AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 28, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
INSILCO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 367, 346, 274, 359 06-0635844
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION
ORGANIZATION) CODE NUMBER)
----------------------
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:
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
----------------------------------------------------
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 INR 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.
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
==============================================================================
TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED PRICE OFFERING REGISTRATION
REGISTERED (1)(2) PER SHARE PRICE(2) FEE(2)
- ------------------------------------------------------------------------------
Common Stock,
par value
$0.001 per
share 140,867 N/A $0 $0
==============================================================================
(1) This Registration Statement relates to shares of common stock, par
value $0.001 per share ("ExistingSub Shares") of ExistingSub. The
ExistingSub Shares being registered 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) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(f) under the Securities Act of 1933, as
amended, based upon the proposed cash offering price to existing
stockholders.
- ------------------------------------------------------------------------------
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.
==============================================================================
INSILCO CORPORATION
425 METRO PLACE NORTH
FIFTH FLOOR
DUBLIN, OHIO 43017
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
, 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
on , 1998, at [ ]a.m. at [ ] 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 (the "Merger
Agreement"), among the Company, INR 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 Securities
Corporation. 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 the right to receive (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 (the "Effective Time") will be converted
into the right to (i) receive $42.97 in cash and (ii) retain 0.03419 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 $42.98 in
cash and (ii) retain 0.03419 of a Surviving Corporation Share. The
Company's existing stockholders will retain (assuming no stockholders
validly perfect appraisal rights), in the aggregate, approximately 10.2% 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 of the Merger Agreement and the Mergers.
2. To transact such other business as may properly come before
the Special Meeting.
Only stockholders of record as of the close of business on
, 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 requires 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.
[Date]
By Order of the Board of Directors,
Kenneth H. Koch
Corporate Secretary
[RED HERRING]
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
[ ], 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 [ ] at [ a.m.], on [ ], 1998. 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 "Merger Agreement"), among
the Company, INR 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 Securities Corporation. Stockholders will
also consider and vote on such other business as may properly come before
the Special Meeting.
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 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 (the
"Effective Time") will be converted into the right to (i) receive $42.97 in
cash and (ii) retain 0.03419 of a share of common stock, par value $0.001
per share, of the Surviving Corporation ("Surviving Corporation Shares").
The aggregate 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. 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 $42.98 in cash and (ii) retain 0.03419 of a
Surviving Corporation Share. The Company's existing stockholders will
retain (assuming no stockholders validly perfect appraisal rights in
respect to the Reorganization Merger), in the aggregate, approximately
10.2% of the Surviving Corporation Shares outstanding immediately following
the Merger (approximately 9.5% on a fully diluted basis).
STOCKHOLDERS ARE URGED TO READ THE INFORMATION SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROXY STATEMENT/PROSPECTUS.
The Company has filed 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 140,867 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 [ ],
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 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 [ ], 1998.
TABLE OF CONTENTS
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.................................4
Voting Agreement.........................................................6
Merger Financing.........................................................7
Interests of Certain Persons in the Mergers..............................7
Certain United States Federal Income Tax Consequences....................8
Risk Factors.............................................................8
Appraisal Rights.........................................................8
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
AND OPERATING DATA........................................................9
MARKET PRICE OF SHARES.....................................................12
RISK FACTORS...............................................................13
Control by the DLJMB Funds..............................................13
Substantial Leverage....................................................13
Potential Dilution of Company Stockholders..............................14
Loss of Liquidity.......................................................14
THE SPECIAL MEETING........................................................16
Matters to Be Considered at the Special Meeting.........................16
Required Vote...........................................................16
Voting and Revocation of Proxies........................................16
Record Date; Stock Entitled to Vote; Quorum.............................17
Appraisal Rights........................................................17
Solicitation of Proxies.................................................17
Recommendation of the Company's Board of Directors; Opinion
of Investment Banker..................................................18
THE COMPANY................................................................19
THE MERGERS................................................................20
Background of the Mergers...............................................20
Recommendation of the Board of Directors; Reasons for the Mergers.......23
Opinion of Investment Banker............................................24
The DLJMB Funds' Reasons for the Merger.................................27
Merger Consideration....................................................27
Effective Time of the Mergers...........................................28
Effect on Stock Options and Employee Benefit Matters....................28
Certain United States Federal Income Tax Consequences...................29
Accounting Treatment....................................................30
Interests of Certain Persons in the Mergers.............................30
Resale of Shares Following the Merger...................................31
Water Street Registration Rights........................................31
Merger Financing........................................................31
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................................32
The Mergers and the Merger Consideration................................32
Procedures for Exchange of Certificates.................................32
The Surviving Corporation...............................................34
Representations and Warranties..........................................34
Certain Pre-Closing Covenants...........................................35
No Solicitation of Transactions.........................................36
Expense Reimbursement...................................................37
Resignations of Directors...............................................37
Indemnification and Insurance...........................................37
Merger Financing........................................................38
NASDAQ Listing..........................................................38
Bankruptcy Claims.......................................................38
Cooperation and Reasonable Best Efforts.................................38
Conditions to the Consummation of the Mergers...........................38
Termination.............................................................40
Amendment and Waiver....................................................41
CERTAIN PROVISIONS OF THE VOTING AGREEMENT.................................41
Voting..................................................................41
No Solicitation.........................................................42
Appraisal Rights........................................................42
Transfer Restrictions...................................................42
DESCRIPTION OF COMPANY CAPITAL STOCK.......................................43
General.................................................................43
Shares..................................................................43
Capital Stock of the Surviving Corporation Following the Merger.........43
Section 203 of Delaware General Corporation Law.........................44
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA..................45
MANAGEMENT FOLLOWING THE MERGERS...........................................53
Board of Directors......................................................53
Executive Officers......................................................53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............53
Security Ownership of Certain Beneficial Owners.........................53
Security Ownership of Directors and Executive Officers..................54
REGULATORY CONSIDERATIONS..................................................55
MERGERSUB AND DLJ MERCHANT BANKING II, INC.................................55
DISSENTING STOCKHOLDERS' RIGHTS............................................56
STOCKHOLDER PROPOSALS......................................................58
OTHER MATTERS..............................................................58
EXPERTS....................................................................58
LEGAL MATTERS..............................................................58
Annex A -- Agreement and Plan of Merger
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
Annex D -- Section 262 of the General Corporation Law of the State of Delaware
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (together with any amendments
thereto, the "Registration Statement") on Form S-4 under the Securities
Act, with respect to the Surviving Corporation Shares to be retained by
existing stockholders of the Company in the Merger. 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 and the exhibits and schedules thereto. 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 and 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.
Potential investors may obtain a copy of the agreements
summarized herein without charge by request directed to the Secretary of
the Company at 425 Metro Place North, Fifth Floor, Dublin, Ohio 43017,
telephone (614) 792-0468.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and the first amendment thereto on Form 10-K/A,
previously filed by the Company with the Commission (collectively, the
"Company's 1997 Form 10-K"), 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 submitted in writing to the Company
at 425 Metro Place North, Fifth Floor, Dublin, Ohio 43017.
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 or intentions. 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.
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 carefully, including the Annexes hereto.
THE COMPANY
The Company, directly and through its subsidiaries, is a
diversified manufacturer of automotive components and telecommunications
and electronics components and a publisher of specialty publishing
products, chiefly 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.
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.
