)(1) 102 102 102
Equity in net income of
Thermalex................. 717 717 717 717
Other income, net........... (208) (208) (208) (208)
-------- ------ ------- ---- ------- ------ -------
Income (loss) from
continuing
operations before
income taxes....... 6,704 (4,027) 2,677 (805) 1,872 (3,378) (1,506)
Income tax expense.......... (2,343) 1,550(1) (793) 310(3) (483) 1,182(3) 699
-------- ------ ------- ---- ------- ------ -------
Income (loss) from
continuing
operations......... $ 4,361 (2,477) 1,884 (495) 1,389 (2,196) (807)
======== ====== ======= ==== ======= ====== =======
Earnings (loss) per common
share from continuing
operations:
Basic..................... $ 0.45 0.50 (0.59)
Basic shares.............. 9,517 3,802 1,362
Diluted................... $ 0.44 0.45 (0.59)
Diluted shares............ 9,912 4,198 1,362
</TABLE>
60
<PAGE> 70
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
--------------------------------------------------------------------- SURVIVING
1997 MERGER MERGERSUB CORPORATION
HISTORICAL TRANSACTIONS SUBTOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $528,233 528,233 528,233 528,233
Cost of goods sold........ 370,845 370,845 370,845 370,845
Depreciation and
amortization............ 18,377 18,377 18,377 18,377
Selling, general and
administrative.......... 87,909 87,909 87,909 87,909
-------- -------- ------- ------ ------- ------- -------
Operating income...... 51,102 -- 51,102 -- 51,102 -- 51,102
Interest expense:
Currently payable....... (19,326) (8,634)(1) (27,960) (3,099)(2) (31,059) (31,059)
Accretion............... (204) -- (204) (204) (13,596)(2) (13,800)
Amortization of debt
issuance.............. (1,032) (245)(1) (1,277) (120)(2) (1,397) (312)(2) (1,709)
Interest income........... 2,837 (2,091)(1) 746 746 746
Equity in net income of
Thermalex............... 2,647 2,647 2,647 2,647
Other income, net......... 794 794 794 794
-------- -------- ------- ------ ------- ------- -------
Income from continuing
operations before
income taxes and
extraordinary
item................ 36,818 (10,970) 25,848 (3,219) 22,629 (13,908) 8,721
Income tax expense........ (13,404) 4,223(1) (9,181) 1,239(3) (7,942) 4,868(3) (3,074)
-------- -------- ------- ------ ------- ------- -------
Income from continuing
operations before
extraordinary
item................ $ 23,414 (6,747) 16,667 (1,980) 14,687 (9,040) 5,647
======== ======== ======= ====== ======= ======= =======
Earnings from continuing
operations per common
share before
extraordinary item:
Basic................... $ 3.25 4.20 4.15
Basic shares............ 7,200 3,967 1,362
Diluted................. $ 3.19 4.05 3.83
Diluted shares.......... 7,345 4,112 1,473
</TABLE>
- ---------------
The notes to the unaudited pro forma consolidated income statements for the
quarters ended March 31, 1997 and 1998 and for the year ended December 31, 1997
follow:
(1) To record the effect on interest expense and the related income tax effect
of (i) the purchase of an aggregate of 2,857,142 Shares at $38.50 per Share
in cash for an aggregate purchase price of $109,999,967, (ii) the entering
into of the Credit Facility and the issuance and sale of $150,000,000
aggregate principal amount of the Subordinated Notes, and (iii) the purchase
of 2,857,142 shares at $38.50 per share in cash for an aggregate purchase
price of $109,999,967, as if the aforementioned transactions had occurred at
the beginning of the periods presented. Statutory tax rates used to
calculate the income tax effect was 38.5% (35.0% federal rate and an
estimated 3.5% average state rate).
(2) To record the incremental interest expense for the quarters ended March 31,
1997 and 1998 and for the year ended December 31, 1997 as follows: (i) $3.3
million and $13.6 million, respectively, associated with MergerSub's
issuance of Discount Notes which generate approximately $110 million of
gross proceeds at an assumed 12% interest rate compounded semi-annually
(interest expense would have been approximately $35,000 and $145,000 higher,
respectively, if the interest rate were 1/8% higher); (ii) $0.8 million and
$3.1 million, respectively, associated with the Company's $42.8 million of
additional borrowings under the Credit Facility at an assumed interest rate
of 7.25% (interest expense would have been approximately $13,000 and $54,000
higher, respectively, if the interest rate were 1/8% higher); (iii)
amortization of MergerSub's debt issuance costs totaling $4.6 million over
the 10 year note term under the effective interest method; and (iv)
amortization of the incremental debt issuance costs associated with the
Credit Facility totaling $0.6 million over the remaining five-year term.
(3) To record the tax benefit of the transaction at the statutory rate of each
respective entity. Statutory tax rates used to calculate the tax benefit of
(i) the Company was 38.5% (35.0% federal rate and an estimated 3.5% average
state rate) and (ii) MergerSub was 35.0% (federal rate).
61
<PAGE> 71
MANAGEMENT FOLLOWING THE MERGERS
BOARD OF DIRECTORS
Thompson Dean, 40, has been the Managing Partner of DLJMB Inc. since
November 1996. Prior thereto, Mr. Dean was a Managing Director of DLJMB Inc.
(and its predecessor). Mr. Dean serves as a director of Commvault Inc., Von
Hoffman Corporation, Manufacturers' Services Limited, Phase Metrics, Inc., and
Arcade Holding Corporation.
Robert L. Smialek, 54, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since May 1, 1993. From October 1992 to
May 1993, Mr. Smialek served as the President and Chief Operating Officer of the
Temperature and Appliance Controls Group of Siebe plc, a global controls and
engineering firm. From September 1990 to October 1992, Mr. Smialek served as
President and Chief Operating Officer of Ranco, Inc., a subsidiary of Siebe,
Inc. Mr. Smialek is a director of General Cable Corporation and Gleason
Corporation.
William F. Dawson, Jr., 33, has been a Principal of DLJMB Inc. since August
1997. From December 1995 to August 1997, he was a Senior Vice President in DLJ's
High Yield Capital Markets Group. Prior thereto, Mr. Dawson was a Vice President
in the Leveraged Finance Group within DLJ's Investment Banking Group. Mr. Dawson
serves as a director of Von Hoffman Corporation and of Thermadyne Holdings
Corporation.
If CVC purchases 22% of the MergerSub Stock (see "MergerSub"), David Howe,
33, a Vice President of Citicorp Venture Capital, Ltd., will be nominated to the
Board of Directors of the Surviving Corporation after the Effective Time. Mr.
Howe has been a Vice President of Citicorp Venture Capital, Ltd. since 1993. Mr.
Howe serves as a director of Aetna Industries, Inc., American Italian Pasta
Company, IPC Information Systems, Inc. and Pen-Tab Industries, Inc. See
"Description of Company Capital Stock -- Other Stockholder Arrangements."
EXECUTIVE OFFICERS
Pursuant to the Merger Agreement, the executive officers of the Company at
the Effective Time will be the executive officers of the Surviving Corporation.
For additional information regarding the executive officers of the Company, see
the Company's 1997 Form 10-K, a copy of which is on file with the Commission.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the only persons known by the Company to be
the beneficial owners of more than five percent of the outstanding Shares on
June 15, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------- ------------------ ----------
<S> <C> <C>
Water Street Corporate Recovery Fund I, L.P.......... 1,863,878(1)(2)(3) 45.0%
85 Broad Street
New York, NY 10004
Neuberger & Berman, LLC.............................. 546,818 13.2%
605 Third Avenue
New York, NY 10158-3698
</TABLE>
- ---------------
(1) Represents Shares beneficially owned by Water Street. Goldman Sachs is the
general partner of Water Street and thus may be deemed to be the beneficial
owner of Shares held by Water Street. GS Group is a general partner of
Goldman Sachs and directly owns 334 Shares not included in the amount shown.
The address of Goldman Sachs and GS Group is 85 Broad Street, New York, NY
10004. Goldman Sachs disclaims beneficial ownership of the Shares held by
Water Street except to the extent such ownership
62
<PAGE> 72
corresponds to its interests in Water Street, and disclaims beneficial
ownership of the Shares held by GS Group. Each of Goldman Sachs and GS Group
disclaims beneficial ownership of the Shares held by Water Street to the
extent partnership interests in Water Street are held by persons other than
GS Group, Goldman Sachs or their affiliates.
(2) Includes an aggregate of 80,000 Shares acquired from the Company by Water
Street through the exercise by Messrs. O'Toole and Volpert of options
granted them pursuant to the 1993 Director Plan and held for the benefit of
Water Street.
(3) By virtue of the Voting Agreement, DLJMB could be deemed to own beneficially
the 1,783,878 Water Street Shares, or approximately 43% of the outstanding
Shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 15, 1998, the beneficial
ownership of Shares by each officer named in the Summary Compensation Table in
the Company's 1997 Form 10-K, each director of the Company and by all directors
and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------ ------------------ ----------
<S> <C> <C>
James J. Gaffney................................. 8,000 *
Terence M. O'Toole............................... 1,863,878(1) 45.0%
Thomas E. Petry.................................. 8,000 *
Robert L. Smialek................................ 315,066(2) 7.2%
Barry S. Volpert................................. 1,863,878(1) 45.0%
Kenneth H. Koch.................................. 14,966(3) *
David A. Kauer................................... 14,300(4) *
Philip K. Woodlief(5)............................ -- *
Robert F. Heffron(6)............................. -- *
All directors and executive officers as a group
(8 persons).................................... 2,240,918(1)(5)(6)(7) 50.6%
</TABLE>
- ---------------
* Less than 1%
(1) The Shares listed for Messrs. O'Toole and Volpert are beneficially owned by
Water Street or by Goldman Sachs (of which Mr. O'Toole and Mr. Volpert are
Managing Directors) or GS Group. Messrs. O'Toole and Volpert disclaim
beneficial ownership of such Shares except to the extent of their indirect
pecuniary interest in such Shares.
(2) Includes 240,000 Shares subject to Options exercisable within 60 days of
June 15, 1998.
(3) Includes 13,664 Shares subject to Options exercisable within 60 days of June
15, 1998.
(4) Includes 13,500 Shares subject to Options exercisable within 60 days of June
15, 1998.
(5) Employment with the Company terminated May 8, 1998. Mr. Woodlief's
beneficial ownership of Shares is not known.
(6) Employment with the Company terminated February 24, 1998. Mr. Heffron's
beneficial ownership of Shares is not known.
(7) Includes 283,472 Shares subject to Options exercisable within 60 days of
June 15, 1998.
63
<PAGE> 73
REGULATORY CONSIDERATIONS
Under the HSR Act, certain merger transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and the
FTC and certain applicable waiting periods have expired. The Merger is subject
to the requirements of the HSR Act.
Pursuant to the requirements of the HSR Act, the Company and DLJMB filed
Notification and Report Forms with respect to the Merger with the Antitrust
Division and the FTC. The waiting period applicable to the Merger was terminated
on May 22, 1998.
MERGERSUB
MergerSub, a Delaware corporation, was organized in connection with the
Merger and has not carried on any activities to date other than those incident
to its formation and the transactions contemplated by the Merger Agreement and
the Voting Agreement, respectively. As of the date hereof, all of the
outstanding capital stock of MergerSub is owned by DLJMB, a Delaware limited
partnership. The other DLJMB Funds that are expected to purchase MergerSub Stock
prior to the Effective Time include the following entities: DLJ Offshore
Partners II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ
Diversified Partners, L.P. ("Diversified"), a Delaware limited partnership,
DLJMB Funding II, Inc., a Delaware corporation that is an indirect, wholly-owned
subsidiary of Donaldson, Lufkin & Jenrette, Inc., a Delaware corporation, UK
Investment Plan 1997 Partners ("UK Partners"), a Delaware general partnership,
DLJ First ESC, L.P. ("DLJ First"), a Delaware limited partnership, DLJ Merchant
Banking Partners II-A, L.P. ("DLJMB-A"), a Delaware limited partnership, DLJ
Diversified Partners-A, L.P. ("Diversified-A"), a Delaware limited partnership,
DLJ EAB Partners, L.P. ("EAB"), a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ ESC II, L.P.
("ESC II"), a Delaware limited partnership, and DLJ Millennium Partners-A, L.P.
("Millennium-A"), a Delaware limited partnership.
The two general partners of DLJMB, DLJMB-A, Millennium and Millennium-A are
DLJMB Inc. and DLJ Merchant Banking II, LLC ("DLJMB LLC"). DLJMB Inc. is an
indirect, wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc. DLJMB
Inc. is also the advisory general partner of Offshore and DLJMB LLC is the
associate general partner of EAB and Offshore. The two general partners of
Diversified and Diversified-A are DLJ Diversified Partners, Inc. ("DLJDP"), a
Delaware corporation, and DLJ Diversified Associates, LP ("DLJDA"), a Delaware
limited partnership. The general partner of DLJDA is DLJDP. DLJDP is an
indirect, wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc. The
general partner of DLJ First and ESC II is DLJ LBO Plans Management Corporation
("DLJ LBO"), a Delaware corporation and a wholly-owned subsidiary of Donaldson,
Lufkin & Jenrette, Inc. DLJ LBO is also the managing general partner of EAB. The
general partners of UK Partners are Donaldson, Lufkin & Jenrette, Inc. and UK
Investment Plan 1997, Inc., a wholly-owned subsidiary of Donaldson, Lufkin &
Jenrette, Inc.
Although no preliminary or definitive agreement has been executed, the
DLJMB Funds expect that CVC will purchase on or about the Effective Time shares
of MergerSub Stock in an amount which, when converted into Surviving Corporation
shares in the Merger, will constitute up to 19.6% of the then outstanding
Surviving Corporation Shares.
The directors of MergerSub are Messrs. Dean and Dawson. The officers of
MergerSub are as of the date hereof: Mr. Dean as President and Treasurer, and
Mr. Dawson, as Vice President and Secretary. The principal offices of MergerSub
and the DLJMB Funds are located at 277 Park Avenue, New York, New York 10171;
telephone number (212) 892-3000. MergerSub has no operations and owns no real
properties. There are no pending legal proceedings to which MergerSub is a party
or which relate to its property.
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate of the
DLJMB Funds, is expected to receive a fee of $3.5 million in cash from MergerSub
upon consummation of the Merger. In addition, Donaldson, Lufkin & Jenrette
Securities Corporation and affiliates are expected to receive customary
financing fees in connection with the Merger Financing, which are expected to be
approximately $6.7 million.
64
<PAGE> 74
DISSENTING STOCKHOLDERS' RIGHTS
Because the consideration to be received by holders of Shares in the
Reorganization Merger includes cash, stockholders of record will be entitled to
appraisal rights in connection with the Reorganization Merger under Section 262
of the DGCL ("Section 262"), provided that they comply with the conditions
established by Section 262. Section 262 is reprinted in its entirety as Annex D
to this Proxy Statement/Prospectus. The following discussion does not purport to
be a complete statement of the law relating to appraisal rights and is qualified
in its entirety by reference to Annex D. This discussion and Annex D should be
reviewed carefully by any holder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, as failure to comply with
the procedures set forth herein or therein may result in the loss of appraisal
rights. Stockholders of record who desire to exercise their appraisal rights
must: (i) hold Shares on the date of making a demand for appraisal; (ii)
continuously hold such Shares through the Reorganization Merger Effective Time;
(iii) deliver a properly executed written demand for appraisal to the Company
prior to the vote by the stockholders of the Company on the Reorganization
Merger; (iv) not vote in favor of the Reorganization Merger or consent thereto
in writing; (v) file any necessary petition in the Delaware Court of Chancery
(the "Delaware Court"), as more fully described below, within 120 days after the
Reorganization Merger Effective Time; and (vi) otherwise satisfy all of the
conditions described more fully below and in Annex D.
A record holder of Shares who makes the demand described below with respect
to such Shares, who continuously is the record holder of such Shares through the
Reorganization Merger Effective Time, who otherwise complies with the statutory
requirements of Section 262 and who neither votes in favor of the Reorganization
Merger nor consents thereto in writing will be entitled to receive payment of
the fair value of his or her Shares as appraised by the Delaware Court if the
Reorganization Merger is consummated. All references in Section 262 and in this
summary of appraisal rights to a "stockholder" or "holders of Shares" are to the
stockholder of record.
Under Section 262, not less than 20 days prior to the Special Meeting, the
Company is required to notify each stockholder eligible for appraisal rights of
the availability of such appraisal rights. This Proxy Statement/Prospectus
constitutes notice to such holders that appraisal rights will be available to
them in connection with the Reorganization Merger. A holder of record of Shares
who desires to exercise his or her appraisal rights must satisfy all of the
conditions set forth herein and in Section 262. A written demand for appraisal
must be filed with the Company before the taking of the vote on the
Reorganization Merger. Such written demand must reasonably inform the Company of
the identity of the record holder of Shares and of such stockholder's intention
to demand appraisal of the Shares held by such stockholder. This written demand
for appraisal of Shares must be in addition to and separate from any proxy or
vote abstaining from or voting against the Reorganization Merger. Voting
against, abstaining from voting on, failing to return a proxy with respect to,
or failing to vote on the Merger will not constitute a demand for appraisal
within Section 262.
Stockholders of record who desire to exercise appraisal rights must not
vote in favor of the Reorganization Merger or consent thereto in writing. Voting
in favor of the Reorganization Merger or delivering a proxy in connection with
the Special Meeting (unless the proxy votes against, or expressly abstains from
the vote on, the approval of the Reorganization Merger), will constitute a
waiver of the stockholder's right of appraisal, and will nullify any written
demand for appraisal submitted by the stockholder.
A demand for appraisal must be executed by or on behalf of the stockholder
of record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing the Shares. A person having a
beneficial interest in Shares that are held of record in the name of another
person, such as a broker, fiduciary or other nominee, must act promptly to cause
the record holder to follow the steps summarized herein properly and in a timely
manner to perfect any appraisal rights. If the Shares are owned of record by a
person other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the Shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be executed
by or for all such joint owners. An authorized agent, including an agent for two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and
65
<PAGE> 75
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. A record owner, such as a broker,
fiduciary or other nominee, who holds Shares as a nominee for others, may
exercise appraisal rights with respect to the Shares held for all or less than
all beneficial owners of Shares as to which such person is the record owner. In
such case, the written demand must set forth the number of Shares covered by
such demand. Where the number of Shares is not expressly stated, the demand will
be presumed to cover all Shares outstanding in the name of such record owner. A
stockholder who elects to exercise appraisal rights should mail or deliver his
or her written demand to: Insilco Corporation, 425 Metro Place North, Fifth
Floor, Dublin, Ohio 43017, Attention: Corporate Secretary. The written demand
for appraisal should specify the stockholder's name and mailing address, the
number of Shares owned, and that the stockholder is thereby demanding appraisal
of his or her Shares.