MERGERSUB
MergerSub was incorporated on March 18, 1998, and has not carried on
any activities to date other than those incident to its formation and the
transactions contemplated by the Merger Agreement. All of the outstanding
capital stock of MergerSub is owned by various DLJMB Funds. The DLJMB Funds
are affiliates of Donaldson, Lufkin & Jenrette Securities Corporation.
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 [ a.m.] on [ ], 1998 at [ ]. 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 business 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 [ ], 1998 (the "Record Date") have the right to
receive notice of and to vote at the Special Meeting. On the Record Date,
there were [ ] Shares outstanding and entitled to vote and [ ] holders 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. By unanimous
vote, the Board of Directors 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.
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 "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 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 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, 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 "-- Voting Agreement", "Certain Provisions of the
Voting Agreement" and Annex C.
As of April 3, 1998, directors and executive officers of the Company
beneficially owned an aggregate of 94,067 Shares (excluding Shares subject
to purchase pursuant to outstanding stock options and excluding Shares
beneficially owned by Water Street), representing approximately 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 April 3, 1998, Water Street and the directors and executive
officers of the Company collectively beneficially owned 1,957,945
(approximately 47.5%) of the outstanding Shares entitled to vote at the
Special Meeting.
THE MERGERS AND THE MERGER CONSIDERATION
General. Upon satisfaction or waiver, where permissible of the various
conditions to the Merger, including stockholder approval of the Merger
Agreement and the Mergers, 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
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. Immediately 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 $42.97 in cash and (ii) retain 0.03419 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 $42.98 in cash and (ii) retain 0.03419 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
10.2% of the Surviving Corporation Shares outstanding immediately following
the Merger (approximately 9.5% on a fully diluted basis).
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 $44.50 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
- -- Interests of Certain Persons in the Mergers."
Effective Time Of The Mergers. The Reorganization Merger will become
effective upon the filing of an agreement and plan 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 of merger. The filing
of such agreement and plan of merger will occur as soon as practicable
after satisfaction or waiver of all of the conditions to the Mergers,
unless another date is agreed to in writing by the Company and MergerSub.
The conditions to the Mergers include, among other things, the approval by
the Company's stockholders of the Merger Agreement and the Mergers 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 be authorized by the Company
as sole stockholder of ExistingSub, will occur immediately 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
Delaware or at such later time as is specified in such certificate of
merger. Subject to certain limitations, the Merger Agreement may be
terminated by either party if, among other reasons, 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
hereinafter defined) 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,
and a copy of which will be provided, for informational purposes only, to
MergerSub with the name of the other 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 hereinafter defined) occurs, the
Company will pay to MergerSub, within two business days following such
Payment Event, a fee of $6,000,000. 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
this 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 $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.
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 $5,000,000
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 earlier of (i) the Effective Time, (ii) the date which is 90 days after
the termination of the Merger Agreement under certain circumstances, or
(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 $44.50 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 $42.98 aggregate cash component of the Merger Consideration,
the Option Cash Proceeds and transaction fees and expenses, is estimated to
be approximately $205.5 million. The Merger Financing will be funded with
(i) the issuance by MergerSub of up to either (x) $110.0 million of Senior
Discount Notes due 2008 (the "Discount Notes") or (y) $110.0 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, for aggregate consideration of $54,999,997.50, of (x) 1,235,955
shares of common stock of MergerSub and (y) warrants to purchase 111,347
shares of common stock of Merger Sub at an exercise price of not less than
$0.01 per share, and (iii) approximately $40.5 million of new borrowings
under the Company's $200 million existing 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. It is anticipated that the Company will be able to
receive a waiver of the Event of Default under the Credit Agreement and
that the Credit Facility 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") if the banks require
repayment of amounts outstanding under the Credit Facility or any holders
of Subordinated Notes require the Company to repurchase their Subordinated
Notes as a result of the Merger (the "Backstop Facility"). See "The Mergers
- -- Merger Financing."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
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 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 -- Interests of Certain Persons in the Mergers"
and "Management Following the Mergers." Further, following the Mergers, the
Company intends to establish a new stock option plan for members of
management, although neither the size of the option plan nor the identities
of the individual grantees has yet been determined.
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 April 3, 1998,
Options to purchase 637,613 Shares were outstanding. The Company estimates
that the aggregate amount of the Option Cash Proceeds will be approximately
$9.2 million.
Pursuant to the Merger Agreement, the Surviving Corporation has
agreed to cause the Company, and the Company has agreed, 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, for six years after the Effective Time, subject to
certain limitations, 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.
See "Certain Provisions of the Merger Agreement -- Indemnification and
Insurance."
Upon consummation of the Mergers, Goldman Sachs will receive an
investment banking fee of $2.0 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 MergeSub have agreed to enter into a registration
rights agreement (the "Registration Rights Agreement"), with Water Street,
and have agreed, among other things, to grant Water Street the right to one
demand registration of the Surviving Corporation Shares retained by Water
Street and certain of its affiliates (collectively, the "Holders") in the
Merger. Such right will be exercisable by Water Street 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, ExistingSub and MergerSub have agreed,
among other things, to grant the Holders an opportunity to participate 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) on the same terms and conditions as the Surviving Corporation's or
such other holders' Surviving Corporation Shares. See "Resale of Shares
Following the Merger."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
For a summary of the material United States federal income tax
consequences of the Mergers, see "The Mergers -- Certain United States
Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" beginning on page 14 for a 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.
APPRAISAL RIGHTS
Stockholders of the Company will have appraisal rights in respect
of the Reorganization Merger under 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.
SUMMARY HISTORICAL AND 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, which in each case are based
partially upon the report of other auditors, 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 year ended December 31, 1997 ("Pro
Forma Financial Data") are based upon historical information that has been
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 1997 divestiture and
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 up to $110.0 million of Discount Notes by MergerSub,
and new borrowings under the Company's Credit Facility of
approximately $37.9 million.
. The initial capitalization of MergerSub through the issuance of
1,235,955 shares of common stock and warrants to purchase 111,347
shares of common stock for aggregate consideration of $55.0 million.
. Payment of the Merger Consideration for each Share outstanding
immediately prior to the Mergers (4,120,128 Shares based on the number
of Shares outstanding as of April 3, 1998 and assuming no stockholders
validly perfect appraisal rights) consisting of $42.98 in cash and
0.03419 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 payments pursuant to employment related agreements.
. Payment of a $17.7 million dividend from the Company to ExistingSub to
fund a portion of the Merger Consideration.
THE 1997 TRANSACTIONS CONSIST OF THE FOLLOWING:
. Divestiture - On March 5, 1997, the Company completed the sale of its
Rolodex office products business (the "Rolodex Business") for net cash
proceeds of approximately $112 million.
. 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. Such purchase of Shares 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 December 31, 1997 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, 1997. The nonrecurring transactions directly related to the
aforementioned transactions 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.
The following table sets forth summary historical and unaudited
pro forma condensed consolidated financial and operating data (in
thousands, except per Share and ratio data) derived from the Company's
Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
PRO FORMA
1997 1997 1996 1995
---------- --------- -------- --------
OPERATIONS DATA
<S> <C> <C> <C> <C>
Net sales (1) $ 528,233 539,030 572,474 561,203
Operating income (2) 51,102 53,268 59,101 24,617
Other income (expense)
Interest expense (44,960) (20,562) (18,386) (19,546)
Interest income 746 2,877 1,010 1,577
Other income, net (3) 3,441 3,442 7,645 12,126
Gain on sale of Office Products Business -- 95,001 2,493 --
---------- ----------- ---------- -----------
Income before income taxes and 10,329 134,026 51,863 18,774
extraordinary item
Income tax expense (3,837) (51,654) (12,810) (16,199)
---------- ----------- ---------- -----------
Income before extraordinary item 6,492 82,372 39,053 2,575
Extraordinary item, net of tax -- (728) -- --
---------- ----------- ---------- -----------
Net income $ 6,492 81,644 39,053 2,575
========== =========== ========== ===========
BALANCE SHEET DATA AT PERIOD END
Working capital $ 42,919 39,508 51,436 44,920
Total assets 310,026 302,673 348,393 340,129
Long-term debt 405,664 257,743 161,042 186,489
Stockholders' equity (deficit) (239,485) (102,328) 33,402 (15,779)
PER SHARE DATA
Basic income per share before $ 4.71 11.44 4.10 0.26
extraordinary item
Diluted income per share before 4.36 11.22 3.95 0.25
extraordinary item
Book value per share (173.94) (25.08) 3.52 (1.64)
OTHER DATA
Depreciation and amortization $ 18,377 18,571 16,831 14,758
Amortization of Reorganization Goodwill -- -- -- 32,172
Cash interest 30,614 19,326 16,718 17,986
Capital expenditures 23,590 23,583 22,579 22,159
EBITDA (4) 69,479 71,839 75,932 71,547
See accompanying notes to the summary historical and pro forma consolidated
financial and operating data.
</TABLE>
The Notes to the summary historical and pro forma condensed consolidated
financial and operating data follow:
(1) Pro forma net sales for 1997 exclude net sales of the Rolodex
Business (divested March 1997) as if the business was divested
at the beginning of at the beginning of the period presented. In
addition to the 1997 divestiture of the Rolodex Business, the
Company divested Curtis Manufacturing Co. Inc. in September 1996
and the Rolodex electronics product line ("Rolodex Electronics")
in October 1996 (collectively with the Rolodex Business, the
"Office Products Business"). Sales of the divested Office
Products Business are included in the consolidated results as
follows: 1997, $10.8 million, 1996, $80.1 million, and 1995,
$111.7 million.
See "Unaudited Pro Forma Condensed Consolidated Financial Data"
for further information regarding acquisitions and divestitures.
(2) Pro forma consolidated operating income for 1997 excludes
operating income, before allocation of corporate overhead, of the
Office Products Business as if the business was divested at the
beginning of the period presented. Operating income for the
Office Products Business, before the allocation of corporate
overhead, is included in the consolidated results as follows:
1997, $2.2 million, 1996, $10.7 million, and 1995, $1.7 million.
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 nonrecurring charge of $6.2
million relating to the Office Products Business (see Note 15 to
the Consolidated Financial Statements included in the Company's
1997 Form 10-K) and 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).
(3) Other income in 1996 included a $3.1 million gain on the sale of
Rolodex Electronics and 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 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 $4.0 million gain on the sale of
idle corporate assets.
(4) "EBITDA" represents net income before net interest expense,
income taxes, depreciation and amortization, and other income
(expense), net. 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 is 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.
This summary historical and 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.
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 April 3, 1998 was
753.
High Low
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
(through April [ ], 1998).. 43.250 42.875
On March 23, 1998, the last full trading day prior to the first
public announcement by the Company of the entering into of the Merger
Agreement, the reported high and low sale prices per Share were $43.00 and
$42.75, respectively.
On [ ], 1998, the reported high and low sale prices per Share
were [ ] and [ ], respectively. Stockholders should obtain current market
price quotations in connection with voting their Shares.
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 89.8% of the outstanding Surviving
Corporation Shares (up to 90.5% on a fully diluted basis) will be held by
the DLJMB Funds (assuming no stockholders validly perfect appraisal
rights). As a result of their stock ownership, following the Effective Time
the DLJMB Funds will control the Surviving Corporation and will have the
power 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. The
directors elected by the DLJMB Funds will 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 Securities Corporation, 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 and the indenture
governing the Subordinated Notes. 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. In connection with consummating the transactions
contemplated by the Merger Agreement, MergerSub will incur the Merger
Financing (the debt portion of which will become a liability of the
Surviving Corporation following the Merger) 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. See "The Mergers --
Merger Financing."
As of December 31, 1997, 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 $405.7 million, (ii) $47.2 million of
additional borrowings available under the Credit Facility and (iii) a
stockholders' deficit of $239.5 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
or 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 will be able to effect any of the foregoing on
satisfactory terms, if at all. If the Company or the Surviving Corporation
were to default in respect of its obligations to pay its respective
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 warrants
which will be exercisable for an aggregate amount of up to 111,347
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 under certain circumstances. See
"The Mergers -- Merger Financing." Exercise of such warrants would dilute
the equity ownership percentage of the Company's stockholders. In addition,
following the Mergers, 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 has not been determined. Any exercise of any such
stock option will dilute the equity ownership percentage of Surviving
Corporation stockholders and the DLJMB Funds equally. See "The Mergers --
Interests of Certain Persons in the Mergers."
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, provided that the
Surviving Corporation may cause or permit the Surviving Corporation Shares
to be de-listed in connection with a transaction which results in the
termination of registration of the Surviving Corporation Shares under the
Exchange Act and provided further that 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. The number of record holders of the
Shares on April 3, 1998 was 753. Following the Mergers, the Company
believes that it will have 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) of the Securities Act.
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 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 1993 Directors
Plan (as defined herein), 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, dated as of March 24, 1998, 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 April 3, 1998, directors and executive officers of the
Company beneficially owned an aggregate of 94,067 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 April 3, 1998, Water Street and the directors and executive
officers of the Company collectively beneficially owned 1,957,945 Shares,
constituting approximately 47.5% 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 "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 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 such 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 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 ,
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 [ ] Shares, and there were [ ]
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 at least 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 TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGERS, AND RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGERS.
Lazard rendered the 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 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.
THE COMPANY
The Company, directly and through its subsidiaries, is a
diversified manufacturer of automotive components and telecommunications
and electronics components and a publisher of specialty publishing
products, chiefly 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.
The following chart depicts the organizational structure of the
Company prior to the Mergers:
[OBJECT OMITTED]
The Automotive Components Group is comprised of businesses that
produce radiators and other heat exchanger components, equipment and
systems used in the production of heat exchangers, heavy gauge stamped
automotive parts (principally transmission clutch plates) and welded
stainless steel tubing, and a 50% owned joint venture, Thermalex Inc.,
which produces precision extruded aluminum tubing. The Automotive
Components Group serves both original equipment manufacturers and after
market customers in the automotive, specialty vehicle, truck and off-road
vehicle and industrial equipment markets and also serves the marine and
architectural markets with decorative stainless steel tubing.
The Technologies Group manufactures high-performance data
transmission connectors, small electric power transformers, precision
stampings, and wire and cable assemblies. The Technologies Group serves the
computer networking, microwave relay, telephone digital switching, data
processing, automotive, medical equipment and other markets.
Specialty Publishing consists of Taylor Publishing Company, a
publisher of specialty publishing products, chiefly student yearbooks.
The Company's executive offices are located at 425 Metro Place
North, Fifth Floor, Dublin, Ohio 43017. The Company's telephone number is
(614) 792-0468.