Within ten days after the Reorganization Merger Effective Time, the Company
must provide notice of the Reorganization Merger Effective Time to all
stockholders who have complied with Section 262. Within 120 days after the
Reorganization Merger Effective Time, either the Company or any stockholder who
has complied with the required conditions of Section 262 may file a petition in
the Delaware Court, with a copy served on the Company in the case of a petition
filed by a stockholder, demanding a determination of the fair value of the
Shares of all dissenting stockholders. The Company does not currently intend to
file an appraisal petition and stockholders seeking to exercise appraisal rights
should not assume that the Company will file such a petition or that the Company
will initiate any negotiations with respect to the fair value of such Shares.
Accordingly, stockholders who desire to have their Shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Within 120
days after the Reorganization Merger Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of Shares not voted in favor of the Merger and with
respect to which demands for appraisal were received by the Company and the
number of holders of such Shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Company or within 10
days after expiration of the time for delivery of demands for appraisal under
Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights and will appraise the Shares owned by such stockholders,
determining 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, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which are
known or which can be ascertained as of the date of the merger and which throw
any light on future prospects of the merged corporation. In Weinberger, the
Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." Section
262, however, provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize that the fair
value of a Share as determined under Section 262 could be more than, the same as
or less than the Merger Consideration. The cost of the appraisal proceeding may
be determined by the Delaware Court and taxed against the parties as the
Delaware Court deems equitable in the circumstances. Upon application of a
dissenting stockholder of the Company, the Delaware Court may order that all or
a portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all Shares entitled to appraisal.
66
<PAGE> 76
Any holder of Shares who has duly demanded appraisal in compliance with
Section 262 will not, after the Reorganization Merger Effective Time, be
entitled to vote for any purpose any Shares subject to such demand or to receive
payment of dividends or other distributions on such Shares, except for dividends
or distributions payable to stockholders of record at a date prior to the
Reorganization Merger Effective Time.
At any time within 60 days after the Reorganization Merger Effective Time,
any stockholder will have the right to withdraw his or her demand for appraisal
and to accept the terms offered in the Reorganization Merger; after this period,
the stockholder may withdraw such demand for appraisal only with the consent of
the Company. If no petition for appraisal is filed with the Delaware Court
within 120 days after the Reorganization Merger Effective Time, all
stockholders' rights to appraisal will cease, and such stockholders will instead
be entitled to receive the Merger Consideration, without interest. Inasmuch as
the Company has no obligation to file such a petition, and has no present
intention to do so, any holder of Shares who desires to pursue his or her
appraisal rights is advised to file the petition on a timely basis.
Failure to take any required step in connection with the exercise of
appraisal rights may result in termination of such rights. In view of the
complexity of these provisions of the DGCL, stockholders who are considering
exercising their rights under Section 262 should consult with their legal
advisors.
Prior to the Reorganization Merger Effective Time, the Board of Directors
of the Company, acting on behalf of the Company as sole stockholder of
ExistingSub, will act by written consent pursuant to Section 228 of the DGCL to
approve the Merger Agreement and the Mergers. Because the Merger will be
effected by a vote of the Company as sole stockholder of ExistingSub, holders of
ExistingSub Shares do not have any statutory appraisal rights in respect of the
Merger.
STOCKHOLDER PROPOSALS
As described in the Company's proxy statement relating to its 1997 Annual
Meeting of Stockholders, in order for proposals of stockholders to be considered
for inclusion in the proxy statement for the 1998 Annual Meeting of Stockholders
of the Company (if the Merger is not consummated), such proposals must have been
received by the Corporate Secretary of the Company by December 31, 1997. No such
proposals were received by the Company's Secretary by such date.
OTHER MATTERS
The Board of Directors has no knowledge of any business to be presented for
consideration at the Special Meeting other than as described in this Proxy
Statement/Prospectus. Should any other matters incident to the conduct of the
Special Meeting properly come before the Special Meeting or any adjournment
thereof, the persons named in the enclosed proxy will have discretionary
authority to vote such proxy in accordance with their best judgment on such
matters.
EXPERTS
The audited consolidated financial statements of the Company included in
the Company's 1997 Form 10-K incorporated by reference in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, as
set forth in their report thereon, and are included herein in reliance upon
their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Surviving Corporation Shares to be retained in
connection with the Merger will be passed upon for the Company by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
New York, New York.
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ANNEX A
AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of June 8, 1998 among INSILCO CORPORATION, a Delaware
corporation ("INSILCO" or the "COMPANY"), INSILCO HOLDING CO., a Delaware
corporation (formerly known as INR Holding Co.) ("EXISTINGSUB") and SILKWORM
ACQUISITION CORPORATION, a Delaware corporation ("MERGERSUB").
WHEREAS, the Company, ExistingSub and MergerSub have previously entered
into an Agreement and Plan of Merger (as amended hereby, the "MERGER AGREEMENT")
dated as of March 24, 1998, providing for the merger of MergerSub with and into
ExistingSub; and
WHEREAS, the Company, ExistingSub and MergerSub desire to amend the Merger
Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. REFERENCES. Unless otherwise specifically defined herein, each
term used herein which is defined in the Merger Agreement has the meaning
assigned to such term in the Merger Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Merger Agreement shall from and after the effective date of this Amendment refer
to the Merger Agreement as amended hereby, except in any instance in the Merger
Agreement where any such reference relates to the date of the execution of the
Merger Agreement in which instance such reference shall relate to the Merger
Agreement, as unamended hereby.
SECTION 2. AMENDMENTS. The Merger Agreement is hereby amended as follows:
(a) The reference in Section 1.02(e)(iv)(A) to the number "0.03419" is
replaced with "0.03378".
(b) The reference in Section 1.02(e)(iv)(B) to the number "$42.97" is
replaced with "$43.47".
(c) The references in Sections 1.05(a), 5.04(c) and 7.05 to the number
"$44.50" are replaced with "$45.00".
(d) The reference in Section 1.06(b) to the number "$44.49" is
replaced with "$44.99".
(e) The reference in Section 4.08 to the number "$54,999,997.50" is
replaced with "$54,999,990.00".
(f) The reference in Section 4.08 to the number "1,235,955" is
replaced with "1,222,222".
(g) The reference in Section 4.08 to the number "111,347" is replaced
with "110,453".
SECTION 3. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment or
have caused this Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.
INSILCO CORPORATION
By: /s/ ROBERT L. SMIALEK
------------------------------------
Name: Robert L. Smialek
Title: Chairman & CEO
INSILCO HOLDING CO.
By: /s/ KENNETH H. KOCH
------------------------------------
Name: Kenneth H. Koch
Title: Vice President
SILKWORM ACQUISITION CORPORATION
By: /s/ THOMPSON DEAN
------------------------------------
Name: Thompson Dean
Title:
A-2
<PAGE> 79
AGREEMENT AND PLAN OF MERGER
dated as of
March 24, 1998
among
INSILCO CORPORATION,
INR HOLDING CO.
and
SILKWORM ACQUISITION CORPORATION
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1
THE MERGER
Section 1.01 The Reorganization Merger................................... 1
Section 1.02 The Merger.................................................. 2
Section 1.03 Surrender and Payment....................................... 3
Section 1.04 Dissenting Shares........................................... 4
Section 1.05 Stock Options............................................... 5
Section 1.06 Fractional Shares........................................... 5
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01 Certificate of Incorporation................................ 5
Section 2.02 Bylaws...................................................... 5
Section 2.03 Directors and Officers...................................... 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Corporate Existence and Power............................... 5
Section 3.02 Corporate Authorization..................................... 6
Section 3.03 Governmental Authorization.................................. 6
Section 3.04 Non-Contravention........................................... 6
Section 3.05 Capitalization.............................................. 6
Section 3.06 Subsidiaries................................................ 7
Section 3.07 SEC Filings................................................. 7
Section 3.08 Financial Statements........................................ 8
Section 3.09 Disclosure Documents........................................ 8
Section 3.10 Absence of Certain Changes.................................. 8
Section 3.11 No Undisclosed Material Liabilities......................... 9
Section 3.12 Litigation.................................................. 9
Section 3.13 Taxes....................................................... 9
Section 3.14 ERISA....................................................... 10
Section 3.15 Labor Matters............................................... 12
Section 3.16 Compliance with Laws and Court Orders....................... 12
Section 3.17 Licenses and Permits........................................ 12
Section 3.18 Intellectual Property....................................... 12
Section 3.19 Finders' Fees............................................... 12
Section 3.20 Required Votes.............................................. 12
Section 3.21 Environmental Matters....................................... 12
Section 3.22 Disclaimer.................................................. 13
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MERGERSUB
Section 4.01 Corporate Existence and Power............................... 14
Section 4.02 Corporate Authorization..................................... 14
Section 4.03 Governmental Authorization.................................. 14
Section 4.04 Non-Contravention........................................... 14
Section 4.05 Disclosure Documents........................................ 14
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.06 Finders' Fee................................................ 15
Section 4.07 Financing................................................... 15
Section 4.08 Capitalization.............................................. 15
ARTICLE 5
COVENANTS OF THE COMPANY
Section 5.01 Conduct of the Company...................................... 15
Section 5.02 Stockholder Meeting; Proxy Material......................... 17
Section 5.03 Access to Information....................................... 17
Section 5.04 Other Offers................................................ 17
Section 5.05 Resignation of Directors.................................... 19
Section 5.06 Solvency Opinion............................................ 19
Section 5.07 Transfers by Affiliates..................................... 19
ARTICLE 6
COVENANTS OF MERGERSUB
Section 6.01 Voting of Shares............................................ 19
Section 6.02 Director and Officer Liability.............................. 19
Section 6.03 Employee Plans and Benefit Arrangements..................... 20
Section 6.04 Financing................................................... 21
Section 6.05 NASDAQ Listing.............................................. 21
ARTICLE 7
COVENANTS OF MERGERSUB AND THE COMPANY
Section 7.01. Reasonable Best Efforts..................................... 21
Section 7.02. Certain Filings............................................. 22
Section 7.03. Public Announcements........................................ 22
Section 7.04. Further Assurances.......................................... 22
Section 7.05. Reserved Shares............................................. 22
Section 7.06. Notices of Certain Events................................... 22
ARTICLE 8
CONDITIONS TO THE MERGER
Section 8.01. Conditions to the Obligations of Each Party................. 23
Section 8.02. Conditions to the Obligations of MergerSub.................. 23
Section 8.03. Conditions to the Obligations of the Company and
ExistingSub................................................. 24
ARTICLE 9
TERMINATION
Section 9.01. Termination................................................. 24
Section 9.02. Effect of Termination....................................... 25
ARTICLE 10
MISCELLANEOUS
Section 10.01 Notices..................................................... 26
Section 10.02 Survival of Representations and Warranties.................. 26
Section 10.03 Amendments; No Waivers...................................... 26
Section 10.04 Expenses.................................................... 27
Section 10.05 Successors and Assigns...................................... 27
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 10.06 Governing Law............................................... 27
Section 10.07 Counterparts; Effectiveness................................. 27
Section 10.08 Third Party Beneficiaries................................... 27
Section 10.09 Entire Agreement............................................ 27
</TABLE>
iii
<PAGE> 83
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 24, 1998 among Insilco
Corporation, a Delaware corporation ("INSILCO" or the "COMPANY"), INR Holding
Co., a Delaware corporation ("EXISTINGSUB"), and Silkworm Acquisition
Corporation, a Delaware corporation ("MERGERSUB").
W I T N E S S E T H:
WHEREAS, as of the date of execution of this Agreement, all of the
outstanding capital stock of, or other ownership interest in, MergerSub is
owned, in the aggregate, by DLJ Merchant Banking Partners II, L.P., and certain
of its affiliates;
WHEREAS, MergerSub is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, Water
Street Corporate Recovery Fund I, L.P., holder of 1,783,878 shares of common
stock of the Company, enters into a Voting Agreement (the "VOTING AGREEMENT")
providing for certain actions relating to such shares;
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers (as defined
in Section 1.02) and also to prescribe certain conditions to the Mergers; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE 1
THE MERGER
Section 1.01. The Reorganization Merger. (a) Prior to the Effective Time
(as defined in Section 1.02), Insilco shall cause (i) ExistingSub to form a
wholly-owned subsidiary ("REORGSUB") and (ii) ReorgSub to merge with and into
Insilco in the manner set forth in this Section 1.01 (the "REORGANIZATION
MERGER"), whereupon the separate existence of ReorgSub shall cease, and Insilco
shall be the surviving corporation, possessing all the rights, privileges,
powers and franchises and be subject to all of the restrictions, disabilities
and duties of Insilco and ReorgSub, all as provided under the General
Corporation Law of the State of Delaware ("DELAWARE LAW"). The parties hereto
contemplate that the Reorganization Merger will precede the Merger (as defined
in Section 1.02), but that each will occur on the same date.
(b) The Reorganization Merger shall be effected pursuant to an agreement
and plan of merger (the "HOLDING COMPANY MERGER AGREEMENT") in accordance with
Delaware Law and in a manner that complies with Section 251(a) of Delaware Law.
The certificate of incorporation of Insilco shall be the certificate of
incorporation of the corporation surviving the Reorganization Merger.
(c) Insilco and ReorgSub will file the Holding Company Merger Agreement (or
a certificate of merger in lieu thereof) with the Secretary of State of the
State of Delaware and make all other filings or recordings required by Delaware
Law in connection with the Reorganization Merger which shall become effective at
such time (the "REORGANIZATION EFFECTIVE TIME") as the Holding Company Merger
Agreement (or a certificate of merger in lieu thereof) is duly filed with the
Secretary of State of the State of Delaware or at such later time as is
specified therein, but in any event prior to the Effective Time.
(d) At the Reorganization Effective Time:
(i) (A) each share of common stock of ReorgSub held by ReorgSub as
treasury stock immediately prior to the Reorganization Effective Time shall
be canceled, and no payment shall be made with respect thereto; and (B)
each share of common stock of ReorgSub outstanding immediately prior to the
Reorganization Effective Time shall be converted into and become one share
of common stock of the
<PAGE> 84
corporation surviving the Reorganization Merger, with the same rights,
powers and privileges as the shares so converted;
(ii) (A) each share of common stock, par value $0.001 per share, of
Insilco (the "SHARES") held by Insilco as treasury stock (including the
Reserved Shares (as defined in Section 3.05)) or owned by ReorgSub
immediately prior to the Reorganization Effective Time shall be canceled,
and no payment shall be made with respect thereto, and (B) each outstanding
option (whether vested or unvested) to acquire Shares granted to employees
and directors will be treated as set forth in Section 1.05(a); and
(iii) Except as otherwise provided in Section 1.04 with respect to
Shares as to which appraisal rights are exercised, each Share outstanding
immediately prior to the Reorganization Effective Time shall be converted
into the following (the "REORGANIZATION MERGER CONSIDERATION"):
(A) one share of common stock, par value $0.001 per share, of
ExistingSub (the "EXISTINGSUB SHARES") with the same rights, powers and
privileges as the Shares so converted; and
(B) the right to receive in cash an amount equal to $0.01.
(e) Except for those stockholders who have exercised appraisal rights with
respect to their Shares, the stockholders of record of Insilco immediately prior
to the Reorganization Effective Time shall be the stockholders of record of
ExistingSub immediately after the Reorganization Effective Time without further
action by such stockholders or ExistingSub. After the Reorganization Effective
Time, the certificates (the "CERTIFICATES") representing the Shares will
continue to represent the ExistingSub Shares.
(f) For the avoidance of doubt, after the Reorganization Merger, "Insilco"
or the "Company" shall mean the corporation surviving the Reorganization Merger.
Section 1.02. The Merger. (a) Prior to the Reorganization Effective Time,
the Company, acting as sole stockholder of ExistingSub, shall pursuant to
Section 228 of the Delaware Law, act by written consent to approve this
Agreement and the Merger and ExistingSub shall, no more than 20 days prior to
the Reorganization Effective Time, give notice to the Company, as its sole
stockholder, of the Merger, as required by Section 262(d) of Delaware Law.
(b) At the Effective Time, MergerSub shall be merged (the "MERGER" and
collectively with the Reorganization Merger, the "MERGERS") with and into
ExistingSub in accordance with Delaware Law, and in accordance with the terms
and conditions hereof, whereupon the separate existence of MergerSub shall
cease, and ExistingSub shall be the surviving corporation, which will be named
"Insilco Holding Corporation" (the "SURVIVING CORPORATION").
(c) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, ExistingSub and MergerSub
will file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is specified in the certificate of merger
(the "EFFECTIVE TIME").
(d) The Company hereby represents that its Board of Directors (the "BOARD
OF DIRECTORS"), at a meeting duly called and held and acting on the unanimous
recommendation of the Board of Directors has (i) unanimously determined that
this Agreement and the transactions contemplated hereby, including the Mergers,
are fair to and in the best interest of the Company's stockholders, (ii)
unanimously approved this Agreement and the Voting Agreement and the
transactions contemplated hereby, including the Mergers, which approval
satisfies in full the requirements of Section 203(a)(1) of Delaware Law so as to
make Section 203 of Delaware Law inapplicable to the Mergers, and (iii)
unanimously resolved to recommend adoption of this Agreement and the Mergers to
its stockholders. The Company further represents that Lazard Freres & Co. LLC
has delivered to the Board of Directors its oral opinion (to be followed by its
written opinion to the same effect) that the Merger Consideration (as defined in
Section 1.03) taken as a whole is fair to the holders of the Shares (other than
MergerSub and its affiliates) from a financial point of view. The
2
<PAGE> 85
Company has been advised that all of its directors and executive officers intend
to vote all of their Shares in favor of adoption of this Agreement and the
Mergers.
(e) At the Effective Time:
(i) each ExistingSub Share held by ExistingSub as treasury stock or
owned by any direct or indirect wholly owned subsidiary of ExistingSub
(excluding the Company) or owned by MergerSub immediately prior to the
Effective Time shall be canceled, and no payment shall be made with respect
thereto;
(ii) each share of common stock, par value $0.001 per share, of
MergerSub ("MERGERSUB COMMON STOCK") outstanding immediately prior to the
Effective Time shall be converted into and become one share of common
stock, par value $0.001 per share, of the Surviving Corporation ("SURVIVING
CORPORATION SHARES") with the same rights, powers and privileges as the
MergerSub Common Stock so converted;
(iii) each outstanding warrant to purchase MergerSub Common Stock
("MERGERSUB WARRANTS") shall be automatically amended to constitute a
warrant to acquire one Surviving Corporation Share on the same terms and
conditions as the warrants so converted; and
(iv) each ExistingSub Share outstanding immediately prior to the
Effective Time shall be converted into the following (the "EXISTINGSUB
MERGER CONSIDERATION"):
(A) the right to retain 0.03419 of a Surviving Corporation Share,
with the same rights, powers and privileges as the ExistingSub Share so
converted; and
(B) the right to receive in cash an amount equal to $42.97.
Section 1.03. Surrender and Payment. (a) Prior to the mailing of the
Company Proxy Statement (as defined in Section 3.09), MergerSub shall appoint an
agent (the "EXCHANGE AGENT") for the purpose of exchanging the Certificates for
the cash portion of the Reorganization Merger Consideration and the ExistingSub
Merger Consideration (the cash portion of the Reorganization Merger
Consideration together with the ExistingSub Merger Consideration shall be
referred to herein as the "MERGER CONSIDERATION"). The Surviving Corporation
will make available to the Exchange Agent, as needed, the Merger Consideration
to be paid in respect of the Shares and the ExistingSub Shares. Promptly after
the Effective Time, the Surviving Corporation will send, or will cause the
Exchange Agent to send, to each holder of ExistingSub Shares at the Effective
Time, a letter of transmittal for use in such exchange (which shall specify that
the delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the Certificates to the Exchange Agent).
(b) Each holder of ExistingSub Shares at the Effective Time will, upon
surrender to the Exchange Agent of a Certificate or Certificates, together with
a properly completed letter of transmittal covering such ExistingSub Shares, be
entitled to receive the Merger Consideration payable in respect of such
ExistingSub Shares and in respect of the Shares which were converted into such
ExistingSub Shares. Payment of the cash portion of the Merger Consideration
shall, at the request of the holder of the relevant ExistingSub Shares, be made
by wire transfer of immediately available funds. Until so surrendered, each such
Certificate shall, after the Effective Time, represent for all purposes only the
right to receive such Merger Consideration and any dividends payable pursuant to
Section 1.03(g). No interest will be paid or will accrue on any cash payable as
Merger Consideration or any dividends payable pursuant to Section 1.03(g).
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the ExistingSub Shares represented by the
Certificate or Certificates surrendered in exchange therefor, it shall be a
condition to such payment that the Certificate or Certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such payment to a Person other than the
registered holder of such ExistingSub Shares or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable. For purposes
of this Agreement, "PERSON" or "PERSON" means a(n) individual, corporation,
limited liability company, partnership, association, trust or other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
3
<PAGE> 86
(d) After the Effective Time, there shall be no further registration of
transfers of ExistingSub Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the Merger Consideration provided for, and in accordance with the procedures set
forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.03(a) that remains unclaimed by the holders of
ExistingSub Shares six months after the Effective Time shall be returned to the
Surviving Corporation, upon demand, and any such holder who has not exchanged
his ExistingSub Shares for the Merger Consideration in accordance with this
Section 1.03 prior to that time shall thereafter look only to the Surviving
Corporation for payment of the Merger Consideration in respect of his
ExistingSub Shares. Notwithstanding the foregoing, the Surviving Corporation
shall not be liable to any holder of ExistingSub Shares for any amount paid to a
public official pursuant to applicable abandoned property laws. Any amounts
remaining unclaimed by holders of ExistingSub Shares two years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation free and clear of any claims or interest of any Person
previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.03(a) to pay for ExistingSub Shares that were not
issued pursuant to Section 1.01(d)(iii) as a result of the appraisal rights
exception thereto shall be returned to the Surviving Corporation, upon demand,
after the appraisal rights have been perfected in respect of the related Shares
pursuant to Section 1.04 and Delaware Law.
(g) No dividends or other distributions with respect to Surviving
Corporation Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate until the surrender of such
Certificate in accordance with this Article 1. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole Surviving Corporation
Shares issued in exchange therefor, without interest, (i) the amount of
dividends or other distributions with a record date after the Effective Time but
on or prior to such surrender and a payment date on or prior to such surrender,
paid with respect to such whole Surviving Corporation Shares, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but on or prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
Surviving Corporation Shares.
Section 1.04. Dissenting Shares. Shares which are issued and outstanding
immediately prior to the Reorganization Effective Time and which are held by a
holder who has not voted such Shares in favor of the Mergers, who shall have
delivered a written demand for appraisal of such Shares in the manner provided
by Delaware Law and who, as of the Reorganization Effective Time, shall not have
effectively withdrawn or lost such right to appraisal ("DISSENTING SHARES")
shall not be converted into a right to receive the Reorganization Merger
Consideration (or, if after the Effective Time, the Merger Consideration). The
holders thereof shall be entitled only to such rights as are granted by Section
262 of Delaware Law. Each holder of Dissenting Shares who becomes entitled to
payment for such Dissenting Shares pursuant to Section 262 of Delaware Law shall
receive payment therefor from the Surviving Corporation in accordance with
Delaware Law; provided, however, that (i) if any such holder of Dissenting
Shares shall have failed to establish his entitlement to appraisal rights as
provided in Section 262 of Delaware Law, (ii) if any such holder of Dissenting
Shares shall have effectively withdrawn his demand for appraisal of such Shares
or lost his right to appraisal and payment for his Shares under Section 262 of
Delaware Law, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation shall have filed a petition demanding a determination of
the value of all Dissenting Shares within the time provided in Section 262 of
Delaware Law, such holder shall forfeit the right to appraisal of such
Dissenting Shares and each such Dissenting Share shall be converted into a right
to receive the Reorganization Merger Consideration (or, if after the Effective
Time, the Merger Consideration) without interest thereon, from the Surviving
Corporation as provided in Section 1.03 hereof. The Company shall give MergerSub
prompt notice of any demands received by the Company for appraisal of Shares,
and MergerSub shall have the right to participate in all negotiations and
proceedings with respect to such demands. The
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Company shall not, except with the prior written consent of MergerSub, make any
payment with respect to, or settle or offer to settle, any such demands.
Section 1.05. Stock Options. (a) Immediately prior to the Reorganization
Effective Time, each outstanding option (whether vested or unvested) to acquire
Shares granted to employees and directors (the "OPTIONS") shall be canceled and,
in lieu thereof, immediately prior to the Reorganization Effective Time, the
holders of such Options shall receive a cash payment from the Company equal to
the product of (i) the total number of Shares previously subject to such Options
and (ii) the excess of $44.50 over the exercise price per Share subject to such
Options, subject to any required withholding of taxes.
(b) Prior to the Reorganization Effective Time, the Company shall (i) use
its reasonable best efforts to obtain any consents from holders of options to
purchase Shares granted under the Company's stock option or compensation plans
or arrangements and (ii) make any amendments to the terms of such stock option
or compensation plans or arrangements that are necessary to give effect to the
transactions contemplated by Sections 1.01 and 1.05(a). Notwithstanding any
other provision of this Section 1.05, payment may be withheld in respect of any
Option until any necessary or appropriate consents are obtained.
Section 1.06. Fractional Shares. (a) No certificates or scrip
representing fractional Surviving Corporation Shares shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of the
Surviving Corporation; and
(b) Notwithstanding any other provision of this Agreement, each beneficial
owner of ExistingSub Shares exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a Surviving Corporation Share (after
taking into account all ExistingSub Shares delivered by such beneficial owner)
shall receive, in lieu thereof, a cash payment (without interest) representing
such same fraction of $44.49.
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01. Certificate of Incorporation. The certificate of
incorporation of ExistingSub in effect immediately prior to the Effective Time
shall be amended in its entirety as of the Effective Time to read as set forth
in Exhibit A, and, as so amended, shall be the certificate of incorporation of
the Surviving Corporation until amended in accordance with applicable law.
Section 2.02. Bylaws. The bylaws of MergerSub in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 2.03. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of MergerSub at the Effective Time shall be
the directors of the Surviving Corporation, and (b) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules annexed hereto (the
"DISCLOSURE SCHEDULE"), the Company represents and warrants to MergerSub that:
Section 3.01. Corporate Existence and Power. The Company and ExistingSub
are corporations duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, and have all corporate powers required to
carry on their businesses as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for
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those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. The Company has heretofore
delivered to MergerSub true and complete copies of the certificate of
incorporation and bylaws of the Company and ExistingSub as currently in effect.
For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means any material
adverse effect on the financial condition, business, assets, liabilities or
results of operations of the Company and the Subsidiaries (as defined in Section
3.06) taken as a whole, but excluding (i) any liabilities or reserves that are
reflected on, or reserved for in, the 1997 Financial Statements and (ii) any
change resulting from general economic conditions.
Section 3.02. Corporate Authorization. The execution, delivery and
performance by the Company and ExistingSub of this Agreement and the
consummation by the Company and ExistingSub of the transactions contemplated
hereby are within the Company's and ExistingSub's corporate powers and, except
for any required approval by the stockholders of the Company, ReorgSub and
ExistingSub by majority vote in connection with the consummation of the Mergers,
have been duly authorized by all necessary corporate and stockholder action.
This Agreement constitutes a valid and binding agreement of the Company and
ExistingSub.
Section 3.03. Governmental Authorization. The execution, delivery and
performance by the Company and ExistingSub of this Agreement and the
consummation of the Reorganization Merger by the Company and ExistingSub, and
the Merger by ExistingSub, 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 or the Holding Company Merger Agreement in
connection with the Reorganization Merger and a certificate of merger in
connection with the Merger; (b) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR ACT"); (c) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "EXCHANGE ACT"); (d)
compliance with the applicable requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "SECURITIES
ACT"); (e) compliance with any applicable foreign or state securities or Blue
Sky laws; and (f) any actions or filings that if not taken or made would have a
Material Adverse Effect.
Section 3.04. Non-Contravention. The execution, delivery and performance
by the Company and ExistingSub of this Agreement and the consummation by the
Company and ExistingSub of the transactions contemplated hereby do not and will
not (a) contravene or conflict with the certificate of incorporation or bylaws
of the Company, ExistingSub or any Subsidiary, (b) assuming compliance with the
matters referred to in Section 3.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, writ, injunction,
order or decree of any court or governmental authority binding upon or
applicable to the Company, ExistingSub or any Subsidiary or any of their
properties or assets, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company, ExistingSub or any Subsidiary or to a loss of any benefit to which the
Company, ExistingSub or any Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon the Company, ExistingSub or
any Subsidiary or any license, franchise, Permit (as defined in Section 3.17) or
other similar authorization held by the Company, ExistingSub or any Subsidiary,
or (d) result in the creation or imposition of any Lien on any asset of the
Company, ExistingSub or any Subsidiary, except, in the case of clauses (b), (c)
and (d), for any such violation, failure to obtain any such consent or other
action, default, right, loss or Lien that would not, individually or in the
aggregate, have a Material Adverse Effect. 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 3.05. Capitalization. The authorized capital stock of the Company
consists of 15,000,000 Shares of which as of March 16, 1998, there were
outstanding 4,016,711 Shares and Options to purchase an aggregate of not more
than 747,667 Shares (of which Options to purchase an aggregate of 420,266 Shares
were exercisable) and 467,680 Shares were held in treasury (and no such treasury
stock is issuable or reserved for issuance, other than 66,682 Shares (the
"RESERVED SHARES") which are issuable or reserved for issuance pursuant to the
order discharging the Company from the protection of the United States Federal
Bankruptcy Court in 1993 (the "BANKRUPTCY ORDER")). All outstanding Shares have
been duly authorized and validly
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issued and are fully paid and nonassessable. Except as set forth in this Section
3.05 and except for changes since March 16, 1998 resulting from the exercise of
Options outstanding on such date, there are outstanding (a) no shares of capital
stock or other voting securities of the Company, (b) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (c) no options or other rights to acquire from
the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (a), (b) and (c)
being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Company Securities.
Section 3.06. Subsidiaries. (a) Each Significant Subsidiary (as defined
in Regulation S-X under the Exchange Act) is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except where failure to be existing in good standing or so qualified
would not, individually or in the aggregate, have a Material Adverse Effect. For
purposes of this Agreement, "SUBSIDIARY" means 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 directly or indirectly owned by the Company and/or one or more
Subsidiaries.
(b) Except for Liens, limitations and restrictions arising under the
Amended and Restated Credit Agreement dated as of July 3, 1997 among the Company
and Insilco Deutschland Gmbh, as borrowers, various lenders and issuing banks,
The First National Bank of Chicago and Goldman Sachs Credit Partners L.P., as
syndication agents and Citicorp USA, Inc. as administrative agent, and any
related security arrangements, all of the outstanding capital stock of, or other
ownership interests in, each Subsidiary, is owned by the Company, 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), except any that
arise under applicable securities laws or that are permitted by such credit
agreement. All such capital stock has been duly authorized and validly issued
and is fully paid and non-assessable. There are no outstanding (i) securities of
the Company or any Subsidiary convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary, and (ii) options or other rights to acquire from the Company or any
Subsidiary, and no other obligation of the Company or any Subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses (i)
and (ii) being referred to collectively as the "SUBSIDIARY SECURITIES"). There
are no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any outstanding Subsidiary Securities.
(c) ExistingSub was incorporated in Delaware prior to January 1, 1997. To
the Company's knowledge, until the Reorganization Merger Effective Time neither
the ExistingSub Shares nor the assets of ExistingSub has a material value.
Section 3.07. SEC Filings. (a) The Company has delivered to MergerSub (i)
the Company's annual report on Form 10-K for the year ended December 31, 1996
(the "COMPANY 10-K"), (ii) its quarterly reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 (together
with the Company 10-K, the "CURRENT SEC REPORTS"), (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since January 1, 1996, and (iv)
all of its other reports, statements, schedules and registration statements
filed with the Securities and Exchange Commission (the "SEC") since January 1,
1996 (collectively, the "SEC DOCUMENTS").
(b) As of its filing date, each such report or statement filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
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(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act as of the date such statement
or amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 3.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Current SEC Reports, and the draft unaudited
consolidated financial statements of the Company previously delivered to
MergerSub (the "1997 FINANCIAL STATEMENTS"), fairly present, in all material
respects and in conformity with generally accepted accounting principles applied
on a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). The
final audited consolidated financial statements of the Company for the year
ended December 31, 1997 will be substantially identical to the 1997 Financial
Statements, other than any disclosures necessary to reflect the execution of
this Agreement by the Company and ExistingSub and any transactions contemplated
hereby. For purposes of this Agreement, "BALANCE SHEET" means the consolidated
balance sheet of the Company and its subsidiaries as of December 31, 1997 set
forth in the 1997 Financial Statements, and "BALANCE SHEET DATE" means December
31, 1997.
Section 3.09. Disclosure Documents. (a) Each document required to be
filed by the Company with the SEC in connection with the Mergers (but excluding
the Financing) (the "COMPANY DISCLOSURE DOCUMENTS"), including, without
limitation, any Report on Form 8-K to be filed by the Company in respect of this
Agreement, and the proxy statement of the Company containing information
required by Regulation 14A under the Exchange Act to be filed with the SEC in
connection with the Mergers (the "COMPANY PROXY STATEMENT"), and any amendments
or supplements thereto will, when filed, comply as to form in all material
respects with the applicable requirements of the Exchange Act. The
representations and warranties contained in this Section 3.09(a) will not apply
to statements or omissions in the Company Disclosure Documents based upon
information furnished to the Company by MergerSub for use therein.
(b) At the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company, and at the time such
stockholders vote on adoption of this Agreement and the Mergers, the Company
Proxy Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. At the time of the filing of any
Company Disclosure Document, other than the Company Proxy Statement, and at the
time of any required distribution thereof, such Company Disclosure Document will
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 3.09(b) will not apply to statements or
omissions in the Company Disclosure Documents based upon information furnished
to the Company by MergerSub for use therein.
(c) The information with respect to the Company or any Subsidiary that the
Company furnishes to MergerSub for use in any document filed by MergerSub with
the SEC will not, at the time of the filing thereof and at the time of any
required distribution thereof, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
Section 3.10. Absence of Certain Changes. Since the Balance Sheet Date,
the Company and the Subsidiaries have conducted their business in the ordinary
course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have a Material Adverse
Effect;
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(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
the Company;
(c) except as disclosed in the SEC Documents, any amendment of any material
term of any outstanding security of the Company or any Subsidiary;
(d) except as disclosed in the SEC Documents, any incurrence, assumption or
guarantee by the Company or any Subsidiary of any indebtedness for borrowed
money other than in the ordinary course of business consistent with past
practices;
(e) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of the Company or any Subsidiary
which, individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect;
(f) (i) any material change in any method of accounting, or accounting
practice by the Company or any Subsidiary or (ii) any revaluation in any
material respect of any of the material assets of the Company or any Subsidiary,
except for any such change or revaluation required by reason of a concurrent
change in generally accepted accounting principles; or
(g) except as disclosed in the SEC Documents, any (i) grant of any
severance or termination pay to any director or executive officer of the Company
or any Subsidiary, (ii) entering into of any employment, deferred compensation
or other similar agreement (or any amendment to any such existing agreement)
with any director or executive officer of the Company or any Subsidiary, or
(iii) increase in compensation, bonus or other benefits (including severance or
other termination benefits) payable to directors, officers or employees of the
Company or any Subsidiary, other than in the ordinary course of business
consistent with past practice.
Section 3.11. No Undisclosed Material Liabilities. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, which
individually or in the aggregate would be reasonably likely to have a Material
Adverse Effect, other than:
(a) liabilities disclosed or provided for in the Balance Sheet or the
balance sheets (and the notes thereto) included in the Company's reports on Form
10-Q referred to in Section 3.07(a);
(b) liabilities incurred in the ordinary course of business consistent with
past practice since the Balance Sheet Date; and
(c) liabilities under this Agreement.
Section 3.12. Litigation. Except as set forth in the SEC Documents, there
is no action, suit, investigation or proceeding (or any basis therefor) pending
against, or to the knowledge of the Company threatened against or affecting, the
Company or any Subsidiary or any of their respective properties before any court
or arbitrator or any governmental body, agency or official which would
reasonably be expected to have a Material Adverse Effect.
Section 3.13. Taxes. (a) All tax returns, statements, reports and forms
(including estimated tax returns and reports and information returns and
reports) required to be filed with any taxing authority by or on behalf of the
Company or any Subsidiary of the Company (collectively, the "RETURNS"), were
filed when due (including any applicable extension periods).
(b) The Company and its Subsidiaries have timely paid, or withheld and
remitted to the appropriate taxing authority, all taxes shown as due and payable
on the Returns that have been filed.
(c) The charges, accruals and reserves for taxes with respect to the
Company and any Subsidiary (including for any tax period for which no Return has
yet been filed) reflected on the books of the Company and its Subsidiaries
(excluding any provision for deferred income taxes) are adequate to cover taxes
for which the Company and any such Subsidiary are liable.
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(d) There is no material claim (including under any indemnification or
tax-sharing agreement), audit, action, suit, proceeding, or investigation now
pending or threatened in writing against or in respect of any tax or tax asset
of the Company or any Subsidiary (other than any in respect of which a reserve
or allowance has been recorded in the 1997 Financial Statements). For purposes
of this Section 3.13, the term "TAX ASSET" shall include any net operating loss,
net capital loss, investment tax credit, foreign tax credit or charitable
deduction.
(e) There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any Returns of the Company or any of its
Subsidiaries.
(f) There are no Liens for taxes upon the assets of the Company or its
Subsidiaries except for Liens for current taxes not yet due, and except for
Liens that, individually or in the aggregate, would not have a Material Adverse
Effect.