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
October 1996 to act as its financial advisor to evaluate various strategic
alternatives to maximize stockholder value. 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, 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 on December 16, 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, representatives of Donaldson, Lufkin &
Jenrette Securities Corporation 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 and the feasibility of various 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. 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 a 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, prospects and financial results. 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, 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 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 .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 Merger Agreement and the proposed definitive Voting
Agreement. At the conclusion of the presentation, representatives of Lazard
provided the 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 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 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
Merger Agreement and the Voting Agreement and the transactions contemplated
thereby, including the Mergers, (iii) authorized the execution and delivery
of the Merger Agreement and the Voting Agreement, and (iv) 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 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 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 Lazard
Opinion described below. See "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 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 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;
4. The fact that the Merger Consideration, consisting of $42.98
in cash and 0.03419 of a Surviving Corporation Share has, 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 Merger Agreement, including
the "no solicitation" provisions of the 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 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 in the event 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) in the event 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 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 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 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) held discussions with members of the senior
management of the Company with respect to the businesses and prospects of
the Company; (v) 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; (vi)
reviewed the historical stock prices and trading volumes of the Shares; and
(vii) 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. Its 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. 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. Lazard assumed no responsibility for and expressed no view as to
such forecasts 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 Merger
Agreement. Lazard considered the impact of the contemplated liquidation of
Water Street, which beneficially owned approximately 45% of the outstanding
Shares as of April 3, 1998, and the efforts undertaken by the Company and
its advisors within 18 months prior to the date of the Lazard Opinion 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
"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 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 consist of $42.98 in cash
and 0.03419 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 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
earnings before interest, taxes, depreciation and amortization ("EBITDA")
giving effect to the Mergers (based on projections prepared by management
of the Company). 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 $38.07 to $61.19 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 $24.61 to $69.79.
Using this hypothetical value range, Lazard calculated that a holder of
ExistingSub Shares receiving $42.98 in cash and retaining 0.03419 of a
Surviving Corporation Share for each ExistingSub Share would receive
consideration pursuant to the Mergers having a hypothetical valuation
ranging from approximately $44.00 to $45.00 for each ExistingSub 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 March 20, 1996 and March 20, 1998 the trading range for
the Shares was from a closing low of $31.00 per share to a closing high of
$42.75 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 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 $33.41
to $46.45. 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. 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 $38.74 to $53.08 per share and for the downside case Lazard
calculated a range of present values of $23.53 to $37.31 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
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 and the repayment of existing
indebtedness (excluding potential prepayment penalties), Lazard projected
net cash proceeds to stockholders ranging from $31.21 to $37.43 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, 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 $39.00 to $45.00 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 these 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.
Because such analyses are inherently subject to uncertainty, none of the
Company, Lazard or any other person assumes responsibility if future
results or actual values are materially different from such forecasts or
assumptions.
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
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 international basis. As a result of its evaluation 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.
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 $42.97 in cash and to retain 0.03419 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 $42.98 in cash and (ii) retain 0.03419 of a
Surviving Corporation Share. The Company's existing stockholders will
retain (assuming no stockholders validly perfect appraisal rights), in the
aggregate, approximately 10.2% 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 $44.50 (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 of all of the conditions to the
Mergers unless another date is agreed to in writing by the Company and
MergerSub. The conditions to the Mergers include, among other things, the
receipt of the approvals by the Company's stockholders of this Merger
Agreement and the Mergers, and the receipt by MergerSub of the Merger
Financing. See "Certain Provisions of the Merger Agreement -- Conditions to
the Consummation of the Mergers" and "-- Termination." 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 $44.50 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.
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.
In December 1996, the Company entered into a value appreciation
agreement (the "Value Appreciation Agreement") with certain of its
executive officers. The Value Appreciation Agreement provides that these
executive 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 amount of the payment is dependent on achieving a threshold
price per Share in any such transaction and 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 executive officers
will be $2.6 million.
CERTAIN 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 for general information only
and 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 hereinafter
defined), 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 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 should be treated as a
single integrated transaction for United States Federal income tax
purposes, the treatment of stockholders exchanging Shares in the Mergers is
not clear. This is because it is unclear whether for purposes of Section
351 of the Code the DLJMB Funds should be treated as transferring property
to the Surviving Corporation in the Mergers. If the DLJMB Funds are not so
treated, then stockholders of the Company should recognize capital gain or
loss with respect to each Share exchanged based upon the difference between
(i) the sum of the fair market value of the fraction of a Surviving
Corporation Share and $42.98 and (ii) the stockholder's tax basis in such
Share (such difference, the "Appreciation Amount"). Any such gain
recognized will 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. A
stockholder's tax basis in each Surviving Corporation Share received in the
Mergers would be equal to the fair market value of such Surviving
Corporation Share at the Reorganization Merger Effective Time. The holding
period for the Surviving Corporation Share would begin the day after the
Reorganization Merger.
If, however, the DLJMB Funds are treated as transferring property to
the Surviving Corporation in the Mergers, it is possible that the
stockholders of the Company would be treated as transferring their Shares
to the Surviving Corporation in a transaction governed by Section 351 of
the Code. In such event, stockholders would either (A) recognize gain or
loss with respect to the percentage of each Share exchanged for cash
(equal to the percentage that the cash portion of the Merger Consideration
received by stockholders bears to the total Merger Consideration) equal to
the difference between $42.98, and the same percentage of the stockholder's
tax basis in each such Share, or (B) would recognize gain (but not loss)
with respect to each Share exchanged for Surviving Corporation Shares in an
amount equal to the lesser of (i) the Appreciation Amount and (ii) the
amount of cash received. Any such gain will be subject to tax at reduced
rates, as described above, depending on the stockholder's holding period
for the Shares. Under the approach described in (A), above, a stockholder's
tax basis in each Surviving Corporation Share received in the Mergers would
be equal to the stockholder's aggregate tax basis in the Shares exchanged
for the Surviving Corporation Share. Under the approach described in (B),
above, a stockholder's tax basis in each Surviving Corporation Share
received in the Mergers would be equal to (a) the stockholder's aggregate
tax basis in the Shares exchanged in the Mergers for the Surviving
Corporation Share, increased by (b) the aggregate amount of gain (if any)
recognized with respect to the Shares exchanged in the Mergers for the
Surviving Corporation Share, decreased by (c) the amount of cash received
with respect to the Shares exchanged in the Mergers for the Surviving
Corporation Share. Although not free from doubt, the holding period for a
Surviving Corporation Share should include the holding period of the Shares
exchanged for such Surviving Corporation Share.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities
will not be affected by the transaction.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
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." Further, following the Mergers, the Company intends to establish
a new stock option plan for members of management, although neither the
size of the option plan nor the identity of the individual grantees has yet
been determined.
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 April 3, 1998, Options to purchase approximately 637,613 Shares were
outstanding. The Company estimates that the aggregate amount of the Option
Cash Proceeds will be approximately $9.2 million.
Pursuant to the Merger Agreement, the Surviving Corporation has
agreed to cause the Company, and the Company has agreed, 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 to the fullest extent permitted by law and, subject to
certain limitations, to maintain, for six years after the Effective Time, a
directors' and officers' liability insurance policy on terms that are no
less favorable to the directors and officers than those under the policy
currently in effect. 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 $2.0 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."
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.
WATER STREET REGISTRATION RIGHTS
ExistingSub, MergerSub and Water Street have agreed to enter into a
Registration Rights Agreement granting Water Street and certain of its
affiliates, among other things, certain rights to demand registration of
the Surviving Corporation Shares retained by such Holders in the Merger or
thereafter issued by the Surviving Corporation in respect of such Surviving
Corporation 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, and subject to certain
limitations contained therein, Water Street is entitled to require that the
Surviving Corporation register some or all the Holders' 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 the
Holders an opportunity to register their Registrable Securities on the same
terms and conditions (a "Piggyback Registration").