Section 3.14. ERISA. (a) The Disclosure Schedule sets forth a list
identifying each material "employee pension benefit plan", as defined in Section
3(2) 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 the Company or any affiliate (as defined below) and covers any
employee or former employee of the Company or any affiliate or under which the
Company or any affiliate has any material liability. Within five business days
of the date hereof, the Company will make available to MergerSub copies of such
plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations, together with (A) the three most recent annual
reports (Form 5500 including, if applicable, Schedule B thereto) prepared in
connection with any such plan and (B) the most recent actuarial valuation report
prepared in connection with any such plan, in each case only to the extent not
previously made available. Such plans are referred to collectively herein as the
"EMPLOYEE PLANS". For purposes of this Section 3.14, "affiliate" of any Person
means any other Person which, together with such Person, would be treated as a
single employer under Section 414 of the Code. The only Employee Plans which
individually or collectively would constitute (x) an employee pension benefit
plan as defined in Section 3(2) of ERISA (the "PENSION PLANS") or (y) a
"MULTIEMPLOYER PLAN", as defined in Section 3(37) of ERISA (a "Multiemployer
Plan") are identified as such in the list referred to above.
(b) No Employee Plan is maintained in connection with any trust described
in Section 501(c)(9) of the Code. The only Employee Plans that are subject to
Title IV of ERISA (the "RETIREMENT PLANS") are identified in the list of such
Plans provided to MergerSub by the Company. As of the Balance Sheet Date, the
fair market value of the aggregate assets of the Retirement Plans (excluding for
these purposes any accrued but unpaid contributions) exceeded the projected
benefit obligations on an aggregate basis accrued under such Retirement Plans as
in effect on such date. No "accumulated funding deficiency," as defined in
Section 412 of the Code, has been incurred with respect to any Retirement Plan,
whether or not waived. The Company knows of no "reportable event," within the
meaning of Section 4043 of ERISA, and no event described in Section 4041, 4042,
4062 or 4063 of ERISA has occurred in connection with any Employee Plan, other
than a reportable event or other event that will not have a Material Adverse
Effect. To the Company's knowledge, no current condition exists and no event has
occurred that (i) would constitute grounds for termination of any Retirement
Plan and neither the Company nor any of its affiliates has incurred any
liability under Title IV of ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any Retirement Plan covered or
previously covered by Title IV of ERISA that would have a Material Adverse
Effect or (ii) presents a material risk of complete or partial withdrawal from
any Multiemployer Plan which would result in the Company or any Subsidiary
incurring a withdrawal liability within the meaning of Section 4201 of ERISA
that would have a Material Adverse Effect. The assets of the Company and all of
its Subsidiaries are not now, nor, to the Company's knowledge, will they after
the passage of time be, subject to any lien imposed under Section 412(n) of the
Code by reason of a failure of any of the Company or any of its affiliates to
make timely installments or other payments required under Section 412 of the
Code. Nothing done or omitted to be done, and no transaction or holding of any
asset under or in connection with any Employee Plan, has made or will make the
Company or any Subsidiary, or any officer or director of the Company or any
Subsidiary, 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.
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(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and to the Company's knowledge has been so
qualified during the period from its adoption to date and each trust forming a
part thereof is exempt from tax pursuant to Section 501(a) of the Code. The
Company will furnish to MergerSub within five days of the date hereof copies of
the most recent Internal Revenue Service determination letters with respect to
each such Employee Plan's qualified status. Except as would not have a Material
Adverse Effect, each Employee Plan has been maintained 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 Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any affiliate that, individually
or collectively, would give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
(e) "BENEFIT ARRANGEMENTS" means each material, written plan or arrangement
providing for insurance coverage (including any self-insured arrangements),
severance, 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 Employee Plan, (ii) is entered into, maintained or contributed to, as the
case may be, by the Company or any of its affiliates and (iii) covers any U.S.
employee or former employee of the Company or any of its affiliates. Copies or
descriptions of all such foregoing Benefit Arrangements will be made available
to MergerSub within five business days of the date hereof to the extent not
previously made available. Each Benefit Arrangement has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Benefit
Arrangement except where any noncompliance would have a Material Adverse Effect.
(f) The present value of the projected liability in respect of
post-retirement health and medical benefits for retired employees of the Company
and its affiliates is set forth fairly, in all material respects, in the 1997
Financial Statements. To the Company's knowledge, each "employee welfare benefit
plan" (within the meaning of Section 3(1) of ERISA) providing health or medical
benefits in respect of any active non-union employee of the Company or any
Subsidiary may by its terms be amended or terminated.
(g) There has been no amendment to, written interpretation or written
announcement by the Company or any of its affiliates relating to any Employee
Plan or Benefit Arrangement which would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on the Balance
Sheet Date.
(h) The Company is not a party to or subject to any employment contract
with any executive officer or director of the Company.
(i) Except as would not have a Material Adverse Effect, each material
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. With respect to each
material International Plan, there has been no amendment to, written
interpretation of or written announcement by the Company or any Subsidiary
relating to, or change in employee participation or coverage under, any such
material International Plan that would increase materially the expense of
maintaining such material International Plan above the level of expense incurred
in respect thereof for the most recent fiscal year ended prior to the date
hereof.
"INTERNATIONAL PLAN" means any employment, severance or similar contract or
arrangement (whether or not written) or any plan, policy, fund, program or
arrangement or contract providing for severance, insurance coverage (including
any self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or post-
retirement insurance, compensation or benefits that (i) is not an Employee Plan
or a Benefit Arrangement,
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(ii) is entered into, maintained, administered or contributed to by the Company
or any Subsidiary and (iii) covers any non U.S. employee of the Company or any
Subsidiary.
Section 3.15. Labor Matters. The Company and its Subsidiaries are in
compliance with all currently applicable laws respecting employment practices,
terms and conditions of employment and wages and hours, and are not engaged in
any unfair labor practice, the failure to comply with which or engagement in
which, as the case may be, would have a Material Adverse Effect. There is no
unfair labor practice complaint pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary before the National Labor
Relations Board or otherwise which if adversely resolved is likely to have a
Material Adverse Effect. There are no strikes, slowdowns, union organizational
campaigns or other protected concerted activity under the National Labor
Relations Act or, to the knowledge of the Company, threats thereof, by or with
respect to any employees of the Company or any Subsidiary which would have a
Material Adverse Effect.
Section 3.16. Compliance with Laws and Court Orders. Neither the Company
nor any Subsidiary is in violation of, or has since January 1, 1996 violated,
and to the knowledge of the Company none is under investigation with respect to
or has been threatened to be charged with or given notice of any violation of,
any applicable law, rule, regulation, judgment, injunction, order or decree,
except for violations that would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 3.17. Licenses and Permits. Except as would not, individually or
in the aggregate have a Material Adverse Effect, (i) each license, franchise,
permit, certificate, approval or other similar authorization affecting, or
relating in any way to, the assets or business of the Company and its
Subsidiaries (the "PERMITS") is valid and in full force and effect and (ii)
neither the Company nor any Subsidiary is in default under, and no condition
exists that with notice or lapse of time or both would constitute a default
under, the Permits.
Section 3.18. Intellectual Property. The Company and the Subsidiaries own
or possess adequate licenses or other rights to use all Intellectual Property
Rights necessary to conduct the business now operated by them, except where the
failure to own or possess such licenses or rights would not be reasonably likely
to have a Material Adverse Effect. To the knowledge of the Company, the
Intellectual Property Rights of the Company and the Subsidiaries do not conflict
with or infringe upon any Intellectual Property Rights of others to the extent
that, if sustained, such conflict or infringement would be reasonably likely to
have a Material Adverse Effect. For purposes of this Agreement, "INTELLECTUAL
PROPERTY RIGHT" means any trademark, service mark, trade name, mask work,
copyright, patent, software license, other data base, invention, trade secret,
know-how (including any registrations or applications for registration of any of
the foregoing) or any other similar type of proprietary intellectual property
right.
Section 3.19. Finders' Fees. With the exception of Lazard Freres & Co.
LLC and Goldman Sachs & Co., copies of whose engagement agreements have been
provided to MergerSub, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company or any Subsidiary who might be entitled to any fee or commission from
the Company or any Subsidiary or any of its affiliates upon consummation of the
transactions contemplated by this Agreement. For purposes of this Agreement
(other than Section 3.14), "AFFILIATE" or "AFFILIATE" means, with respect to any
Person, any other Person directly or indirectly controlling, controlled by, or
under common control with such other Person.
Section 3.20. Required Votes. The adoption of this Agreement by the
affirmative vote of the holders of Shares entitling such holders to exercise at
least a majority of the voting power of the Shares, the vote of the Company as
sole stockholder of ExistingSub and the vote of ExistingSub as sole stockholder
of ReorgSub are the only votes of holders of any class or series of the capital
stock of the Company, ExistingSub and ReorgSub required to adopt this Agreement,
or to approve the Mergers or any of the other transactions contemplated hereby
and no higher or additional vote is required pursuant to the Company's or
ExistingSub's certificate of incorporation or otherwise.
Section 3.21. Environmental Matters. (a)(i) No action, suit,
investigation or proceeding is pending against, or, to the knowledge of the
Company, is threatened by any Person against, the Company or any Subsidiary
which has a reasonable likelihood of an adverse determination nor has any
material penalty been
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assessed against the Company or any Subsidiary with respect to any (A) alleged
violation of any Environmental Law or liability thereunder, (B) alleged failure
to have any permit, certificate, license, approval, registration or
authorization required under any Environmental Law, (c) generation, treatment,
storage, recycling, transportation or disposal of any Hazardous Substance or (C)
discharge, emission or release of any Hazardous Substance, except for such
actions, suits, investigations, proceedings and penalties which, individually or
in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect;
(ii) no Hazardous Substance has been discharged, emitted, released or
is present at any property now or previously owned, leased or operated by
the Company or any Subsidiary, which circumstance, individually or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect;
(iii) the estimated costs of environmental remediation set forth in
the Company 10-K represent a reasonable estimate of the Company's potential
exposure for Environmental Liabilities reasonably likely to be incurred in
the next ten years, including without limitation the costs of remediation
or similar obligations (based on an application of current Environmental
Laws and the use of a remedy reasonably likely to be required under such
Environmental Laws), provided that there will be no breach of this
representation unless the costs of such environmental remediation exceed
such estimate by $5,400,000; and
(iv) there are no Environmental Liabilities that would reasonably be
expected to have a Material Adverse Effect.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis conducted since January 13, 1991 of which the Company
has knowledge in relation to the current or prior business of the Company or any
property or facility now or previously owned or leased by the Company or any
Subsidiary which has not been made available to MergerSub at least five days
prior to the date hereof, except for such investigations, studies, audits,
tests, reviews or analyses which report on conditions and liabilities that,
individually or in the aggregate, would not be reasonably expected to have a
Material Adverse Effect.
(c) For purposes of this Section 3.22 the following terms shall have the
meanings set forth below:
(i) "ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes and injunctions relating to the effect of
the environment on human health, the environment or to emissions,
discharges or releases of pollutants, contaminants or other hazardous
substances or wastes into the environment, including without limitation
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or other
hazardous substances or wastes or the clean-up or other remediation
thereof;
(ii) "ENVIRONMENTAL LIABILITIES" means any and all liabilities of or
relating to the Company and any Subsidiary (including any liability which
relates to a predecessor of the Company or any Subsidiary), whether
contingent or fixed, actual or potential, known or unknown, which (i) arise
under or relate to matters covered by Environmental Laws and (ii) relate to
actions occurring or conditions existing on or prior to the Effective Time;
and
(iii) "HAZARDOUS SUBSTANCES" means any toxic, radioactive or otherwise
hazardous substance, including petroleum, its derivatives, by-products and
other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics, which in any event is
regulated under Environmental Laws.
Section 3.22. Disclaimer. Except as set forth in this Article 3 or in
Section 1.02(d), the Company has not made and shall not be deemed to have made
any representation or warranty, express or implied. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representation or warranty made by the Company in Article 3 or Section 1.02(d),
the Company makes no representation or warranty with respect to any projections,
estimates or budgets heretofore delivered to or made available to MergerSub of
future revenues, expenses or expenditures or results of operations of the
Company or any Subsidiaries.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MERGERSUB
MergerSub represents and warrants to the Company that:
Section 4.01. Corporate Existence and Power. MergerSub is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. Since the date of its incorporation, MergerSub
has not engaged in any activities other than in connection with or as
contemplated by this Agreement and the Merger or in connection with arranging
any financing required to consummate the transactions contemplated hereby.
MergerSub has heretofore delivered to the Company true and complete copies of
MergerSub's certificate of incorporation and bylaws as currently in effect.
Section 4.02. Corporate Authorization. The execution, delivery and
performance by MergerSub of this Agreement and the consummation by MergerSub of
the transactions contemplated hereby are within the corporate powers of
MergerSub and have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and binding agreement of MergerSub.
Section 4.03. Governmental Authorization. The execution, delivery and
performance by MergerSub of this Agreement and the consummation by MergerSub of
the transactions contemplated by this Agreement 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 Exchange Act; (d) compliance
with the applicable requirements of the Securities Act; (e) compliance with any
applicable foreign or state securities or Blue Sky laws; (f) any other
authorizations required to be obtained pursuant to applicable foreign statutes,
rules or regulations and (g) any actions or filings that if not taken or made
would not have a material adverse effect on MergerSub.
Section 4.04. Non-Contravention. The execution, delivery and performance
by MergerSub of this Agreement and the consummation by MergerSub of the
transactions contemplated hereby do not and will not (a) contravene or conflict
with the certificate of incorporation or bylaws of MergerSub, (b) assuming
compliance with the matters referred to in Section 4.03, contravene or conflict
with any provision of law, regulation, judgment, order or decree binding upon
MergerSub, or (c) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of
MergerSub or to a loss of any benefit to which MergerSub is entitled under any
agreement, contract or other instrument binding upon MergerSub.
Section 4.05. Disclosure Documents. (a) The information that MergerSub
furnishes to the Company for use in any Company Disclosure Document will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading (i) in the case of the
Company Proxy Statement, at the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company
and at the time the stockholders vote on adoption of this Agreement and the
Mergers, and (ii) in the case of any Company Disclosure Document other than the
Company Proxy Statement, at the time of the filing thereof and at the time of
any required distribution thereof.
(b) Each document required to be filed by MergerSub with the SEC in
connection with the Mergers (including the Financing) will, when filed, comply
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and will not at the time of the filing
thereof, or at the time of the distribution thereof, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading, provided, that this representation and warranty
will not apply to statements or omissions in such documents based upon
information furnished to MergerSub in writing by the Company specifically for
use therein.
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Section 4.06. Finders' Fees. Except for Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), whose fees will be paid by MergerSub, there is
no investment banker, broker, finder or other intermediary who might be entitled
to any fee or commission from MergerSub or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 4.07. Financing. The Company has received copies of (a) a
commitment letter dated March 20, 1998 from DLJ Merchant Banking Partners II,
L.P., and certain of its affiliates pursuant to which each of the foregoing has
committed, subject to the terms and conditions set forth therein, to purchase
securities of MergerSub for an aggregate amount equal to $54,999,997.50, (b) a
letter dated March 20, 1998 from DLJ Bridge Finance, Inc. ("DLJ BRIDGE FUND")
pursuant to which DLJ Bridge Fund has committed, subject to the terms and
conditions set forth therein, to purchase senior pay-in-kind increasing rate
notes of the Company in the amount of $110,000,000 and (c) a commitment letter
dated March 20, 1998 from DLJ Capital Funding, Inc. ("DLJ SENIOR DEBT FUND")
pursuant to which DLJ Senior Debt Fund has committed, subject to the terms and
conditions set forth therein, to enter into one or more credit agreements
providing for loans to the corporation surviving the Reorganization Merger of up
to $350,000,000. As used in this Agreement, the aforementioned entities shall
hereinafter be referred to as the "FINANCING ENTITIES". The aforementioned
credit agreements and commitments to purchase equity securities of MergerSub
shall be referred to as the "FINANCING AGREEMENTS" and the financing to be
provided thereunder shall be referred to as the "FINANCING". The aggregate
proceeds of the Financing are in an amount sufficient to pay the Merger
Consideration, to repay the Company's and its Subsidiaries' indebtedness
(excluding for this purpose capital lease obligations) together with any
interest, premium or penalties payable in connection therewith, to provide a
reasonable amount of working capital financing and to pay related fees and
expenses (collectively, the "REQUIRED AMOUNTS"). As of the date hereof, none of
the commitment letters relating to the Financing Agreements referred to above
has been withdrawn and MergerSub does not know of any facts or circumstances
that may reasonably be expected to result in any of the conditions set forth in
the commitment letters relating to the Financing Agreements not being satisfied.
MergerSub believes that the Financing will not create any liability to the
directors and stockholders of the Company under any Federal or state fraudulent
conveyance or transfer law. MergerSub further believes that, upon the
consummation of the transactions contemplated hereby, including, without
limitation, the Financing, the Surviving Corporation (i) will not become
insolvent, (ii) will not be left with unreasonably small capital, (iii) will not
have incurred debts beyond its ability to pay such debts as they mature, and
(iv) will not have its capital impaired. MergerSub knows of no reason why the
Merger will not be recorded as a "recapitalization" for financial reporting
purposes.
Section 4.08. Capitalization. All outstanding shares of capital stock of
MergerSub have been duly authorized and validly issued and are fully paid and
nonassessable. As of the moment immediately prior to the Effective Time,
1,235,955 shares of MergerSub Common Stock and MergerSub Warrants to acquire
111,347 shares of MergerSub Common Stock at an exercise price of not less than
$0.01 per share (which will have been purchased for aggregate consideration of
$54,999,997.50) will be outstanding. Except as set forth in this Section 4.08,
there are outstanding (a) no shares of capital stock or other voting securities
of MergerSub, (b) no securities of MergerSub convertible into or exchangeable
for shares of capital stock or voting securities of MergerSub, and (c) no
options or other rights to acquire from MergerSub, and no obligation of
MergerSub to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
MergerSub (the items in clauses (a), (b) and (c), together with the MergerSub
Common Stock and the MergerSub Warrants, being referred to collectively as the
"MERGERSUB SECURITIES"). There are no outstanding obligations of MergerSub to
repurchase, redeem or otherwise acquire any MergerSub Securities.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
Section 5.01. Conduct of the Company. Except as otherwise contemplated
by, or provided for, in this Agreement or the Disclosure Schedule, without the
prior written consent of MergerSub (which shall not be
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unreasonably withheld), from the date hereof to the Effective Time, the Board of
Directors shall not approve or authorize any action that would allow the Company
and its Subsidiaries to carry on their respective businesses other than in the
ordinary and usual course of business and consistent with past practices or any
action that would prevent the Company and its Subsidiaries from using their
reasonable best efforts to (i) preserve intact its present business
organization, (ii) maintain in effect all material federal, state and local
licenses, approvals and authorizations, including, without limitation, all
material Permits that are required for the Company or any of its Subsidiaries to
carry on their business, (iii) keep available the services of its key officers
and key employees, and (iv) maintain satisfactory relationships with its
material customers, lenders, suppliers and others having material business
relationships with it. Without limiting the generality of the foregoing, and
except as otherwise contemplated by, or provided for, in this Agreement or the
Disclosure Schedule, without the prior written consent of MergerSub (which shall
not be unreasonably withheld), prior to the Effective Time, the Board of
Directors shall not, nor shall it authorize or direct the Company or any
Subsidiary, directly or indirectly, to:
(a) adopt or propose any change in its certificate of incorporation or
bylaws;
(b) except pursuant to existing agreements or arrangements, (i) acquire (by
merger, consolidation, acquisition of stock or assets or otherwise), directly or
indirectly, any material corporation, partnership or other business organization
or division thereof, or sell, lease or otherwise dispose of a material
Subsidiary or a material amount of assets (excluding sales of inventory) or
securities; (ii) waive, release, grant, or transfer any rights of material
value, except in the ordinary course of business, consistent with past
practices; (iii) modify or change in any material respect any existing material
license, lease, contract, or other document, except in the ordinary course of
business, consistent with past practices; (iv) except to refund or refinance
commercial paper or with respect to borrowings in the ordinary course of
business consistent with past practices, incur, assume or prepay an amount of
long-term or short-term debt; (v) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except in the ordinary course of business,
consistent with past practices; (vi) make any loans, advances or capital
contributions to, or investments in, any other person, except in the ordinary
course of business, consistent with past practices; or purchase any property or
assets of any other individual or entity, except in the ordinary course of
business, consistent with past practices; (vii) enter into any interest rate,
currency or other swap or derivative transaction, other than in the ordinary
course of business, consistent with past practices, and for bona fide hedging
purposes; or (viii) except for capital expenditures provided for in the
Company's 1998 capital budget, a copy of which has been previously provided to
MergerSub, incur any capital expenditure, individually or in the aggregate, in
excess of $3,000,000.
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, other than
cash dividends and distributions by a directly or indirectly wholly owned
Subsidiary of the Company to the Company or a directly or indirectly wholly
owned Subsidiary, or, in the case of a joint venture vehicle pro rata to all
equity owners thereof, or redeem, repurchase or otherwise acquire or offer to
redeem, repurchase, or otherwise acquire any of its securities or any securities
of its Subsidiaries, except pursuant to the Reorganization Merger;
(d) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director, officer or employee, or
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any existing plan or
arrangement (including, without limitation, the granting of stock options or
stock appreciation rights or the removal of existing restrictions in any benefit
plans or agreements), except, in each case, for normal actions in the ordinary
course of business that are consistent with past practices and that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company;
(e) except as required by applicable law or generally accepted accounting
principles, revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory in any material manner
or write-off of notes or accounts receivable in any material manner;
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(f) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the ordinary
course of business, consistent with past practices, of liabilities reflected or
reserved against in the consolidated financial statements of the Company or
incurred in the ordinary course of business, consistent with past practices;
(g) make any tax election inconsistent with past practices, or settle or
compromise any material income tax liability;
(h) take any action other than in the ordinary course of business and
consistent with past practices with respect to accounting policies or
procedures; or
(i) agree or commit to do any of the foregoing.
Section 5.02. Stockholder Meeting; Proxy Material. (a) The Company shall
cause a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Mergers. The Board of
Directors shall, subject to its fiduciary duties as advised by counsel,
recommend approval and adoption by the Company's stockholders of this Agreement
and the Mergers.
(b) In connection with the Company Stockholder Meeting, the Company (i)
will as promptly as practicable prepare and file with the SEC a Registration
Statement on Form S-4 (the "REGISTRATION STATEMENT") (which Registration
Statement includes the Company Proxy Statement), will use its reasonable best
efforts to have the Registration Statement declared effective by the SEC and
will thereafter mail to its stockholders as promptly as practicable the Company
Proxy Statement and all other proxy materials for such meeting, (ii) will use
its reasonable best efforts to obtain the necessary approvals by its
stockholders of this Agreement, the Mergers and the transactions contemplated
hereby and (iii) will otherwise comply with all legal requirements applicable to
such meeting.
Section 5.03. Access to Information. From the date hereof until the
Effective Time, the Company will give MergerSub, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company and the Subsidiaries (so
long as such access does not unreasonably interfere with the operations of the
Company and the Subsidiaries), will furnish to MergerSub, their counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and will instruct the Company's employees, counsel and financial advisors to
cooperate with MergerSub in its investigation of the business of the Company and
the Subsidiaries; provided that no investigation pursuant to this Section 5.03
shall affect any representation or warranty given by the Company to MergerSub
hereunder; and provided, further that (i) any information provided to MergerSub
pursuant to this Section 5.03 shall be subject to the Confidentiality Agreement
dated as of February 16, 1998 between the Company and DLJ Merchant Banking II,
Inc. (the "CONFIDENTIALITY AGREEMENT") and (ii) none of the Company or any other
Persons covered by this Section 5.03 shall be obligated to furnish any
information under this Section 5.03 if doing so would, on the basis of advice
from the Company's counsel, result in the loss of attorney-client privilege in
favor of the Company or a Subsidiary or violate the terms of any contract, so
long as the Company informs MergerSub of its decision to withhold such
information and furnishes a description of such information that is consistent
with the preservation of such privilege or compliance with such agreement, as
applicable.
Section 5.04. Other Offers. (a) Neither the Company nor any of its
Subsidiaries shall (whether directly or indirectly through advisors, agents or
other intermediaries), nor shall the Company or any of its Subsidiaries
authorize or permit any of its or their officers, directors, agents,
representatives, advisors or Subsidiaries to (A) solicit, initiate or take any
action knowingly to facilitate the submission of inquiries, proposals or offers
from any Third Party (as defined below) (other than MergerSub) relating to (i)
any acquisition or purchase of 20% or more of the consolidated assets of the
Company and its Subsidiaries or of over 20% of any class of equity securities of
the Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of the Company,
(ii) any tender offer (including a self-tender offer) or exchange offer that if
consummated would result in any Third Party
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beneficially owning 20% or more of any class of equity securities of the Company
or any of its Subsidiaries whose assets, individually or in the aggregate,
constitute more than 20% of the consolidated assets of the Company, (iii) any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of the Company
other than the transactions contemplated by this Agreement, or (iv) any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Mergers (collectively,
"ACQUISITION PROPOSALS"), or agree to or endorse any Acquisition Proposal, (B)
enter into or participate in any discussions or negotiations regarding any of
the foregoing, or furnish to any Third Party any information with respect to its
business, properties or assets in order to facilitate or encourage any effort or
attempt by any Third Party (other than MergerSub) to do or seek any of the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any Third
Party (other than MergerSub) to do or seek any of the foregoing, or (C) grant
any waiver or release under any standstill or similar agreement with respect to
any class of equity securities of the Company or any of its Subsidiaries;
provided, however, that the foregoing shall not prohibit the Company (either
directly or indirectly through advisors, agents or other intermediaries) from
(i) furnishing information pursuant to an appropriate confidentiality letter
(which letter shall not be less favorable to the Company in any material respect
than the Confidentiality Agreement, and a copy of which shall be provided for
informational purposes only to MergerSub with the name of the other party
redacted) concerning the Company and its businesses, properties or assets to a
Third Party who has made a bona fide Acquisition Proposal, (ii) engaging in
discussions or negotiations with a Third Party who has made a bona fide
Acquisition Proposal, (iii) following receipt of a bona fide Acquisition
Proposal, taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) or Rule 14d-9 under the Exchange Act or otherwise making
disclosure to its stockholders, (iv) following receipt of a bona fide
Acquisition Proposal, failing to make or withdrawing or modifying its
recommendation referred to in Section 5.02 and/or (v) taking any non-appealable,
final action ordered to be taken by the Company by any court of competent
jurisdiction, but in each case referred to in the foregoing clauses (i) through
(iv) only to the extent that the Board of Directors shall have concluded in good
faith on the basis of advice from outside counsel that the failure to take such
action would result in a breach of the fiduciary duties of the Board of
Directors to the stockholders of the Company under applicable law; provided,
further, that (A) the Board of Directors shall not take any of the foregoing
actions referred to in clauses (i) through (iv) until after reasonable notice to
MergerSub with respect to such action, and (B) if the Board of Directors
receives an Acquisition Proposal, to the extent it may do so without breaching
its fiduciary duties as advised by counsel and as determined in good faith and
without violating any of the conditions of such Acquisition Proposal, then the
Company shall promptly inform MergerSub of the terms and conditions of such
proposal and the identity of the person making it. The Company will immediately
cease and cause its advisors, agents and other intermediaries to cease any and
all existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and shall use its reasonable
best efforts to cause any such parties in possession of confidential information
about the Company that was furnished by or on behalf of the Company to return or
destroy all such information in the possession of any such party or in the
possession of any agent or advisor of any such party. As used in this Agreement,
the term "THIRD PARTY" means any person, corporation, entity or "group" as
defined in Section 13(d) of the Exchange Act, other than MergerSub or any of its
affiliates.
(b) If a Payment Event (as hereinafter defined) occurs, the Company shall
pay to MergerSub, within two business days following such Payment Event, a fee
of $6,000,000.
(c) "PAYMENT EVENT" means (w) the termination of this Agreement pursuant to
Section 9.01(e); (x) the termination of this Agreement pursuant to Section
9.01(f) in contemplation of a merger agreement or a tender or exchange offer or
any transaction of the type listed in clause (z) below, on terms more favorable
to the Company's stockholders from a financial point of view than the Merger;
(y) the termination of this Agreement by MergerSub pursuant to Section 9.01(c)
but only if the breach of covenant or warranty or misrepresentation in question
arises out of the bad faith or willful misconduct of the Company; or (z) the
occurrence of any of the following events within 12 months of the termination of
this Agreement pursuant to Section 9.01(g) whereby stockholders of the Company
receive, pursuant to such event, cash, securities or
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other consideration having an aggregate value, when taken together with the
value of any securities of the Company or its Subsidiaries otherwise held by the
stockholders of the Company after such event, in excess of $44.50 per Share: the
Company is acquired by merger or otherwise by a Third Party; a Third Party
acquires more than 50% of the total assets of the Company and its Subsidiaries,
taken as a whole; a Third Party acquires more than 50% of the outstanding Shares
or the Company adopts and implements a plan of liquidation, recapitalization or
share repurchase relating to more than 50% of the outstanding Shares or an
extraordinary dividend relating to more than 50% of the outstanding Shares or
50% of the assets of the Company and its Subsidiaries, taken as a whole.
(d) Upon (ix) the occurrence of a Payment Event, or (x) a termination by
MergerSub that follows a failure of the conditions set forth in Sections 8.01(a)
or 8.02(g) to be satisfied, the Company shall reimburse MergerSub and its
affiliates not later than two business days after submission of reasonable
documentation thereof for 100% of their out-of-pocket fees and expenses
(including the reasonable fees and expenses of their counsel and fees payable to
the financing entities and their respective counsel) up to $5,000,000, in each
case, actually incurred by any of them or on their behalf in connection with
this Agreement and the transactions contemplated hereby.
(e) The Company acknowledges that the agreements contained in this Section
5.04 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, MergerSub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay any amount due
pursuant to this Section 5.04 and, in order to obtain such payment, the other
party commences a suit which results in a judgment against the Company for the
fee or fees and expenses set forth in this Section 5.04, the Company shall also
pay to MergerSub its costs and expenses incurred in connection with such
litigation.
(f) Section 5.04(b)-(e) shall survive any termination of this Agreement,
however caused.
Section 5.05. Resignation of Directors. Immediately prior to the
Effective Time, the Company and ExistingSub shall deliver to MergerSub evidence
satisfactory to MergerSub of the resignation of all directors of the Company and
ExistingSub (in each case other than Robert L. Smialek) effective at the
Effective Time.
Section 5.06. Solvency Opinion. The Company shall request an independent
advisor to deliver the opinion contemplated by Section 8.03(b) as promptly as
practicable.
Section 5.07. Transfers by Affiliates. The Company shall use its
reasonable best efforts to obtain and provide to MergerSub prior to the
Effective Time undertakings in writing from each Person, if any, who according
to counsel for the Company might reasonably be considered "affiliates" of the
Company within the meaning of Rule 145(c) of the SEC pursuant to the Securities
Act (each, a "RULE 145 AFFILIATE"), in each case in form and substance
reasonably satisfactory to counsel for MergerSub providing (i) such Rule 145
Affiliate will notify MergerSub in writing before offering for sale or selling
or otherwise disposing of any Shares or ExistingSub Shares owned by such Rule
145 Affiliate and (ii) no such sale or other disposition shall be made unless
and until the Rule 145 Affiliate has supplied to MergerSub an opinion of counsel
for the Rule 145 Affiliate (which opinion shall be reasonably satisfactory to
MergerSub) to the effect that such transfer is not in violation of the
Securities Act.
ARTICLE 6
COVENANTS OF MERGERSUB
MergerSub agrees that:
Section 6.01. Voting of Shares. MergerSub agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
Section 6.02. Director and Officer Liability. The Surviving Corporation
shall cause the Company to do the following and the Company hereby agrees to do
the following:
(a) The Company shall indemnify and hold harmless the present and former
officers and directors of the Company or any of its Subsidiaries (each an
"INDEMNIFIED PERSON") in respect of acts or omissions or alleged
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acts or omissions occurring at or prior to the Effective Time to the fullest
extent permitted from time to time by Delaware Law or any other applicable laws
as presently or hereafter in effect or provided under the Company's certificate
of incorporation and bylaws in effect on the date hereof.
(b) The Company shall pay on an as-incurred basis the reasonable fees and
expenses of such Indemnified Person (including fees and expenses of counsel) in
advance of the final disposition of any action, suit, proceeding or
investigation that is the subject of the right to indemnification, subject to
reimbursement in the event such Indemnified Person is not entitled to
indemnification.
(c) The certificate of incorporation and bylaws of the Company shall
contain the provisions providing for exculpation of director and officer
liability and indemnification on the same basis as set forth in the Company's
certificate of incorporation and bylaws in effect on the date hereof. For a
period of six years after the Effective Time, the Company shall maintain in
effect such provisions in the certificate of incorporation and bylaws of the
Company providing for exculpation of director and officer liability and
indemnification to the fullest extent permitted from time to time under Delaware
Law, which provisions shall not be amended except as required by applicable law
or except to make changes permitted by applicable law that would enlarge the
scope of the Indemnified Parties' indemnification rights thereunder.
(d) The Company shall pay all expenses, including attorneys' fees, that may
be incurred by an Indemnified Person in enforcing the indemnity and other
obligations provided for in this Section 6.02. In the event of any action, suit,
investigation or proceeding, the Indemnified Party shall be entitled to control
the defense thereof with counsel of its own choosing reasonably acceptable to
the Company and the Company shall cooperate in the defense thereof, provided
however that the Company shall not be liable for the fees of more than one
counsel for all Indemnified Parties, other than local counsel, unless a conflict
of interest shall be caused thereby and provided further that the Company shall
not be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld).
(e) For a period of six years after the Effective Time, the Company shall
provide officers' and directors' liability insurance in respect of acts or
omissions occurring at or prior to the Effective Time covering each such Person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no less favorable than those
of such policy in effect on the date hereof, provided that in satisfying its
obligation under this Section 6.02(e), the Company shall not be obligated to pay
premiums in excess of 150% of the amount per annum the Company paid in its last
full fiscal year, which amount has been disclosed to MergerSub.
(f) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of the Company or the Surviving Corporation or any of
its Subsidiaries, under Delaware Law or otherwise. Notwithstanding anything to
the contrary contained in this Agreement or otherwise, the provisions of this
Section 6.02 shall survive the consummation of the Merger, and each Indemnified
Person shall, for all purposes, be a third party beneficiary of the covenants
and agreements contained in this Section 6.02 and, accordingly, shall be treated
as a party to this Agreement for purposes of the rights and remedies relating to
enforcement of such covenants and agreements and shall be entitled to enforce
any such rights and exercise any such remedies directly against MergerSub, the
Surviving Corporation and the Company.
Section 6.03. Employee Plans and Benefit Arrangements. (a) From and after
the Effective Time, subject to applicable law, the Surviving Corporation shall
cause the Company and its Subsidiaries to, and the Company and its Subsidiaries
shall, honor the obligations of the Company and its Subsidiaries incurred prior
to the Effective Time under all existing Employee Plans, Benefit Arrangements
and International Plans.
(b) The Surviving Corporation agrees that, for at least one year from the
Effective Time, subject to applicable law, the Surviving Corporation shall cause
the Company and its Subsidiaries to, and the Company and its Subsidiaries shall,
provide benefits to their employees which will, in the aggregate, be comparable
to those currently provided by the Company and its Subsidiaries to their
employees. Notwithstanding the foregoing, nothing herein shall obligate or
require the Company or any of its Subsidiaries to provide its employees with a
plan or arrangement similar to the stock option or any other equity-based
compensation
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plans currently maintained by the Company and nothing herein shall limit the
Company's right to amend, modify or terminate any particular Employee Plan or
Benefit Arrangement.
(c) After the Effective Time, the Surviving Corporation shall cause the
Company to, and the Company shall, grant to all individuals who are, as of the
Effective Time, employees of the Company or any of its Subsidiaries credit for
all service with the Company, any of its present and former Subsidiaries, any
other affiliate of the Company and their respective predecessors (collectively,
the "INSILCO AFFILIATED GROUP") prior to the Effective Time for purposes of
vesting, participation, eligibility for benefit commencement and benefit accrual
(but without any duplication of benefits in any such case). Any Benefit
Arrangements or International Plans which provide medical, dental or life
insurance benefits after the Effective Time to any individual who is a current
or former employee of the Insilco Affiliated Group as of the Effective Time (an
"EMPLOYEE") or a dependent of an Employee (a "DEPENDENT") shall, with respect to
such individuals, waive any waiting periods and any pre-existing conditions and
actively-at-work exclusions to the extent so waived under present policy and
shall provide that any expenses incurred on or before the Effective Time by such
individuals shall be taken into account under such plans for purposes of
satisfying applicable deductible or coinsurance provisions to the extent taken
into account under present policy.
Section 6.04. Financing. MergerSub shall use its reasonable best efforts
to obtain the Financing (including satisfying the conditions thereto). In the
event that any portion of such Financing becomes unavailable, regardless of the
reason therefor, MergerSub will use its reasonable best efforts to obtain
alternative financing on substantially comparable or more favorable terms from
other sources.
Section 6.05. NASDAQ Listing. The Surviving Corporation will not take any
action, for at least three years after the Effective Time, to cause the
Surviving Corporation Shares to be de-listed from, or fail to meet any of the
listing standards of, the NASDAQ National Market ("NASDAQ"); provided, however,
that the Surviving Corporation may cause or permit the Surviving Corporation
Shares to be de-listed in connection with a transaction (other than the Merger)
which results in the termination of registration of such securities under
Section 12 of the Exchange Act, and provided, further, that nothing in this
Section 6.05 shall require the Surviving Corporation to take any affirmative
action to prevent the Surviving Corporation Shares from being de-listed by
NASDAQ if the Surviving Corporation Shares cease to meet the applicable listing
standards. For at least three years after the Effective Time, the Surviving
Corporation shall make available the information required pursuant to Rule
144(c) of the Securities Act.