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 each Holder will pay any
underwriting discounts or commissions that may be payable in connection
with the sale of such Holder's Registrable Securities. In addition, the
Surviving Corporation will indemnify each Holder and the underwriters and
each of their employees and affiliates against certain liabilities,
including liabilities under the Securities Act, or will contribute to
payments the Holders may be required to make in respect thereof. The
Registration Rights Agreement terminates, except with respect to rights to
indemnification, upon the earlier to occur of the sale of all of the
Registrable Securities by the Holders and the mutual consent of the
parties.
The foregoing summary of the Registration Rights Agreement 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 $42.98
aggregate cash component of the Merger Consideration, the Option Cash
Proceeds, and transaction fees and expenses is estimated to be
approximately $205.5 million. Such amount will be funded with (i) the
issuance by MergerSub of up to either (x) $110.0 million of the Discount
Notes or (y) $110.0 million of the Bridge Notes to DLJ Bridge Finance,
Inc., (ii) the issuance by MergerSub to DLJMB and other DLJMB Funds, for
aggregate consideration of $54,999,997.50, of (x) 1,235,955 shares of
common stock of MergerSub and (y) warrants to purchase 111,347 shares of
common stock of MergerSub at an exercise price of not less than $0.01 per
share, and (iii) approximately $40.5 million of new borrowings under the
Credit Facility.
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. It is
anticipated that the Company will be able to receive a waiver of the Event
of Default under the Credit Facility and that the Credit Facility 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 if the banks were to require
repayment of the Credit Facility or any holders of Subordinated Notes were
to require the Company to repurchase their Subordinated Notes as a result
of the Merger.
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 (i) to receive $42.97 in cash and (ii) to
retain 0.03419 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
$42.98 in cash and (ii) retain 0.03419 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 10.2% of the Surviving Corporation
Shares immediately following the Merger (approximately 9.5% on a fully
diluted basis).
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 $44.50 over the exercise price of the 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 -- Interests of Certain Persons in the
Mergers."
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
$42.98 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 in 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 $44.50 (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 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 in 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.
Shares which are held by a stockholder of record 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 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."
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, 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 (i) any acquisition or purchase of 20% or more of the
consolidated assets of the Company and its subsidiaries or 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 20% or more 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 20% or more 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 20% or more 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
Merger (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 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 other 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 withdrawing or
modifying its recommendation with respect to 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 $6,000,000. "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
this 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 $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.
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 $5,000,000, 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.
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 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 April 3, 1998 was 753.
Following the Mergers, the Company believes that it will have 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) of the Securities Act.
BANKRUPTCY CLAIMS
The Surviving Corporation will cause the Company, 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 April 3, 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 $44.50 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 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
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules promulgated thereunder relating to the Mergers 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 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.
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 (x) 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 $290,000,000.
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.
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 Company
Stockholders Meeting or failed as promptly as practicable after
this Proxy Statement/Prospectus is cleared by the Commission to
mail the Proxy Statement/Prospectus 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 has withdrawn or modified or amended, in a manner
adverse to MergerSub, its approval or recommendation of the
Merger Agreements 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 Offer three business days (the "Tender
Day") 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 (as
defined in the Merger Agreement). 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 $44.50
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 thereof 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. See "Summary
- - Voting Agreement."
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.
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.
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. Immediately following the
Effective Time, (assuming no stockholders validly exercise appraisal
rights) there will be [ ] Surviving Corporation Shares issued and
outstanding, of which 1,235,955 Surviving Corporation Shares will be owned
by DLJMB Funds and the balance will be owned by persons who are
stockholders of the Company immediately prior to the Reorganization Merger
Effective Time.
Water Street Registration Rights. Pursuant to the Registration
Rights Agreement, ExistingSub and MergerSub have agreed, among other
things, to grant Water Street the Demand Registration and the Piggyback
Registration rights, upon the terms and subject to the conditions contained
therein. See "Resale of Shares Following the Merger."
Warrants. Each warrant to purchase Surviving Corporation Shares
(collectively, the "Warrants") 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 [ ], 2010. The exercise of the Warrants also will be
subject to applicable federal and state securities laws.
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 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 of 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.
Transfer Agent and Registrar. The transfer agent and registrar
for the Surviving Corporation Shares following the Merger will be National
City Bank.
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 done 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.
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, the 1997 operating results 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 up to $110.0 million of Discount Notes by MergerSub,
and new borrowings under the Company's Credit Facility of
approximately $37.9 million.
. The initial capitalization of MergerSub through the issuance of
1,235,955 shares of common stock and warrants to purchase 111,347
shares of common stock for aggregate consideration of $55.0 million.
. Payment of the Merger Consideration for each Share outstanding
immediately prior to the Mergers (4,120,128 Shares based on the number
of Shares outstanding as of April 3, 1998 and assuming no stockholders
validly perfect appraisal rights) consisting of $42.98 in cash and
0.03419 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 payments pursuant to employment related agreements.
. Payment of a $17.7 million dividend from the Company to ExistingSub to
fund a portion of the Merger Consideration.
The 1997 Transactions consist of the following:
. Divestiture - On March 5, 1997, the Company completed the sale of its
Rolodex Business for net cash proceeds of approximately $112 million.
. 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. Such purchase of Shares 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 December 31, 1997 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, 1997. The nonrecurring transactions directly related to the
aforementioned transactions 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.
<TABLE>
<CAPTION>
INSILCO CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of December 31, 1997
(In thousands)
Operating Company Holdings
----------------------------------- ----------------------------------
Merger Merger Consolidated
Historical Adjustments Pro Forma Adjustments Pro Forma
--------------- ----------- ------------- ----------- ------------
Assets
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 10,651 -- (1) 10,651 -- (1) 10,651
Trade receivables, net 67,209 67,209 67,209
Other receivables 3,477 3,477 3,477
Inventories 60,718 60,718 60,718
Deferred tax asset 277 277 277
Prepaid expenses and other 2,716 2,716 2,716
-------------------------------------------------------------------------------------
Total current assets 145,048 145,048 145,048
-------------------------------------------------------------------------------------
Property, plant and equipment, net 113,971 113,971 113,971
Deferred tax asset 1,054 2,038 (4)(7) 3,092 165 (4)(7) 3,257
Other assets 42,600 600 (2) 43,200 4,550 (2) 47,750
-------------------------------------------------------------------------------------
Total assets $ 302,673 2,638 305,311 4,715 310,026
-------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt $ 1,684 1,684 1,684
Accounts payable 39,757 39,757 39,757
Customer deposits 20,346 20,346 20,346
Accrued expenses and others 43,753 (3,191) (4)(7) 40,562 (220) (4)(7) 40,342
-------------------------------------------------------------------------------------
Total current liabilities 105,540 (3,191) 102,349 (220) 102,129
-------------------------------------------------------------------------------------
Long-term debt 256,059 37,921 (1)(3) 293,980 110,000 (1)(3) 403,980
Other long-term obligations 43,402 43,402 -- 43,402
-------------------------------------------------------------------------------------
Total liabilities 405,001 34,730 439,731 109,780 549,511
Stockholders' deficit (102,328) (16,903) (1)(4) (715) (1)(4)
2,544 (1)(9) (177,083) (1)(5)
55,000 (1)(6)
(17,733) (1)(8) (134,420) 17,733 (1)(8) (239,485)
-------------------------------------------------------------------------------------
Total liabilities and
stockholders' deficit $ 302,673 2,638 305,311 4,715 310,026
=====================================================================================
The Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheets
follow:
(1) The sources and uses of cash required to consummate the Mergers
as of December 31, 1997 follow (amounts in thousands):
Operating
Company Holdings Consolidated
--------- -------- ------------
Sources:
Revolving credit facility $ 37,921 -- 37,921
Option exercise proceeds 2,544 -- 2,544
Discount notes -- 110,000 110,000
Dividend from Operating Company -- 17,733 --
Common stock and warrants purchased -- 55,000 55,000
---------- --------- ---------
$ 40,465 182,733 205,465
========== ========= =========
Uses:
Cash merger consideration $ -- 177,083 177,083
Estimated fees and expenses 22,732 5,650 28,382
Dividend to Holdings 17,733 -- --
---------- --------- ---------
$ 40,465 182,733 205,465
========== ========= =========
(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):
Operating
Company Holdings Consolidated
--------- -------- ------------
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
========== ========= =========
(3) To record the issuance and sale of $110.0 million of
the Discount Notes by MergerSub and $37.9 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):
Operating
Company Holdings Consolidated
--------- -------- ------------
Compensation Expenses:
Buyout of existing options $ 9,232 -- 9,232
Other 2,600 -- 2,600
Backstop and bridge facility commitments 1,750 1,100 2,850
Professional fees 8,200 -- 8,200
Other 350 -- 350
---------- --------- ----------
Total 22,132 1,100 23,232
Less tax benefit (5,229) (385) (5,614)
---------- --------- ----------
Net expenses $ 16,903 715 17,618
========== ========= ==========
(5) To record the cash portion of the Merger Consideration of $42.98
per share for all outstanding Shares (other than Shares with
respect to which appraisal rights are validly perfected) (based
on 4,120,128 shares).