ARTICLE 7
COVENANTS OF MERGERSUB AND THE COMPANY
The parties hereto agree that:
Section 7.01. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement, including delivering
such documents relating to corporate existence and authority as the other
parties may reasonably request. Each party shall also refrain from taking,
directly or indirectly, any action contrary to or inconsistent with the
provisions of this Agreement, including action which would impair such party's
ability to consummate the Mergers and the other transactions contemplated
hereby. Without limiting the foregoing, the Company and the Board of Directors
shall use their reasonable best efforts to (a) take all action necessary so that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Mergers or any of the other transactions contemplated by this
Agreement and (b) if any state takeover statute or similar statute or regulation
becomes applicable to any of the foregoing, take all action necessary so that
the Mergers and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Mergers and the other transactions contemplated by this Agreement.
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Section 7.02. Certain Filings. (a) The Company and MergerSub shall use
their respective reasonable best efforts to take or cause to be taken, (i) all
actions necessary, proper or advisable by such party with respect to the prompt
preparation and filing with the SEC the Registration Statement and the other
Company Disclosure Documents, (ii) such actions as may be required to have the
Registration Statement declared effective under the Securities Act and to have
the Company Proxy Statement cleared by the SEC, in each case as promptly as
practicable, and (iii) such actions as may be required to be taken under state
securities or applicable Blue Sky laws in connection with the issuance of the
securities contemplated hereby.
(b) The Company agrees to provide, and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, all necessary
cooperation in connection with the arrangement of any financing to be
consummated contemporaneous with or at or after the Effective Time in respect of
the transactions contemplated by this Agreement, including without limitation,
(x) participation in meetings, due diligence sessions and road shows, (y) the
preparation of offering memoranda, private placement memoranda, prospectuses and
similar documents, and (z) the execution and delivery of any commitment letters,
underwriting or placement agreements, pledge and security documents, other
definitive financing documents, or other requested certificates or documents,
including comfort letters of accountants and legal opinions relating to the
Company as may be reasonably requested by MergerSub and as are customarily
provided in similar transactions; provided that the form and substance of any of
the material documents referred to in clause (y), and the terms and conditions
of any of the material agreements and other documents referred to in clause (z),
shall be substantially consistent with the terms and conditions set forth in the
commitment letters referred to in Section 4.07.
(c) The Company and MergerSub shall cooperate with one another (i) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (ii) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Company Disclosure Documents and seeking to
obtain any such actions, consents, approvals or waivers in a timely manner.
Section 7.03. Public Announcements. MergerSub and the Company will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except for any press release or public statement as may be required
by applicable law or any listing agreement with any national securities exchange
or NASDAQ, will not issue any such press release or make any such public
statement prior to such consultation.
Section 7.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or MergerSub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Mergers.
Section 7.05. Reserved Shares. The Surviving Corporation shall cause the
Company to, and the Company shall, honor the provisions of the Bankruptcy Order
and all agreements made pursuant thereto with respect to the issuance of the
Reserved Shares, except that in lieu of issuing any Reserved Shares, payment
shall be made in cash in an amount equal to $44.50 multiplied by the aggregate
number of Reserved Shares which otherwise would become issuable pursuant to the
provisions of the Bankruptcy Order.
Section 7.06. Notices of Certain Events. Each of the parties hereto shall
promptly notify the other parties of:
(a) the receipt by such party of any material written notice or other
material communication from any Person alleging that the consent of such Person
is or may be required in connection with the transactions contemplated by this
Agreement;
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(b) the receipt by such party of any material written notice or other
material communication from any governmental or regulatory agency or authority
in connection with the transactions contemplated by this Agreement;
(c) actual knowledge by such party of any actions, suits, claims,
investigations or proceedings commenced or, to the knowledge of such party
threatened against such party or any of its Affiliates which, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
to Section 3.12 or which relate to the consummation of the transactions
contemplated by this Agreement; and
(d) actual knowledge by such party of (i) the occurrence, or failure to
occur, of any event that has caused any of its representations or warranties
hereunder to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time and (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
ARTICLE 8
CONDITIONS TO THE MERGER
Section 8.01. Conditions to the Obligations of Each Party. The
obligations of the Company and MergerSub to consummate the Mergers are subject
to the satisfaction of the following conditions:
(a) This Agreement and the Mergers shall have been adopted by a majority of
the outstanding Shares as of the record date of the Company Stockholder Meeting;
(b) Any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated;
(c) No provision of any applicable law or regulation and no judgment,
order, decree or injunction shall prohibit or restrain the consummation of the
Merger; provided, however, that the Company and MergerSub shall each use its
reasonable best efforts to have any such judgment, order, decree or injunction
vacated;
(d) All consents, approvals and licenses of any governmental or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement and for the Company and its Subsidiaries to
conduct their business in substantially the manner now conducted, shall have
been obtained, unless the failure to obtain such consents, authorizations,
orders or approvals would not have a Material Adverse Effect after giving effect
to the transactions contemplated by this Agreement (including the Financing);
and
(e) The Registration Statement shall have been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the SEC.
Section 8.02. Conditions to the Obligations of MergerSub. The obligations
of MergerSub to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) The Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained in
this Agreement shall be true in all material respects at and as of the Effective
Time (provided that representations made as of a specific date shall be required
to be true as of such date only) as if made at and as of such time (except as
contemplated by this Agreement) and MergerSub shall have received a certificate
signed by an executive officer of the Company to the foregoing effect. The
parties agree that the Reorganization Merger shall not be deemed to have
occurred for the purposes of determining the satisfaction of this Section
8.02(a) as to the representations and warranties of the Company covered by this
Section 8.02(a) and following the Reorganization Merger, ExistingSub will take
no actions, incur no liabilities, enter into no agreements or otherwise engage
in any business except as necessary to consummate the Merger and the Financing;
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(b) There shall not be pending (x) any action or proceeding against the
Company or any Subsidiary by any government or governmental authority or agency
or (y) any action or proceeding against the Company or any Subsidiary by any
other person, in either case before any court or governmental authority or
agency that has a reasonable likelihood of success, challenging or seeking to
make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation of the Merger or seeking to obtain
material damages or otherwise directly or indirectly relating to the
transactions contemplated by this Agreement, seeking to restrain or prohibit
MergerSub's (including its Subsidiaries and affiliates) ownership or operation
of all or any material portion of the business or assets of the Company and its
Subsidiaries, taken as a whole, or to compel MergerSub or any of its
Subsidiaries or affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, seeking to impose or confirm material limitations on the ability of
MergerSub or any of its Subsidiaries or affiliates to effectively control the
business or operations of the Company and its Subsidiaries, taken as a whole, or
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares acquired or owned by MergerSub
or any of its Subsidiaries or affiliates on all matters properly presented to
the Company's stockholders, or seeking to require divestiture by MergerSub or
any of its Subsidiaries or affiliates of any Shares, and no court, arbitrator or
governmental body, agency or official shall have issued any judgment, order,
decree or injunction, and there shall not be any statute, rule or regulation,
that, in the reasonable judgment of MergerSub is likely, directly or indirectly,
to result in any of the consequences referred to in this paragraph (b);
(c) The Reorganization Merger shall have occurred as contemplated by
Section 1.01;
(d) The funds in an amount at least equal to the Required Amounts shall
have been made available to MergerSub and/or the Company as contemplated in
Section 4.07;
(e) The holders of not more than 6% of the outstanding Shares shall have
demanded appraisal of their Shares in accordance with Delaware Law;
(f) MergerSub shall be reasonably satisfied that the Merger will be
recorded as a "recapitalization" for financial reporting purposes; and
(g) Total indebtedness (long- and short-term) of the Company and its
Subsidiaries immediately preceding the Reorganization Effective Time shall not
exceed $290,000,000 (excluding capital leases).
Section 8.03. Conditions to the Obligations of the Company and
ExistingSub. The obligation of the Company to consummate the Reorganization
Merger and the obligation of ExistingSub to consummate the Merger are subject to
the satisfaction of the following further conditions:
(a) MergerSub shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of MergerSub contained in
this Agreement and in any certificate or other writing delivered by it pursuant
hereto shall be true in all material respects at and as of the Effective Time
(provided that representations made as of a specific date shall be required to
be true as of such date only) as if made at and as of such time and the Company
shall have received a certificate signed by an executive officer of MergerSub to
the foregoing effect.
(b) The Board of Directors shall have received an opinion, addressed and
reasonably satisfactory to it, from an independent advisor confirming the belief
of MergerSub set forth in the second to last sentence of Section 4.07.
ARTICLE 9
TERMINATION
Section 9.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company on the one hand and MergerSub
on the other hand;
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(b) by either the Company or MergerSub, if the Merger has not been
consummated by September 30, 1998, provided that the party seeking to exercise
such right is not then in breach in any material respect of any of its
obligations under this Agreement;
(c) by either the Company or MergerSub, if MergerSub (in the case of
termination by the Company), or the Company (in the case of termination by
MergerSub) shall have breached in any material respect any of its obligations
under this Agreement or any representation and warranty of MergerSub (in the
case of termination by the Company) or the Company (in the case of termination
by MergerSub) shall have been incorrect in any material respect when made or at
any time prior to the Effective Time (unless such breach or failure to be
correct shall be capable of correction and, in such case, the breaching party
shall promptly effect such correction);
(d) by either the Company or MergerSub, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining MergerSub or the
Company from consummating the Merger is entered and such judgment, injunction,
order or decree shall become final and nonappealable;
(e) by MergerSub if the Board of Directors shall have withdrawn or modified
or amended, in a manner adverse to MergerSub, its approval or recommendation of
this Agreement and the Mergers or its recommendation that stockholders of the
Company adopt and approve this Agreement and the Mergers, or approved,
recommended or endorsed any proposal for a transaction other than the Mergers
(including a tender or exchange offer for Shares) or if the Company has failed
to call the Company Stockholders Meeting or failed as promptly as practicable
after the Registration Statement is declared effective by the SEC to mail the
Company Proxy Statement to its stockholders or failed to include in such
statement the recommendation referred to above;
(f) by the Company if prior to the Effective Time the Board of Directors
shall have withdrawn or modified or amended, in a manner adverse to MergerSub,
its approval or recommendation of this Agreement and the Mergers or its
recommendation that stockholders of the Company adopt and approve this Agreement
and the Mergers in order to permit the Company to execute a definitive agreement
providing for the acquisition of the Company or in order to approve a tender or
exchange offer for any or all of the Shares, in either case, that is determined
by the Board of Directors to be on terms more favorable from a financial point
of view to the Company's stockholders than the Mergers, provided that the
Company shall be in compliance with Section 5.04; and
(g) by either the Company or MergerSub if, at a duly held stockholders
meeting of the Company or any adjournment thereof at which this Agreement and
the Mergers are voted upon, the requisite stockholder adoption and approval
shall not have been obtained.
The party desiring to terminate this Agreement pursuant to Sections
9.01(b)-(g) shall give written notice of such termination to the other party in
accordance with Section 10.01.
Section 9.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in clause (i) of Section 5.03, Sections 5.04(b)-(e) and 10.04 shall
survive the termination hereof. Notwithstanding the foregoing, nothing in this
Section 9.02 shall relieve any party to this Agreement of liability for a breach
of any of its covenants or agreements contained in this Agreement.
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ARTICLE 10
MISCELLANEOUS
Section 10.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
if to MergerSub, to:
Thompson Dean
c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, New York 10172
Telecopy: 212-892-7552
with a copy to:
John W. Buttrick
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to the Company, to:
General Counsel
Insilco Corporation
425 Metro Place North
5th Floor
Dublin, Ohio 43017
Telecopy: (614) 791-3195
with a copy to:
Aviva Diamant
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telecopy: (212) 859-4000
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 10.01
and the appropriate telecopy confirmation is received or (b) if given by any
other means, when delivered at the address specified in this Section 10.01.
Section 10.02. Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time.
Section 10.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by Insilco, ExistingSub and MergerSub or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the adoption of
this Agreement and the Mergers by the stockholders of the Company, no such
amendment or waiver shall, without the further approval of such stockholders,
alter or change the amount or kind of consideration to be received in exchange
for ExistingSub Shares, any term of the certificate of incorporation of the
Surviving Corporation or any of the terms or conditions of this Agreement if
such alteration or change would adversely affect the holders of any ExistingSub
Shares.
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(b) No failure or delay by any party in exercising any right, power or
privilege 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, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.04. Expenses. Except as provided in Section 5.04 all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense. Notwithstanding anything herein to the contrary,
including without limitation, Sections 7.01 and 7.02, prior to the Effective
Time, neither the Company nor ExistingSub shall be required to execute any
document unless it would have no liability or obligation thereunder or with
respect thereto in the event the transactions contemplated hereby are not
consummated.
Section 10.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that MergerSub may make
such an assignment to any wholly owned subsidiary without such consent.
Section 10.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Delaware.
Section 10.07. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 10.08. Third Party Beneficiaries. Except for Section 6.02, no
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 10.09. Entire Agreement. Except for the Confidentiality Agreement
and the Voting Agreement, this Agreement and the exhibits and schedules attached
hereto and thereto constitute the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter of this Agreement.
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.
INSILCO CORPORATION
By: /s/ ROBERT L. SMIALEK
------------------------------------
Name: Robert L. Smialek
Title: CEO
INR HOLDING CO.
By: /s/ KENNETH H. KOCH
------------------------------------
Name: Kenneth H. Koch
Title: Vice President and General
Counsel
SILKWORM ACQUISITION CORPORATION
By: /s/ WILLIAM F. DAWSON
------------------------------------
Name: William F. Dawson
Title:
27
<PAGE> 110
EXHIBIT A
FIRST: The name of the Corporation is Insilco Holding Corporation.
SECOND: The address of its registered office in the State of Delaware is
1013, Centre Road, Wilmington, Delaware 19805. The name of its registered agent
at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware as the same exists or may hereafter be amended
("DELAWARE LAW").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 15,000,000, consisting of 15,000,000 shares of Common
Stock, par value $0.001 per share.
FIFTH: The Board of Directors shall have the power to adopt, amend or
repeal the bylaws of the Corporation.
SIXTH: Election of directors need not be by written ballot unless the
bylaws of the Corporation so provide.
SEVENTH: (1) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(2) (a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by Delaware Law. The right to indemnification conferred in this ARTICLE SEVENTH
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by Delaware Law. The right to indemnification
conferred in this ARTICLE SEVENTH shall be a contract right.
(b) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the officers, employees and agents of the Corporation
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware Law.
(3) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under Delaware Law,
(4) The rights and authority conferred in this ARTICLE SEVENTH shall not be
exclusive of any other right which any person may otherwise have or hereafter
acquire.
(5) Neither the amendment nor repeal of this ARTICLE SEVENTH, nor the
adoption of any provision of this Certificate of Incorporation or bylaws of the
Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE
SEVENTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
EIGHTH: The Corporation reserves the right to amend this Certificate of
Incorporation in any manner permitted by Delaware Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE SEVENTH,
all rights and powers conferred herein on stockholders, directors and officers,
if any, are subject to this reserved power.
<PAGE> 111
[LAZARD FRERES LETTERHEAD]
ANNEX B
JUNE 8, 1998
The Board of Directors
Insilco Corporation
425 Metro Place North
Dublin, OH 43017
Dear Members of the Board:
We understand that Silkworm Acquisition Corporation ("Silkworm"), an entity
formed by DLJ Merchant Banking Partners II, L.P. and its affiliates, Insilco
Corporation (the "Company") and INR Holding Company, a wholly-owned subsidiary
of the Company, have entered into an Agreement and Plan of Merger dated as of
March 24, 1998 (the "Original Agreement"), as amended by Amendment No. 1 dated
as of June 8, 1998 (the Original Agreement, as amended, the "Agreement"). As a
result of the mergers contemplated by the Agreement (the "Mergers"), each
stockholder of the Company immediately prior to the effective time of the
Mergers (other than stockholders who validly perfect their appraisal rights)
will have, in respect of each of his or her shares of Common Stock of the
Company ("Shares"), the right to (i) receive $43.48 in cash and (ii) retain
0.03378 of a share of Common Stock of the parent corporation surviving the
Mergers ("Surviving Corporation Shares"), on the terms set forth in the
Agreement (collectively, the "Merger Consideration"). The Company's existing
stockholders will retain (assuming no stockholders validly perfect appraisal
rights), in the aggregate, approximately 10.3% of the Surviving Corporation
Shares outstanding immediately following the Mergers.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Shares (other than Silkworm and its affiliates) of
the Merger Consideration taken as a whole. In connection with this opinion, we
have:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company;
(iii) Reviewed various financial forecasts and other data provided to
us by the Company relating to its businesses and financial performance;
(iv) Reviewed the financial assessment of management of the Company
with respect to the jury verdict obtained in the pending lawsuit (the
"Lawsuit") by Taylor Publishing Company against Jostens, Inc.;
(v) Held discussions with members of the senior management of the
Company with respect to the businesses and prospects of the Company;
(vi) Reviewed certain public financial and stock market information
for certain other companies, although we did not identify any publicly
traded companies which we deemed to be comparable;
(vii) Reviewed the historical stock prices and trading volumes of the
Shares; and
(viii) Considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria that we
deemed appropriate.
B-1
<PAGE> 112
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or any independent financial or
other assessment of the Lawsuit. We are not opining or providing any advice with
respect to the impact of the Mergers on the solvency, viability or financial
condition of the Company or its ability to satisfy its obligations as they
become due. With respect to financial forecasts, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of the Company as to the future financial
performance of the Company. With respect to the financial assessment of the
Lawsuit, we have assumed that it has been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
the Company. We express no view as to the financial forecasts or the financial
assessment of the Lawsuit, or the assumptions on which they are based. In
addition, our opinion does not address the Company's underlying business
decision to enter into the Original Agreement or the Agreement. Further, our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. We have considered the impact of the contemplated liquidation of an
investment fund which owns approximately 45% of the outstanding Shares and the
efforts undertaken by the Company and its affiliates and their respective
advisors within the 18 months preceding the execution of the Original Agreement
to solicit third party offers to acquire all or a part of the Company.
Accordingly, we were not requested to, and did not, solicit third party offers
to acquire all or any part of the Company, although we did, at your request,
contact a party that had previously expressed an interest in acquiring the
Company to see whether that party had any renewed interest in acquiring the
Company.
In rendering our opinion, we have assumed that the Mergers will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining any necessary
regulatory or third party approvals for the Mergers will not have an adverse
effect on the Company. Our opinion does not address the future trading value of
the Surviving Corporation Shares following the Mergers.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Mergers and will receive a fee for our services, a
substantial portion of which is contingent upon consummation of the Mergers.
Our opinion is addressed to, and is for the use and benefit of, the Board
of Directors of the Company and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Agreement
or the Mergers.
Based on and subject to the foregoing, we are of the opinion that the
Merger Consideration taken as a whole is fair to the holders of Shares (other
than Silkworm and its affiliates) from a financial point of view.
Very truly yours,
Lazard Freres & Co. LLC,
by: /s/ STEVEN J. GOLUB
------------------------------------
Managing Director
B-2
<PAGE> 113
ANNEX C
June 8, 1998
Silkworm Acquisition Corporation
277 Park Avenue
New York, NY 10172
Attention: Thompson Dean
Insilco Corporation
425 Metro Place North
Dublin, Ohio 43017
Attention: General Counsel
Gentlemen:
We understand that Silkworm Acquisition Corporation ("Silkworm"), Insilco
Corporation ("Insilco") and Insilco Holding Co. are amending the Agreement and
Plan of Merger Agreement between such parties dated as of March 24, 1998 (the
"Merger Agreement") pursuant to Amendment No. 1 attached hereto as Exhibit A to
this letter (the "Amendment").
We hereby agree: (i) references to the Merger Agreement in the Voting
Agreement dated as of March 24, 1998 among Insilco, Silkworm and us (the "Voting
Agreement"), mean the Merger Agreement, as amended by the Amendment and (ii) the
amount of "$44.50" in the second sentence of the second paragraph of paragraph 1
of the Voting Agreement is amended to be "$45.00". The Voting Agreement, as
amended by the foregoing, remains in full force and effect.
Very truly yours,
WATER STREET CORPORATE
RECOVERY FUND I, L.P.
By: Goldman, Sachs & Co., its
General Partner
By: /s/ TERENCE M. O'TOOLE
------------------------------------
Name: Terence M. O'Toole
Title: Managing Director
Accepted and agreed as of
the date first above written:
SILKWORM ACQUISITION CORPORATION
By: /s/ THOMPSON DEAN
----------------------------------
Name: Thompson Dean
Title:
INSILCO CORPORATION
By: /s/ KENNETH H. KOCH
----------------------------------
Name: Kenneth H. Koch
Title: Vice President and General
Counsel
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<PAGE> 114
VOTING AGREEMENT
In consideration of Silkworm Acquisition Corporation, a Delaware
corporation ("HOLDCO"), Insilco Corporation, a Delaware corporation (the
"COMPANY"), and INR Holding Co., a Delaware corporation and existing wholly
owned subsidiary of the Company ("EXISTINGSUB"), entering into on the date
hereof an Agreement and Plan of Merger (the "MERGER AGREEMENT") which provides,
among other things, that upon the terms and subject to the conditions thereof,
(i) pursuant to the Reorganization Merger (as defined in the Merger Agreement),
the Company will become a wholly-owned subsidiary of ExistingSub and the shares
of common stock in the Company (the "COMPANY COMMON STOCK") will be exchanged
for shares of common stock of ExistingSub, having the same rights, powers,
privileges and preferences as the Company Common Stock and (ii) immediately
following the Reorganization Merger, Holdco will be merged with and into
ExistingSub (the "MERGER") with ExistingSub continuing as the surviving
corporation, and pursuant thereto each outstanding share of the Company Common
Stock will be converted into the right to receive the Merger Consideration (as
defined in the Merger Agreement) in accordance with the terms of the Merger
Agreement, the undersigned holder (the "STOCKHOLDER") of shares of the Company
Common Stock agrees with Holdco as follows:
1. During the period (the "AGREEMENT PERIOD") beginning on the date hereof
and ending on the earliest of (i) the Effective Time (as defined in the Merger
Agreement), (ii) the date that is 90 days after the termination of the Merger
Agreement in accordance with Section 9.01(e), 9.01(f) or 9.01(g) thereof and
payment in full of all amounts (if any) payable to Holdco pursuant to Section
5.04 of the Merger Agreement and (iii) the date of termination of the Merger
Agreement for any other reason, the Stockholder hereby agrees to vote 1,783,878
shares of Company Common Stock (the "STOCKHOLDER SECURITIES") to approve and
adopt the Merger Agreement and the Merger (provided that the Stockholder shall
not be required to vote in favor of the Merger Agreement or the Merger if the
Merger Agreement has, without the written consent of the Stockholder, been
amended in any manner that is material and adverse to the Stockholder) and any
actions directly and reasonably related thereto at any meeting or meetings of
the stockholders of the Company, and at any adjournment thereof, at which such
Merger Agreement, or such other actions, are submitted for the consideration and
vote of the stockholders of the Company so long as such meeting is held and
completed (including any adjournment thereof) prior to the termination of the
Agreement Period. Notwithstanding anything to the contrary provided in this
Voting Agreement, if at any time (i) there is a tender or exchange offer (an
"OFFER") commenced by any person to purchase Company Common Stock and (ii) the
Merger Agreement has been terminated pursuant to Section 9.01(e), 9.01(f) or
9.01(g) thereof, then the Stockholder shall have the right to validly tender any
or all of its Stockholder Securities into the Offer three business days (the
"TENDER DAY") prior to any scheduled expiration of such Offer. Any such tender
or sale pursuant thereto shall not be a breach of the provisions of this Voting
Agreement and the Agreement Period shall be deemed to end upon consummation of
such Offer. In addition, nothing in this Voting Agreement shall preclude the
Stockholder from making, during the Agreement Period, any election with respect
to the form of consideration in respect of an Acquisition Proposal.
At or prior to 10:00 A.M. (New York City Time) on the Tender Day,
Stockholder will deliver to Holdco written notice if it elects to tender into
such Offer. If Stockholder elects to tender into the Offer, Holdco will have the
nonassignable option to purchase all (but not less than all) of the Stockholder
Securities at a price of $44.50 per share in cash by delivery to Stockholder of
a written notice making such election no later than 10:00 A.M. (New York City
Time) on the business day immediately following the Tender Day. In the event
Holdco exercises such option, Stockholder will withdraw any Stockholder
Securities that were tendered in the Offer, and the settlement for the purchase
thereof by Holdco pursuant to this paragraph will take place by 12:00 Noon (New
York City Time) on the second business day immediately following the Tender Day.
This Voting Agreement shall terminate immediately following such purchase, or
upon Holdco's failure to consummate such purchase by such designated time.
2. During the Agreement Period, the Stockholder hereby agrees that it will
not vote any of the Stockholder Securities in favor of the approval of any other
merger, consolidation, sale of assets, reorganization, recapitalization,
liquidation or winding up of the Company or any other extraordinary transaction
involving the Company or any matters related to or in connection therewith, or
any corporate action relating to
C-2
<PAGE> 115
or the consummation of which would either frustrate the purposes of, or prevent
or delay the consummation of, the transactions contemplated by the Merger
Agreement.
3. During the Agreement Period, the Stockholder will not, directly or
indirectly, (i) take any action to solicit, initiate, encourage or facilitate
any Acquisition Proposal or (ii) engage in negotiations or discussions with, or
furnish or disclose any nonpublic information relating to the Company or any
Subsidiary or afford access to the properties, books or records of the Company
or any Subsidiary to, or otherwise assist, facilitate or encourage, any Third
Party (other than Holdco, its affiliates and their respective directors,
officers, employees, agents or representatives) that the Stockholder believes
may be considering making, or has made, an Acquisition Proposal. The Stockholder
will promptly notify Holdco after receipt of any Acquisition Proposal or any
indication from any Third Party that it is considering making an Acquisition
Proposal and will keep Holdco fully informed of the status and details of any
such Acquisition Proposal, indication or request. Anything herein to the
contrary notwithstanding, this Voting Agreement shall not limit actions taken,
or require actions to be taken, (i) by any party related to the Stockholder who
is, or one or more of whose affiliates, directors, partners, officers or
employees is, a director or officer of the Company that are required or
restricted by such director's fiduciary duties or such officer's employment
duties, or permitted by the Merger Agreement, and that, in each case, are
undertaken solely in such person's capacity as a director or officer of the
Company and, in the case of an officer of the Company, as directed by the Board
of Directors of the Company or (ii) by an affiliate of the Stockholder, in such
affiliate's capacity as investment banker, investment broker or financial
advisor to the Company, to the extent such affiliate performs such actions at
the request of the Board of Directors of the Company in connection with the
exercise by the Board of Directors of its fiduciary obligations under applicable
law consistent with the Company's rights and obligations under the Merger
Agreement.
4. The Stockholder agrees not to exercise any rights (including, without
limitation, under Section 262 of the General Corporation Law of the State of
Delaware) to demand appraisal of any shares of Company Common Stock owned by the
Stockholder with respect to the Merger.
5. The Stockholder hereby represents and warrants to Holdco that as of the
date hereof:
(a) the Stockholder (i) owns beneficially all of the Stockholder
Securities, (ii) has the full and unrestricted legal power, authority and
right to enter into, execute and deliver this Voting Agreement without the
consent or approval of any other person and (iii) is not party to any
voting agreement, and has not granted any person any proxy (revocable or
irrevocable), with respect to the Stockholder Securities (other than this
Voting Agreement);
(b) this Voting Agreement is the valid and binding agreement of the
Stockholder; and
(c) other than as disclosed pursuant to the Merger Agreement, no
investment banker, broker or finder is entitled to a commission or fee from
the Company in respect of this Voting Agreement based upon any arrangement
or agreement made by or on behalf of the Stockholder.
6. If any provision of this Voting Agreement shall be invalid or
unenforceable under applicable law, such provision shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way affecting
the remaining provisions of this Voting Agreement.
7. This Voting Agreement may be executed in two or more counterparts each
of which shall be an original with the same effect as if the signatures hereto
and thereto were upon the same instrument.
8. The parties hereto agree that if for any reason any party hereto shall
have failed to perform its obligations under this Voting Agreement, then the
party seeking to enforce this Voting Agreement against such non-performing party
shall be entitled to specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. This provision is without prejudice to any
other rights or remedies, whether at law or in equity, that any party hereto may
have against any other party hereto for any failure to perform its obligations
under this Voting Agreement.
C-3
<PAGE> 116
9. This Voting Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
10. The Stockholder will, upon reasonable request, execute and deliver any
additional documents deemed by Holdco to be necessary or desirable to complete
and effectuate the covenants contained herein.
11. This Voting Agreement shall terminate upon the termination of the
Agreement Period.
12. The Stockholder agrees that it will not sell, transfer, assign,
encumber or otherwise dispose of any of the Stockholder Securities (whether to
an affiliate or otherwise) until the expiration of the Agreement Period, other
than pursuant to the Reorganization Merger or pursuant to the terms of this
Voting Agreement.
13. Holdco and the Company understand and agree that this Voting Agreement
pertains only to the Stockholder and not to any of its affiliates, if any, or
advisers.
14. (a) Holdco and the Company severally and not jointly represent and
warrant to the Stockholder that (i) there is no agreement, understanding or
commitment, written or oral, to pay any consideration directly or indirectly in
connection with the Merger or otherwise to or for the benefit of any holder of
Company Common Stock or options thereon other than as set forth in the Merger
Agreement (except, in the case of directors, employees, agents, customers,
suppliers or contractors of the Company who are also holders, such consideration
as is payable by the Company in the ordinary course of business and except for
amounts payable to officers, directors or employees in connection with or
pursuant to any options, or option, stock purchase, stock ownership or other
employee benefit plans), (ii) this Voting Agreement is the valid and binding
agreement of Holdco and the Company, as the case may be, and (iii) Holdco and
the Company, as the case may be, have not entered into any voting agreements
with any other existing shareholders of the Company prior to or concurrently
with this Voting Agreement.
(b) If Holdco or the Company enters into any agreement with any other
stockholder having a purpose or effect substantially similar to that of this
Voting Agreement on financial or other terms (with respect to such other
stockholder) more favorable than the terms of this Voting Agreement, the
Stockholder will have the right to elect any of the benefits thereof, as they
may be amended or waived from time to time.
15. All notices, requests and other communications to any party hereunder
shall be in writing (including telecopy or similar writing) and shall be given:
if to Holdco, to:
Thompson Dean
c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, New York 10172
Telecopy: 212-892-7552
if to the Company, to:
Insilco Corporation
425 Metro Place North
5th Floor
Dublin, Ohio 43017
Attention: General Counsel
Telecopy: 614-791-3195
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<PAGE> 117
if to the Stockholder, to:
Water Street Corporate Recovery Fund I, L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: David J. Greenwald, Esq.
Telecopy: 212-357-5505
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto.
16. Capitalized terms not defined herein shall have the meaning ascribed to
them in the Merger Agreement. For purposes of this Voting Agreement, following
consummation of the Reorganization Merger, "COMPANY" means ExistingSub and
"COMPANY COMMON STOCK" means the shares of common stock of ExistingSub resulting
from the Reorganization Merger.
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of this 24th day of March, 1998.
SILKWORM ACQUISITION CORPORATION
By /s/ WILLIAM F. DAWSON, JR.
------------------------------------
Name: William F. Dawson, Jr.
Title: Vice President
INSILCO CORPORATION
By /s/ ROBERT L. SMIALEK
------------------------------------
Name: Robert L. Smialek
Title: Chief Executive Officer
WATER STREET CORPORATE
RECOVERY FUND I, L.P.
By: Goldman, Sachs & Co.,
its General Partner
By /s/ TERENCE M. O'TOOLE
------------------------------------
Name: Terence M. O'Toole
Title: Managing Director
C-5
<PAGE> 118
ANNEX D
SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
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 the stockholder's 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 sec.
251(g) of this title), 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 in
respect thereof) 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.
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<PAGE> 119
(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.
(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 20 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,
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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 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.
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(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 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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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and Article VII, Section 1 of the
By-Laws of the Company authorize indemnification of officers and directors to
the full extent permitted under the DGCL.
The indemnification provided for in the DGCL is not exclusive of any other
rights of indemnification, and a corporation may maintain insurance against
liabilities for which indemnification is not expressly provided by the DGCL.
Section 145 of the DGCL, as amended, provides in regards to indemnification
of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. -- (a) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests if the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circum-
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stances because the person has met the applicable standard of conduct set
forth in subsections (a) and (b) of this section. Such determination shall
be made, with respect to a person who is a director or officer at the time
of such determination, (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum,
or (2) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are not such
directors, or if such directors so direct, by independent legal counsel in
a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises'
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries and an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw,
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agreement, vote of stockholders or disinterested directors, or otherwise,
The Court of Chancery may summarily determine a corporation's obligation to
advance expenses (including attorneys' fees)."
Pursuant to the terms of the Merger Agreement, the Surviving Corporation
will cause the Company to, and the Company has agreed to, indemnify and hold
harmless the present and former officers and directors of the Company or any of
its subsidiaries in respect of acts or omissions or alleged acts or omissions
occurring at or prior to the Effective Time to the fullest extent permitted from
time to time by the DGCL or any other applicable laws as presently or hereafter
in effect or as provided under the Company's certificate of incorporation and
bylaws as in effect on March 24, 1998. The Merger Agreement further provides
that, for a period of six years after the Effective Time, the Surviving
Corporation will cause the Company to provide officers' and directors' liability
insurance covering each person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on March 24, 1998,
provided that in satisfying the aforementioned obligation, the Company will not
be obligated to pay premiums in excess of 150% of the amount per annum that the
Company paid in its last full fiscal year preceding the Effective Time.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
*2(a) -- Amended and Restated Plan of Reorganization Jointly Proposed
by the Debtors and the Official Joint Committee of Unsecured
Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3,
file No. 22-23356).
*2(b) -- Order Confirming Plan of Reorganization and Approving
Settlements Pursuant to Bankruptcy Rule 9019 dated November
24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356).
*2(c) -- Order on Motion for Order in Aid of Implementation of Plan
dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No.
22-23356).
*2(d) -- Order on Debtors' Supplemental Motion for Order in Aid of
Implementation of Plan dated March 23, 1993 (Form T-3,
Exhibit T3E-6, File No. 22-23356).
*2(e) -- Notice of (1) Order Confirming Plan of Reorganization, (2)
Effective Date and (3) Administrative Claims Bar Date dated
April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098).
*2(f) -- Order on Motion for Order in Aid of Implementation of Plan
dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form
10, Exhibit 2(f), File No. 0-22098).
*2(g) -- Share Purchase Agreement, dated as of June 28, 1996, between
the Company's subsidiary, GUVAB Gesellschaft fur
Unternehmensbeteililgungen und Vermogensverwaltung im
aluminiumverarbeitenden Bereich mbH ("GUVAB") , and
Lingemann (Form 8-K dated July 10, 1996, File No.
0-22098).**
*2(h) -- Asset Purchase Agreement, dated as of July 1, 1996, among
the Company's subsidiary, HHI Acquisition Corp., Lingemann,
and Helima-Helvetion International, Inc. (Form 8-K dated
July 10, 1996, File No. 0-22098).**
*2(i) -- Stock Purchase Agreement, dated as of September 3, 1996,
between the Company's subsidiary and Esselte Corporation
(Form 8-K dated September 6, 1996, File No. 0-22098).**
*2(j) -- Asset Purchase Agreement, dated as of October 4, 1996,
between the Company and Franklin Electronic Publishers, Inc.
and List of Omitted Schedules (Form 8-K dated October 4,
1996, File No. 0-22098).**
*2(k) -- Asset Purchase Agreement, dated as of February 12, 1997,
between the Company and Newell Co. (Form 8-K dated March 5,
1997, File No. 0-22098).**
*3(a) -- Amended and Restated Certificate of Incorporation of the
Company (Form 10, Exhibit 3(a), File No. 0-22098).
</TABLE>
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<TABLE>
<C> <C> <S>
*3(b) -- Amended and Restated Bylaws of the Company (Form 10, Exhibit 3(b), File No. 0-22098).
*4(a) -- Settlement Agreement and Stipulated Order by and between the Company, certain subsidiaries of the
Registrant, The Valspar Corporation and the United States of America by order of the United States
District Court for the Western District of Texas, San Antonio Division, dated January 19, 1993 (Form
10, Exhibit 4(h), File No. 0-22098).
*4(b) -- Stipulation regarding Settlement Agreement and Stipulated Order amending Exhibit 4(h) (Form 10,
Exhibit 4(i), File No. 0-22098).
*4(c) -- Amended and Restated Credit Agreement, dated July 3, 1997 (Schedule 13E-4, Exhibit (b)(1), dated
July 11, 1997).
*4(d) -- Indenture, dated as of August 12, 1997 between the Company and the Trustee (Form S-4 Registration
Statement, dated October 15, 1997, Exhibit 4(j), File No. 333-36523).
*4(e) -- Form of New Note (Form S-4 Registration Statement, dated October 15, 1997, as amended, File No.
333-36523).
*4(f) -- Purchase Agreement, dated as of August 7, 1997, among the Company and Goldman, Sachs & Co., McDonald
& Company Securities, Inc. and Citicorp Securities Inc. (the "Initial Purchasers") (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(l), File No. 333-36523).
*4(g) -- Exchange and Registration Rights Agreement, dated as of August 12, 1997, between the Company and the
Initial Purchasers (Form S-4 Registration Statement, dated October 15, 1997, Exhibit 4(m), File No.
333-36523).
***5(a) -- Opinion of Lazard Freres & Co. LLC, dated March 24, 1998 (filed as Annex B to the prospectus
included in the Company Registration Statement on Form S-4 filed on April 28, 1998, File No.
333-51145).
5(b) -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality of the shares of common stock
being offered.
5(c) -- Opinion of Lazard Freres & Co. LLC, dated June 8, 1998 (attached hereto as Annex B to the Proxy
Statement/Prospectus included herein).