(6) To record the sale of 1,235,955 shares of MergerSub Common Stock
and Warrants to acquire 111,347 shares of MergerSub Common Stock
at an exercise price of not less than $0.01 per share.
(7) To record the tax benefit associated with the fees and expenses.
(8) To record a dividend from the Company to ExistingSub.
(9) To record cash proceeds and corresponding debt reduction from the
assumed exercise of options as of December 31, 1997 which
occurred between January 1, 1998 and April 3, 1998.
</TABLE>
<TABLE>
<CAPTION>
INSILCO CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Income Statements
Year Ended December 31, 1997
(in thousands, except per share data)
Operating Company Holdings
----------------------- ---------------------------
1997 Merger Merger Consolidated
Historical Transactions Subtotal Adjustments Pro Forma Adjustments Pro Forma
------------- --------------- ----------- ------------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 539,030 (10,797)(1) 528,233 528,233 528,233
Cost of goods sold 376,328 (5,483)(1) 370,845 370,845 370,845
Depreciation and 18,571 (194)(1) 18,377 18,377 18,377
amortization
Selling, general and
administrative 90,863 (2,954)(1) 87,909 87,909 87,909
expenses ---------- --------- ---------- --------- ---------- --------- ----------
Operating income 53,268 (2,166)(1) 51,102 -- 51,102 -- 51,102
Interest expense:
Currently payable (19,326) (8,634)(2) (27,960) (2,654)(3) (30,614) (30,614)
Accretion (204) - (204) (204) (12,433)(3) (12,637)
Amortization of (1,032) (245)(2) (1,277) (120)(3) (1,397) (312)(3) (1,709)
debt issuance costs
Interest income 2,877 955 (1)
(3,086)(2) 746 746 746
Gain on sale of Rolodex 95,001 (95,001)(1) -- -- --
Equity in net income of 2,647 -- 2,647 2,647 2,647
Thermalex
Other income, net 795 (1)(1) 794 794 794
---------- --------- ---------- --------- ---------- --------- ----------
Income before 134,026 (108,178) 25,848 (2,774) 23,074 (12,745) 10,329
income taxes and
extraordinary item
Income tax expense (51,654) 37,680 (1)
4,606 (2) (9,368) 1,070(4) (8,298) 4,461(4) (3,837)
---------- --------- ----------- --------- ---------- --------- ----------
Income before 82,372 (65,892) 16,480 (1,704) 14,776 (8,284) 6,492
extraordinary item
Extraordinary item, net (728) 728 (2) -- -- -- -- --
---------- --------- ---------- --------- ---------- --------- ----------
Net income $ 81,644 (65,164) 16,480 (1,704) 14,776 (8,284) 6,492
========== ========== =========== ========= ========== ========= ==========
Earnings per common
share:
Basic $ 11.34 4.15 4.71
Basic shares 7,200 3,967 1,377
Diluted $ 11.12 4.01 4.36
Diluted shares 7,345 4,112 1,488
Other Data:
EBITDA (5) $ 71,839 69,479 69,479 69,479
Capital expenditures $ 23,583 23,590 23,590 23,590
Cash interest $ 19,326 27,960 30,614 30,614
The Notes to the Unaudited Pro Forma Condensed Consolidated Income Statements
follow:
<FN>
(1) To record the effect on sales, costs and expenses assuming that the
divestiture of the Rolodex Business had occurred as of the beginning
of the period presented.
(2) To record the effect on interest expense and the related income tax
effect of (i) the purchase of 2,805,194 shares from Water Street and
51,948 shares from Mr. Smialek 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 period presented.
(3) To record incremental interest expense of: (i) $12.4 million
associated with MergerSub's issuance of up to $110.0 million of
Discount Notes at an assumed 11% interest rate compounded
semi-annually (interest expense would have been approximately
$145,000 higher if the interest rate were 1/8% higher); (ii) $2.7
million associated with the Company's $37.9 million of additional
borrowings under the Credit Facility at an assumed rate of 7%
(interest expense on such additional borrowings would have been
approximately $48,000 higher 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 agreement totaling $0.6 million
over the remaining 5 year term. A summary of pro forma interest
expense follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
Operating
Company Holdings Consolidated
--------- -------- ------------
<S> <C> <C> <C>
Currently payable: --
Bank Credit Agreement $ 13,612 -- 13,612
Subordinated notes 15,375 -- 15,375
Other 1,627 -- 1,627
-------- ------- -----------
Subtotal 30,614 -- 30,614
-------- ------- -----------
Accretion:
Discount debentures -- 12,433 12,433
Other 204
-------- ------- -----------
Subtotal 204 12,433 12,637
Amortization of debt issuance costs 1,397 312 1,709
-------- ------- -----------
Total $ 32,215 12,755 44,960
======== ======= ===========
<FN>
(4) To record the tax benefit of the transactions at the statutory tax
rate of each respective entity.
(5) "EBITDA" represents net income before net interest expense, income
taxes, depreciation and amortization, and other income (expense), net.
EBITDA is not intended to represent and should not be considered more
meaningful than, or as an alternative to, operating income, cash flows
from operating activities or other measures of performance in
accordance with generally accepted accounting principles. EBITDA data
is 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.
</FN>
</TABLE>
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.
EXECUTIVE OFFICERS
Pursuant to the Merger Agreement, the officers of the Company at
the Effective Time will be the officers of the Surviving Corporation. For
additional information regarding the officers of the Company, see
"Directors and Executive Officers of the Company."
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 (5%) of the
outstanding Shares on April 3, 1998:
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ ----------
Water Street Corporate
Recovery 1,863,878(1)(2) 45.2%
Fund I, L.P.