*10(a) -- The Company's 1993 Long-Term Incentive Plan (Form 10, Exhibit 10(j), File No. 0-22098).
*10(b) -- Supplemental Terms and Conditions Applicable to December 1993 Option Awards Under the Company 1993
Long-Term Incentive Plan (Form S-8 Registration Statement, as amended, Exhibit 4(b), File No.
33-86938).
*10(c) -- Employment Agreement dated as of May 1, 1993 between the Company and Robert L. Smialek, as amended
and restated (Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No. 0-22098).
*10(d) -- Form of Indemnification Agreement adopted by the Company as of July 30, 1990, entered into between
the Registrant and certain of its officers and directors individually, together with a schedule
identifying the other documents omitted and the material details in which such documents differ
(Form 10, Exhibit 10(n), File No. 0-22098).
*10(e) -- The Company's 1993 Nonemployee Director Stock Incentive Plan (Form 10/A, Amendment No. 1 to Form 10,
Exhibit 10(p), File No. 0-22098).
*10(f) -- Value Appreciation Agreement as of December 1996, entered into between the Registrant and the
following officers: David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H.
Koch and Philip K. Woodlief (Form 10-K for the year ended December 31, 1996, Exhibit 10(g), File No.
0-22098).
*10(g) -- Form of Income Protection Agreement adopted by the Company as of December 1996, entered into between
the Registrant and the officers identified in Exhibit 10(g) (Form 10-K for the year dated December
31, 1996, Exhibit 10(h), File No. 0-22098).
</TABLE>
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<TABLE>
*10(h) -- Stock Purchase Agreement by and between the Company and Water Street Corporate
Recovery Fund I, L.P., dated July 10, 1997 (Schedule 13E-4, Exhibit (c)(2), filed July 11,
1997).
<C> <C> <S>
*10(i) -- Stock Purchase Agreement by and between the Company and Robert L. Smialek, dated July 10,
1997 (Schedule 13E-4, Exhibit (c)(1), filed July 11, 1997).
*10(j) -- Amendment, dated August 11, 1997, to Stock Purchase Agreement by and between the Company
and Water Street Corporate Recovery Fund I, L.P., dated July 10, 1997 (Form S-4
Registration Statement, dated October 15, 1997, Exhibit 4(k), File No. 333-36523).
*10(k) -- First Amendment to the Insilco Corporation 1993 Long-Term Incentive Plan dated November
26, 1996 (Form 10-K/A, filed April 13, 1998).
*10(l) -- Extension Agreement between the Company and Robert L. Smialek dated May 1, 1996 (Form
10-K/A, filed April 13, 1998).
*10(m) -- Second Extension Agreement between the Company and Robert L. Smialek dated September 25,
1997 (Form 10-K/A, filed April 13, 1998).
10(n) -- Agreement and Plan of Merger, dated as of March 24, 1998, among the Company, INR Holding
Co., and Silkworm Acquisition Corporation (attached hereto as Annex A to the Proxy
Statement/Prospectus included herein).
10(o) -- Voting Agreement among Silkworm Acquisition Corporation, the Company and Water Street
Corporate Recovery Fund I, L.P. (attached hereto as Annex C to the Proxy Statement/
Prospectus included herein).
*10(p) -- First Amendment to Value Appreciation Agreement between the Company and the following
officers: David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H.
Koch and Philip K. Woodlief (Exhibit 10(n) to Form 10-Q for the quarter ended March 31,
1998).
10(q) -- Amendment No. 1 to the Agreement and Plan of Merger, dated June 8, 1998, among the
Company, INR Holding Co. and Silkworm Acquisition Corporation (attached hereto as Annex A
to the Proxy Statement/Prospectus included herein).
10(r) -- Letter Agreement, dated June 8, 1998, amending the Voting Agreement, dated as of March 24,
1998, among Silkworm Acquisition Corporation, the Company and Water Street Corporate
Recovery Fund I, L.P. (attached hereto as Annex C to the Proxy Statement/Prospectus
included herein).
*21 -- Subsidiaries of the Registrant (Form 10-Q for the quarter ended September 30, 1996, File
No. 0-22098).
23(a) -- Consent of KPMG Peat Marwick LLP.
23(b) -- Consent of Lazard Freres & Co. LLC.
23(c) -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5(b)).
***24(a) -- Power of Attorney of officers and directors of the Registrant appearing on the signature
page hereof.
</TABLE>
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* Incorporated by reference, as indicated.
** The Registrant agrees to furnish to the Securities and Exchange Commission
upon request copies of any omitted schedule or exhibit to Exhibits 2(g),
(h), (i), (j), and (k) and 10(n).
*** Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an
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underwriter within the meaning of Rule 145(c), such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be
II-6
<PAGE> 128
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-7
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on the 8th day of
July, 1998.
INSILCO CORPORATION
By: /s/ KENNETH H. KOCH
------------------------------------
Name: Kenneth H. Koch
Title: Vice President & General
Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date first above written:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President July 8, 1998
- --------------------------------------------------- and Chief Executive Officer
Robert L. Smialek
* Vice President and Chief July 8, 1998
- --------------------------------------------------- Financial Officer
David A. Kauer
* Director July 8, 1998
- ---------------------------------------------------
James J. Gaffney
* Director July 8, 1998
- ---------------------------------------------------
Terence M. O'Toole
* Director July 8, 1998
- ---------------------------------------------------
Thomas E. Petry
* Director July 8, 1998
- ---------------------------------------------------
Barry S. Volpert
</TABLE>
*By: /s/ KENNETH H. KOCH
------------------------------
Kenneth H. Koch
Attorney-in-Fact
II-8
<PAGE> 130
PROXY -- INSILCO CORPORATION
The undersigned stockholder of Insilco Corporation (the "Company") hereby
appoints Robert L. Smialek and Kenneth H. Koch, or either one of them, as
attorneys and proxies with full power of substitution to vote all shares of
Common Stock of the Company which the undersigned is entitled to vote at the
Special Meeting of Stockholders of the Company to be held at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, 27th Floor, New
York, New York, on August 13, 1998, at 11:00 a.m. (Eastern time), and at any
adjournments or adjournments thereof as follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of March
24, 1998, among the Company, Insilco Holding Co., a Delaware corporation and
a wholly-owned subsidiary of the Company, and Silkworm Acquisition
Corporation, a Delaware corporation, as amended (as described in the
accompanying Proxy Statement).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion to consider and vote on such other matters incident to
the conduct of, and as may properly come before, the Special Meeting.
(Continued and to be signed on other side.)
<PAGE> 131
(Continued from other side.)
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders, dated July 8, 1998 and the Proxy Statement furnished
therewith. Any proxy heretofore given to vote said shares hereby is revoked.
Please sign and date this Proxy below and return in the enclosed envelope.
Dated: , 1998
------------------------------------
------------------------------------
(SIGNATURE)
------------------------------------
(SIGNATURE)
Signature(s) must agree with the
name(s) printed on this Proxy. If
shares are registered in two names,
both stockholders should sign this
Proxy. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full
title.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE> 132
EXHIBIT INDEX
*2(a) -- Amended and Restated Plan of Reorganization Jointly Proposed
by the Debtors and the Official Joint Committee of Unsecured
Creditors dated November 23, 1992 (Form T-3, Exhibit T3E-3,
file No. 22-23356).
*2(b) -- Order Confirming Plan of Reorganization and Approving
Settlements Pursuant to Bankruptcy Rule 9019 dated November
24, 1992 (Form T-3, Exhibit T3E-4, File No. 22-23356).
*2(c) -- Order on Motion for Order in Aid of Implementation of Plan
dated March 23, 1993 (Form T-3, Exhibit T3E-5, File No.
22-23356).
*2(d) -- Order on Debtors' Supplemental Motion for Order in Aid of
Implementation of Plan dated March 23, 1993 (Form T-3,
Exhibit T3E-6, File No. 22-23356).
*2(e) -- Notice of (1) Order Confirming Plan of Reorganization, (2)
Effective Date and (3) Administrative Claims Bar Date dated
April 1, 1993 (Form 10, Exhibit 2(e), File No. 0-22098).
*2(f) -- Order on Motion for Order in Aid of Implementation of Plan
dated September 14, 1993 (Form 10/A, Amendment No. 2 to Form
10, Exhibit 2(f), File No. 0-22098).
*2(g) -- Share Purchase Agreement, dated as of June 28, 1996, between
the Company's subsidiary, GUVAB Gesellschaft fur
Unternehmensbeteililgungen und Vermogensverwaltung im
aluminiumverarbeitenden Bereich mbH ("GUVAB") , and
Lingemann (Form 8-K dated July 10, 1996, File No.
0-22098).**
*2(h) -- Asset Purchase Agreement, dated as of July 1, 1996, among
the Company's subsidiary, HHI Acquisition Corp., Lingemann,
and Helima-Helvetion International, Inc. (Form 8-K dated
July 10, 1996, File No. 0-22098).**
*2(i) -- Stock Purchase Agreement, dated as of September 3, 1996,
between the Company's subsidiary and Esselte Corporation
(Form 8-K dated September 6, 1996, File No. 0-22098).**
*2(j) -- Asset Purchase Agreement, dated as of October 4, 1996,
between the Company and Franklin Electronic Publishers, Inc.
and List of Omitted Schedules (Form 8-K dated October 4,
1996, File No. 0-22098).**
*2(k) -- Asset Purchase Agreement, dated as of February 12, 1997,
between the Company and Newell Co. (Form 8-K dated March 5,
1997, File No. 0-22098).**
*3(a) -- Amended and Restated Certificate of Incorporation of the
Company (Form 10, Exhibit 3(a), File No. 0-22098).
<PAGE> 133
*3(b) -- Amended and Restated Bylaws of the Company (Form 10, Exhibit
3(b), File No. 0-22098).
*4(a) -- Settlement Agreement and Stipulated Order by and between the
Company, certain subsidiaries of the Registrant, The Valspar
Corporation and the United States of America by order of the
United States District Court for the Western District of
Texas, San Antonio Division, dated January 19, 1993 (Form
10, Exhibit 4(h), File No. 0-22098).
*4(b) -- Stipulation regarding Settlement Agreement and Stipulated
Order amending Exhibit 4(h) (Form 10, Exhibit 4(i), File No.
0-22098).
*4(c) -- Amended and Restated Credit Agreement, dated July 3, 1997
(Schedule 13E-4, Exhibit (b)(1), dated July 11, 1997).
*4(d) -- Indenture, dated as of August 12, 1997 between the Company
and the Trustee (Form S-4 Registration Statement, dated
October 15, 1997, Exhibit 4(j), File No. 333-36523).
*4(e) -- Form of New Note (Form S-4 Registration Statement, dated
October 15, 1997, as amended, File No. 333-36523).
*4(f) -- Purchase Agreement, dated as of August 7, 1997, among the
Company and Goldman, Sachs & Co., McDonald & Company
Securities, Inc. and Citicorp Securities Inc. (the "Initial
Purchasers") (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 4(l), File No. 333-36523).
*4(g) -- Exchange and Registration Rights Agreement, dated as of
August 12, 1997, between the Company and the Initial
Purchasers (Form S-4 Registration Statement, dated October
15, 1997, Exhibit 4(m), File No. 333-36523).
***5(a) -- Opinion of Lazard Freres & Co. LLC, dated March 24, 1998
(filed as Annex B to the prospectus included in the Company
Registration Statement on Form S-4 filed on April 28, 1998,
File No. 333-51145).
5(b) -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
the legality of the shares of common stock being offered.
5(c) -- Opinion of Lazard Freres & Co. LLC, dated June 8, 1998
(attached hereto as Annex B to the Proxy
Statement/Prospectus included herein).
*10(a) -- The Company's 1993 Long-Term Incentive Plan (Form 10,
Exhibit 10(j), File No. 0-22098).
*10(b) -- Supplemental Terms and Conditions Applicable to December
1993 Option Awards Under the Company 1993 Long-Term
Incentive Plan (Form S-8 Registration Statement, as amended,
Exhibit 4(b), File No. 33-86938).
*10(c) -- Employment Agreement dated as of May 1, 1993 between the
Company and Robert L. Smialek, as amended and restated (Form
10/A, Amendment No. 1 to Form 10, Exhibit 10(k), File No.
0-22098).
*10(d) -- Form of Indemnification Agreement adopted by the Company as
of July 30, 1990, entered into between the Registrant and
certain of its officers and directors individually, together
with a schedule identifying the other documents omitted and
the material details in which such documents differ (Form
10, Exhibit 10(n), File No. 0-22098).
*10(e) -- The Company's 1993 Nonemployee Director Stock Incentive Plan
(Form 10/A, Amendment No. 1 to Form 10, Exhibit 10(p), File
No. 0-22098).
*10(f) -- Value Appreciation Agreement as of December 1996, entered
into between the Registrant and the following officers:
David M. Aronowitz, Robert F. Heffron, Les G. Jacobs, David
A. Kauer, Kenneth H. Koch and Philip K. Woodlief (Form 10-K
for the year ended December 31, 1996, Exhibit 10(g), File
No. 0-22098).
*10(g) -- Form of Income Protection Agreement adopted by the Company
as of December 1996, entered into between the Registrant and
the officers identified in Exhibit 10(g) (Form 10-K for the
year dated December 31, 1996, Exhibit 10(h), File No.
0-22098).
<PAGE> 134
*10(h) -- Stock Purchase Agreement by and between the Company and
Water Street Corporate Recovery Fund I, L.P., dated July 10,
1997 (Schedule 13E-4, Exhibit (c)(2), filed July 11, 1997).
*10(i) -- Stock Purchase Agreement by and between the Company and
Robert L. Smialek, dated July 10, 1997 (Schedule 13E-4,
Exhibit (c)(1), filed July 11, 1997).
*10(j) -- Amendment, dated August 11, 1997, to Stock Purchase
Agreement by and between the Company and Water Street
Corporate Recovery Fund I, L.P., dated July 10, 1997 (Form
S-4 Registration Statement, dated October 15, 1997, Exhibit
4(k), File No. 333-36523).
*10(k) -- First Amendment to the Insilco Corporation 1993 Long-Term
Incentive Plan dated November 26, 1996 (Form 10-K/A, filed
April 13, 1998).
*10(l) -- Extension Agreement between the Company and Robert L.
Smialek dated May 1, 1996 (Form 10-K/A, filed April 13,
1998).
*10(m) -- Second Extension Agreement between the Company and Robert L.
Smialek dated September 25, 1997 (Form 10-K/A, filed April
13, 1998).
10(n) -- Agreement and Plan of Merger, dated as of March 24, 1998,
among the Company, INR Holding Co., and Silkworm Acquisition
Corporation (attached hereto as Annex A to the Proxy
Statement/Prospectus included herein).
10(o) -- Voting Agreement among Silkworm Acquisition Corporation, the
Company and Water Street Corporate Recovery Fund I, L.P.
(attached hereto as Annex C to the Proxy Statement/Prospectus
included herein).
*10(p) -- First Amendment to Value Appreciation Agreement between the
Company and the following officers: David M. Aronowitz,
Robert F. Heffron, Les G. Jacobs, David A. Kauer, Kenneth H.
Koch and Philip K. Woodlief (Exhibit 10(n) to Form 10-Q for
the quarter ended March 31, 1998).
10(q) -- Amendment No. 1 to the Agreement and Plan of Merger, dated
June 8, 1998, among the Company, INR Holding Co. and
Silkworm Acquisition Corporation (attached hereto as Annex A
to the Proxy Statement/Prospectus included herein).
10(r) -- Letter Agreement, dated June 8, 1998, amending the Voting
Agreement, dated as of March 24, 1998, among Silkworm
Acquisition Corporation, the Company and Water Street
Corporate Recovery Fund I, L.P. (attached hereto as Annex C
to the Proxy Statement/Prospectus included herein).
*21 -- Subsidiaries of the Registrant (Form 10-Q for the quarter
ended September 30, 1996, File No. 0-22098).
23(a) -- Consent of KPMG Peat Marwick LLP.
23(b) -- Consent of Lazard Freres & Co. LLC.
23(c) -- Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5(b)).
***24(a) -- Power of Attorney of officers and directors of the
Registrant appearing on the signature page hereof.
- ---------------
* Incorporated by reference, as indicated.
** The Registrant agrees to furnish to the Securities and Exchange Commission
upon request copies of any omitted schedule or exhibit to Exhibits 2(g),
(h), (i), (j), and (k) and 10(n).
*** Previously filed.
<PAGE> 1
Exh. 5(B)
212-859-8185
July 8, 1998 (FAX: 212-859-8587)
Insilco Corporation
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
Ladies and Gentlemen:
We are acting as special counsel to Insilco Corporation, a Delaware
corporation ("Insilco"), in connection with the Registration Statement on Form
S-4 (No. 333-51145), as amended (the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of shares of Common Stock, $0.001 par value ("ExistingSub Shares"), of
Insilco Holding Co. ("ExistingSub"), a Delaware corporation. The ExistingSub
Shares are the shares into which the shares of common stock, par value $0.001
per share, of Insilco will be converted in a reorganization merger pursuant to
Section 251(a) of the Delaware General Corporation Law (the "Reorganization
Merger"). Promptly following the Reorganization Merger, Silkworm Acquisition
Corporation, a Delaware corporation ("MergerSub"), will merge with and into
ExistingSub (the "Merger"), with ExistingSub continuing as the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, each
ExistingSub Share will be converted into the right to (i) receive cash and (ii)
retain 0.03378 share of common stock, par value $0.001 per share, of the
Surviving Corporation ("Surviving Corporation Shares").
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinion hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures, the authenticity of all original or certified copies and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduction copies. We also have assumed, with respect to all
parties to agreements or instruments relevant hereto other than Insilco, that
such parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to various questions of fact relevant to such opinions, we
have relied upon, and have assumed the accuracy of, certificates and oral or
written statements and other information of or from public officials, officers
or representatives of Insilco, and others.
Based upon the foregoing and subject to the limitations set forth herein,
it is our opinion that, if such Surviving Corporation Shares are issued as
described in the Registration Statement, then, upon such issuance, the
Surviving Corporation Shares to be retained by stockholders of Insilco in
connection with the Merger will be validly issued, fully paid and nonassessable.
This opinion is limited to Delaware corporate law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement
as having passed upon the validity of such Surviving Corporation Shares. In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
Fried, Frank, Harris, Shriver & Jacobson
By: /s/ Aviva Diamant
_________________________
Aviva Diamant
<PAGE> 1
EXHIBIT 23(a)
[KPMG PEAT MARWICK LLP LETTERHEAD]
The Board of Directors
Insilco Corporation
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
July 8, 1998
<PAGE> 1
Exhibit 23(b)
[LAZARD FRERES & CO. LLC LETTERHEAD]
June 29, 1998
Insilco Corporation
425 Metro Place North
Dublin, OH 43017
We hereby consent to the (i) the inclusion of our opinion letter to the
Board of Directors of Insilco Corporation as Annex B to the Proxy Statement/
Prospectus and (ii) the reference to such opinion in the Proxy Statement/
Prospectus. In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Steven J. Golub
_____________________
Steven J. Golub
Managing Director