85 Broad Street
New York, NY 10004
Neuberger & Berman, LLC 546,818 13.3%
605 Third Avenue
New York, NY 10158-3698
- ------------------------
(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 of Common Stock 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 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 Messrs. O'Toole and Volpert upon the
exercise of options granted pursuant to the 1993 Director Plan
and are held for the benefit of Water Street.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of April 3, 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 BENEFICIAL OWNED OF CLASS
- ------------------------ ---------------- --------
<S> <C> <C>
James J. Gaffney 8,000 *
Terence M. O'Toole 1,863,878(1) 45.2%
Thomas E. Petry 8,000 *
Robert L. Smialek 315,066(2) 7.2%
Barry S. Volpert 1,863,878(1) 45.2%
Robert F. Heffron (3) 31,564(4) *
Kenneth H. Koch 12,464(5) *
Philip K. Woodlief 12,013(6) *
David A. Kauer 11,800(7) *
All directors and executive 2,245,429(8) 50.9%
officers as a group (9 persons)
- ------------------
* 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 stock options exercisable
within 60 days of April 3, 1998.
(3) Mr. Heffron's employment with the Company terminated effective
February 24, 1998.
(4) Includes 30,664 Shares subject to stock options exercisable
within 60 days of April 3, 1998.
(5) Includes 11,164 Shares subject to stock options exercisable
within 60 days of April 3, 1998.
(6) Includes 11,512 Shares subject to stock options exercisable
within 60 days of April 3, 1998.
(7) Includes 11,000 Shares subject to stock options exercisable
within 60 days of April 3, 1998.
(8) Includes 287,484 Shares subject to stock options exercisable
within 60 days of April 3, 1998.
</TABLE>
REGULATORY CONSIDERATIONS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules and regulations 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 on , 1998. The waiting period
applicable to the Merger was terminated on , 1998.
MERGERSUB AND DLJ MERCHANT BANKING II, INC.
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 in the
aggregate by the DLJMB Funds, which include DLJMB, a Delaware limited
partnership, 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.
("Funding"), a Delaware corporation that is an indirect, wholly-owned
subsidiary of DLJ ("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
DLJ. The general partner of DLJ First and ESC II is DLJ LBO Plans
Management Corporation, a Delaware corporation and a wholly-owned
subsidiary of DLJ. DLJ LBO is also the managing general partner of EAB. The
general partners of UK Partners are DLJ and UK Investment Plan 1997, Inc.,
a wholly-owned subsidiary of DLJ.
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 DLJ, 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.
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, provided that they comply with the
conditions established by Section 262 of the DGCL. 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 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. A
written demand for appraisal of any Shares 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 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 of Chancery, 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 their Shares as determined under Section 262 could be
more than, the same as or less than the consideration to be received if
they do not seek appraisal of their Shares. 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 of stock
entitled to appraisal.
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 such 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, stockholders' rights to appraisal will cease, and all
holders of Shares will be entitled to receive the Merger Consideration.
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 such a
petition to be filed is advised to file it 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 such other matters 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 other matters and with
respect to matters incident to the conduct of the Special Meeting.
EXPERTS
The Consolidated Financial Statements of Insilco Corporation at
December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, and the related financial statement schedule
appearing in this Proxy Statement/Prospectus have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere which is based partially on the
report of other auditors, and are included in reliance upon such reports of
such firm given 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.
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
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 director, officer, employee or agent 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, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him 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 director, officer, employee or agent is proper in
the circumstances 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 (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) if there are not such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (3) 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 he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any,
as the board of directors 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 his 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 him and incurred by him 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 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 he
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 he 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 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,
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 Section 6.02 of the Merger Agreement, the Surviving
Corporation has agreed for a period of six years following the Effective
Time to (a) provide officers' and directors' liability insurance covering
persons covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less
favorable than current policies, with respect to claims arising prior to
the Effective Time, provided that premiums for such insurance not exceed
150% of the amount per annum the Company paid in its last full fiscal year
and (b) indemnify the directors and officers of the Company to the fullest
extent permitted the Company's charter and bylaws and applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
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).
*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) - Credit Agreement, dated as of October 21, 1994, among the
Company, the institutions from time to time parties thereto as
Lenders, the institutions from time to time parties thereto as
Issuing Banks, Citicorp USA, Inc. and Pearl Street L.P., as
Co-Agents, and Citicorp USA, Inc., as Administrative Agent (Form
S-8 Registrations Statement, as amended, Exhibit 4(o), File No.
33-86938).**
*4(d) - First Amendment to Credit Agreement, dated as of November 21,
1994, among the Company, the institutions from time to time
parties thereto as Lenders, the institutions from time to time
parties thereto as Issuing Banks, Citicorp USA, Inc. and Pearl
Street L.P., as Co-Agents, and Citicorp USA, Inc., as
Administrative Agent (Form S-8 Registration Statement, as
amended, Exhibit 4(p), File No. 33-86938).**
*4(e) - Second Amendment to Credit Agreement, dated as of March 8, 1995,
among the Company, the institutions from time to time parties
thereto as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street
L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative
Agent; (Form 10-K for the year ended December 31, 1994, Exhibit
4(f), File No. 0-22098).**
*4(f) - Third Amendment to Credit Agreement, dated as of July 18, 1995,
among the Company, the institutions from time to time parties
thereto as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street
L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative
Agent (Form 10-Q for the quarter ended June 30, 1995, Exhibit
4(g), File No. 0-22098).**
*4(g) - Fourth Amendment to Credit Agreement, dated as of June 21, 1996,
among the Company, the institutions from time to time parties
thereto as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street
L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative
Agent (Form 8-K dated July 10, 1006, File No. 0-22098).
*4(h) - Fifth Amendment to Credit Agreement, dated as of March 3, 1997,
among the Company, the institutions from time to time parties
thereto as Lenders, the institutions from time to time parties
thereto as Issuing Banks, Citicorp USA, Inc. and Pearl Street
L.P., as Co-Agents, and Citicorp USA, Inc., as Administrative
Agent (Form 10-K to the year ended December 31, 1996, Exhibit
4(h), File No. 0-22098)
*4(i) - Amended and Restated Credit Agreement, dated July 3, 1997
(Schedule 13E-4, Exhibit (b)(1), dated July 11, 1997).
*4(j) - 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(k) - Form of New Note (Form S-4 Registration Statement, dated October
15, 1997, as amended, File No. 333-36523).
*4(l) - 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(m) - 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 - Opinion of Lazard Freres & Co. LLC (attached hereto as Annex B).
*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 for 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).
*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, 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).
10(o) - 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).
10(p) - Amendment dated April [ ], 1998 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 (to be filed by amendment).
*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.
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 4(c), 4(d), 4(e), and 4(f).
(b) Financial Statement Schedules.
Report of Independent Auditors on Financial Statement Schedule...... S-1
Schedule II - Valuation and qualifying Accounts..................... S-2
All supporting schedules other than the above have been omitted
because they are not required or the information required to be set forth
therein is included in the consolidated financial statements or in the
rules thereto.
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 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.
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 28TH DAY OF APRIL, 1998.
INSILCO CORPORATION
By:/s/ Kenneth H. Koch
-----------------------
Name: Kenneth H. Koch
Title: Vice President and
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:
SIGNATURE TITLE DATE
- ----------------------- -------------------------------- -------------------
*
- -----------------------
Robert L. Smialek Chairman of the Board, April 28, 1998
President and Chief
Executive Officer
*
- -----------------------
Philip K. Woodlief Vice President and April 28, 1998
Corporate Controller
*
- -----------------------
James J. Gaffney Director April 28, 1998
*
- -----------------------
Terence M. O'Toole Director April 28, 1998
*
- -----------------------
Thomas E. Petry Director April 28, 1998
*
- -----------------------
Barry S. Volpert Director April 28, 1998
*By: /s/ Kenneth H. Koch
- -------------------------
Kenneth H. Koch
Attorney-in-Fact
Annex A
-------
AGREEMENT AND PLAN OF MERGER
dated as of
March 24, 1998
among
INSILCO CORPORATION,
INR HOLDING CO.
and
SILKWORM ACQUISITION CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
Section 1.01 The Reorganization Merger...............................1
Section 1.02 The Merger..............................................3
Section 1.03. Surrender and Payment...................................5
Section 1.04. Dissenting Shares.......................................7
Section 1.05. Stock Options...........................................7
Section 1.06. Fractional Shares.......................................8
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01. Certificate of Incorporation............................8
Section 2.02. Bylaws .................................................8
Section 2.03. Directors and Officers..................................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Corporate Existence and Power...........................9
Section 3.02. Corporate Authorization.................................9
Section 3.03. Governmental Authorization..............................9
Section 3.04. Non-Contravention......................................10
Section 3.05. Capitalization.........................................10
Section 3.06. Subsidiaries...........................................11
Section 3.07. SEC Filings............................................12
Section 3.08. Financial Statements...................................12
Section 3.09. Disclosure Documents...................................13
Section 3.10. Absence of Certain Changes.............................14
Section 3.11. No Undisclosed Material Liabilities....................14
Section 3.12. Litigation.............................................15
Section 3.13. Taxes .................................................15
Section 3.14. ERISA .................................................16
Section 3.15. Labor Matters..........................................19
Section 3.16. Compliance with Laws and Court Orders..................19
Section 3.17. Licenses and Permits...................................19
Section 3.18. Intellectual Property..................................19
Section 3.19 Finders' Fees..........................................20
Section 3.20. Required Votes.........................................20
Section 3.21. Environmental Matters..................................20
Section 3.22. Disclaimer.............................................22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MERGERSUB
Section 4.01. Corporate Existence and Power..........................22
Section 4.02. Corporate Authorization................................22
Section 4.03. Governmental Authorization.............................22
Section 4.04. Non-Contravention......................................23
Section 4.05. Disclosure Documents...................................23
Section 4.06. Finders' Fees..........................................24
Section 4.07. Financing..............................................24
Section 4.08. Capitalization.........................................25
ARTICLE 5
COVENANTS OF THE COMPANY
Section 5.01. Conduct of the Company.................................25
Section 5.02. Stockholder Meeting; Proxy Material....................27
Section 5.03. Access to Information..................................28
Section 5.04. Other Offers...........................................28
Section 5.05. Resignation of Directors...............................31
Section 5.06. Solvency Opinion.......................................31
Section 5.07. Transfers by Affiliates................................31
ARTICLE 6
COVENANTS OF MERGERSUB
Section 6.01. Voting of Shares.......................................32
Section 6.02. Director and Officer Liability.........................32
Section 6.03. Employee Plans and Benefit Arrangements................33
Section 6.04. Financing..............................................34
Section 6.05. NASDAQ Listing.........................................34
ARTICLE 7
COVENANTS OF MERGERSUB AND THE COMPANY
Section 7.01. Reasonable Best Efforts................................36
Section 7.02. Certain Filings........................................36
Section 7.03. Public Announcements...................................37
Section 7.04. Further Assurances.....................................37
Section 7.05. Reserved Shares........................................37
Section 7.06. Notices of Certain Events..............................38
ARTICLE 8
CONDITIONS TO THE MERGER
Section 8.01. Conditions to the Obligations of Each Party............38
Section 8.02. Conditions to the Obligations of MergerSub.............39
Section 8.03. Conditions to the Obligations of the Company and
ExistingSub.......................................40
ARTICLE 9
TERMINATION
Section 9.01. Termination............................................41
Section 9.02. Effect of Termination..................................42
ARTICLE 10
MISCELLANEOUS
Section 10.01. Notices ...............................................43
Section 10.02. Survival of Representations and Warranties.............44
Section 10.03. Amendments; No Waivers.................................44
Section 10.04. Expenses ..............................................44
Section 10.05. Successors and Assigns.................................44
Section 10.06. Governing Law..........................................45
Section 10.07. Counterparts; Effectiveness............................45
Section 10.08. Third Party Beneficiaries..............................45
Section 10.09. Entire Agreement.......................................45
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 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 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.
(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 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 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 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.
(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;
(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.
(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.
(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, (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 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.
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.
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 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;
(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 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 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
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 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.
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;
(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;
(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;
(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.
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.
(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:
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.
Annex B
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OPINION OF LAZARD FRERES & CO. LLC
March 24, 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 "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 $42.98 in cash and (ii) retain 0.03419
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% 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) Held discussions with members of the senior management of the
Company with respect to the businesses and prospects of the
Company;
(v) 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;
(vi) Reviewed the historical stock prices and trading volumes of the
Shares; and
(vii) Considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
that we deemed appropriate.
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. 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. We assume no responsibility for and express no view as to such
forecasts 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 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
past 18 months 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
--------------------------------
Steven J. Golub
Managing Director
Annex C
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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 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.
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
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
Annex D
-------
SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
SS. 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 ss. 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 ss. 251 (other than a merger
effected pursuant to ss. 251(g) of this title), ss. 252, ss. 254, ss. 257,
ss. 258, ss. 263 or ss. 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 ss. 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 ss.ss. 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.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 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
ss. 228 or ss. 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, 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.
(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.
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP Telephone
Two Nationwide Plaza 614-249-2300
Columbus, OH 43216 Telefax: 614-249-2348
The Board of Directors
Insilco Corporation
We consent to the use of our audit report dated January 30, 1998, except as
to Note 21, which is as of March 24, 1998 on the consolidated financial
statements of Insilco Corporation as of December 31, 1997 and 1996 and for
each of the years in the three-year period then ended incorporated herein
by reference.
/S/ KPMG Peat Marwick LLP
Columbus, Ohio
April 27, 1998
Exhibit 23(b)
April 27, 1998
Insilco Corporation
425 Metro Place North
Dublin, OH 43017
We hereby consent to the reference to the opinion of our Firm in the
Proxy Statement. 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 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
Exhibit 24(a)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Robert L. Smialek, David A. Kauer,
Kenneth H. Koch, and Philip K. Woodlief, and each of them as their true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for them and in their names, places, and steads, in any and
all capacities, to sign the Registration Statement/Proxy Statement to be
filed in connection with the sale of approximately 90% of Insilco
Corporation to funds affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation and the reorganization of Insilco Corporation
immediately prior thereto and any and all amendments (including
post-effective amendments) to such Registration Statement/Proxy Statement
under the Securities Act of 1933, as amended and the Exchange Act of 1934,
as amended and to file the same, with all exhibits thereto, and the other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Dated: April 27, 1998
/s/ Robert L. Smialek
- ------------------------------------ /s/ Philip K. Woodlief
Robert L. Smialek ---------------------------------
Philip K. Woodlief
/s/ James J. Gaffney
- -------------------------------------
James J. Gaffney
/s/ Terence M. O'Toole
- -------------------------------------
Terence M. O'Toole
/s/ Thomas E. Petry
- -------------------------------------
Thomas E. Petry
/s/ Barry S. Volpert
- -------------------------------------
Barry S. Volpert
